Suit reveals Aetna-Wellpoint merger talks

The California insurer sues Aetna over its hiring of a WellPoint executive and in the process acknowledges that the plans had been discussing consolidation.

By Myrle Croasdale, amednews staff. Sept. 24, 2001.

The lawsuit WellPoint Health Networks Inc. is bringing against rival Aetna Inc. highlights the serious competition taking place as insurers fight to survive in a consolidating market, and, doctors groups' say, ignore their needs in the process.

"I wish they'd spend as much time and energy engaged with physicians and clients in health care as they are suing each other over competitive advantages," said Bill Clark, acting general counsel for the Medical Assn. of Georgia. WellPoint recently moved into that state as the new owner of Blue Cross and Blue Shield of Georgia.

"Sounds like another sideshow to watch," said Paul Kitchen, executive vice president of the Medical Society of Virginia, a state where WellPoint operates as Unicare and Aetna is a major health care insurer.

WellPoint's lawsuit, filed Aug. 24 in the U.S. District Court in New York, grew out of discussions of a merger between the Thousand Oaks, Calif.-based company and Hartford, Conn.-based Aetna. The discussion, in August 2000, had not been publicly disclosed prior to the lawsuit and followed a previous attempt by WellPoint and ING Group NV to take over Aetna in February 2000.

On Aug. 11, 2000, according to the lawsuit, WellPoint and Aetna signed a one-year deal related to talks they had that day regarding their possible alliance. Part of the deal, WellPoint said, was that neither company was allowed to hire the other's executives during that time.

WellPoint's complaint states that in March 2001 Aetna hired Ronald Williams, group president of the large-group division of WellPoint and president of WellPoint's Blue Cross of California company. That move, WellPoint said, was in violation of their agreement, even though the companies had not talked since that Aug. 11, 2000, meeting.

The suit claims Aetna has hired or plans to hire more WellPoint employees who worked for Williams and wants the court to block Aetna from doing this as well as pay WellPoint for unspecified financial damages.

In the complaint, WellPoint claims it has lost vital business information through this hiring and that Aetna, which is struggling with financial losses this year and is known fora rather staid offering of health insurance products, has used this information to broaden its health insurance offerings in order to be more competitive.

David Shove, managed care analyst with Prudential Securities, said he couldn't see any changes at Aetna that could be tied to its hiring Williams. The best he could figure is that WellPoint was trying to make a point with its lawsuit and that the legal battle would have no real effect on either company.

"To be honest I don't understand the whole thing," Shove said. "This guy went to Aetna five-six months ago, and they're just suing them now?" Shove said. "WellPoint talks to a lot of companies about a lot of deals; maybe they're trying to send a message in general: 'If you talk to us, don't steal our executives.' "

Shove noted that the managed care industry wasn't all that large, and situations like this happened frequently, which just added to the odd nature of the lawsuit.

While Aetna may not be in the strongest shape financially, Shove said it looked like the company had decided it could fix its woes itself and would not be shopping around its health care business.

John Cygul, WellPoint vice president of investor and corporate communications, said he could not comment on the lawsuit.

WellPoint stated in its complaint, however, that "Aetna is positioning itself to expand its own catalog of health plan products" as a result of hiring Williams, and the lawsuit quotes a July 30 Wall Street Journal article, which said that "the company has launched a vast management overhaul. ... The architect of the management restructuring is Ronald Williams."

Aetna spokesman Roy Clason Jr. responded in a statement: "We're very surprised and disappointed to learn of this lawsuit by WellPoint, given the fact that WellPoint raised no objections when informed by Mr. Williams of his intention to leave.

"While we disagree strongly with WellPoint's position as reflected in the complaint, we are particularly offended by their allegations that Mr. Williams has provided Aetna with any proprietary information," the statement continued.

Clason confirmed that WellPoint had approached Aetna with a proposal to discuss a possible combination of the two companies' health care benefits businesses.