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Aetna exec talks Humana merger, PBM plans, divestitures

June 9, 2016

At Goldman Sachs' annual healthcare conference this week, Aetna President Karen Lynch offered a cautious peek behind the scenes of the company's closely watched acquisition of Aetna.

 

Lynch, who was a key figure in the effort to integrate Coventry into Aetna after it was acquired, touched on a variety of merger-related topics while reiterating that the company expects to close its deal with Humana in the second half of 2016. Here's a brief breakdown of what she discussed:

 

Debt financing: Lynch seemed to indicate that contrary to some analysts' interpretation, the timing of Aetna's recent $13 billion bond sale wasn't necessarily related to the company's evaluations of the merger approval process. Rather, she said, "that really was related to the calendar" given Aetna's projection of when the deal will close, in addition to predictions that interest rates may rise in the future.

 

Regulatory process: Lynch was optimistic about the Aetna-Humana deal's progress in winning over state regulators, and said her company is working closely with the Justice Department as it conducts its review. Aetna has sent the DOJ a lot of material to comply with its second request for information, but she noted the dialog is ongoing. She also said Aetna has arrived at a timing agreement with the DOJ, but said it has chosen not to reveal when that is out of respect for the agency's process.

 

Divestitures: Aetna is ready to have conversations about potential divestitures, Lynch said, adding that "a number of parties" have expressed interest since the announcement of its deal with Humana. Many expect Aetna and Humana to have to divest Medicare Advantage lives in order to satisfy anticompetitive concerns, though at least one report has questioned whether that will be enough.

 

Integration strategies: Though she noted that the Coventry deal and the Humana deal are "very different transactions," Lynch said she knows from her experience with the former's integration that the key markers of success are winning state and federal regulators' approval and making adequate integration plans. To that point, Lynch said key strategies include thoroughly understanding both organizations; ensuring that you "don't do any harm" to existing business operations; and focusing on culture and talent retention.

 

Pharmacy benefits management: Though CVS, with which Aetna has a PBM contract until 2020, has been a "very strong partner," Aetna is interested in learning about what Humana has done with its own PBM and will evaluate its future options once the transaction closes, according to Lynch. Aetna is excited about that opportunity, she said, given that "pharmacy will play a strategic role with regard to how we think about consumer behavior."

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