WEBVTT - Bloomberg's McGorman on Doubts Cast on Anthem-Cigna Deal(Audio)

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<v Speaker 1>Bill Maloney. Charlotte, all right, thank you very much. I've

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<v Speaker 1>Plot that's a Bloomberg business flash you're listening to. Taking

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<v Speaker 1>stock with Kathleen Hayes and Pim Box on Bloomberg Radio.

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<v Speaker 1>A pending fifty four billion dollar merger of the health

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<v Speaker 1>insurers Anthem and Signa couldn't mean more squabbling with either

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<v Speaker 1>regulators or indeed between the management of Anthem and Signa.

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<v Speaker 1>Here to learn more is to help us learn more.

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<v Speaker 1>As Jason Gorman, he is an analyst on medical devices

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<v Speaker 1>and healthcare services for Bloomberg Intelligence. Jason, thanks very much

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<v Speaker 1>for being with us. Explain what is going on right

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<v Speaker 1>now at Anthem and Signa and this potential combination. Yeah,

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<v Speaker 1>and thank you for having me. So they the upshot

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<v Speaker 1>is that they're disagreeing about some of the timing of

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<v Speaker 1>the filing requirements for this deal to go through. Insignia

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<v Speaker 1>has had some uh some issues with Anthem uh suing

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<v Speaker 1>express scripts over some of its disputes and basically uh

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<v Speaker 1>distracting away from from the ongoing deal. So they've had

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<v Speaker 1>uh some tensions both now as well as when they

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<v Speaker 1>frankly first agreed to a deal back last summer. I've

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<v Speaker 1>had health insurance with both companies over the years. But

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<v Speaker 1>to me, a health insurance company is a health insurance company.

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<v Speaker 1>Explained to us, what what place in this industry each

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<v Speaker 1>of the companies occupies, How they're similar, how they're different. Sure,

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<v Speaker 1>so both Anthem Insignia are very large health and shares

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<v Speaker 1>in the commercial market. And what's in focus here is

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<v Speaker 1>plans for employer groups, which is the potential concern with

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<v Speaker 1>the Justice Department. So the difference being that if you

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<v Speaker 1>work for a large employer like Walmart uh and you

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<v Speaker 1>want to get your insurance UM. Now, what companies like

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<v Speaker 1>Anthem Insigna do is they really just manage the claims,

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<v Speaker 1>so it's more of a back end process. And they

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<v Speaker 1>charge a fee for doing that. So it's a little

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<v Speaker 1>bit different than the traditional insurance which we've heard a

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<v Speaker 1>little bit more about, which has gone to like the

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<v Speaker 1>the Obamacare exchanges that we've talked about, So a little

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<v Speaker 1>bit different of a model. And because there's so few

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<v Speaker 1>that can compete on such a large scale, UH, it's

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<v Speaker 1>it's really gotten down to UH a very small compet

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<v Speaker 1>of environments, and you do have to compete with the

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<v Speaker 1>number of members that you have. What kind of breakup

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<v Speaker 1>fee are we talking about here? If they decide or

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<v Speaker 1>for whatever reason, they cannot go through with this combination. Yeah,

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<v Speaker 1>So for the Anthem would have to pay Signa about

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<v Speaker 1>one point nine billion dollars pretexts um for thing that

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<v Speaker 1>if the deal were to fall through, and UH would

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<v Speaker 1>have to pay Humana about a billion dollars. So um.

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<v Speaker 1>That's actually slightly below what some of the comfortable UH

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<v Speaker 1>fees have been another other deals, but still pretty sizeable

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<v Speaker 1>for the companies if they don't end up going through.

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<v Speaker 1>So if I'm the Justice Department, if I'm a consumer,

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<v Speaker 1>if I'm a big company who buys health insurance for

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<v Speaker 1>my employees through one of these big insurance companies. I'm saying,

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<v Speaker 1>why let them merge. That means they'll be fewer choices

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<v Speaker 1>and they can just turn the screws to me all

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<v Speaker 1>the more. Yeah, so they they're there are two separate

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<v Speaker 1>deals that are going on, the and then Humana focusing

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<v Speaker 1>more on medicare is a little less concerning because Medicare

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<v Speaker 1>prices are are relatively um kept in line, whereas from

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<v Speaker 1>a anthem perspective, they would argue that they can actually

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<v Speaker 1>use their sizable membership to negotiate more favorable rates. The

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<v Speaker 1>problem with that is then if a hospital has to

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<v Speaker 1>take that hit, well, then you could argue that the

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<v Speaker 1>quality of our health care would go down because of that.

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<v Speaker 1>Um So, I don't think that their argument holds as

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<v Speaker 1>much water as they're saying it does. What about the

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<v Speaker 1>Department of Justice and the antitrust clearance? Is this is

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<v Speaker 1>a sure thing for the anthem signa deal. Ever since

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<v Speaker 1>these deals were announced, the market has viewed them with

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<v Speaker 1>a large grain of salt. They've the actual value of

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<v Speaker 1>the deals has been at a between twenty two spread

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<v Speaker 1>versus where the boxer training today. Um So, there's a

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<v Speaker 1>big discount for what investors are looking at because of

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<v Speaker 1>that uh possibility that these deals get blocked one or both.

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<v Speaker 1>Uh And from what our work has shown, especially with

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<v Speaker 1>our anti trust attorney, it's it's there is the concern

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<v Speaker 1>that you have, as we've seen with other markets in telecom,

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<v Speaker 1>that if the Justice Spartman looks at it for a

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<v Speaker 1>national basis, well, then the risk goes up that the

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<v Speaker 1>Anthem signal deal gets blocked. And that's why the spread

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<v Speaker 1>on that deal um and investors minds is a little

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<v Speaker 1>bit higher. So in a nutshell, I just want to

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<v Speaker 1>quickly touch on the express Scripts lawsuit. What it is?

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<v Speaker 1>Is it something that maybe Anthem wishes it hadn't gotten

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<v Speaker 1>into now that wants to team up a SIGNA Yeah,

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<v Speaker 1>so they would argue that it's it's sizeable savings. They've

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<v Speaker 1>talked about up to fifteen billion dollars, but even you

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<v Speaker 1>know it's come down now to a couple of billion dollars.

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<v Speaker 1>It does seem to be a bit of a distraction.

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<v Speaker 1>Ultimately being in this space and being a large competitior

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<v Speaker 1>and commercial health insurances what's most important for them. But

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<v Speaker 1>I don't know what that means for for express Scripts. UH.

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<v Speaker 1>They're going to try and get something done, and maybe

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<v Speaker 1>that means that they settle on something um versus fighting

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<v Speaker 1>it out longer term. All right, Jason mcgorman, thank you

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<v Speaker 1>so much for joining us, saying in his latest b

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<v Speaker 1>I Bloomberg Intelligence piece that Anthony has few options if

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<v Speaker 1>this signet deal falls through Living Intelligence. Senior industry analyst

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<v Speaker 1>for managed Care, I'm Kathleen Hayes, along with pim Fox

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