Mergers & Acquisitions

If the recent activity of Humana Inc.’s private jet is any indication, The Cigna Group may have to compete with Walmart Inc. in its reported bid to combine with the Medicare Advantage-focused insurer.

That bit of corporate intrigue comes courtesy of Gordon Haskett Research Advisors, an investment brokerage that offers a service tracing the movements of major companies’ aircraft to “track possible signposts of M&A, strategic partnerships, activism, etc.”

Don Bilson, head of event-driven research at Gordon Haskett, wrote in a Dec. 1 post on X (formerly Twitter) that “Humana flew to Arkansas yesterday” — the same day the Wall Street Journal published a report, citing anonymous sources, that Cigna and Humana were discussing a deal to combine. “Could be harmless, but these two did talk in 2018,” Bilson said, referring to a WSJ report in March of that year indicating that Walmart was in “early-stage acquisition talks” with Humana. Walmart is based in Bentonville, Arkansas.

A megamerger reportedly brewing between The Cigna Group and Humana Inc. could create a health insurance giant with 31 million members that’s capable of rivaling UnitedHealth Group and CVS Health Corp — if the deal could weather antitrust challenges.

Cigna’s health insurance products cover more than 17 million people nationwide, and almost 80% of its members are enrolled in administrative services only (ASO) employer-based health plans, according to the latest data from AIS’s Directory of Health Plans (DHP). Humana, meanwhile, enrolls over 13.7 million people, with nearly 42% in Medicare Advantage plans, including those serving people who are dually eligible for Medicare and Medicaid. It also has a large contract with TRICARE, the health insurance program serving military service members, retirees and their families.

Just a few weeks after reports surfaced that The Cigna Group was looking to offload its Medicare Advantage business, reports emerged of a possible transaction with Humana Inc. that would create a diversified health insurance giant in the same weight class as CVS Health Corp. and UnitedHealth Group. Wall Street analysts agreed such a deal would invite scrutiny from regulators, partly because of Cigna’s substantial MA overlap with Humana, although multistate Blues insurer Health Care Service Corp. (HCSC) is reportedly interested in picking up Cigna’s MA book. To complete the square dance, rumors have also resurfaced of Walmart’s interest in purchasing Humana.

Reuters on Nov. 6 first reported that Cigna was exploring a sale of its MA business, which represents about 3% of its overall medical membership. Sources told the news outlet that the insurer was working with an investment bank to evaluate its options and that the potential sale could bring in several billions of dollars. Analysts at the time suspected that the move was an effort to preempt the intense antitrust scrutiny Cigna might face if it sought to merge with a government-focused firm such as Humana or Centene Corp.

The Cigna Group is reportedly discussing a multibillion-dollar deal with Humana Inc. that would create a diversified health insurance giant capable of going toe-to-toe with UnitedHealth Group and CVS Health Corp.

Industry observers agree that such a transaction would receive robust regulatory scrutiny — with many predicting a high likelihood that federal officials will lob a legal challenge. However, opinions vary about how much the companies’ respective PBM businesses present a major antitrust risk.

News of the potential deal came from a Nov. 29 Wall Street Journal article, which cited people familiar with the matter speaking on condition of anonymity. Assuming the talks don’t fall apart, the terms of the deal could be finalized by the end of the year, the article stated.

Hospitals, buoyed by stabilized finances, have resumed a robust level of transactions. Those deals have drawn more frequent antitrust action by the Biden administration and many state governments, which view hospital mergers and acquisitions as an omen of high health care prices — and augur tough rate negotiations for health insurers.

An increasing number of those transactions involve so-called “cross market” partnerships, in which hospitals from different markets — and often different states — tie up to avoid antitrust scrutiny from state regulators. State antitrust officials often have more leeway to block hospital transactions, since federal regulators are not allowed to investigate either most intrastate deals or interstate deals with combined revenues of under $111 million.

The third quarter of 2023 saw digital health funding and deals decline to some of the lowest levels seen in years, according to CB Insights’ third-quarter 2023 State of Digital Health report. But some bright spots exist, including early-stage and megaround deals, said speakers from the company during a Nov. 9 webinar titled Digital Health in Q3’23: Global Activity & Emerging Trends.

The main takeaway from the quarter, said Chris Sekerak, intelligence analyst II for CB Insights, is that “digital health funding is the lowest since 2016,” with “$3 billion in equity funding across 247 deals,” representing a 14% quarter-over-quarter (Q0Q) funding decline. For a third straight quarter, digital health deals decreased, with a 33% QoQ drop most recently in deals, the lowest amount in almost 10 years.

In a proposed class action lawsuit filed in the U.S. District Court of Minnesota, UnitedHealth Group and its subsidiary, NaviHealth, are accused of using an artificial intelligence algorithm with a known error rate of 90% to systematically deny Medicare Advantage enrollees’ care. The lawsuit, filed by the estates of two deceased patients who were enrolled in a UnitedHealthcare MA plan and “on behalf of all others similarly situated,” alleges that the insurer continued to use its AI model to “wrongfully deny” and override physicians’ recommendations for post-acute care “because they know that only a tiny minority of policyholders (roughly 0.2%) will appeal claims, and the vast majority will either pay out-of-pocket costs or forgo the remainer of their prescribed post-acute care,” according to the complaint posted by STAT. The complaint follows and cites a STAT investigation of internal documents showing that NaviHealth employees were pressured to keep MA patients’ skilled nursing facility stays to targets developed by the nH Predict algorithm, or they would face disciplinary action. In a statement provided to STAT, UnitedHealth asserted that the NaviHealth tool is “used as a guide” but does not make coverage determinations.

The Cigna Group could be fielding offers for its Medicare Advantage book, according to a Nov. 6 Reuters report. Experts say that a spinoff is plausible given the small size of Cigna’s MA book and Cigna’s heavy focus on commercial insurance — and Wall Street analysts say the move could be a first step toward a megamerger with a government-focused insurer.

Wells Fargo and RBC analysts say that the move could be an effort to preempt the intense antitrust scrutiny Cigna might face if it sought to merge with a government insurance-focused firm such as Humana Inc. or Centene Corp., because Cigna would have only commercial and Affordable Care Act marketplace books after an MA spinoff.

The Cigna Group may be considering the sale of its Medicare Advantage business, according to Reuters. The insurer is working with an investment bank to evaluate its options and the potential sale could bring in several billions of dollars, the sources told Reuters.

Cigna’s MA plans cover more than 580,000 lives in 35 states and the District of Columbia, according to the latest data from AIS’s Directory of Health Plans (DHP). The insurer is better known for its administrative services only employer-based health plans, and only 3.4% of its enrollees are in MA plans.

The Cigna Group could be fielding offers for its Medicare Advantage book, according to a Nov. 6 Reuters report. Experts say that a spinoff is plausible given the small size of Cigna’s MA book and Cigna’s heavy focus on commercial insurance — and Wall Street analysts say the move could be a first step towards a megamerger with a government-focused insurer.

Wells Fargo and RBC analysts say that the move could be an effort to preempt the intense antitrust scrutiny Cigna might face if it sought to merge with a government insurance-focused firm such as Humana Inc. or Centene Corp., because Cigna would have only commercial and Affordable Care Act marketplace books after an MA spinoff.