Stand-alone hospitals and physician groups in crowded markets already have limited negotiating leverage with insurers, and often find themselves in a take-it-or-leave-it situation. That has led many physician groups to refuse to sign contracts, increasing the risk of patients getting stuck with large out-of-network medical bills. Wergin said his practice and his town's critical-access hospital have not signed network agreements with UnitedHealthcare because the insurer demands discounts that are “too deep.” Providers and policy experts worry insurance mergers will intensify these pressures.
“That's going to be a concern for the entire provider community,” said Steven Sonenreich, CEO of Mount Sinai Medical Center, a 608-bed independent teaching hospital in Miami Beach, Fla. “Unquestionably for stand-alone institutions, it's an even greater challenge.”
The first domino to fall in the insurance merger game appears to be Anthem and Cigna. Anthem offered to pay $184 per share for Cigna. In assuming Cigna's debt, the price tag would be about $54 billion, potentially the largest deal in health insurance history.
Anthem believes that $2 billion in costs can be cut from the merged company within two years. But Doug Sherlock, a veteran healthcare analyst at Sherlock Co., said only 15% to 20% of administrative expenses are subject to economies of scale in most mergers, making it important to not overstate potential savings.
Analysts predict Cigna ultimately will say yes. Cigna CEO David Cordani wants to head the new combined company, but Anthem has spurned that demand.
Instead, Anthem CEO Joseph Swedish would remain as chief and become the company's chairman and head of integration. Cordani, who would be owed almost $10 million in cash severance and tens of millions of dollars in unvested stock awards if Cigna is taken over, would become president and chief operating officer.
Cigna also has aired other concerns, such as approval from the Blue Cross and Blue Shield Association, which provides Blues licensing to Anthem, as well as pending antitrust litigation against the association. The Association limits how much of a licensee's business can be branded outside of the Blues and how the company can compete with other Blues plans. Lawsuits against the association allege that Blues plans collude to create monopolies in different healthcare markets.
But Anthem's Swedish said last week that “we have provided a clear, comprehensive and compelling offer. We just felt that the process was not developing in a way that we felt would be coming to an end that best represented the interests of the shareholders.”