Aetna (NYSE:AET) has become one of the largest providers of health, dental, and long-term care and group life benefits. Its size is a crucial advantage in helping to control costs. And its $400 million purchase late last week of privately held ActiveHealth shows that it understands the importance of technology in containing costs as well.
Since 1998, ActiveHealth has been building a suite of patented technologies known as CareEngine, which allows for a type of sophisticated analysis of medical data called evidence-based medical management. Its focus on ensuring that patients are getting the right treatments translates into increased safety and reduced medical costs.
In most cases, a health plan or a self-insured company will license this type of technology and sell it to customers -- large companies and hospitals -- as a separate service. Aetna will treat ActiveHealth this way, maintaining it as a standalone entity. Since the product analyzes patient information, preserving confidentiality is absolutely critical, and the internal separation between ActiveHealth and Aetna will also provide for compliance with HIPAA, the health information privacy law.
Founded in 1850, Aetna is still growing quite nicely. In the first quarter, net income increased 16% to $424 million, and revenues increased 13% to $5.4 billion. The company has 14.4 million members in its health-care network, and that size is attractive to employers who want to consolidate their health-care spending. The company has been effective in maintaining stable pricing for premiums, and growth in the generics market has allowed it to benefit from moderating drug costs.
To continue its growth, Aetna needs to continue to push the envelope in terms of reducing costs. The ActiveHealth acquisition should be a big help in terms of getting new contracts with major customers. And maybe that's why -- despite the $400 million price tag -- Aetna's management expects the deal to be accretive to earnings for the next 12 months.
Fool contributor Tom Taulli does not own shares of companies mentioned in this article.
