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More jitters over the Anthem-Cigna deal

June 20, 2016

Another week, another disturbance in the force for the $48 billion Anthem-Cigna deal.

The Wall Street Journal reported on Monday that antitrust regulators are expressing concern about the combination of health insurers. The Department of Justice's antitrust division, which reviews such deals, is skeptical the two companies can offer concessions that would make the deal pass muster, according to "people familiar with the matter," the newspaper said.

They primarily are concerned about how the deal would affect the national employer market for health insurance and how such a big combination would affect health-care providers—two big hurdles that are giving them pause, the paper said.

Justice Department officials “weren’t optimistic” that Anthem Inc. and Cigna Corp. would fix such concerns by selling certain assets or by agreeing to other restrictions.

And now, some analysts are telling clients to hedge their bets on the deal closing.

“We think it is probably prudent for investors to begin to position themselves in the event that both mergers do not close,” FBR & Co. analyst Steven Halper wrote in a report to clients.

Yet, investors are not running for the doors. Shares in Anthem edged up 0.7 percent, to $133.27 each, in midafternoon trading Monday. Shares in Cigna dipped 0.86 percent, to $128.38.

Indianapolis-based Anthem declined to comment.

The deal is already raising the ire of some heavy hitters. Last fall, the American Medical Association said the merger would diminish competition in up to 111 metropolitan areas in all 14 states that Anthem operates.

In March, the American Hospital Association said the deal “would irreparably harm competition and consumers” by reducing the ability of other health insurers to compete.

Last week, California’s insurance commissioner, Dave Jones, called the deal “anti-competitive” and said it would hurt consumers “with likely reductions in access, quality of care and affordability of health insurance.”

Jones’s statement carried no official power, since California is one of only a handful of states where the Insurance Department doesn’t have jurisdiction over such matters. California’s Department of Managed Care is the agency that will issue an official ruling on behalf of the state, and has yet to do so.

So far, 12 or 26 states that would be affected have approved the deal, including Indiana.

The two companies expect to hear a decision on approval by the Justice Department by mid-July, the Wall Street Journal reported.

In recent weeks, several analysts have lowered their confidence that the deal would close, or outright expressed confusion or uncertainty.

“Will the deal close? Who knows?” analyst Thomas A. Carroll at Stifel Nicolaus & Co. told clients in a May 22 note.

Anthem CEO Joe Swedish has tried to reassure Wall Street that the deal is on track. At a UBS investor conference on May 24, he said the “the process is progressing extremely well.”

But he added that regulators were giving the merger a long, hard look.

“This regulatory review has a very, very long tail to it,” he said. “I think I am stating the blindingly obvious. It is something that we knew would be kind of a hill to climb for a lengthy period of time until we get the DOJ determination that we think is in the not-to-distant future.”


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