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Aetna and Humana Go to Battle With Regulators Over Multi-Billion Dollar Merger

The trial over Aetna and Humana's $37 billion proposed merger kicked off today in a Washington, D.C. federal court. 

At issue is whether the companies' merger would substantially lessen competition for private-market Medicare coverage, known as Medicare Advantage.  The DOJ says the merged entity would be the country's largest seller of such plans, covering 980,000 of the 1.6 million seniors who use Medicare Advantage.  The DOJ maintains that the merged entity would have a monopoly in an alleged Medicare Advantage market in many counties.  It contends that, as a result, seniors would pay much higher premiums for significantly reduced benefits.

Aetna and Humana maintain that the DOJ incorrectly excludes traditional Medicare plans from its post-merger competition analysis.  The companies argue that Medicare Advantage plans do not constitute their own market; rather, Medicare Advantage and traditional Medicare are functional substitutes.  Accordingly, they say, traditional Medicare will provide competition to the plans offered by the merged entity—competition the DOJ has not taken into account in staking its position on the merger.

Other issues to be addressed at trial are whether the merger would harm competition in Affordable Care Act exchanges and whether divestitures would sufficiently mitigate competitive concerns.  The non-jury trial is expected to close on December 30.  U.S. District Judge John D. Bates has indicated he will decide by mid-January whether the deal can move forward.

In the same courthouse, meanwhile, proceedings over the DOJ's challenge to a $48 billion merger between insurers Cigna and Anthem are well underway.  The first phase of that bifurcated trial started on November 21.  This phase focuses on whether that merger poses substantial harm to competition for national accounts of the country’s largest employers.  If U.S. District Judge Amy Berman Jackson rules for the companies in the first phase, a second phase scheduled to start December 12 will focus on whether the merger will decrease competition in local markets.

The Cigna-Anthem trial has exposed infighting between the two companies over issues related to the deal and to post-merger plans.  Cooperation has deteriorated as the companies have accused each other of violating their agreement.  Anthem has continued working on merger integration unilaterally. 

"How do you work on integration without talking to the person you’re integrating with?” asked Judge Jackson in recently unsealed records from that case.

Both trials stem from suits filed by the DOJ and attorneys general from multiple states simultaneously in July to halt what regulators described as “unprecedented consolidation in the health insurance industry.”  The lawsuits came after year-long investigations and unsuccessful attempts by the companies to persuade antitrust officials that their concerns could be allayed by selling off assets.  The deals would whittle down the number of top competitors in the health insurance industry from five to just three: an Anthem-Cigna entity, an Aetna-Humana entity, and the current industry giant UnitedHealth Group.  As we previously noted here, the huge dollar amounts at issue and the potential for industry uncertainty suggest this could be the most high-stakes healthcare consolidation battle yet.