Aetna acquires Medicity for $500M

By Mike Miliard
02:59 PM

In an investment expected to pay dividends as health reform becomes "the law of the land" and healthcare IT use grows, Aetna announced in December that it would spend $500 million to acquire Medicity, a Salt Lake City-based developer of health information exchange (HIE) technology.
Aetna hopes Medicity, which offers products and services that enable health systems, hospitals, physician practices and HIEs to securely access and exchange healthcare information, will lower costs through improved care coordination. Specifically, Medicity is looked upon as a strong compliment to Aetna's existing ActiveHealth Management clinical decision support business.
The deal "came together fairly quickly," said Aetna spokesman Fred Laberge.
Indeed, "Medicity was not for sale," said Kipp Lassetter, MD, the company's chairman and CEO. But Aetna made its pitch, "and we found what they had to say very interesting."
"It's all related around a complete solution geared toward the trajectory of healthcare now under the pressures of reform," Lassetter added, "toward the changing dynamics of reimbursement and the real need to have a solution that combines both administrative and clinical data."
Medicity's HIE technology reaches more than 760 hospitals, 125,000 physician users and 250,000 end users. It has the largest installed base of enterprise HIE systems for providers and a substantial presence in the emerging state and regional health information exchange marketplaces. In addition, Medicity's flexible iNexx technology platform, combined with Aetna's resources, will enable development of new business offerings.
Specifically, said Lassetter, "long term we're going to explore a lot of interesting products that run on our platform. The ActiveHealth solution is a natural fit, and we're going to be looking at other types of products and services that can run on that platform and add to it. That could be solutions that support ACO functions, or patient-centered medical home (PCMH), or consumer transparency and engagement."
Laberge says the move was a "response to the regulatory changes taking place as a result of healthcare reform. We've been pretty open about wanting to make sure we were well-positioned to succeed in that new marketplace. Adding Medicity, which is clearly the leader in the industry, we thought clearly made strategic sense for us."
In a statement, Mark T. Bertolini, Aetna's CEO and president, said Medicity "will enable Aetna to offer a set of convenient, easy-to-access technology solutions for physicians, hospitals and other healthcare providers. We believe this acquisition will enhance Aetna's capabilities and accelerate our growth in the health information technology and health information exchange space."
Aetna expects to finance the acquisition with available resources. The transaction is subject to customary closing conditions and is projected to be neutral to its financial results in 2011. Medicity will operate as a separate business within Aetna.
The buy follows a similar move by UnitedHealth Group's Ingenix, which acquired HIE provider Axolotl in August.
"Some may argue that Aetna was simply looking to counter the move by UHG or Aetna's new CEO was looking to make a mark," wrote Chilmark Research analyst John Moore on his blog in December. But he saw "a more thoughtful and strategic move at play here which in the end may justify the price paid (which he called 'a king's ransom.')"
The post-reform market is shifting toward ACO and PCMH-type models. One upshot is that "self-insured employers will begin directly contracting with ACOs, relegating payers to the low margin role of a third party claims administrator," Moore wrote. "Therefore, payers need to rethink what their value-add is … in this changing landscape to maintain healthy margins. It appears that both UHG and Aetna see their role as leveraging their core competency in IT."
But as Moore wrote in another post, a problem for other payers looking to follow Aetna's and Ingenix's leads is that these two big acquisitions translate into a health information exchange market that's "going through a major upheaval with few strong, independent HIE vendors left."