Why Did Cigna Acquire MDLive?

Cigna Corp (NYSE:CI) is a healthcare conglomerate, and it launched a new brand called Evernorth in late 2020. The brand is meant to accelerate the innovation of flexible solutions for health plans, employers, and government organizations. And that includes the purchase of MDLive the following year.

So, why did Cigna acquire MDLive?

The platform is meant to complement the existing infrastructure to “to deliver greater affordability, predictability, and simplicity” for the company’s clients, according to Evernorth president and COO Eric Palmer.

Evernorth CEO Tim Wentworth hopes to reign in all of Cigna’s vast capabilities to optimize medical costs and bring future-state care solutions to the overall health care experience. And this latest purchase is just the next step in making that future a reality.

MDLive Adds Urgent Care Via Telehealth

MDLive is a low-cost Urgent Care Clinic alternative using telehealth to facilitate doctor-patient visits. It gives a path for e-prescriptions of non-narcotic medications online so that you don’t have to go to the hospital in person. This was simply a pipe dream until the events of the past couple of years transformed the way we think about hospital visits.

COVID-19 was the catalyst for a broad push toward telemedicine and telehealth care in general. However, we don’t know whether this trend will fully stick moving into the future, but investors have clearly signaled a return to the old ways is not a realistic possibility.

Telehealth and telemedicine are expected to be a $400 billion industry by 2026, and that offers investors a potential 25.08 percent CAGR.

MDLive IPO: Why It Didn’t Happen

Many believed MDLive would go public through an initial public offering (IPO). The buzz especially increased in late 2020 after the company closed $50 million in crossover equity investment from Sixth Street Growth.

That investment helped to fund a strategic expansion of its Primary Care digital health platform that serves 45 million members across all 50 states. It also secured $25 million in debt expansion from its investors that had media analysts at the time predicting a $1 billion valuation for the company.

So, who ended up buying it?

Who Bought MDLive?

As mentioned above, MDLive was ultimately bought out by Cigna. As a result, it removed the possibility of going public.

This Miramar-based company grew significantly when the migration to telemedicine mushroomed; virtual visits grew by over 95 percent in the first half of 2020 alone. That doesn’t even count the 300 percent increase in total bookings.

This made MDLive an obvious acquisition choice for Cigna. Of course, the assumption is that the telehealth industry continues to grow. Some skeptics believe there is a risk that an extensive vaccination rollout will hamper the growth trajectory of online medicine.

MDLive Cigna Acquisition: Good or Bad?

On one hand, MDLive offers a very useful digital platform. In this connected age a telehealth simple solution and virtual care offering should become the new standard of in-home medical care.

The purchase and trend towards virtual medicine is fraught with security risk however. Should the platform be exploited or hacked, privacy information of patients poses serious liability to Cigna.

These types of acquisitions appear as if an established company has its pulse on the next innovative trends but a security vulnerability exposes it to a class action lawsuit. There’s also serious competition faced by MDLive from competitors such as Amwell.

How Much Did Cigna Pay For MDLive?

MDLive had a valuation estimated at around $1 billion and had raised about $174 million since launching in 2009. Cigna’s investment arm – Cigna Ventures – was the leading investor all along, but we don’t know the exact acquisition terms.

It’s likely to have been relatively minimal since it already owned a hefty stake in the company. But that should all be available through financial statements for this fiscal year. Beyond that, we don’t have any information because nothing is publicly available. 

We do not know the exact price, but it’s estimated that the company was acquired for a valuation close to $1 billion. But there’s a larger question at hand, which is whether the service can even be covered by insurance. That will make a big difference in whether the general public adopts it.

Does Cigna Cover MDLive Now?

Virtual healthcare isn’t always covered by insurance. And Cigna is one of the largest insurance providers, so it’s great to have it cover these telemedicine screenings. This is going to be the biggest pain point as we move along into the 2020s and telemedicine becomes more widespread.

You can now use your Cigna coverage for your MDLive virtual visits. That’s your option now that they’re partnered. It would be a little strange to make such a massive acquisition if the services couldn’t be integrated into your existing offerings.

That means they will likely continue pushing for a vertically integrated healthcare solution moving forward.

Will MDLive Be Good for Cigna Stock?

MDLive was bought by Cigna, and it seems to be a good fit for the company. It’s a vertically integrated healthcare giant that is integrating the telehealth platform into its own tech toolkit. The Evernorth subsidiary is the company’s tech platform that ultimately made the purchase.

It hopes that MDLive will make it more efficient and cheaper to seek medical care in all 50 states. It’s unclear if that mission will succeed, but the pandemic highlighted the growing need for virtual medical care. Investors could see that 25 percent CAGR from the industry seeping into this company’s investment.

---

The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.