Aetna is plotting an acquisition seeking "inorganic growth" that could make it a rival for the largest insurer in the country, if the hype of one boutique Wall Street analyst is to be believed.
Senior management at Aetna, the country's third largest insurer, are plying a mix of old and new strategies for profitability in the new healthcare economy. One piece under consideration is a takeover specifically aimed at growth in the government-sponsored managed care space, mainly Medicare Advantage, according to Leerink Partners managing director and analyst Ana Gupte.
"Consolidation remains likely, with CEO Mark Bertolini asserting that government business is the focus for inorganic growth, while compatible cultures for post-merger synergies were viewed as the driver in all transactions, with cheap debt making either Aetna-Humana and Aetna-Cigna meaningfully accretive possibilities and imminent," Gupte wrote in a research note.
On the Medicare Advantage play, Humana would be a natural choice, as the second-largest Medicare Advantage insurer with 3 million senior members, plus 7 million Part D drug plan members. Another option, though one with smaller government-sponsored membership is Cigna, Gupte argues, after meeting with Aetna management in Hartford, Connecticut.
Despite a Democratic President currently and the prospect of another in 2017, "large-scale horizontal consolidation appears high on the Aetna management agenda," Gupte wrote.
This time last year, Bertolini said Aetna was still integrating Coventry into the business, but was still looking deals. "We continue to pursue assets that we believe are important to our portfolio in enhancing our capabilities to meet both the consumer market and the ACO market," he aid.
Meanwhile, Aetna's accountable care strategy "appears to be gaining steam with health systems and providers catalyzed by the CMS proposed regulation to value-based care," Gupte added. That ACO strategy involves a range of products and services, from Aetna-provider co-branded health plans that feature more affordable premiums and patient access, to helping a health system actually launch their own health plans.
As far as investors are concerned, there is value in the ACO work, but even more "likely to unlock value" is "imminent accretive consolidation," Gupte argues.
A deal is imminent? Maybe, or maybe not, other analysts argue.
"We cannot rule out the potential for Humana to be acquired," wrote Sterne Agee managed care Brian Wright. "However, we believe an acquisition would be unlikely to occur at current elevated levels." Those levels include Humana's stock trading as high as $182 per share earlier this year and now hovering around $170--still the highest of the major for-profits.
Cigna's, too, is high, at some $130 per share, while Aetna is trading around $110 per share. Nonetheless, Aetna's 23.7 million healthcare membership is almost twice as much as either Cigna's or Humana's, and its $58 billion in revenue last year was well more than double the other two.
The last mega-deals in managed care included Aetna purchase of Coventry (for $5.7 billion), Cigna's takeover of HealthSpring (for $3.8 billion) and WellPoint's purchase of Amerigroup (for $4.9 billion).
Health Net, Molina, Centene and WellCare have also been seen as possibly takeover targets, although Gupte was wrong about one of those latter two being sought by nonprofit hospital behemoth Ascension Health, which ended up buying a privately-held Michigan-based HMO.