Mergers & Acquisitions

Elevance Health, Inc. posted solid results in the first quarter of 2024 and announced an agreement to build a new primary care-focused provider unit with financing from private equity firm Clayton, Dubilier and Rice LLC (CD&R). Wall Street analysts were positive about the results, praising the firm’s relatively low care utilization — an area where other health insurers have struggled in recent quarters.

Elevance has been busy with dealmaking in recent months. The CD&R deal, announced April 15, will see the private equity firm and Elevance combine what a CD&R press release termed “certain care delivery and enablement assets of Elevance Health’s Carelon Health and CD&R portfolio companies, apree health and Millennium Physician Group” into a “payer-agnostic” primary care provider focused on value-based contracting, including for patients covered by commercial insurance. It will serve 1 million patients from its inception.

The Kroger Company recently revealed that it had entered into a definitive agreement to sell Kroger Specialty Pharmacy to CarelonRx, a subsidiary of Elevance Health, Inc, formerly known as Anthem, Inc. The deal, say industry experts, allows Kroger to focus on retail pharmacy while bringing scale and coveted limited-distribution contracts to CarelonRx as it seeks to establish a stronger footing within the specialty space.

Unveiled March 18, the deal is expected to close in the second half of this year. It does not include Kroger’s in-store retail pharmacies and The Little Clinics. CarelonRx, formerly known as IngenioRx, operates within Carelon, Elevance’s health care services brand that serves one in three people across 50 states.

Elevance Health Inc. plans to buy Kroger Co.’s specialty pharmacy division, the firms revealed on March 18, in a deal that closely follows Elevance’s purchase off Paragon Healthcare, Inc., an infusion center provider. Health care insiders say that the Kroger deal is a shrewd play for Elevance, which in recent years has sought to expand its Carelon health services arm, particularly the CarelonRx PBM.

The deal could help Elevance catch up with other major insurers. Elevance, a for-profit Blue Cross and Blue Shield affiliate, lags behind its publicly traded managed care competitors, such as The Cigna Group, CVS Health Corp. and UnitedHealth Group, in health services revenue. All three health services divisions, respectively Evernorth, Caremark and Optum, include a major PBM and lucrative specialty pharmacy divisions that serve both their own plans and payers outside their own enterprise. Cigna and CVS's care management divisions had higher revenues and earnings than their insurance divisions in the fourth quarter of 2023, which is often the case for those firms.

Since 2021, just three consumer operated and oriented plans (CO-OPs) have remained operational out of the original 23 nonprofit insurers created by the Affordable Care Act. Now, one of the three survivors — Common Ground Healthcare Cooperative (CGHC) — is poised to shed its CO-OP identity and combine forces with CareSource, a Medicaid-focused insurer based in Ohio.

In a Feb. 27 press release, CGHC said it was “financially healthy and on track to repay” all loans that it’s received from the federal government.

“Even so, it’s challenging as a nonprofit startup to support necessary investments in operations and diversification while keeping premiums affordable for our members,” CEO Cathy Mahaffey said.

At least seven states plan to raise capitated payment rates to their contracted Medicaid managed care plans in fiscal year 2025, Modern Healthcare reported. Craig Kennedy, president and CEO of Medicaid Health Plans of America, told the publication that the rates are likely going up “because utilization is increasing post-pandemic.” The article noted that Arizona has proposed a 3% rate increase, California's draft budget includes a 3.8% hike and Missouri is considering a 2.5% raise for managed care plans. But New York plans to reduce insurer compensation by eliminating a quality bonus program and a 1% pay increase that expires this fiscal year.

Doctors are raising the alarm about how health insurers are making it harder for patients to receive coverage for at-home ventilators, the Associated Press reported. The noninvasive ventilators help patients breathe by forcing air into the lungs, often through a mask, and they cost around $1,200 per month. Chuck Coolidge, chief strategy officer for the respiratory supply company VieMed, told the AP that insurance rejections — including both initial approvals and reauthorizations — have increased for patients with Lou Gehrig’s disease and chronic obstructive pulmonary disease. And one neurologist told the news outlet that UnitedHealthcare Medicare Advantage plans now deny nearly all initial requests for the ventilators.

The Federal Trade Commission, Dept. of Justice and HHS on March 5 released a request for information (RFI) on private equity (PE) and “other corporations’” — including payers’ — ownership of health care providers, citing concerns over patient and worker safety, consolidation, and escalating costs. In a public event held that day, the agencies presented a deeply negative view of providers currently owned by PE and tipped further enforcement actions — including a heightened emphasis on legal coordination with state antitrust regulators.

The investigation is just the latest in a series of ambitious health care antitrust moves by the Biden administration. The FTC has also launched investigations into PBMs, while the DOJ tried to block notable transactions like UnitedHealth Group’s acquisition of Change Healthcare — and in October launched a broad antitrust investigation into UnitedHealth itself, which became public in recent days. The text of the new RFI said it “complements” CMS’s recent, separate RFI on Medicare Advantage.

UnitedHealth Group faces a crisis as the fallout from the hack of its Change Healthcare subsidiary continues to spread. The firm is rumored to have paid $22 million to the hackers who may have caused the breach, even as it faces falling stock prices, federal actions to stabilize provider reimbursement, payer operations disrupted by the hack, and legal risk.

A civil suit has already been filed against UnitedHealth due to the cyberattack, and the scale of the disruption may strengthen enforcement action resulting from a newly revealed federal antitrust investigation into UnitedHealth. Because of the cyberattack, payments to thousands of providers have stalled, causing a liquidity crisis for some practices. The hack also may have exposed thousands of other health care entities to data breaches. UnitedHealth’s stock price dropped from $521.97 on Feb. 21 (the day the breach was disclosed) to $478.78 at the close of business on March 7.

Since the Supreme Court overturned Roe v. Wade last year, 8% of large firms offering health insurance to their employees reduced or expanded their coverage for abortion. That’s according to an analysis of KFF’s Employer Health Benefits Survey, which found that 3% of firms whose largest plan does not cover abortion or covers it under limited circumstances reduced or eliminated coverage for abortion. Meanwhile, 12% of firms whose largest plan covers abortion in most or all circumstances added or expanded abortion coverage. KFF defined large employers as those with at least 200 workers.

U.S. health insurance companies’ capitalization levels are expected to increase this year but at a lower rate than last year, according to an AM Best report released on Feb. 29. The credit rating firm noted that the growth should slow because many insurers are seeing less profitability in their Medicare Advantage and managed Medicaid books of businesses. The report found the growth in net premiums written by health insurers increased 10% in 2022 and 7.6% through the first three quarters of last year.

The U.S. Dept. of Justice (DOJ) has opened an antitrust investigation into UnitedHealth Group, according to an internal company document shared with AIS Health and a Wall Street Journal report citing unnamed people familiar with the matter.

Federal regulators are reportedly seeking information about how the Minnesota-based company’s UnitedHealthcare insurance arm interacts with the many provider acquisitions that its Optum division has made in recent years — and how that relationship affects competition.

One health care economist says that while many unanswered questions remain, the result of a different investigation into provider consolidation suggests that the DOJ’s probe of UnitedHealth could end in an antitrust lawsuit.

This week, a growing chorus of criticism from state officials effectively stopped two proposed health insurer combinations in their tracks.

One industry observer says SCAN Group and CareOregon’s now-scuttled deal, as well as Elevance Health, Inc.’s beleaguered bid to purchase Blue Cross Blue Shield of Louisiana, offer valuable lessons for companies hoping to combine in the future.

“In both cases, the organizations proposing the merger spent over a year trying to convince stakeholders that the deal was a good thing, and after multiple efforts to generate support for the decision, gave up when that support did not materialize,” Michael Abrams, managing partner of the consulting firm Numerof & Associates, tells AIS Health, a division of MMIT.