July 31--Merger partners Cigna Corp. and Anthem Inc. are already talking to state and federal regulators less than a week after announcing their plans to combine, the beginning of what is expected to be "a long, thorough regulatory process," Cigna's chief executive told CNBC Thursday.
"The key is going to be to demonstrate the health quality could improve, affordability will improve," David M. Cordani said.
Cordani's comments came as Bloomfield-based Cigna posted stronger-than-expected profits in the second quarter, as the number of customers increased in virtually all of Cigna's health insurance businesses.
Despite the earnings report, Cigna shares fell Thursday, and remain below their level of July 23, the day before the company agreed to the acquisition at $188 a share.
"The future is not fighting over the discount or over the cost per unit alone," Cordani told CNBC. "The future is aligning the incentives because everybody wants to improve the quality of the health outcome. We want to pay for the outcome that generates the positive result."
By becoming larger, health insurers say, they will have more bargaining power with hospitals, doctor groups and drugmakers because they will have a larger pool of members. In theory, insurers would pass on lower prices that are negotiated as savings to policyholders.
The savings would not just come from volume. The huge companies -- a merged Anthem and Cigna would be the country's largest health insurer with more than 50 million customers -- could negotiate payment schemes with providers that emphasize quality of care over quantity of services.
But opponents say giving health insurers too large a market share will stifle competition and lead to higher prices for consumers as they dominate regions.
Anthem's takeover of Cigna is expected to face a tough regulatory review, and there is skepticism about whether it will be approved. Some have called for the Anthem-Cigna deal to be reviewed concurrently with Hartford-based Aetna Inc.'s purchase of Humana.
Cigna and Anthem say they are confident their combination will win regulatory backing.
In the quarter ended June 30, Cigna posted net income of $588 million, or $2.26 a share, compared with $573 million, or $2.12 a share, a year earlier.
Operating income, which generally doesn't include one-time gains and losses, was $644 million, or $2.55 a share, in the second quarter, compared with $559 million, or $2.07 a share, a year ago.
Investors watch operating results closely because they are considered the best indicator of the strength of a company's core businesses.
Cigna's operating per share results in the most recent quarter blew by the consensus estimate of $2.31 in a survey of 14 analysts by Yahoo Finance.
The better-than-expected quarterly earnings were disclosed by Cigna on July 24 when the $48.4 billion combination of Anthem and Cigna was announced.
Revenues in the quarter rose by nearly 9 percent, to $9.5 billion, driven by a 9 percent increase in revenue from premiums from an expanded customer base. Cigna's pool of customers rose 4.2 pecent, to 14.8 million in the quarter, up from 14.2 million a year ago.
Shares in Cigna closed at $143.90, down $1.51 in trading on the New York Stock Exchange. Cigna shares -- valued at $188 in the Anthem deal -- rose steadily in the weeks prior to the merger announcement. Analysts say shares fell after the announcement because of the length of time it will take to complete the deal. There also is skepticism that the deal will pass muster with regulators, they said.
On Wednesday, Anthem reported second-quarter profits of $859 million, or $3.13 a share, compared with $731.1 million, or $2.56 a share, a year earlier. Revenue rose 8.4 percent, and its membership rose 3.4 percent, to 38.5 million.
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