Indianapolis-based Anthem, Inc. announced a deal Friday to acquire Cigna Corp. for $54.2 billion in cash and stock. By enrollment, the merger will create the largest health insurance company in the US, in terms of enrolled lives. 

Anthem was formed when WellPoint Health Networks Inc. and Anthem Inc. merged in 2004, and until 2014, operated under the WellPoint name. It changed its corporate name back to Anthem, Inc. at that time, citing the trust it had established and was “the name consumers are most familiar with as a trusted health care partner through our affiliated health plans.” Anthem is an independent licensee of the Blue Cross and Blue Shield Association and operates in 14 states, with a substantial presence in California and throughout the midwest. 

If completed, the combined company would have about 53 million members and $115 billion in annual revenue. UnitedHealth Group, Inc. has 47 million members and $130 billion in annual revenue. And rounding out what is shaping up to be the Big 3, the Aetna-Humana entity would have 33 million members and  about $70 billion in annual revenue.

Anthem said it would save nearly $2 billion in costs annually as a result of the merger and that it expects a one-time charge of $600 million over two years related to the deal.

Joseph R. Swedish, Anthem’s CEO, will lead the new company.

Our Take
Speculated on for months, the pending acquisition was leaked Thursday to the Wall Street Journal and the New York Times, among other major news outlets.

Whether the deal is approved is another matter. The proposed merger lies in the wake of two other deals this month, Aetna’s $37 billion acquisition of Humana and Centene Corp.’s 6.8 billion acquisition of Health Net Inc. Lawmakers, physicians and consumer groups have expressed concern lately that the mega-mergers are creating an anti-competitive environment, leading to less choice and higher premiums.

Sen. Richard Blumenthal (D-Conn.) told the LA Times: ”These mergers must be seriously scrutinized to ensure that consumers and healthcare providers are protected from mega-insurer market power abuse.”

Since the deal was announced, Aetna shares have fallen 12%. On Friday both companies opened lower and never recovered, losing more than $3 billion in market capitalization in one day. Forbes contributor John Graham said it’s a sign that regulators will block the deal. 

“This indicates investors believe there is a very significant risk the deal will not close,” Graham said.

Anthem, Cigna, Leading Commercial ACOs
Anthem has taken a significant strategic position with its ACO product line, with 51 commercial agreements in place to date. The company says it has “more than a third” of Colorado physicians under some form of value-based arrangement.

About half of its ACO participate in its Enhanced Personal Health Care program that targets patients with multiple chronic diseases and offers value-based incentives; other physicians it contracts with are also eligible for the program. The program was built on its experience with Patient-Centered Medical Homes, of which it has 1,200 physicians and 130,000 patients.

Anthem also made a surprising move last year when it brokered a deal with seven Los Angeles and Orange County hospital systems to create Vivity, the first arrangement of its kind between an insurer and multiple competing hospital systems. Anthem and its partners made it clear that the agreement had been reached with one goal in mind: to compete with Kaiser Permanente. Vivity is unlike any other entity we’re aware of—a hybrid organization with shared goals, packaged under a managed care umbrella, with ACO-like performance measures and financial incentives. 

As of July 10, Cigna had 123 Collaborative Care Agreements in place in 29 states, with 1.3 million lives and 41,000 physicians under and ACO contract.

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