AETNA-PRUDENTIAL: Justice Dept. Approves Merger
Federal government and Texas regulators yesterday approved Aetna Inc.'s $1 billion acquisition of Prudential HealthCare, on the understanding that Aetna sell its NYLCare businesses in Houston and Dallas. "In a consent decree filed in U.S. District Court in Dallas Monday," Aetna pledged to sell the Texas operations by the end of the year, although no buyer was named (Ivanovich, Houston Chronicle, 6/22). Aetna CEO Richard Huber said, "Although we do not agree with the Justice Department's concerns about the effect of the acquisition, a divestiture was the most expeditious way to bring closure to the comprehensive DOJ review process." Spokesperson Patricia Seif said the company had no prospective buyers for the NYLCare plans and "could not estimate how much the assets might fetch" (Reuters/Nando Times, 6/21). But analysts estimated that the holdings would sell for between $500 and $800 per patient, or between $214 and $350 million. Aetna spent $600 for each NYLCare enrollee when it bought the company last July. In a statement, Assistant U.S. Attorney Joel Klein said, "The divestitures will deny Aetna the ability to unduly suppress physician reimbursement rates and thereby impair the quantity and quality of physician services provided to patients" (Ornstein, Dallas Morning News, 6/22). The merger still requires approval from states in which doctors have raised antitrust objections.
The Business Angle
The divestitures in Texas make the deal "less attractive, but it's still worth doing," said Sanford C. Bernstein analyst Kenneth Abramowitz (Levick, Hartford Courant, 6/22). But Joseph France of Credit Suisse First Boston said, "If the objective was to weaken the company's position competitively, [regulators have] succeeded in that effort" (Dallas Morning News, 6/22). While the deal was once expected to add 10 cents per share to Aetna earnings over the next year, and Aetna still believes it will boost earnings, some analysts question how profitable it will ultimately be. "It's a very high-risk transaction," said Peter Costa of ABN Amro. Analysts stress that Aetna must raise prices on Prudential products without losing too many customers. While the deal was slated to close in this quarter, Aetna now says it will close in the third quarter (Jeffrey, Wall Street Journal, 6/22).
The merger has won its share of critics, however, chief among them the American Medical Association. AMA President Nancy Dickey said the acquisition "leaves an awful lot of markets badly out of whack." She said the Texas divestitures are "a big win, but it's a first step. We will clearly have to work with other states. She named Georgia, Florida, New York and New Jersey as states that may face serious problems with an overly-dominant Aetna. "Together they will have a monopolistic organization which will control upwards of 35 or 36% of all the patient care in the state of New Jersey," said Irving Rather, president of the Medical Society of New Jersey. Mathis Becker, president of the Florida Medical Association, added, "We have been part of objecting to these mega-mergers. It disenfranchises more and more patients from choices" (Yost, AP/Nando Times, 6/22). Jack Lewin, executive vice president of the California Medial Association, said, "Five health plans in California have 90% of the market. And that means that health plans become like 800- pound gorillas, dictating to doctors in an arrogant fashion" (Bernstein, Los Angeles Times, 6/22). Picking up on the large creature metaphor, Consumers for Quality Care Director Jamie Court said, "Unfortunately for the patients and doctors around the nation, this means the industry leviathan has control of the whole pond. We will likely see doctors with more complaints and patients with fewer services" (Labaton, New York Times, 6/22).