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Euthanize This (Merger)

The merger of Cigna and Humana, America’s fifth- and sixth-largest for-profit health insurers, would create a monster middleman to ‘compete’ with the undisputed giant, UnitedHealth.


Earlier this year, a federal judge in Washington state unsealed a whistleblower lawsuit I haven’t been able to stop thinking about. The plaintiff was a nurse practitioner named Maxwell Ollivant who worked from 2019 to 2020 for Optum, the physician services subsidiary of the health insurance giant UnitedHealthcare, as a primary care practitioner. Ollivant’s patients were nursing home residents insured by a UnitedHealth Medicare Advantage plan. In theory, his job was to monitor their symptoms proactively enough to keep them from being admitted to the hospital unnecessarily. In practice, many of his patients desperately needed hospitalization: One had a stroke and later gastrointestinal bleeding; another needed a blood transfusion. But Optum bosses, according to the lawsuit, did everything in their power to stop Ollivant and his colleagues from hospitalizing patients suffering from obvious, emergent life-threatening conditions, instead directing its employed nurse practitioners to see their “mission” as convincing patients to essentially waive their rights to medical treatment by signing do-not-resuscitate (DNR) orders or “comfort care” agreements.

On Tuesday, the former Cigna executive turned health care whistleblower Wendell Potter broke the news that his former employer was planning a merger with HMO giant Humana, which would create an insurance behemoth, with nearly $300 billion in revenue in 2023. Both Cigna and Humana have been under fire recently for alleged efforts to deny reimbursement claims for routine and often urgent medical care. A ProPublica/Capitol Forum investigation earlier this year revealed Cigna was using an algorithm called PXDX to illegally issue blanket denials on hundreds of thousands of claims that would have previously been reviewed by physicians (and in all likelihood, approved). Similarly, Humana has been under congressional scrutiny over its massive “prior authorization” bureaucracy, which requires doctors to obtain up-front permission to treat its Medicare Advantage customers at a rate of 2.8 times per patient per year, the second-highest in the business.

At UnitedHealth, which employs or contracts exclusively with 90,000 physicians and untold thousands of physician assistants and nurse practitioners like Ollivant, bosses can skirt the messiness of prior authorization and denial, and the attendant litigation and regulatory scrutiny involved, by simply pressuring its clinical workforce to deny care out of the gate. Such are the perks of “vertical integration,” through which the country’s largest insurer has turned itself into a one-stop walled garden for health care, and increasingly for its denial.

It’s a brilliant business model. UnitedHealth is now the fifth-biggest company in America by revenue, with operating income approaching $25 billion and a market capitalization of a half-trillion dollars, largely on the strong growth of its Optum medical empire and the one-stop shop for Medicare Advantage patients they serve. And it’s also pretty obviously what Cigna and Humana are hoping to replicate with their merger, so long as antitrust authorities don’t get in the way. The two companies are likely betting that whatever resistance Biden’s DOJ exercises to the deal will be undone by a future Trump administration.

THE LAST TIME CIGNA AND HUMANA ATTEMPTED to pull off insurance mega-mergers eight years ago, it wasn’t with each other. Cigna proposed to merge with Anthem, and Humana with Aetna. In response, the Obama Justice Department leaned on UnitedHealth to hand over a large trove of competitive information, which it deployed to successfully argue that the mergers would stifle competition and cause premiums to rise. The mergers were successfully blocked.

In the aftermath, Cigna and Aetna agreed to merge with pharmacy benefit managers instead (Express Scripts and CVS Caremark, respectively), while Humana teamed up with two private equity firms to buy the then-sprawling senior care empire Kindred Healthcare, which Humana had cofounded and spun off decades earlier. The goal of all the transactions was vertical integration. As the business of selling health insurance policies to corporations was perceived as mature and competitive, insurers figured they could maximize their profits by insourcing the most profitable segments of the health care supply chain.

This isn’t exactly a new strategy: Humana got its start as a nursing home operator that morphed in the 1980s into an integrated HMO-hospital chain, then divested the hospitals to Rick Scott’s Columbia Hospital Corp. in the 1990s, and former Cigna executive Robert Patricelli told the Chicago Tribune way back in 1985 that “moving up the ‘food chain’ [of patient services] into ownership of ambulatory care facilities and down in the other direction into ownership of after-care programs” was the “key to survival” in the insurance business.

But positions on the health care food chain are constantly shifting in response to market dynamics and regulator crackdowns. In 2018, Cigna bet big on morphing into a pharma middleman—much, it’s worth noting, to the chagrin of shareholder Carl Icahn, who predicted that its “ridiculous” $67 billion purchase of Express Scripts would go down as one of “the worst acquisitions in corporate history,” once the federal government eradicated the PBM business. Humana, for its part, focused on acquiring assets that would complement its booming Medicare Advantage business.

But only UnitedHealth had the foresight to do something insurance companies had never really done: use its leverage as a dominant payor to thousands of hospitals and medical practices to buy out the practices outright. The move was counterintuitive, since individual doctors—especially primary care physicians—have perhaps never sunk as low as they are today on the proverbial “food chain.” But UnitedHealth bought practices primarily as a means of convincing their patients to enroll in their Medicare Advantage plans. Numerous whistleblower lawsuits have alleged that the mechanics by which UnitedHealth induced patients to sign on to its MA plans were illegal violations of anti-kickback statutes, but they have done little to slow the dizzying growth of United’s MA business, which now insures nearly 30 percent of the nation’s 30.8 million seniors enrolled in Medicare Advantage.

Since 2011, when Optum bought out a massive 2,300-physician practice in Southern California called Monarch HealthCare, it has rolled up urgent care clinic and surgery center chains, massive independent medical practices in Texas, New York, Massachusetts, and Connecticut, and a sprawling (and by many accounts, dysfunctional) hospital physician staffing firm that was recently the subject of an investigation by The Oregonian. According to a presentation Optum CEO Amar Desai delivered Wednesday to investors, United now employs or is “affiliated” with 90,000 physicians, close to one-tenth of the active physicians in the nation.

Notably, while UnitedHealth was crisscrossing the nation on this frenzied clinic shopping spree, its lobbyists and lawyers were positioning the insurance behemoth as a watchdog. The company supplied data along with the expertise of its executive Ted Prospect to researchers who published a series of landmark studies on the billing practices of private equity–owned emergency room staffing agencies EmCare and TeamHealth, which became the defining health care policy issue of the 2020 election. The company’s legal battles with private equity–backed medical mega-practices from Radiology Partners to American Renal Associates to U.S. Anesthesia Partners brought much-needed public attention and regulatory scrutiny to the scourge of private equity firms using debt financing to roll up vast numbers of specialized medical practices, then using their market dominance to gouge patients, defraud insurers, and shortchange physicians.

But while regulators began flailing around to respond to private equity’s terrifying conquest of health care, they displayed little resistance as UnitedHealth rolled up the biggest medical empire of them all. Sadly, UnitedHealth’s own incentives could prove substantially more harmful than what it was fighting against.

Maxwell Ollivant’s lawsuit—which he voluntarily dismissed last week after the DOJ declined to intervene—suggests that once it’s absorbed their patients, UnitedHealth may not actually need that many physicians. Over the course of his employment, Ollivant barely interacted with a single M.D., according to the lawsuit. (A message left with Ollivant’s parents was not returned.) His supervisor was a nurse practitioner, as were all the other primary care providers in the Institutional Special Needs program. His interim director of clinical operations was a nurse practitioner, his director of medical clinical operations was a physician assistant, and two other people with similar titles who coached him in using “patient-tested language” to convince patients identified by Optum’s “mortality risk assessment tool” to lower their “aggressive expectations of care” and accede to signing DNRs were also nurse practitioners.

There is nothing inherently wrong with deploying nurse practitioners to perform duties traditionally done by physicians, of course. But it is culturally more difficult for companies like Optum to bully doctors who have invested seven or eight years of their lives (and a half-million dollars) in medical school into abandoning their medical judgment in favor of a profit-maximizing algorithm, and I suspect for that reason Optum deliberately keeps physicians away from their sickest patients. A Washington state emergency physician with whom I shared Ollivant’s lawsuit said that while some of its allegations read to him “like some dystopian movie,” other details—like the role of emergency room staffing agency TeamHealth, which allegedly maintains an agreement to notify Optum before its employees agree to hospitalize any of its Medicare Advantage patients—struck him as plausible.

COULD A MERGED HUMANA-CIGNA EVER HOPE to rival United’s brilliant, dystopian business model? Cigna has failed miserably to gain traction in the Medicare Advantage business, in which it claims only a 2 percent market share. Recently, Cigna agreed to pay the DOJ $172 million and enter into a Corporate Integrity Agreement to settle a whistleblower suit filed by a vendor, alleging the company falsely claimed thousands of its Medicare Advantage recipients had complex and obscure illnesses on the basis of little to no legitimate diagnostic evidence, in a bid to game the “risk scoring” system that determines the size of the monthly payment insurers receive for a particular patient. In November, it reportedly put its Medicare Advantage business up for sale, possibly to avoid the burden of complying with the settlement. But Cigna is a lobbying juggernaut that has successfully fended off meaningful PBM reform, despite overwhelming bipartisan support for the cause of ending PBMs altogether.

Humana, on the other hand, is the second-biggest Medicare Advantage insurer in the nation, and the undisputed heavyweight throughout much of the Sun Belt, where state regulations are more lax and cash-starved health systems have always been easier for corporations to boss around. The company also just hired former Optum president James Rechtin as its new CEO. And he probably doesn’t need it, but a federal antitrust lawsuit filed against Optum last week by a small California hospital system offers something like an instruction manual for exploiting dominant market share to rule over the medical marketplace.

According to the complaint, United in 2021 threatened to impose a unilateral 30 percent rate cut on the hospitals unless it agreed to dismantle its affiliated physician practice and cede all its patients to Optum. When the practice refused to play ball, United began steering its Medicare Advantage patients to a for-profit hospital ten miles away, causing the hospitals’ volumes to plunge by as much as 80 percent in some specialties. As the biggest Medicare Advantage insurer in Virginia, Louisiana, Mississippi, Alabama, Kentucky, Arkansas, the Carolinas, and most enviably Florida, Humana could similarly move to monopolize medical care in many of those markets. And conveniently, Humana earlier this year announced it would be exiting the commercial insurance business entirely, meaning it will have no overlapping business lines with Cigna and thus be unlikely to increase the market concentration as gauged by the Herfindahl-Hirschman index, a boon with any federal judge in case the DOJ tries to block the merger.

That said, far less aggressive antitrust agencies in past presidencies sharply rejected this very bid to whittle down the small group of major U.S. insurance companies; it doesn’t seem like this far more aggressive group at DOJ would suddenly welcome such consolidation. The market certainly seems to believe that the Biden administration will block the merger; the stocks of both Humana and Cigna plunged after the announcement.

But a former antitrust researcher who briefly worked for UnitedHealth speculated that antitrust regulators might be too preoccupied digging into that insurer—whose acquisition of the hospice and home health care provider Amedisys is the subject of a current antitrust probe—to have the bandwidth to block a Cigna-Humana deal. “Without any particular knowledge of the situation, I think they’re hoping the DOJ is so unprepared to tackle UnitedHealth that the combined Cigna/Humana might seem appealing to regulators,” he said.

And then there’s the possibility that corporate America is betting on a friendlier Trump antitrust regime to replace Biden’s aggressive enforcers Lina Khan and Jonathan Kanter in 2024. Merger reviews often have very long timelines, and it’s very possible that there’s a change of power in Washington before any merger resolution is finalized. That’s something to look for in the coming months: Will CEOs begin to make a bet on a Trumpian restoration by divvying up the economy among themselves?

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