The $37 billion merger that would have resulted in Aetna acquiring Humana, which at the time was the largest acquisition of its type in the history of health insurance in the U.S., has officially been blocked by a federal judge, according to reports.
The deal, which was originally announced last July, and which would have brought together two of the biggest health insurers in the United States, has been ruled anticompetitive, according to reports. As reported by Bloomberg, “The transaction would violate antitrust laws by reducing competition among insurers, U.S. District Judge John D. Bates in Washington ruled on Monday [Jan.23]. With the deal defeated, Aetna owes Humana a $1 billion breakup fee under the terms of the merger agreement.”
The report further noted, “Aetna lost 2.6 percent to $119.29 at 11:49 a.m. in New York. Humana fell 0.8 percent to $198.92. Molina Healthcare Inc., which would have benefited from a deal to buy divested assets from Aetna and Humana, slumped 2.9 percent.”
An Aetna spokesperson told Bloomberg that the insurer is “giving serious considering” to an appeal after putting forward a competitive case. When the Aetna-Humana deal was announced, Healthcare Informatics' Mark Hagland wrote that a report in the American Journal of Managed Care online noted, “The deal, which has been approved the boards of directors of both companies, continues the trend of consolidation that has swept the healthcare industry since passage of the ACA. Some fear that ongoing consolidation will thwart competition and drive up prices for consumers, undermining a key goal of the law.”
To this end, last summer, Aetna threatened to pull out of the Affordable Care Act (ACA) after the Department of Justice brought a lawsuit to block the merger. When the DOJ asked Aetna would happen to the insurer’s ACA program if a deal were indeed to be blocked, Aetna’s CEO Mark Bertolini said the organization very likely “would need to leave the public exchange business entirely.” Given the current Republican-controlled government’s desire to repeal the ACA, however, it remains to be seen how this will play out.
Just a few weeks after the announcement of the Aetna-Humana merger, Anthem struck a deal to acquire Cigna for $54.2 billion, which is now the largest health insurance transaction in the U.S. However, now that the Anthem-Humana deal has been blocked, insiders have serious doubts about the other big merger’s potential to be cleared, which is currently pending a ruling.
According to the Bloomberg report, “The ruling is another victory for antitrust enforcement efforts initiated by the Obama administration.” And, the report noted an e-mail from Jason McGorman, a Bloomberg Intelligence analyst, who said, in the e-mail message, ‘“If the judge blocked this deal, there is very little, if any, chance that the Anthem-Cigna deal gets cleared,’” adding that “analysts and investors had thought that the Aetna-Humana deal ‘had a better chance of settlement/clearance’ than Anthem-Cigna.”
The lawsuit against both mergers from the U.S Department of Justice, along with attorneys general from multiple states, alleged that the Aetna-Humana deal “would substantially reduce Medicare Advantage competition in more than 350 counties in 21 states, affecting more than 1.5 million Medicare Advantage customers in those counties. Before seeking to acquire Humana, Aetna had pursued aggressive expansion in Medicare Advantage. Aetna, the nation’s fourth-largest Medicare Advantage insurer by membership, has nearly doubled its Medicare Advantage footprint over the past four years. Humana is the nation’s second-largest Medicare Advantage insurer by membership,” DOJ officials stated in the lawsuit.”
According to the Bloomberg report, “Aetna countered that the Medicare market is much larger than the Justice Department claims because it includes both Medicare Advantage plans and original Medicare, providing more choice for seniors than the government portrayed. Competition on the exchanges isn’t an issue, they said, because Aetna withdrew from all 17 counties at issue in the government’s case.”
But, the judge today sided with the government’s view of the Medicare Advantage market. “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 as well. The companies’ rebuttal arguments are not persuasive,” Judge Bates wrote.