Cigna plans to promote its Medicare Benefit, supplemental advantages, Medicare Half D and CareAllies companies to Well being Care Service Company (HCSC) for $3.7 billion, the businesses introduced Wednesday. One knowledgeable nonetheless thinks the HCSC deal might result in Cigna buying Humana, regardless of Cigna ditching this pursuit in December.
Cigna’s MA sale to HCSC is predicted to shut in early 2025. HCSC has almost 180,000 MA members and would purchase almost 600,000 from Cigna by the deal. HCSC is a licensee of the Blue Cross and Blue Protect Affiliation for Illinois, Montana, New Mexico, Oklahoma and Texas.
Eliminating its MA enterprise makes it much less seemingly that Cigna would face regulatory challenges if it have been to mix with Humana, which is usually recognized for its MA enterprise, in line with Ari Gottlieb, principal of A2 Technique Corp. Humana, in the meantime, not too long ago shed its industrial enterprise, which Cigna has a big footprint in. This might additional help the deal in getting permitted.
Rumors about Cigna and Humana combining circulated on the finish of November solely to be deserted weeks later as a consequence of disagreements on value, in line with Reuters. Nevertheless, Humana not too long ago reported a $541 million loss within the fourth quarter of 2023, and its inventory has since dropped.
“Humana has actually gotten [crushed] previously couple of weeks with their disastrous earnings and forecasts,” Gottlieb mentioned in an interview. “Reportedly the deal fell aside over value. … Perhaps [Humana’s] value expectations come down.”
In a Wednesday weblog publish, S&P World additionally predicted that Cigna’s sale of its MA enterprise to HCSC opens up alternatives for future acquisitions, with analyst Francesca Mannarino stating that Cigna’s MA section “simply didn’t have that scale relative to the place they wanted to be and the margins didn’t line up. So divesting this enterprise might doubtlessly set themselves up for future alternative.”
The weblog publish additionally cited Stephens Analyst Scott Fidel, who mentioned Cigna’s inventory will seemingly profit from the decreased threat of MA because the market struggles. The sale to HCSC might “set the stage” for Cigna to accumulate Humana.
One other business knowledgeable instructed MedCity Information that the Cigna/HCSC deal is sensible, and likewise hinted towards some doable exercise with Humana.
“The truth that UnitedHealthcare, Humana and Anthem management over 60% of Medicare Benefit lives would robotically exclude them as an acquirer,” mentioned Hal Andrews, president and CEO of Trilliant Well being, in an e mail. “In that context, HCSC is the logical purchaser given that it’s the second largest nationwide BCBS plan and has minimal MA market share. Traditionally, Cigna has been a savvy and dispassionate investor, and I might assume that they imagine they’ll notice a better return on funding through the use of proceeds from promoting its MA enterprise to put money into different areas. And, provided that hindsight is 20/15, the abandonment of the Humana transaction appears to be like otherwise in mild of Humana’s fourth quarter outcomes.”
Andrews added that Cigna’s sale value to HCSC is attention-grabbing provided that it’s much less than what Cigna paid for the MA enterprise in 2011 at $3.8 billion. Nevertheless, Gottlieb argued that the value really provides up.
“There seemingly isn’t quite a lot of capital accompanying this enterprise. They’re not shopping for authorized entities, they’re shopping for members,” he mentioned.
In line with David Cordani, chairman and CEO of The Cigna Group, the deal will “drive significant worth” to stakeholders and permit the corporate to develop its Evernorth Well being Providers enterprise. Cigna and HCSC have entered right into a four-year settlement during which Evernorth will proceed to supply pharmacy profit providers to the Medicare companies.
“Whereas we proceed to imagine the general Medicare house is a pretty section of the healthcare market, our Medicare companies require sustained funding, focus, and devoted sources disproportionate to their dimension inside The Cigna Group’s portfolio,” Cordani mentioned in an announcement. “We proceed to see important, significant progress alternatives for presidency providers, together with Medicare, in our Evernorth Well being Providers portfolio of companies.”
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