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Read Making a Killing

home / healthcare / in the media

Washington Post
Mar 02, 2000

by David S. Hilzenrath

Aetna Gets Buyout Offer

Aetna Inc., the nation's largest health insurer, said yesterday that it had received a $ 10.3 billion joint buyout offer from WellPoint Health Networks Inc., a California-based health insurance company, and ING America Insurance Holdings Inc., part of a Dutch financial conglomerate.

The deal would ratchet up the concentration of power in the managed-care industry, where Aetna--which covers about 1.3 million people in Maryland, the District and Virginia--is still digesting its purchases of two major competitors, Prudential HealthCare and NYLCare.

The wave of mergers has left employers and consumers with fewer choices of health plans, and it has given the surviving managed-care companies much more bargaining power over doctors, hospitals and other health-care providers.

Aetna's health-care business is much larger than that of its would-be acquirer, WellPoint. Aetna provides medical coverage for about 21 million Americans. WellPoint, which started as part of nonprofit Blue Cross of California, provides coverage for 7.3 million Americans. They include about 97,000 people in Maryland, the District and Virginia, where it does business under the name Unicare.

Aetna said its board will review the buyout offer "in due course."

Aetna shares, which had fallen by about half since early September, rose 29 percent to $ 53 yesterday. WellPoint shares fell 8 percent to $ 61.87 1/2.

The offer comes at a time when Aetna has been weakened by disappointing earnings, a depressed stock price and a backlash against cost-cutting measures that some doctors, patients and politicians have criticized as heavy-handed.

Aetna said it received a letter last Thursday from WellPoint and ING asking it "to begin discussions"--one day before Aetna announced the resignation of its embattled chairman and chief executive, Richard L. Huber.

Huber's replacement, longtime Aetna board member and investment banker William Donaldson, has pledged a complete review of Aetna's strategy and operations.

WellPoint and ING had intended to keep their offer confidential, Aetna said, but Aetna confirmed the broad outlines after CNBC broke the story. Under the offer, Aetna shareholders would receive $ 44 in cash and $ 26 in WellPoint stock for each Aetna share.

Even after Aetna's announcement, WellPoint spokesmen would not comment on the matter. ING officials could not be reached.

Advocates for doctors and patients expressed concern about the potential merger. The deal could give the combined business "the clout to send out contracts with egregious terms and a take-it-or-leave-it attitude," said Thomas R. Reardon, president of the American Medical Association, a major physicians lobby.

Many doctors have chafed under Aetna's edict that to participate in the company's preferred provider organizations they must also participate in its more strictly managed health maintenance organizations. HMOs pay many doctors a flat monthly fee for each patient regardless of the patient's medical needs.

Jamie Court of the California-based Foundation for Taxpayer and Consumer Rights said a WellPoint-Aetna combination would "be able to dictate terms to doctors, patients, hospitals and nurses with grave consequences for the quality of care."

But Douglas B. Sherlock, an investment banker who specializes in health care, said that bargaining power could lead to lower insurance premiums for consumers and employers. WellPoint is weak in many areas where Aetna has a strong presence, Sherlock added; in many parts of the country, a WellPoint-Aetna merger would not alter the balance of power because the companies do not overlap significantly if at all.

WellPoint, which is heavily concentrated in California, also provides specialized benefits such as dental, vision and mental coverage.

Its bid for one the nation's insurance giants symbolizes the transformation of many U.S. health-care enterprises from not-for-profit organizations to Wall Street powerhouses. Rising from its Blue Cross roots, it has since absorbed units of Massachusetts Mutual Life Insurance Co. and John Hancock Mutual Life Insurance Co.





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