Aetna Prudential Life Insurance Merger Case Study
In December 1998, Aetna announced that it would purchase Prudential Health Care from Prudential Insurance Company for $1 billion in cash and debt. The merger created the biggest healthcare company in the United States with 22.4 million customers (Freudenheim). In July of the same year, Aetna had just purchased NYLCare from New York Life Insurance to become the fourth largest managed-care company, and it was still in the process of integrating (3-99 CV 398-H). The Prudential Health Care merger was the second big merger for Aetna that year. However, Prudential Life Insurance, wanting to get rid of the money losing Prudential Health Care, offered Aetna an irresistible deal of less than $200 for each member, compared with $600 a member that Aetna
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As a managed-care company, Aetna does two things: it provides customers with high quality health care at a low price and negotiates with physicians and health-providers for its service. The consolidation of Aetna and Prudential Health Care crowned Aetna to the number one managed-care company in the U.S., thus granting substantial purchase power over physicians. If Aetna were to force a physician to accept a lower service fee, he/she would have had no choice but to accept it. Because patient networks are often restricted by geographic area, physicians who did not accept Aetna’s demand would have risked getting thrown out of the Aetna network and losing a lot of patients. Physicians would also have lost the ability to encourage customers to switch to them, because customers would have needed to switch from their employer-sponsored health plans or be forced to pay high co-payments. In addition, Aetna’s “all products clause”, which required a physician to be part of all Aetna’s service or none of it, would have caused a physician to lose a significant amount of business if a physician decided to leave the Aetna network. Replacing the business would also have been extremely difficult when Aetna controlled a large portion of the patients. In areas like Houston and Dallas, where the previous primary health providers were Aetna and Prudential Health Care, the proposed merger would have allowed Aetna to suppress the physician’s service fee, which could have lead to a decrease in the quality of the services for patients. Furthermore, physicians at the AMA even began to discuss on ways to regain control of their profession, such as unionizing and
As a managed-care company, Aetna does two things: it provides customers with high quality health care at a low price and negotiates with physicians and health-providers for its service. The consolidation of Aetna and Prudential Health Care crowned Aetna to the number one managed-care company in the U.S., thus granting substantial purchase power over physicians. If Aetna were to force a physician to accept a lower service fee, he/she would have had no choice but to accept it. Because patient networks are often restricted by geographic area, physicians who did not accept Aetna’s demand would have risked getting thrown out of the Aetna network and losing a lot of patients. Physicians would also have lost the ability to encourage customers to switch to them, because customers would have needed to switch from their employer-sponsored health plans or be forced to pay high co-payments. In addition, Aetna’s “all products clause”, which required a physician to be part of all Aetna’s service or none of it, would have caused a physician to lose a significant amount of business if a physician decided to leave the Aetna network. Replacing the business would also have been extremely difficult when Aetna controlled a large portion of the patients. In areas like Houston and Dallas, where the previous primary health providers were Aetna and Prudential Health Care, the proposed merger would have allowed Aetna to suppress the physician’s service fee, which could have lead to a decrease in the quality of the services for patients. Furthermore, physicians at the AMA even began to discuss on ways to regain control of their profession, such as unionizing and