Do insurer merger cancellations presage healthcare breakups?

Depending on one’s point of view, the insurer mergers, on the books since 2015 but disputed by the US Justice Dept. (and some bickering among the merger partners themselves), were the result of health-system consolidation, spurred to some degree by the consolidation of pharma and device companies themselves over the past five years, as well as an older wave of consolidation among drug wholesalers and pharmacy chains. Now, with Cigna choosing to walk away from the tie-up with Anthem following an unfavorable federal court ruling, and Aetna-Humana done in by a similar antitrust ruling, there could be a drive toward reshuffling of healthcare product and service providers. Wall Street Journal editorialists, blaming the consolidation effort among insurers and “sometimes oligopolistic hospital supersystems” on Obamacare, opined that repeal of the Affordable Care Act will lead to more competition and innovation in healthcare. But that repeal effort has an uncertain future; and the famed “bending of the cost curve” in healthcare costs that followed Obamacare’s implementation has consistently been downplayed among Obamacare critics.

In any case, the Walgreens-Rite Aid merger is still up in the air, and there has been something of a lull in pharma mergers for the past several months, apart from the recent J&J-Actelion $30-billion merger announcement.

The proposed Aetna-Humana $34-billion merger hit a wall with an unfavorable court ruling in December. Humana expects to receive a $1-billion settlement from Aetna as a result. The Anthem-Cigna $48-billion proposed combination had been highly contentious between the two firms even before the recent federal-court rejection; according to press reports, Anthem could still try to see the merger through, even as Cigna seeks a $1.85-billion breakup fee, on top of a $13-billion damages lawsuit against Anthem.

Employers are looking closely at specialty drug cost control. credit: Willis Towers Watson

These merger bids—especially the Aetna-Humana effort—were premised in part on securing more of the Medicare Advantage market, a type of private insurance layered on federally funded Medicare. However, all these companies also manage extensive employer health plans (still the larger part of the health insurance market). The new edition of the Willis Towers Watson healthcare employers survey, released in early January, shows that employers are aggressively seeking better control of healthcare costs, and paying close attention to specialty drugs and specialty pharmacy. To “examine and leverage cost-effective options to manage overall pharmacy spend and specifically specialty drug costs” was the dominant “high priority” among employers surveyed. Restricting specialty drug coverage and implementing “coverage changes to influence site of care for specialty pharmacy” are among the priorities cited to address this issue (see graph).

For pharma manufacturers, the evolving payer environment points to even higher emphasis on demonstrating value in drug utilization, and a possible expansion of value- or performance contracting on drug pricing.