After gaining conditional federal antitrust approval last week for its proposed $1 billion acquisition of Prudential HealthCare, Aetna now has just six months to find a buyer for the two HMO units it must divest in the Dallas-Fort Worth and Houston markets.
Aetna acquired those NYLCare Health Plans units, which cover 427,000 managed-care enrollees, when it bought NYLCare last summer. Now it has to sell them-and fast-to consummate its long-delayed acquisition of 6.6 million-enrollee Prudential.
Aetna declined comment last week about potential buyers for the Texas units, but spokeswoman Jill Griffiths said Aetna would begin the divestiture process "immediately."
That effort might be complicated by the fact that Kaiser Permanente is selling managed-care plans with a total of 685,000 enrollees in five states (See story below).
Also on the selling block is the 308,000-enrollee Harris Methodist Health Plan, based in Arlington, Texas (June 21, p. 72).
Having so many plans for sale at the same time could depress the selling prices, although those could vary by locale, analysts said.
The two Aetna plans could go for $200 million and possibly approach $350 million, Wall Street analysts said. The analysts said major HMOs with strong Texas operations, such as Cigna, Humana, PacifiCare Health Systems and United Healthcare Corp., are among the most likely candidates.
"All have a presence (in those markets) and would be likely candidates to try to expand it," said Robert Hoehn, a healthcare analyst at ING Baring Furman Selz in New York.
Rob Mains, a Saratoga Springs, N.Y.-based analyst for Advest, added Las Vegas-based Sierra Health Services to the list of potential buyers. Sierra bought Kaiser Permanente's troubled Texas division last fall, paying $124 million for 109,000 enrollees and an affiliated medical group.
Bertko said a price range of $500 to $800 per NYLCare enrollee is plausible but added that the actual purchase price will depend on the NYLCare units' recent financial performance.
Aetna does not disclose financial results for its NYLCare units.
Aetna announced its compromise agreement with the U.S. Justice Department June 21, more than six months after the Prudential deal was made public.
As is common in such cases, the Justice Department, which began investigating the deal in December, simultaneously filed an antitrust lawsuit in U.S. District Court in Dallas to stop the merger. That suit will take effect if the consent decree is not completed or fails to win court approval.
The agreement does not require Aetna to divest operations in any other states.
In December, Hartford, Conn.-based Aetna agreed to purchase Newark, N.J.-based Prudential Insurance Co.'s managed-care business. The acquisition would make the Aetna U.S. Healthcare unit the nation's largest managed-care company, with a combined enrollment of more than 21 million. But intense opposition from the American Medical Association and various medical societies in Texas delayed the merger and ultimately altered its composition. Their complaints clearly swayed state and federal antitrust officials, who referenced them when describing the settlement.
Aetna officials now expect the transaction to close early in the third quarter. Full divestiture of the NYLCare units is expected to be completed by year-end.
Without providing specifics, Aetna's Griffiths said regulatory authorities in states other than Texas have also signed off on the proposed merger.
But obstacles remain until all necessary state regulators have approved the transaction and the NYLCare units are sold. And critics still have it out for the proposed merger.
The Medical Association of Georgia, for example, opposes the Texas settlement, arguing that patients and physicians in Atlanta should receive the same anti-competitive safeguards as Texans received.
The association said Aetna will control 27% of the Atlanta market, making it the region's largest player, under the agreement. In the Dallas-Fort Worth and Houston markets, by comparison, Justice Department officials said Aetna will have about 22% market share in Dallas-Fort Worth and about 24% in Houston. It would have had managed-care market shares of 42% and 63% in Dallas and Houston, respectively, if it hadn't been required to divest the NYLCare operations.
Justice Department officials said the Texas settlement preserved competition, protected consumers from higher HMO and point-of-service plan prices, and "will deny Aetna the ability to unduly depress physician reimbursement rates."