Although Aetna has completed its long-delayed $1 billion acquisition of Prudential HealthCare, the deal brought with it 1 million fewer enrollees than expected, along with conditions imposed by state and federal regulators.
The last roadblock to the merger was removed early this month, when New Jersey regulators approved the deal. The sale closed the same day, Aug. 6 (Aug. 9, p. 4).
In June the U.S. Justice Department cleared the sale of Prudential Insurance Co.'s managed-care unit after a six-month antitrust investigation, conditional on Aetna's divesting its NYLCare Health Plans in the Dallas-Fort Worth and Houston markets. The sale of those units, with a combined 427,000 enrollees, is expected to occur by year-end.
Hartford, Conn.-based Aetna has hired the investment bank Wasserstein Perella & Co. to handle that sale. Prospective buyers include Las Vegas-based Sierra Health Services and Louisville-based Humana.
"There are several interested parties," said Joyce Oberdorf, an Aetna spokeswoman, who declined to identify them.
Prudential HealthCare will be folded into Aetna's managed-care subsidiary, Aetna U.S. Healthcare, based in Blue Bell, Pa.
New conditions imposed on the merger in other states, including California, Florida and New Jersey, will not be onerous and had previously been accepted, Aetna officials said.
State regulators required the merged company to retain four Prudential service centers-in Cranbury, N.J.; Jacksonville, Fla.; Los Angeles; and Sugarland, Texas.
Other restrictions imposed by regulators in Florida and New Jersey limit Aetna's ability, at least in the short term, to cancel contracts with providers and compel the insurer to report regularly on its financial status. For example, in New Jersey, regulators also required Aetna to keep 90% of Prudential's doctors in each county in its network for three years.
Efforts by the American Medical Association and medical associations in other states, notably Georgia, to modify the merger's original terms were largely unsuccessful. Georgia regulators imposed no restrictions on the deal.
The merger also sailed through in Pennsylvania without significant opposition or modification, despite concerns by physicians there and a preliminary investigation by the state's attorney general (Feb. 22, p. 26).
The AMA, which led efforts to stop or reshape the merger, took credit for many of the deal's final conditions.
"In New Jersey and Texas, we have forced concessions from Aetna that should bode well for patients," Thomas Reardon, M.D., the AMA's president, said in a statement.
Reardon said the Texas divestitures lessened Aetna's "potential stranglehold" on the Dallas and Houston markets, and that restrictions on Aetna's activities in New Jersey will protect physicians and patients.
As for hospitals, "We vigorously opposed the merger from the outset, and we are no happier to see it approved," said Kerry McKean Kelly, a spokeswoman for the New Jersey Hospital Association.
She said Aetna's 40% market share in the state will jeopardize hospitals' leverage in rate negotiations.
The merged organization will be the nation's largest health plan, with more than 21 million enrollees, including 18 million managed-care enrollees. Officials have not revealed the number of states in which the combined plans will operate.
Many analysts and hospital executives said they believe consolidation of major managed-care plans puts more pressure on hospitals to join forces to enhance their negotiating clout.
Kenneth Abramowitz, a healthcare analyst at Sanford C. Bernstein & Co. in New York, was sanguine about the merger's prospects.
"They've increased their regional strength and their management bench, and they should be able to lower their cost structure," he said. "And they've eliminated a competitor."
Aetna acknowledged that attrition has caused Prudential HealthCare's enrollment to drop by more than 1 million since the merger was announced-from 6.6 million to just 5.5 million on June 30.
Prudential HealthCare, which had been a subsidiary of Newark, N.J.-based Prudential Insurance Company of America, lost more than $71.2 million last year on $4.63 billion in premium revenues, according to Weiss Ratings, an insurance rating service based in Palm Beach Gardens, Fla.
Aetna officials said subsequent premium rate increases by Prudential have caused it to lose a large chunk of business. However, most of the lost enrollment has been in Prudential's less-profitable indemnity and PPO businesses, officials said, and they don't see it as a significant problem.
Integration of Aetna U.S. Healthcare and Prudential HealthCare will begin immediately, Michael Cardillo, Aetna U.S. Healthcare's president said in a written statement. The company has told analysts it will take about two years for that process to be completed.