The Other Shoe Drops in the US Healthcare Insurance Market

Anthem’s acquisition of Cigna, announced yesterday, creates a triopoly in the US healthcare market, where less than a month ago five separate healthcare insurers roamed the earth. Aetna’s merger with Humana, announced a mere three weeks ago, was the immediate predecessor to this transaction, and certainly added urgency to the negotiations between Cigna and Anthem, stalled out over the last few weeks on issues of valuation and hierarchy.

While the Street is catching its breath on all of this, another, less glamourous but no less epic battle will be played out over the coming months, invisible to the outside world. This is the struggle for survival and supremacy among the third-party suppliers that are part of the operational backbone of the US payer industry.

What the public doesn’t see is something that is keeping the leadership of Accenture, Cognizant, EXL, Convergys, TCS and Genpact on the phones from the US to Bangalore, Manila, Dalian, and beyond. Who are the main call, claim, and corporate BPO/ITO suppliers in the ecosystems of the other company? Are we going to lose our position of strength and influence in this account when it merges with another entity where we are not known, or where we are known but not liked?

In-flight deals across these four entities (Aetna, Humana, Cigna, Anthem) are going to be scrutinized, yellow-lighted, or stalled, while everyone waits to see what the tea leaves say about decisions made on high. Whose call provider is going to be dominant, whose claim processing partners, whose IT infrastructure partners, whose F&A providers? These are all insurers with lush ecosystems of service providers, that in many cases are also customers. Who will make the call to throw out one of these contracts when there is a profitable and large insurance relationship on the other side?

Soon enough, everyone will be very envious of the investment bankers that structured these transactions, then took the next Gulfstream back to the Caymans. Because what is left to do is messy, complex, fraught with no-good-answer options—and that is just on the corporate side. On the supplier side, over the next year there will be a steady diet intelligence-gathering, insight-probing, and influence-seeking regarding the opposing camp, if they have no position in the opposite entity. And there will be reciprocal spy-vs.-spy on the other side, quite naturally.

There is also an immediate and probably unwelcome shadow cast on all in-flight transactions, and early stage roll-outs. Will the contract go through as written? Will the contract be cancelled? What is our revenue impact?

You can bet that the BPO and ITO majors that supply these healthcare industry giants are combing the fine print of their contracts and paying special attention to the Change of Control and Termination for Convenience sections.

The work for lawyers will continue, and for the “little people” on both the buy and sell side of these contracts. Because the guidance needed from on high—an “on high” that is now to be forged from newly combined senior management teams—may take some time to formulate.

Make no mistake, these mergers grab the headlines and capture the imaginations of armchair investors, but the ambiguity and operational risks are not for the faint of heart on any side of these transactions. Weather report for the payer BPO / ITO industry: Cloudy, with a chance of success.