"We can't be competitors for a lot of this work to move," says Kothari, adding: "If you want to make change, you have to have a seat at the table."
An educator, community organizer, and startup innovator, Shruti Kothari never thought she’d work for a health plan. Today, she can’t say enough about her current employer, Blue Shield of California, and its unique transformation model. As director of Industry Initiatives, Kothari advocates for “co-opetition,” an increasingly collaborative and outward-looking approach by traditional competitors such as health plans
“We could all do more if everyone operated the way we do, with a focus on co-opetition.”
A look inside the Blue Shield model
Kothari states that Blue Shield’s Industry Initiatives is unique, from its funding to its operations. Created by president and CEO Paul Markovich and sponsored by EVP of Transformation Peter Long (HLM story), Industry Initiatives sits in Blue Shield’s Government Affairs division and partners across operational business units to navigate policy if/thens.
Blue Shield allocates separate funding and resources for Industry Initiatives. The team’s focus is improving access, quality, and equity in the healthcare system by advancing key issues including data sharing and payment innovation.
“The design of this is important because bandwidth is often limited, both in dollars and people” says Kothari. “It’s a big deal that the idea started with the CEO and had the support of other senior leaders. Our leadership team has continued to prioritize fostering industry collaboration.”
“Innovation teams are now standard at health plans; that’s not new. But if the ecosystem isn’t formed in a way that helps scale products, services, and technology, it won’t work.”
That ecosystem, as defined by Blue Shield, must include co-opetition and treat healthcare “as one word and two.”
“Healthcare is so fragmented and there are misaligned incentives. My team is really unique in that it's very specifically focused on this problem,” says Kothari. “We’re not competitors when it comes to modernizing healthcare so that patients, families, providers — everybody — can benefit.”
She adds: “More health plans should be leaning into creating a team like this.”
Proof points in payment innovation, data sharing
Kothari notes that Industry Initiatives “has had really good success backed by data on policy barriers and industry misalignment.” Blue Shield president and CEO presented examples at this month’s J.P. Morgan Healthcare Conference. Kothari and Blue Shield representatives provided additional detail, including:
Payment innovation: The Advanced Primary Care Memorandum of Understanding (MOU). The goal is to build a sustainable future for primary care through multi-payer alignment and increased investment aiming to address decades of inadequate resourcing and perverse incentives for primary care in the U.S. healthcare system.
Six health plans signed a MOU making public commitments to achieve this goal and support small and independent practices with transformation resources. Up to 30 practices will participate in a pilot program. Participating health plans will use a common set of incentives, investments, and resources to facilitate delivery of advanced primary care that is high-quality, equitable, and comprehensive.
Data sharing: Statewide data exchange. The goal is to support modernizing California’s health data sharing infrastructure by supporting implementation of a robust statewide data exchange that enables the timely sharing and utilization of health and social data.
To achieve these goals, Blue Shield “takes risk at a different level for progression” says Kothari.
“We are committed to shaking up the status quo in healthcare. Being first to market with a payment model intended to invest in primary care is one example of that. We believe it's a risk worth taking, and that it will produce better quality and lower cost care.”
“But being first to market with any model as fundamentally different as ours is not guaranteed to be successful,” she adds.
“You can be at the intersection of a lot of things and still be a leader”
Kothari knows healthcare transformation. An educator and community mobilizer, she has been recognized by Business Insiders 30 under 40 and is founder of Women of Community, an organization committed to placing more Women of Color in healthcare leadership. Kothari is co-founder of the start-up Crown Society and has worked in venture capital.
In all these circles, Kothari knows what it feels like when you don’t look like anyone else. In addition, both of her grandmothers and her mother were in arranged marriages. The intersectionality of race, gender, class, and other areas is important to her.
“I know the feeling of being the marginalized person at the intersection of a lot of different things,” says Kothari. Growing up in rural America in Wisconsin as a daughter of immigrants, having seen the women in my family and what a privilege it is to have the freedom to go to school, go get a career, reach a different city, and try a new job.”
But there are still too few examples. Kothari cites a McKinsey report noting that 28% of the healthcare C-suite are white women, while only 4% are women of color (2022 data).
“Women of color don’t even put themselves up for leadership roles because they don’t see themselves in other leaders, because of intersectionality, because of all of the other responsibilities they are managing — including at home — and because of imposter syndrome.”
She has seen the same in the venture world.
“That’s where I started to see the dynamics of who gets funded and who doesn’t. Do you look like me? Have you had the same experiences as me? Then I trust you and I'm going to give you money to fund your company. The people who are getting left out are the people like me —people of color, women of color, even just women in general.”
But things are changing.
“There's been a movement to increase funding with us, which has been amazing,” says Kothari. “If you want to make change, you have to have a seat at the table.”
Despite a startup’s unique ability to launch not only its product but its business model from the ground up, many spend years learning the same lesson: all roads lead to payers. At the end of the day, digital therapeutics (DTx) innovation is reliant on healthcare’s most entrenched framework: reimbursement.
These issues were explored in a webinar from the Digital Therapeutics Alliance (DTA) and ClearView Healthcare Partners. The webinar featured Freespira, which has developed an FDA-cleared digital therapeutic for post-traumatic stress disorder (PTSD), panic disorder, and panic attack. The webinar followed DTA’s full case study white paper and its members-only DTx Commercialization Product Launch Playbook.
Here are four insights from that webinar and case study.
Follow the dollar, find the end customer
Startups use product journey maps to maximize market access and reimbursement pathways. The end user and end customer may differ but, in the end, the customer is who pays. Companies must also ensure that their pricing models align with that customer.
Like many DTx companies, Freespira’s initial go-to-market strategies can be summarized as EBP: Everybody But Payer. All approaches for its panic attack DTx failed, per President Simon Thomas and for different reasons, before the company landed on health plans:
Self-pay patients: Failed approach because patients often present with physical symptoms to their primary care physician.
Providers: Failed due to lack of economic alignment and inability to scale.
Self-insured employers: Failed, at least initially, because the Freespira pricing model and employer payment model (per-member-per-month, or PMPM) didn’t align. Employers’ desire to administer the DTx through their third-party administrator (TPA).
Thomas noted that the TPA model remains a challenge.
Two paths to payer market access
Even when Freespira realized it needed to target health plans and their focus on payment ROI, the company took two payer paths: partner directly with the health plan or indirectly through providers.
The provider approach delivers medical education to a health plan’s network. The health plan approach uses claims data to identify and make direct outreach to patients, including treatment subgroups. This includes working with multiple health plan teams. “We had the insight of working with case managers and payer sales channels.
There is also the “start and span” approach — going to market with one payer type before expanding to others. Freespira started with Medicaid, per Vice President of Marketing Sarah Koenig, moving to Medicare, then commercial. Koenig adds that each has unique commercialization considerations (e.g., Medicare’s marketing guidelines).
While president Thomas notes that payers are growing savvy beyond ROI, hurdles remain.
“Right now, the regulatory environment is pretty challenging. Health plans [are] not super savvy about regulatory pathways for DTx,” noted the Freespira exec.
Patients are still pivotal
“Given digital tools’ emerging role as a therapeutic approach, the point at which a digital therapeutic should be introduced to the patient often varies depending on the therapeutic area being pursued, and perspectives may differ across stakeholders.” This from the DTA-ClearView Healthcare Partners case study white paper, which adds that “a successful launch approach should account for adoption at multiple points in the patient journey, while zeroing in on the point at which patients are most likely to benefit from a new, innovative intervention.”
Freespira’s Koenig noted that while claims help identify target populations by diagnosis, starting with symptoms may be a better way to start discussions with patients.
“It’s about receptivity. It’s better to talk to them about their sleep, anger, avoidance, or unhealthy coping versus ‘Hey, let’s talk about your PTSD.’”
The white paper adds that the mental health patient journey “is often nonlinear — PTSD patients may experience symptom onset immediately after an incident or years later, while also delaying seeking treatment due to avoidance and feelings of shame.”
How the DTx playbook differs from pharma — but not the rest of the industry
There are multiple conversion points on the DTx journey from product-market fit to patient uptake, provider acceptance, and payer reimbursement. DTA’s commercialization playbook includes eight functional areas to help “standardize commercialization considerations for product launch and scale”: Marketing, Field Force & Commercial Ops, Medical Affairs, Patient Advocacy, Market Access, PR & Government Affairs, Distribution & Patient Services, and Compliance.
“By utilizing these tactics, companies will continue to increase disease awareness while driving acceptance of digital therapeutics and the underlying mechanisms by which these products work to treat disease. This will allow physicians to clearly understand how DTx can complement and enhance existing treatment approaches rather than further complicate them.”
Freespira’s Koenig recommends that DTx developers:
focus on 1-2 things the product can deliver;
apply short- and long-term marketing approaches;
hire sales and marketing teams that know how to work with payers; and
deploy marketing analytics at every commercialization stage.
The white paper adds: “By utilizing these tactics, companies will continue to increase disease awareness while driving acceptance of digital therapeutics and the underlying mechanisms by which these products work to treat disease. This will allow physicians to clearly understand how DTx can complement and enhance existing treatment approaches rather than further complicate them.”
Koenig added that Freespira “didn’t go with the traditional pharma playbook — education on patient condition awareness — and called focusing on “who’s writing the check an evolved commercialization approach.” That might be the case for DTx but it’s hardly true for healthcare in general. Even then, success isn’t guaranteed. Pear Therapeutics had an FDA-cleared app for substance and opioid use disorders and insomnia and Medicaid contracts with multiple states.
It still went bankrupt, blaming payers on its way to auction.
How the partnership can help drive benefits and services toward need and what it means for healthcare.
Driving better outcomes just took on new meaning.
At this week’s JPMorgan conference, Uber Health and Socially Determined announced an “analytics-first” partnership that pinpoints people in need and uses Uber’s fleet to deliver supplemental benefits such as medical rides, home pharmacy, and food.
“Historically, the onus has been on patients to navigate their own benefits—from figuring out what they’re eligible for, to tracking down those services, to securing reimbursement. We’re turning that model on its head,” said Caitlin Donovan, Global Head of Uber Health.
Donovan’s remarks are from a joint press release with Socially Determined. Its co-founder and CEO Trenor Williams adds: “Uber Health’s knowledge, approach and ubiquitous network provides the perfect partner for our analytics and allows our customers to drive measurable, improved outcomes and member experience.”
Socially Determined is a social risk analytics and solutions company that integrates medical care and social drivers of health (SDOH). Uber Health is a HIPAA-compliant, population health logistics platform that serves more than 3,000 customers. Both companies count payers and providers as customers.
How it works
Uber’s “ubiquitous network” is its drivers, who already deliver people and meals by the millions to their daily destinations. Those same drivers can now help people who lack reliable transportation to not only doctor’s visits but also the grocery and pharmacy.
The Uber Health-Socially Determined partnership can help payers and providers:
identify high-need individuals
connect eligible members with available benefits
increase member and patient engagement, access, and outcomes
reduce healthcare costs
uncover unmet needs in communities across the country
These facets connect the coordination of need, eligibility, and benefits to healthcare’s Triple Aim (better outcomes and patient experience for less cost) and across all lines of business (Medicaid, Medicare Advantage, and commercial).
HealthLeaders reached out to Socially Determined for additional insight, with Williams responding: “For years, our payer and provider customers have utilized our social risk analytics to better understand and address the challenges their members and patients faced every day. And now we’ve developed purpose-built analytic models designed explicitly for Uber Health’s key benefits that immediately help identify those individuals with the greatest need for each benefit.”
One partnership, five trends — and what it means
The Uber Health-Socially Determined collaboration reflects:
the growth of supplemental benefits and members’ ability to use them
the rise of automated benefits validation
the delivery of more care to patients’ doorsteps
the expansion of existing business models to deliver innovative care
the integration of SDOH needs with legacy healthcare
Uber Health’s Donovan adds that the partnership “enables healthcare organizations to take a more strategic, proactive, and impactful approach to patient care, driving better outcomes at scale.”
The partnership also marks the next step in healthcare’s growing use of alternative data — any data external to what a company (e.g., payer, provider) collects on its own and which offers broader source, scope, and value. Socially Determined’s resources include but are not limited to: federal and state data; granular business data ranging from restaurants to retail; and financial information that spans credit ratings, buying behaviors, asset/resource information including home, car, and property ownership.
The growth trajectory
HealthLeaders first covered Socially Determined in 2021, when the company partnered with CareFirst BlueCross BlueShield to improve health equity by providing alternative data for the health plan’s SDOH-driven interventions. At that time, CareFirst had made a $10.5-million, multi-year commitment to address the root causes of diabetes using SDOH and other alternative data sources. A year later in 2022, CareFirst expanded the partnership to launch an “enterprise-wide social risk intelligence strategy.”
“We have made tremendous progress over the past two to three years,” says Williams. “We have great partnerships with Blues Plans, national and regional MCOs, IDNs, and others.”
That partnership now includes Uber Health to deliver disruptive healthcare innovation in its most basic form — a ride and a bag of groceries.
Chavarria is the company's first female chief executive but being ahead of the curve is just how she operates.
HealthLeaders caught up with Sarah Chavarria on her first day as CEO of Delta Dental. This is what she had to say.
"As I step into my role as CEO of Delta Dental, I'm energized about the bright future ahead. We are a purpose-driven organization focused on bringing together oral health with total well-being. The next several years are going to bring opportunities that will enable us to deliver on our purpose to provide access to quality care for our 45 million members. Together, we will ensure our customers, providers and employees remain at the forefront of our business to improve health outcomes."
When Chavarria says together, she means it. As a former chief people officer—her first role at Delta Dental six years ago—she has facilitated collaboration and built organizational designs as a part of the company's transformation: "I can stand in a room and bring all the right conversations to bear to shape the right vision, the right roadmap, and my connection to employees."
"One of the most critical things for leadership is the ability to listen, to discern, and then to lay out a vision. To learn each of my functions as CEO and really do that deep dive, I didn't want to bring any biases or assumptions that I couldn't validate. I have already moved some things around because I learned that some of our capabilities probably sit better together."
Chavarria began learning those functions three months ago, while Mike Castro was still CEO of Delta Dental. He will continue as chairman of the Board.
"I gave myself that First 100 Days early in the process, while Mike was still here. It's a really important thing that I would recommend no leader ever shortcut," says Chavarria.
"Anytime you have a new CEO, there's this period of bracing for incredible change. Our board and senior leadership team really saw an opportunity to do this as a transition—to deliver on the strategic priorities that Mike has laid an incredible foundation for and to minimize disruption as much as possible."
Chavarria's top three priorities as CEO
Priority 1: Provider partnerships. "First and foremost, I'm really excited that we have made the commitment to partner with our providers—to support them in the incredible work that they do and work with them in new ways. That doesn't always happen between the payer and the provider community, but the providers are the individuals who deliver quality care for patients. What does quality look like? How do we create more access? That's all really critical."
Priority 2: Employee engagement. "I'd be remiss if I didn't talk about all of the work we've done to engage our employees, to rally them around a sense of purpose to deliver access to quality care. That's the business that we're in as much as healthcare."
Priority 3: Patient focus. "We have really put the patient at the center of how we think about our products, how we spend our time, how we think about where we prioritize our technology investments."
Again, Chavarria looks forward and back.
"We had an incredible leader in Mike, who did a fantastic job of strengthening the foundation . . . I am beyond excited to have those pieces connected. Now, I get to help the organization think about those things in a slightly different way," she adds. "To bring some new conversations to the table that we haven't had."
One of those conversations is patient engagement and in a significant but untapped area.
Taking menopause from a whisper to a shout
A couple of years ago, Chavarria notes, Delta Dental was thinking about its strategic priorities and identified caring for aging Americans as one way to put the patient at the center.
But there was more.
"We also conducted a study on menopause and oral health and said, 'Hey, there's some interesting information here.'" That study included startling statistics:
84% of women are not aware that menopause can impact oral health
Few have discussed their menopause concerns with their dentist (2%) or dental hygienist (1%)
77% plan to visit their dentist after learning of the link
(Learn more by reading the study and HealthLeaders' feature on it.)
Chavarria is open about her own experience with menopause and wants people to feel more comfortable talking about it and the related oral health symptoms (e.g., cavities, gum disease). Chavarria and her team have identified multiple opportunities to help deliver better health outcomes:
Support women, providers, and the groups that convene them
Use dental visits to first identify menopause symptoms
Promote integrated care between dentists and primary care providers
Create innovative products
Build engagement between women and all of their healthcare providers
For Chavarria, opportunities in menopause and oral health link can lead to broader healthcare transformation.
Transformation based on nuance and partnership
The ways healthcare puts patients at the center has changed, notes Chavarria.
"The transformation of healthcare at large is in its 20th-plus year. With the Affordable Care Act, we started shifting toward a patient focus and electronic health records to help manage information."
"It takes a long time," she adds. "But now we're nuancing that conversation to better define who the patient is and where are they in life."
Partnership will be key.
"We're now at this beautiful place as a payer, sitting on the other side of healthcare and creating the plans that help patients navigate and get access to the care they need. It's such a great time to partner with other healthcare leaders."
"That's our future," she asserts. "That's our next five years."
Linking the final federal guidelines to deals closed, abandoned, and still in play.
Would the final 2023 merger guidelines from the U.S. Department of Justice and the Federal Trade Commission have affected this year’s biggest deals? Here’s a look at the key guideline takeaways and the deals in question. They include one that’s still on the table following a state justice request to the DOJ.
One rule to rule them all.
The new guidelines combine and apply rules for all merger types into a single document. In addition to horizontal mergers, the final DOJ and FTC rules apply to vertical mergers (different provider types) and cross-market mergers (different geographies)
Tougher market share and market concentration limits for horizontal mergers.
The new guidelines change the market share and market concentration levels that would make a horizontal merger “presumptively unlawful”: a combined 30% market share or a market concentration of over 1,800 as calculated by the Herfindahl-Hirschman Index (HHI). Horizontal mergers consolidate the number of entities that offer similar services.
The HHI:
Reflects how evenly market share is distributed
Ranges from 0-10,000
Helps identify markets that are moderately concentrated (HHI of 1,500-2,500) or highly concentrated (more than 2,500)
With a new market concentration of 1,800 making a merger presumptively unlawful, the DOJ and FTC have signaled that middle-moderate deals may be at higher risk for review and blockage. For vertical mergers, the guidelines soften but essentially maintain the presumption that a 50% market share suggests a monopoly.
Market share and concentration aside, companies must report any deal valued at more than $101 million to the DOJ and FTC.
Cigna and Humana: Had the deal proceeded and with Cigna retaining its Medicare Advantage business, the companies combined MA market share would have been 20% (18% Humana, 2% Cigna). But the dollar value of the deal alone would have initiated government review — in addition to its consolidation of two of the largest Pharmacy Benefit Managers in the U.S., a space the FTC is also reviewing.
Claiming efficiency won’t cut it
The final merger guidelines reject cost savings and efficiencies as a general defense against mergers deemed illegal and anti-competitive. The DOJ and FTC permit a “narrow path” for this defense, including evidence that:
The merger will produce unique benefits not achievable any other way
These benefits can be proven
Said benefits do not decrease market competition
The government has been skeptical of merger savings and efficiency claims (Crowell). Alternatively and on the provider side, consolidation can raise prices without improving quality (KFF).
Prove your case — economically, competitively, comprehensively
Where the draft guidelines had relegated economic and evidentiary analysis the appendix, the final version elevates them to the main body and in front of market definitions. Companies are already used to more rigorous evidentiary standards when working with the FTC and DOJ, including potential merger harms. The final guidelines add labor market impacts to those harms.
UnitedHealth Group and Change Healthcare: UnitedHealth Group proved its case in one of the bigger recent M&A surprises. In March 2023, the DOJ dropped its appeal of a federal district court ruling that permitted United to acquire Change Healthcare in a $13 billion deal. That ruling required Change to sell its claims editing business, which was a part of the government’s anti-competitive claims.
The role of the states.
While the final guidelines do not address State roles in M&A review, they do come into play. States challenge mergers using federal antitrust law and/or their own statutes. The National Academy for State Health Policy (NASHP) has proposed model legislation that would require state review of mergers below the FTC/DOJ threshold of $101 million.
Elevance Health and BlueCross BlueShield of Louisiana: The deal that was off is now back on. In September, Elevance’s acquisition was delayed by state concerns including those of the Louisiana Department of Justice (LADOJ). At LADOJ’s request, the federal DOJ encouraged the Louisiana Department of Insurance to “carefully consider the competitive impacts” of the Elevance-BCBS-LA merger. Several factors — the state Blues’ plan conversion to a for-profit company and changes to a new joint nonprofit foundation, including profit distribution and board governance — appear to be shifting the tide for a deal that could close in early 2024.
The immediate outcome is only part of the picture as short-term versus long-term and growth versus transformation mark a shifting Medicare Advantage landscape.
The move could make HCSC the next Elevance and Elevance the hands-down dominant player among BlueCross BlueShield companies.
Here are seven things to know.
HCSC and Elevance competing in $3B bid.
Bloomberg notes that Cigna’s MA business could fetch more than $3 billion, with final bids due this week from the reported suitors.
How bad does Cigna want a deal?
The company is more likely to secure a richer asking price now that there are multiple bidders. If it can’t, Reuters reports that the insurer might be willing to delay a sale. We already know that Cigna is willing to walk away from a deal in a big way — i.e., its failed Humana acquisition, if you’ve been living under a rock.
How bad does Cigna want a deal now?
What might sweeten the pot if Cigna can’t quite get its asking price? Freedom and stronger finances overall. If Cigna sells, it will presumably avoid five years of HHS compliance oversight as part of its $172 settlement of MA reimbursement fraud charges. In addition, Cigna’s MA unit will reportedly lose money in 2024. A sale now could curtail losses in two areas and provide added funds for the “bolt-on acquisitions” that Cigna is still considering.
Price, alignment, desire: Then and now
Price: Cigna will want to fetch more than $3 billion for its MA portfolio, given that it paid $3.8B a decade ago to acquire it from HealthSpring. In 2011, that price tag equated to $10K per MA member and $500 per member for PDP. Since then, Cigna’s MA enrollment has grown from 340,000 to 600,000 and its PDP enrollment from 800,000 to 2.5 million.
Desire: Analysts were surprised in 2011 when Cigna hearted HealthSpring, with Forbes reporting: “Cigna hasn’t expressed a lot of interest recently in becoming bigger in government business, with their near universal focus on growing internationally.”
What a difference a decade makes.
Fast forward to a Goldman Sachs analysis from 2022: “Cigna said that it considered government business a significant growth driver, with a targeted annual growth rate of 10% to 15% . . . and that it had identified government business as an area where it could grow via M&A” (SeekingAlpha).
What a difference a year makes.
Alignment: Given that Cigna would be offloading its MA business, it doesn’t have to worry about the “limited cost and revenue synergies” that might have played in role with Humana. HCSC and Elevance won’t need this synergy either unless unique Cigna MA customer expectations significantly impact cost and revenue. What the two Blues plans will need is the ability to retain the customers they acquire and synergy with their existing business models.
Who is the likely buyer?
Based on buying power alone, Elevance is more likely to prevail. Its 2022 revenue was nearly triple that of HCSC ($156B versus $54B, respectively). If Elevance was Cigna’s second MA suiter, it likely made a more attractive bid in either pure dollars or other details. Being a publicly traded company, Elevance can make a cash-and-stock offer whereas HCSC would be limited to a cash-only deal.
Who is the ideal buyer?
Current and long-term factors affect how Elevance or HCSC would steward Cigna’s 600,000 MA lives:
Membership: HCSC’s current MA enrollment is roughly 1 million — 5.3% of its total 18.6 million enrollment. Elevance’s MA enrollment is larger and a bigger percentage of its total enrollment: 2.9 million of 47.3 million lives, or 6.3%. (In contrast, Cigna’s MA enrollment represents 3.3% of its 18 million lives.)
Footprint: Elevance has a much larger MA footprint, operating in 22 states compared to HCSC’s five (IL, TX, NM, OK and MT). Both plans overlap with current Cigna MA markets while operating in a few states that Cigna doesn’t.
Networks: Elevance’s footprint reflects an existing national infrastructure and provider network, which HCSC lacks.
Elevance has the size and scale to absorb 600,000 new MA members. That growth would increase its MA market share among BlueCross BlueShield plans from 67% to 81% (if other BCBS growth remains relatively flat). That’s significant but not transformational in the short term.
Conversely, HCSC’s acquisition would be transformational immediately, shifting it from a company that prides itself on its local approach to one that would become a national player overnight and would begin to resemble Elevance in the Medicare Advantage space.
7. All that glitters is not gold?
In the long term, a larger MA footprint could increase the buying power of both companies, particularly of other BCBS plans. Elevance is already demonstrating this with a $2.5B acquisition of BlueCross BlueShield of Louisiana that is now back on. The last time HCSC acquired a Blues company was in Montana in 2013.
There is also the longer long-term. Earlier this month, The Wall Street Journalnoted that the “Medicare Gold Rush” was slowing down, citing the now-dead Cigna-Humana deal and slower projected growth from UnitedHealth Group.
Cigna couldn’t take advantage of the Gold Rush. It remains to be seen if Elevance or HCSC can and what role a Cigna MA acquisition would play.
Year-to-date, Cigna share prices are down 10.3% (as of Dec. 10, 4:00 pm ET). But its investors netted big short-term gains after news broke that deal talks were off between Cigna and Humana.
Jackpot. On Monday, Cigna Group shareholders banked a 16% increase, the company’s biggest gain in 14 years (MarketWatch). Year-to-date, Cigna share prices are down 10.3% (as of Dec. 10, 4:00 pm ET). But its investors netted big short-term gains after news broke that deal talks were off between Cigna and Humana. More on that here.
Who’s reaping the gains?
Institutional investors make up nearly 89% of Cigna's ownership, not uncommon for managed healthcare companies (CNN Business). Among Cigna's largest investors are the world's two largest investment firms — Vanguard Group, Inc. and BlackRock. Vanguard holds nearly twice as many shares as BlackRock (8.01% versus 4.5%) and a handful of other institutional investors in the 4% club.
That club also includes Dodge & Cox and Massachusetts Financial Services (now known as MFS Investment Management), which have increased their shares by 11.67% and 3.01%, respectively (time frame unknown). Other top purchasers include Fidelity Management & Research (3.87% stake, +15.56% gained) and JPMorgan Investment Management (1.3% stake, +5.7% gained)
The rest of the top 10 is here, including Cigna’s biggest institutional buyers and sellers.
Is the deal off long-term, or simply just in "light of the current environment"?
It's not you, Humana; it's us—or rather, our shareholders.
One month after The Wall Street Journal reported that Cigna and Humana were in merger talks, it now reports that the deal is dead. This comes "after shareholders balked" and that the companies couldn't agree on what would have been a Cigna cash-and-stock acquisition of Humana "with a large stock component," the WSJ said.
It's a curious outcome given that "the current management [of Cigna] has wanted to own HUM for some time,” Yahoo! Finance said.
But what management might still want later and what shareholders want now appear to be two very different things.
In less than 3 days, 2 very different announcements
On a filing on Thursday, December 7, Humana voted to remove a board executive committee requirement from its bylaws and then disbanded the committee, according to a report by Bloomberg. Less than three days later — on Sunday, December 10, and before Monday's market open — Cigna announced a $10 billion stock buyback authorization.
Bloomberg reports that the change was "part of a regular governance review, with Humana spokesperson Mark Taylor stating via email: “The utility of the Executive Committee has diminished greatly over the years” with new ways of doing business like virtual meetings, said in an email.
Executive committees and virtual meetings are mutually exclusive?
On the news, Cigna shares jumped nearly 16% while Humana's declined 2.6%, according to Investopedia. This mirrors stock price fluctuations the day after the rumored deal broke on November 29 (an initial 8% drop for Cigna, roughly 5.5% for Humana).
The market spooked shareholders, Cigna rewarded them
The December 10, the WSJ story opens: "Cigna Group abandoned its pursuit of a tie-up with Humana."
No one pursues a tie-up. But that language reflects why shareholders may have balked at a deal that was predicted to spend 18-24 months in protracted regulatory review.
Predicted deal completion is one reason why share prices fluctuate when companies announce mergers. Except this merger was never announced, by Cigna or Humana. And Cigna did not comment on the matter in its stock buyback press release.
The scuttled deal is a “short-term win” for Cigna investors per one analyst at CNBC, who adds that “taking advantage of a negative reaction” to deal reports by announcing its stock buyback plan on Sunday is “music to Cigna shareholders’ value-sensitive ears.”
Who are these shareholders? And what is Cigna saying?
Cigna's shareholders and a word from CEO David Cordani
Institutional investors represent nearly 89% of Cigna's ownership, which is not uncommon for managed healthcare companies, according to CNN Business. The world's two largest investment firms — Vanguard Group, Inc. and BlackRock — are among Cigna's largest investors, but with Vanguard holding nearly double the shares (8.01% versus BlackRock's 4.5%).
(Get the specifics of Cigna's institutional owners and its internal trading activity in this HealthLeaders brief).
In the Cigna press release announcing the company's stock buy-back, Cordani states: "We believe Cigna's shares are significantly undervalued and repurchases represent a value-enhancing deployment of capital as we work to support high-quality care, improved affordability, and better health outcomes."
"As we look at the broader landscape and the strategic opportunities before us, we will remain financially disciplined with a clear focus on executing against our strategy, delivering value for our shareholders, and investing in our future.”
Cordani added that Cigna would “consider bolt-on acquisitions aligned with our strategy, as well as value-enhancing divestitures."
Isn’t this what the Humana deal was designed to deliver? A commercial-MA powerhouse that could better complete with UnitedHealth Group and just “made sense”— and would be worth the inevitable, painful, and protracted FTC and DOJ review? It’s certainly all anyone could talk about.
The stock buyback was framed “[i]n light of the current environment,” Cordani said in the press release.
Which environment? The years that Cigna has likely kept its sights set on Humana or the days marking the deal’s public birth and death?
Those are two very different environments. Deals like this don’t happen overnight. And if they are imminent, they aren’t generally halted this quickly. It’s possible, for any number of reasons, that the rumored deal was already headed in this direction by the time it made headlines.
The short-term versus the long-term
Several questions remain now that the Cigna-Humana deal talks are off:
Is Cigna still interested in acquiring Humana?
Will Cigna sell its Medicare Advantage portfolio?
If not now, what is the right time for such a deal?
As for the “bolt-on acquisitions” Cigna is also considering, WSJ reports that the company “continues to believe in the merits of a combination with Humana.” But would Humana be that bolt-on?
In the midst of the past month’s pro-deal coverage, Reuters noted the companies’ “limited cost and revenue strategies” and that these limitations would put pressure on Cigna “to deliver value by running Humana better than its current management."
These same limited synergies existed when Cigna entered the Medicare Advantage market by acquiring HealthSpring more than a decade ago — a market it wants now to exit.
In breaking the broken Humana deal, WSJ reported that Cigna "continues to explore the sale of its Medicare Advantage business, which could fetch several billion dollars in a divestment." Cigna’s buyback announcement confirmed that the company will “value-enhancing divestitures” and Bloomberg has reported that Health Care Service Corporation — an independent licensee of the Blue Cross Blue Shield Association — is eyeing Cigna’s Medicare Advantage portfolio.
So, will the time ever be right for a deal with Humana?
Factors may include the results of Cigna’s stock buyback, whether there will be an Administration change in Washington, and whether the Medicare Advantage market remains a “gold rush” for long enough for a Humana acquisition to make sense.
Bankrate notes that stock buybacks help those who want to exit and those who want to stay. Cigna’s stock buyback could help identify which investors are in which camp. Few are likely to exit in the near term, given that Cigna’s shares jumped 16% on Monday, the largest company increase in 14 years, per MarketWatch.
As for the MA gold rush, the WSJwrites: “Medicare Advantage is still a highly attractive business, and it will continue to grow indefinitely as seniors age into it. The opportunity just might not be as stellar as it once was as fewer seniors convert into it, competition grows and government scrutiny increases.”
While the industry prepares for an 18- to 24-month merger cycle, will watching the deal change the deal? A recap of key coverage and what's changed already.
Update 12/10/23: Humana Disbands Executive Committee, Cigna Disbands Deal
In quantum physics, which governs the smallest bodies, the act of observing an electron changes it. Could this also be true of the Cigna-Humana, two of the healthcare universe’s largest bodies? Will the act of looking at the deal — by media watchers, financial watchers, and anti-trust watchers — change the deal?
It would appear yes.
Last Thursday, news broke that Humana, Inc.'s boarded amended its bylaws to remove the requirement for an executive committee, which it then disbanded. But in breaking the potential Cigna-Humana merger on Nov. 29, the WSJ was careful to add “assuming the talks don’t fall apart.” It appears now they have. Cigna has called off the deal due to stockholder pushback and disagreement over financial terms in favor of a now-planned stock buyback and smaller acquisition targets.
Twenty-three days—plus eight years, give or take. That’s how long it took the headlines to change from “Cigna explores shedding Medicare Advantage (MA) business” to “Cigna, Humana in Talks for Blockbuster Merger.”
Twenty-three days because news like this travels fast. Eight years because "the current management [of Cigna] has wanted to own HUM for some time” (Yahoo! Finance) — since 2015, when the two agreed to a merger that the DOJ would ultimately block.
Will that happen again? Answer cloudy, ask again later. But is it worth trying? Apparently yes and for one significant reason: competing with the vertical size and strength of the industry’s largest player. “[T]he State of U.S. health insurance is UnitedHealthcare—all other insurance companies are just trying to keep up with them” (Healthcare Huddle).
Here’s what we know so far, and what we don’t, about how the merger-watching will evolve.
A Cigna MA sell off?
On Nov. 6, a Reuters exclusive announces that Cigna may be looking to sell its 600,000-member Medicare Advantage book of business. Bloomberg now reports that Health Care Service Corporation — an independent licensee of the Blue Cross Blue Shield Association — is eyeing Cigna’s MA portfolio.
The reality is Cigna has not captured MA market share and at desired margins like its competitors. Sometimes you have to break something to fix it. Or make it stronger.
Wait, maybe there’s more to this…
Just a week later, STAT asks if a “bigger move” is being planned, citing a Stephens healthcare stock analysis: ”We would see this action being one component of a potential pursuit of [Humana] as acquisition target, with the divestiture being a proactive move to reduce antitrust risk.”
While the STAT piece was one of the first to ask the question, it took another outlet to answer it . . .
WSJ breaks merger talks, world follows
On Nov. 29, The Wall Street Journal announcesthat a “cash-and-stock deal between [the] health-insurance giants could be struck by year-end.”
If a deal happens and the merger is approved, the entities will gain from what they’ve given. Cigna will have traded some 600,000 MA members for Humana’s 5 million. Likewise, Humana’s loss of 700,000 commercial lives would be more than offset by Cigna’s 16 million.
In its pro-merger analysis, Yahoo! Finance quotes Sachin Jain, CEO of SCAN Health Group and Plan, on this trade-off wisdom — noting that “while it might seem counterintuitive to dump the Medicare business, ‘these are very smart ppl running these companies. [Cigna CEO David] Cordani is a super strategic leader.’”
Which begs the question . . .
Who’s buying (and leading) who?
If Cigna and Humana strike a deal, Cigna's larger market cap and revenue ($83B, $181B) compared to Humana’s ($62, $93B) would make the latter the likely target. Executive leadership may move in the same direction. Bruce Broussard, Humana’s CEO since 2013, is stepping down in later 2024 as part of a “multi-year succession plan” that reads now like Merger 2.0 . David Cordani has been Cigna’s President and CEO since 2009.
A Cigna-Humana merger would be ... ?
Since the WSJ story, coverage has concluded that the deal would be:
Good: For the combined company, anyway. With a combined $140 billion+ market value, the new entity could leverage one another’s assets to better compete with United Health Group.
Bad: What is great for payers is rarely so for other players. The combined size and scale of a “Cigmana” would disadvantage provider contract negotiations and consumer choice.
Green-Lit: Regulators might be satisfied by the lack of commercial-MA overlap between the payer giants, but few analysts believe that these divestures will fully clear the merger decks.
Blocked:Axios and others continue to cite merger hurdles, including the current anti-trust environment and past unrequited deals (Cigna-Humana Cigna-Anthem).
But it’s the existing overlap of the two companies’ PBMs that is being raised most, with STAT noting: “Given how Lina Khan’s Federal Trade Commission already is scrutinizing PBM market power, it seems like that kind of deal would be an insta-block.”
Nearly a month since this assessment, not everyone agrees...
The observers and the observed
In addition to other outlets, HealthLeaders has also covered the merger, the characterization of which has ranged from making sense to making "some sense" (Forbes) to being a really bad idea for Humana (Jim Cramer, CNBC).
The market’s observation of a possible deal caused share prices to drop — 8% for Cigna, roughly 5.5% — the day the WSJ story appeared. After rebounding, Cigna stock dropped another 2% with Humana remaining flat as of Dec. 6.
Market temperature in turn impacts the leadership question. In its follow-up coverage noting the two companies' "limited cost and revenue strategies," Reuters notes: "The limited synergies will also add pressure on Cigna CEO David Cordani to deliver value by running Humana better than its current management."
And what about the government? Optics matter here too. Quoting one analyst on Cigna's proactive MA sale, Reuters adds: "It would be smart to do it even before announcing the deal" (Andre Barlow of Doyle, Barlow and Mazard PLLC).
On the will-it, won't-it be approved question, the WSJ's watchful David Wainersays it best: "A Cigna-Humana merger will be a headache for everyone involved and great business for the lawyers on both sides. But at the end of the day, it is too compelling for either side not to try" (Wall Street Journal).
The Medicare President talks health equity, CVS Health growth, and results optimization in part two of this HealthLeaders exclusive.
In 2024, Aetna will offer 747 individual Medicare Advantage (MA) plans, the largest number in company history. While this suggests a complicated strategy, Aetna Medicare President Terri Swanson likes to keep things simple as she and her organization optimize for better outcomes. Read part one of this conversation here.
Read on for more examples of how Swanson and Aetna are building traction, which updates HealthLeaders’ Payer Week conversation with the MA exec in June.
HealthLeaders: What are Aetna’s offerings in the emerging specialized population health plan space (e.g., plans for women, Spanish speakers, those with specific chronic conditions, etc.)?
Terri Swanson, President of Aetna Medicare: We are not in the Chronic Special Needs Plan space today, but we have — and as part of CVS Health — a broader initiative around health equity. We have a lot of work underway to truly improve the difference in healthcare outcomes.
We have an entire medical division that’s focused on health equity that's helping to drive initiatives end-to-end throughout our enterprise.
[Note: In 2020, Aetna launched its Multicultural Initiative, which is already generating results. Its components include data and technology, community and provider engagement, and multicultural care management. The latter includes care managers with diverse backgrounds, a focus on culturally relevant clinical and motivational interviewing training, and care planning that includes a Multicultural Clinical Assessment. Clinical focus areas include nutrition and medication support.]
HealthLeaders: What are the big topics that everyone is talking about with 2024 MA enrollment and what is different or unique this year?
Swanson: There are certainly things that are going to change but also, quite frankly, things that really don't. Starting with the things that don’t, people are going to continue to have a very high degree of choice. Figuring out how to cut through the clutter and choose the plan that’s right for them is something that all Medicare beneficiaries are going to need to be able to do.
There are a couple of key things here. The process doesn't have to be complicated or intimidating: Does the plan fit your budget, is your provider or pharmacy in your network, and are your prescription drugs covered at a preferred cost? Are you someone who likes to go to the gym? Do you need your plan to help pay for healthy food or transportation to the doctor's office? As needs change, I think there will be a plan for every person. There are a lot of good plans with those benefits.
HealthLeaders: What else would you add?
Swanson: The population that is going to come to our healthcare plan, they're going to compare us to buying things on Amazon or hailing an Uber. So, we have to ensure we provide the right digital and online experience that complements their experience with the healthcare system. We have to be prepared to meet people where they are and help them to engage in a way that works for them.
With CVS Health, a lot of that applies to what we're doing as an enterprise and a Medicare plan. We're delighted to have Signify Health and Oak Street Health now as part of the CVS Health family. Signify, for example, performs Healthy Home Visits that help us understand if a member has needs that haven't been identified yet. And Oak Street Health does a very comprehensive job of treating Medicare beneficiaries with complex conditions.
Being able to bring those types of organizations to bear — along with Aetna coverage, along with CVS Pharmacy — creates a really exciting path where we can bring all of that together. And hopefully, in a very simple and easy way for our customers.
HealthLeaders: How do you leverage your PBM and IT backgrounds to optimize results and what is a good example?
Swanson: My background allows me to take an analytical approach to solving complex problems in the healthcare space. I think having a background in technology helps shape and structure how I approach opportunities. For example, at Aetna, we’re always thinking about innovation and finding ways to create better solutions and simplify the way people get care.
I’m often able to leverage my PBM background here at Aetna and work closely with our Medicare Part D team to design our prescription drug plans. Data shows that 3.5 million Americans aged 65 and older have struggled to afford their needed prescription drugs. With my expertise, I can better help tailor our prescription drug benefits to ensure Medicare consumers have coverage for their medications at an affordable cost.