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What an Anthem-Cigna Marriage Means for the Market

You need a Big Data app just to keep track of who’s buying whom – Anthem buying Cigna, United buying Aetna, or Aetna buying Humana. Many speculate that independent Blues will soon follow, whether it’s consolidating under Anthem or HCSC or some other umbrella. One thing is clear: the landscape for national health plans is changing very rapidly.

This consolidation has huge implications for health systems, physician groups, specialty providers, and post-acute providers across the country. Let’s briefly examine a few of the possibilities, and start to think through the implications for payor/provider contract negotiations, new and innovative risk models, and payment rates for those health plans not involved in the consolidation.

Scenario No. 1: Anthem Buys Cigna 

This transaction brings with it some really interesting dynamics. First, Anthem will be operating in all 50 states rather than the 14 where the company currently operates. Second, Anthem is one of the least trusted health plans by providers, and Cigna has been tops (or near tops) for several years. Third, Cigna’s presence in the large group national employer market and its HealthSpring platform introduce significant new capabilities to Anthem’s portfolio.

The other significant implication centers on rates. Cigna is usually a second- or third-tier payor for providers, with less market share and higher payment rates than the market leader. Will Anthem let Cigna access its lower rates in states where there is a delta between the two, thereby eliminating some of the inter-payor cost shift that providers rely on to keep the system in balance? Or will Anthem seek to renegotiate Cigna’s provider contracts over time to a new, lower level that is closer to Anthem’s rates with providers?

No matter what happens with these dynamics, the acquisition of Cigna will eliminate a large national health plan pursuing some interesting ACO and risk strategies. It will eliminate a plan regarded as a trusted partner for providers. And it will severely impair competition in the 14 states where both Cigna and Anthem do business today.

What are the holdups for this deal moving forward? Other than the tug of war over the CEO job at the combined entity, Cigna has expressed other concerns, captured in this Modern Healthcare article.

“One of Cigna’s largest concerns involved regulatory approval and antitrust lawsuits against Anthem’s parent group, the Blue Cross Blue Shield Association. Anthem would have to receive approval from the BCBSA because the association limits how much of a licensee’s business can be branded outside of the Blues and how the company can compete with other independent Blues plans. Lawsuits against the BCBSA allege the plans collude to create monopolies in different healthcare markets.” (see this article for a quick primer on this advancing litigation).

The Wall Street Journal has been exploring the implications of an Anthem/Cigna combination, too. In that article, Steve Wojcik, vice president of public policy for the National Business Group on Health, was quoted as saying, “If there are fewer players, there are fewer options to look at. That could result in employers getting bids from insurers that feature higher prices and fewer bells and whistles.”

Long term though, analysts and experts expect customers to realize some of the savings insurers might gain from increasing market share or improving efficiency. Hospitals and medical providers have been rapidly consolidating in recent years – sometimes leading to higher prices – and employers may benefit from a similar wave in the insurance industry if the heftier health plans can tamp down those prices.

“When you’re negotiating against another entity, size helps,” said Paul Fronstin, director of the health research program at the Employee Benefits Research Institute. “It may be that insurance companies need to get bigger, or there needs to be fewer of them, in order to negotiate bigger discounts from providers.”

Does this sound promising for your health system?

Leading health systems and provider organizations must approach their strategies differently, and engage their boards, physician leadership, and local employers in a very different way. It all starts with C-suite buy-in and a clear, disciplined strategic approach.

If you’re faced with a difficult negotiation, or potential disruption to specific health plan relationships, ReviveHealth can help you with the strategic communications necessary to pull it off. These issues are tougher than ever, and you don’t want to leave anything to chance.

 

June 24, 2015
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