Aetna and Medicity: Creating a Health Insurer-HIE Technology Connection

Coming less than four months after the Eden Prairie, Minn.-based Ingenix announced its acquisition of the San Jose, Calif.-based Axolotl (with that acquisition quickly following Ingenix’s acquisitions of Picis and Executive Health Resources), on Tuesday, executives at the Hartford, Conn.-based Aetna and the Salt Lake City-based Medicity announced plans for the health insurer to acquire the healthcare IT firm, which specializes in health information exchange (HIE) technology.

The two companies have valued the purchase price at approximately $500 million, with Aetna expecting to finance the acquisition with available resources.

In making the announcement, Mark T. Bertolini, Aetna’s CEO and president said, “This acquisition will enable Aetna to offer a set of convenient, easy-to-access technology solutions for physicians, hospitals, and other healthcare providers. That in turn can help improve the quality and efficiency of patient care. Strategically, we believe this acquisition will enhance Aetna’s capabilities and accelerate our growth in the health information technology and health information exchange space,” he added.

Medicity’s technology reaches more than 760 hospitals, 125,000 physician users, and 250,000 end-users, via about 118 customer organizations, and the company has the largest installed base of enterprise HIE systems for hospitals, physicians, and other providers. It has just under 200 employees.

Immediately following the announcement, HCI Editor-in-Chief Mark Hagland interviewed James K. ‘Kipp’ Lassetter, M.D., Medicity’s chairman and CEO, regarding his perspectives on the transaction, and his outlook on the industry going forward. Below are excerpts from that interview.

Healthcare Informatics: This is an interesting business combination, and a bit unusual in certain ways, don’t you think?

James K. ‘Kipp’ Lassetter, M.D.: Actually, when you see what’s going on in terms of the convergence of clinical and administrative information in healthcare, it’s more natural than may seem so on the surface. And I really believe that the execution of healthcare reform will involve the convergence of clinical and administrative data on the same platform; and historically, as you know, those have been very isolated worlds. And when you look at the changes in payment around ACOs [accountable care organizations, as provided for in the federal healthcare reform legislation passed in March], it’s impossible to believe you could create an ACO without a fully deployed HIE platform. And what we’re really doing is building something like what Kaiser has done, but without that same organizational structure.

There are plenty of downsides of the Kaiser model, and the biggest one is that it doesn’t scale very well. But if you give up the idea of implementing an ownership-based model, and work towards connecting all the providers in a community, leveraging an affiliation with a health plan, then the model looks very different.

HCI: Will your ownership by Aetna create any constraint on business for you?

Lassetter: I don’t think so. And an example of that is their ActiveHealth Management subsidiary, for clinical decision support and disease management. They have many payer and provider clients, and there’s really a very strong, disciplined Chinese wall between those organizations. So we’re going to be functioning much like ActiveHealth, and we’ll be free to have customers that may even be in fact competitive to what Aetna does. The new CEO of Aetna [Mark T. Bertolini was named CEO on Nov. 29] is not your father’s HMO CEO, to borrow a line from the GM marketing ad. He is very interesting, and very committed to transforming, growing, and diversifying revenue for Aetna, and he sees Aetna evolving into becoming a technology company, as opposed to just using technology to deliver their services. And they were very interested in our culture of innovation; instead of just developing platform suites, we’ve spent a lot of energy on developing a platform on which applications can run, and that’s a much more expensive proposition, but one with much more downstream leveragability than just a suite of applications, and that’s one of the things they found attractive about Medicity.

HCI: As you know, a couple of years ago, Ingenix got into some problems because of providers’ objections to that company’s methodologies in estimating correct levels of reimbursement on the part of health insurers to providers, and Ingenix’s ownership by UnitedHealth was cited in lawsuits. Do you have any strategies planned to prevent even the potential for the perception of conflict of interest going forward?

Lassetter: There’s a commitment on the part of both management teams—they’re very committed to being a principle-based organization, and so are we. And it may sound a bit corny, but if you go to the Aetna Web site, their ethical commitment is explained right on their site. Prior to agreeing to the deal, we had a chance to talk to most of our customers last night, and we’ve had very strong feedback, and I think that’s mostly due to Aetna’s strong reputation among the provider community. It’s easy to lump all payers together, but it’s not true that they’re all perceived the same. And Aetna has the best reputation among all the payers.

HCI: How did the combination talks begin?

Lassetter: I like to say, we crashed into each other at an intersection! [laughs] But the fact is, many companies approached us, and we weren’t for sale. But Aetna approached us not only with interest, but with a vision behind their request. And as I listened, I heard a company that was looking to do much more than just buy an HIE company. It was really about reforming healthcare through innovation, or ‘rinnovation.’ It’s really an exciting challenge: let’s tear down the old stereotypes about payers and providers; what if payers and providers combine and partner and are able to do deliver better performance at lower cost? And I think what we’re doing will help provide a real foundation to begin to tackle that challenge. And so they approached us, and quite honestly, we’re not an easy sell, but they were able to convince us of their vision.

HCI: Overall, how do you see the overall HIE services market developing?

Lassetter: What you haven’t seen is much combination between the players, other than companies buying like companies. I think you will see a very different dynamic in the ambulatory EHR space, where Allscripts bought Misys, for example. What we’re seeing is companies doing different things. Clearly, we now inherit the brand, for good or bad, of Aetna, and clearly, we think there’s a lot more positive brand equity than negative. That was our theory; I was very relieved, in spending time with their customers, to see that they’re a well-thought-of company.

HCI: How big do you see Medicity growing in the near future?

Lassetter: We had 100-percent growth in 2009 over 2008; and in 2010, we had over a 200-percent growth over 2009. And having the resources to support further growth is pretty exciting, and being able to co-market with ActiveHealth will be great. We’re going to work to have the product offerings integrated, so that their product offering can run on our platform.

HCI: Could you be acquiring anything else at some point?

Lassetter: That’s more of an Aetna question than a Medicity question, but I know they’re committed to grow the platform and grow our presence. But most of this last month has been about doing a deep due-diligence dive into our platform and our folks, so the next part is to do work on building out, and the tactical aspects of implementing things.

HCI: What will your role be?

Lassetter: My role will continue to be a strategic role. Day to day operations will continue under Brent Dover, our president, and I’ll continue to do strategic visioning. Our real focus now will be proving to our customer base that this will be good for them. It’s one thing to do a phone call, but talk is cheap. We just had an employee call, and we were all about heads-down, because we need to exceed our customers’ expectations; and ultimately, if we exceed those, it will prove the value of the transaction, and if we fall short in doing that, I think it will bring it into question. And the focus on our existing customers is a great way to conclude the conversation, because that’s what we’re focused on now. And we’ve got a great team, and they’re 100 percent focused and on-task right now.