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Cigna Stumbles on Medicare Program That Helped Draw Anthem Bid

By Kerry Young, CQ Roll Call


January 22, 2016 -- Cigna Corp. on Friday said Medicare suspended the firm's enrollment and marketing for new customers for its health insurance plans and stand-alone drug plans for seniors due to flaws in the administration of its pharmaceutical benefits and in its appeals programs, which consumers use to complain about problems such as denials of care.

The suspension doesn't affect the benefits or plans of Cigna's current Medicare customers, the Bloomfield, Connecticut–based company said in a regulatory filing. Cigna said the company is working with the Centers for Medicare and Medicaid Services (CMS) to resolve the issues as quickly as possible. Neither Cigna nor the Centers for Medicare and Medicaid Services (CMS) released specifics about Cigna's shortcomings.

Under Medicare Advantage plans, Cigna and other insurers are paid to manage health care for people in the federal program for seniors and people with disabilities. About 30 percent of the people enrolled in Medicare are now served by the Advantage plans run by Cigna and its competitors. Health insurers see the expected continued growth in the field as a lucrative opportunity to expand their business. Nearly 503,000 people were in Cigna's Medicare Advantage plan last year, representing about 3 percent of the program's population. The developments also affect Cigna's Medicare Part D drug program plans.

Investors appeared to take the news of Cigna's setback at least initially in stride. Cigna's shares slipped $1.87, or 1.3 percent, to $138.26, in mid-morning trading, contrary to small gains in major stock indexes. Shares of Anthem Inc., which is acquiring Cigna, rose by $2.35, or 1.7 percent, to $141.15. A spokeswoman for Indianapolis-based Anthem confirmed Friday that the insurance giant remains committed to the transaction.

Cigna's participation in Medicare is one of the attractions for Anthem, which last year said it expected to complete its purchase in the second half of 2016 after securing needed approvals. The transaction was valued at $54 billion at the time of the initial July 2015 announcement. Anthem's plan sparked concern about consolidation in the health insurance industry. Aetna Inc. also last year announced plans to buy another larger firm, Humana Inc., in a transaction initially valued at about $37 billion.

Anthem Chief Executive Joseph Swedish argued in testimony to Congress that the Cigna acquisition would create a combined company better equipped to function in a market where Medicare will become a more demanding customer.

In prepared remarks for the House Judiciary Committee, Swedish noted the ambitious goal set by the Department of Health and Human Services to shift 50 percent of Medicare payments from the traditional fee-for-service approach to one in which payments will be tied to measures of the quality of care provided.Making this transition will require major changes in how care is provided and funded.

"This challenge is equally recognized, and is being prioritized, by health insurers, providers, the administration, and Congress," Swedish said in remarks prepared for a House Judiciary panel in September.

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