Aetna To Buy Medicity For $500 Million

Aetna announced Tuesday that it will buy Medicity, a health information exchange (HIE) vendor, for approximately $500 million. The move continues a growing trend among health insurance companies to acquire technology that will help them meet new business requirements as the nation's healthcare systems undergo a significant transformation.

According to Aetna executives, Medicity has experienced strong growth in recent years and has the largest installed base of enterprise HIE systems for hospitals, physicians and other health care providers, diversified among state, regional and national clients. Medicity's HIE technology reaches more than 760 hospitals, 125,000 physician users and 250,000 end users.

Additionally, Aetna officials note that they are operating on the assumption that the healthcare reform law passed in March, which set the goal of providing health insurance to 32 million uninsured individuals over the next decade, will continue to be implemented, despite recent calls for repeal of the law among elected members of the Republican Party.

"We are moving forward under the assumption that the new healthcare reform regulations are the law of the land and operating accordingly," Fred Laberge, a spokesman for Aetna, told InformationWeek. "The acquisition, therefore, is a strategic response to the regulatory changes and financial pressures being felt by health care systems as they move toward integrated models of care and payment."

As the healthcare industry accelerates the adoption of electronic health records, health information exchanges and other technologies, Lynne Dunbrack, program director at IDC Health Insights, said payers are continuing to acquire technology companies, especially vendors with provider-focused products, to round out their technology offerings to their provider constituents.

Dunbrack said Aetna will benefit from Medicity's iNexx platform which connects to clinical, administrative and financial networks as well as electronic medical records and practice management systems. She also pointed to the August acquisition of Axolotl by Ingenix, which is owned by UnitedHealth Group as another example of a payer building its technology capabilities through a buyout and noted that HIE market consolidating is continuing. "The acquisition is very consistent with Aetna's strategy to build out a technology platform for accountable care," Dunbrack said. "Medicity's health information exchange technologies provide the ability to combine clinical and financial data and exchange it securely among care team members. This is another example of the HIE market consolidating," Dunbrack added.

Aetna has been developing technology under its ActiveHealth Management division, which provides clinical decision-support analytics and solutions that enhance the quality of patient care, provide overall cost savings and optimized performance-driven payment. The company employs nearly 3,000 IT professionals and has developed significant member technology innovations such as Aetna Navigator, Member Payment Estimator and DocFind. Moving forward, Medicity's acquisition should help Aetna to offer a set of convenient, easy-to-access technology solutions for physicians, hospitals and other health care providers.

"This acquisition gives Aetna a strong platform for continued growth in the developing HIE marketplace. It extends Aetna's capability to give providers a powerful platform for improving care collaboration, coordination and decision making and reducing unnecessary healthcare costs," Laberge said. "Strategically, we believe the acquisition will enhance Aetna's capabilities and accelerate our growth in the HIT and HIE spaces."

James Lassetter, Medicity's chairman and CEO, said Medicity will operate as a separate business in the Aetna family of companies and noted that Medicity's technology will benefit from the added resources that Aetna will provide. Additionally, Medicity's client base will gain access to the product portfolio ActiveHealth has developed.

"The combined solution provides you with a complete infrastructure for new models of care collaboration and reimbursement such as Accountable Care Organizations or Patient Centered Medical Homes. You can expect to see many more technologies come to market through Medicity over time and acceleration of our innovations and services," Lassetter said.

The transaction, which is expected to close in early January, 2011, is subject to customary closing conditions and regulatory approval. Aetna expects to finance the acquisition with available resources and the deal projected to be neutral to Aetna's financial results in 2011.