One of two large mergers that would reshape the U.S. health-care landscape has been blocked by a federal judge. Aetna is considering an appeal.
Aetna’s $37 billion deal to buy rival insurer Humana was blocked by a federal judge, thwarting one of two large mergers that would reshape the U.S. health-care landscape.
The transaction would violate antitrust laws by reducing competition among insurers, U.S. District Judge John D. Bates in Washington, D.C., ruled Monday.
Aetna said it was considering an appeal. Under the terms of the merger agreement, Aetna owes Humana a $1 billion breakup fee.
The ruling is a victory for antitrust enforcement efforts initiated by the Obama administration. It may bode poorly for the planned $48 billion merger between Anthem and Cigna, which was challenged by the Justice Department and is awaiting a ruling.
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“If the judge blocked this deal, there is very little, if any, chance that the Anthem-Cigna deal gets cleared,” said Jason McGorman, a Bloomberg Intelligence analyst.
The government case against the Humana takeover focused on the market for private health plans for the elderly, known as Medicare Advantage. The U.S. argued that the combination of Aetna and Humana would eliminate competition between the insurers in 364 counties in 21 states and probably would drive up seniors’ premiums for Medicare Advantage plans.
Aetna countered that the Medicare market is much larger than the Justice Department claims because it includes both Medicare Advantage plans and government-administered Medicare, providing more choice for seniors than the government portrayed. The insurers also offered to sell assets to Molina Healthcare to guard against any risk to competition.
Bates sided with the government, writing that data showed there are seniors who prefer Medicare Advantage and would be unlikely to switch to original Medicare if prices for Medicare Advantage plans rose. The head-to-head competition between Aetna and Humana benefits these seniors with broader networks and lower costs, Bates said. The companies’ proposal to restore competition by selling assets to Molina was insufficient, the judge said.
“The companies’ rebuttal arguments are unpersuasive: Federal regulation would likely be insufficient to prevent the merged firm from raising prices or reducing benefits, and neither entry by new competitors nor the proposed divestiture to Molina would suffice to replace competition eliminated by the merger,” Bates wrote.
Aetna and Humana will probably turn to other deals to expand, said John Gorman the founder of the Gorman Health Group consultancy. They may look to acquire smaller rivals that specialize in Medicaid
“Both these companies have a ton of capital to deploy,” he said. “Medicaid is really where all the action is going to be.”
That’s because states are increasingly turning to private companies to help manage costs in the government health program for the poor, a trend that some of President Trump’s health-care proposals could accelerate.
The American Medical Association, which opposed the merger, applauded the judge’s decision. “Elderly patients were the big winners today,” said Andrew Gurman, the group’s president. “Aetna’s strategy to eliminate head-to-head competition with rival Humana posed a clear and present threat to the quality, accessibility and affordability of health care for millions of seniors.”
The other part of the government’s case focused on lost competition on the insurance exchanges set up under Obamacare in 17 counties in three states: Florida, Georgia and Missouri.
Aetna signaled that it may appeal. “We’re reviewing the opinion now and giving serious consideration to an appeal after putting forward a compelling case,” T.J. Crawford, an Aetna spokesman, said. A Humana spokesman didn’t respond to a request for comment.