By Anna Wilde Mathews
The leaders of the top five health insurers periodically get
together to discuss policy issues, Aetna Inc. Chief Executive Mark
T. Bertolini told investors in a private meeting earlier this
month. The group had a nickname, he joked: the G5.
Soon, that could be down to the G3.
The change would come thanks to Mr. Bertolini, who has struck a
$34 billion deal for Humana Inc., and Anthem Inc. CEO Joseph
Swedish, whose company is seeking to acquire Cigna Corp. for $48
billion. The unprecedented tandem deals could reshape the industry
into one topped by three giants, each with more than $100 billion
in annual revenue. UnitedHealth Group Inc. would be the third major
player and still the largest by revenue.
First, though, Mr. Bertolini and Mr. Swedish will have to run a
gantlet of regulatory, political and operational challenges,
sharing a joint spotlight that could make each of their jobs harder
as they make a case for their combinations.
The Justice Department has signaled that it would look at large
concurrent transactions in the managed-care industry together, a
dynamic that experts said could complicate both deals' path to
approval. Hospital and doctor groups have already weighed in
against the acquisitions, while two congressional committees have
scheduled hearings for the fall.
The two men come from very different backgrounds. Mr. Bertolini,
59 years old, is a high-profile, often blunt-spoken
insurance-industry veteran, known partly for his public recounting
of how his own experience of recovering from a devastating ski
injury shaped his approach to health care.
Mr. Swedish, 64, spent nearly his entire career running hospital
companies, before arriving at Anthem in 2013 and quickly making a
mark, partly by jettisoning its former corporate name of WellPoint
Inc.
Both CEOs say their past experience shepherding major deals is
shaping their approach to their current tasks, and they have
embarked on outreach campaigns.
"You're going to see some real similarities in terms of their
leadership styles," said Anthony R. Tersigni, chief executive of
Ascension, one of the largest hospital operators in the U.S. Mr.
Tersigni knows both men.
Mr. Bertolini had long had his sights set on Humana. "I've had a
playbook on my desk since I became CEO, and Humana's always been at
the top of that list."
The Aetna deal would create by far the biggest player in the
private-insurer version of Medicare, so concern over market
concentration will focus on the companies' footprint in that
business, known as Medicare Advantage. Mr. Bertolini said that the
vast majority of Medicare Advantage consumers have at least five
options currently, so "we don't see a reduction in competition for
consumers" from the Humana deal.
He argues that the merged company will be better positioned to
work closely with health-care providers and the federal government
to bring down costs and improve quality. "We have an opportunity to
change the trajectory of health-care costs," he said.
Mr. Bertolini says he knew Humana CEO Bruce D. Broussard partly
from the regular CEO gatherings, though he says they didn't focus
on corporate matters during those meetings, which included
antitrust attorneys.
In late March, he and Mr. Broussard sat down for a one-on-one
breakfast. The two men met on a rainy day near Newport, R.I., where
one of Mr. Broussard's children was competing in a sailing
event.
Mr. Broussard's wife was in the hospital after some flulike
symptoms had worsened, and Mr. Broussard kept glancing at his phone
for updates. The situation "built some camaraderie," said Mr.
Broussard, as they talked over the possibility of a deal. Both men
said they found common ground during the conversation. "I kept
saying, yeah, I agree, yeah, I agree," Mr. Bertolini said. Mr.
Broussard said his wife's health is now fine.
Messrs. Bertolini and Broussard declined to comment on details
of deal negotiations, including approaches from other companies.
Cigna was interested in Humana as well, people with knowledge of
the matter have said, while UnitedHealth approached Aetna.
Mr. Broussard said Humana's leaders were reassured that Mr.
Bertolini had maintained elements of Coventry Health Care Inc.'s
operations after acquiring it.
Mr. Bertolini, for his part, said he learned from the aftermath
of Aetna's mid-1990s acquisition of U.S. Healthcare. That
integration "blew up," he said, when the managers of the acquired
company took over much of the merged operation and didn't respect
Aetna's traditional culture.
Since he unveiled the Humana acquisition, Mr. Bertolini has been
calling and meeting with state and federal officials, as well as
Aetna and Humana employees, answering questions and laying out the
rationale for the deal.
On the Monday following the Friday, July 3, deal announcement,
he visited officials in Humana's base of Louisville, Ky., where it
has long been a major employer. By then, Kentucky Sen. Mitch
McConnell, the Senate majority leader, had already released a
skeptical statement about the Aetna deal. After his visit, Mr.
Bertolini tweeted a thank-you to the state's governor and
Louisville's mayor, then retweeted both officials' own comments
about the meetings.
A few weeks later, Mr. Swedish announced that Anthem would
acquire Cigna. The announcement came after drawn-out talks that,
Anthem has said, date back to last summer. In June, Anthem went
public with its bid, which Cigna soon publicly rebuffed.
In the end, Mr. Swedish's tough tactics won out. Now, he faces
similar challenges to those faced by Mr. Bertolini. Scrutiny of the
Anthem deal is likely to focus on the powerful position the
combined company would have in coverage sold to employers.
Together, they would have the largest overall enrollment of any
U.S. insurer.
The Cigna acquisition would remove one of the quartet of major
health insurers that serve national companies. Going from four to
three "is a big drop-off," said Brian Marcotte, chief executive of
the National Business Group on Health.
Mr. Swedish also will contend with an added wrinkle. As a
licensee of the Blue Cross Blue Shield Association, Anthem must
adhere to the group's rules, which cap the share of revenue that
can come from insurance business that isn't under the Blue
brand.
Mr. Swedish said he believes both challenges are manageable, and
that the Cigna acquisition will benefit consumers, employers and
health-care providers. Like Mr. Bertolini, he has been reaching out
to state and federal officials.
In a meeting, he told Anthem employees that the deal assured
their company would endure as one of the big three insurers,
parallel to the three big American car makers. "I did not want our
company to be the American Motors of the health-care industry," he
said, referring to the defunct manufacturer. Anthem would be "a
survivor, a competitor," he said.
On the same day he announced the Cigna acquisition, he had a
conference call with the Blue association and the leaders of the
other Blue insurers, who serve on its board. He emphasized Anthem's
commitment to its Blue affiliation, he said, and he felt "confident
they recognized the value of this combination."
The association said that it routinely reviews acquisitions
involving its members "to ensure compliance with the standards that
the Blue Cross and Blue Shield brands have established over
generations."
Though Mr. Swedish is new to the insurance industry, associates
point out that he has a record of deal-making from his hospital
days. Before arriving at Anthem, Mr. Swedish engineered the merger
of his large Catholic hospital system, Trinity Health, with a
rival, Catholic Health East.
In addition to boards of directors and Catholic Health East's
leaders, Mr. Swedish had to secure the blessing of the Catholic
church, and he jetted around the country meeting with local
bishops, eventually winning their backing, according to former
Trinity executives. "He was the primary communicator and leader of
the message as to why this would work, " said Kedrick D. Adkins
Jr., a former Trinity official who is now chief financial officer
of Mayo Clinic.
Wednesday, Anthem reported earnings in line with a
preannouncement it made when it unveiled the Cigna deal. Humana,
which had also previewed its earnings and downgraded its
projections for 2015, did slightly better than the reduced
guidance.
Liz Hoffman contributed to this article.
Write to Anna Wilde Mathews at anna.mathews@wsj.com
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