January 24, 2017

Federal judge blocks Aetna-Humana merger

Daily Briefing

A federal judge on Monday blocked a proposed $37 billion megamerger between health insurers Aetna and Humana.

Exclusive Q&A: What the Aetna–Humana ruling means for health plans

The megamerger, which would have made Aetna the nation's second-biggest insurer by revenue, is one of two proposed by health insurers being challenged by the Department of Justice (DOJ). A judge is expected to soon issue a ruling in the other case involving Anthem and Cigna

Aetna-Humana case details

During opening statements last month, DOJ argued that the Aetna and Humana merger would violate federal antitrust law by reducing competition in the Medicare Advantage (MA) and Affordable Care Act (ACA) exchange markets.

Aetna attorney John Majoras defended the proposed deal, arguing that the merger would not harm competition in the MA market because the traditional Medicare program would serve as a considerable competitor to the merged company.

Ruling details

U.S. District Judge John Bates in a ruling filed Monday wrote that he "mostly agrees" with DOJ's arguments that the proposed merger would hurt competition.

"The court is unpersuaded that the efficiencies generated by the merger will be sufficient to mitigate the anticompetitive effects for consumers in the challenged markets," Bates wrote. "[The] evidence tends to show that substitution between Medicare Advantage and original Medicare options is not nearly as substantial as defendants now suggest."

Bates wrote that he based his decision on "overwhelming market concentration figures" the merger would likely generate. He said, "The government identified 364 counties across 21 states where it argues that concentration in the [MA] market would rise above the presumptively unlawful level if the merger proceeds, and 17 counties across three states where that would be true in the [ACA] exchange markets."

Based on the "overwhelming market concentration figures" that would result from the megamerger, Bates said he doubted government regulation would be enough to prevent the combined company from "raising prices or reducing benefits." Further, he said that new competitors and divestitures, such as a proposal involving Molina Healthcare, would likely not be enough to address the merger's resulting market concentration.

Particularly in the MA market, Bates wrote, "In that market, which is the primary focus of this case, the merger is presumptively unlawful—a conclusion that is strongly supported by direct evidence of head-to-head competition [among Aetna and Humana] as well."

According to Bloomberg, Aetna will owe Humana a $1 billion breakup fee under the terms of their agreement if the deal does not proceed.

However, an Aetna spokesperson said the company is "reviewing the opinion now and giving serious consideration to an appeal after putting forward a compelling case."

According to Bloomberg, a Humana spokesperson did not immediately respond to a request for comment.

DOJ applauded the decision in a statement. Brent Snyder, a deputy assistant attorney general in charge of the department’s antitrust division, said, "This merger would have stifled competition and led to higher prices and lower-quality health insurance," adding, "Aetna attempted to buy a formidable rival, Humana, instead of competing independently to win customers."

According to the New York Times' "DealBook," DOJ has not yet changed leadership under the Trump administration. Matthew Cantor, a partner at Constantine Cannon, speculated in an interview with the Times that Aetna may appeal in order to see if Trump's administration might be more open to a merger.

Potential implications for Anthem-Cigna deal

Jason McGorman, a Bloomberg Intelligence analyst, said, "If the judge blocked this deal, there is very little, if any, chance that the Anthem-Cigna deal gets cleared."

However, some antitrust lawyers said Bates' ruling is unlikely to affect the Anthem-Cigna decision. Andrea Murino, a partner and co-chair of the antitrust and competition law practice at Goodwin, said, "The facts are very different" in each case (McLaughlin et al., Bloomberg, 1/23; Abelson/Picker, "DealBook," New York Times, 1/23; AP/Los Angeles Times, 1/23; Crowe/Bryan, Business Insider, 1/23; McCoy, USA Today, 1/23; Lovelace, CNBC, 1/23; Herman, Axios, 1/23).

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