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Justice Department, State Attorneys General Sue to Block Anthem, Aetna Deals

July 21, 2016
by Heather Landi
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The U.S. Department of Justice announced Thursday that the department, along with attorneys general from multiple states, filed lawsuits to block Anthem’s proposed acquisition of Cigna and Aetna’s pending acquisition of Humana.

The DOJ alleged that the transactions would “increase concentration and harm competition across the country, reducing from five to three the number of large, national health insurers in the nation,” according to a press release. The attorneys general of the District of Columbia also joined the lawsuit.

The department and state attorneys general filed the two merger challenges in the U.S. District Court for the District of Columbia. “The complaints allege that the two mergers—valued at $54 billion and $37 billion—would harm seniors, working families and individuals, employers and doctors and other healthcare providers by limiting price competition, reducing benefits, decreasing incentives to provide innovative wellness programs and lowering the quality of care,” the press release stated.

As previously reported in Healthcare Informatics, there was speculation earlier this week that the DOJ would file a lawsuit to challenge the mergers, based on reports in a Bloomberg article. That article cited “a person familiar with the matter” that the DOJ could take action this week.

Hartford-based Aetna announced in early July 2015 that it would acquire Louisville-based Humana for $37 billion in cash and stock, which was, at the time, the largest acquisition of its type in the history of health insurance in the United States. A few weeks later, Indianapolis-based health insurer Anthem struck a deal to acquire Bloomfield, Ct.-based Cigna for $54.2 billion, now the largest health insurance transaction in the U.S.

Deputy Assistant Attorney General Sonia Pfaffenroth of the Justice Department’s Antitrust Division said in a prepared statement, “The proposed mergers would eliminate two innovative competitors—Cigna and Humana—at a time when competition has been pressuring insurers to develop new models of care designed to keep Americans healthier, to deliver healthcare more efficiently and to control the costs of providing care. The department will continue to work with our state colleagues to protect competition and innovation in this vitally important industry.”

Eleven states—California, Colorado, Connecticut, Georgia, Iowa, Maine, Maryland, New Hampshire, New York, Tennessee and Virginia—and the District of Columbia joined the department’s challenge of Anthem’s $54 billion acquisition of Cigna. Eight states—Delaware, Florida, Georgia, Iowa, Illinois, Ohio, Pennsylvania and Virginia—and the District of Columbia joined the department’s challenge of Aetna’s $37 billion acquisition of Humana.

According to the DOJ press release, the suit against Anthem and Cigna alleges that their merger would substantially reduce competition for millions of consumers who receive commercial health insurance coverage from national employers throughout the United States; from large-group employers in at least 35 metropolitan areas, including New York, Los Angeles, San Francisco, Denver and Indianapolis; and from public exchanges created by the Affordable Care Act in St. Louis and Denver. The complaint also alleges that the elimination of Cigna threatens competition among commercial insurers for the purchase of healthcare services from hospitals, physicians and other healthcare providers. “The merger would eliminate substantial head-to-head competition in all these markets, and it would remove the independent competitive force of Cigna, which has been a leader in the industry’s transition to value-based care,” the DOJ stated.

The lawsuit against Aetna and Humana alleges that their merger 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 staed in the lawsuit.

The lawsuit also alleges that Aetna’s purchase of Humana would substantially reduce competition to sell commercial health insurance to individuals and families on the public exchanges in 17 counties in Florida, Georgia and Missouri, affecting more than 700,000 people in those counties. The lawsuit alleges that by buying Humana, Aetna would eliminate one of its strongest and most capable competitors in these markets, the DOJ stated in the press release.

Aetna and Humana Inc. issued a joint press release stating that the companies plan to “vigorously defend the pending merger in response to a U.S. Department of Justice (DOJ) lawsuit seeking to block the transaction.

“A combined company is in the best interest of consumers, particularly seniors seeking affordable, high-quality Medicare Advantage (MA) plans,” the companies stated.

In the press release about the DOJ lawsuit, Aetna and Humana state that the facts do not support the basis for DOJ action. Specifically, the companies claim that there is “robust competition” in Medicare, that within MA, there is “an abundance of choice for seniors and built-in protections,” and that, to date, regulators in 18 or 20 states where change of control applications are required have approved the transaction, with remaining reviews underway.

Aetna and Humana also stated that any perceived competition concerns can be addressed through divestitures.

In a statement, Anthem officials called the DOJ action “an unfortunate and misguided step backwards for access to affordable healthcare for America.”

“The DOJ’s action is based on a flawed analysis and misunderstanding of the dynamic, competitive and highly regulated healthcare landscape and is inconsistent with the way that the DOJ has reviewed past healthcare transactions,” the company stated. “Anthem is fully committed to challenging the DOJ’s decision in court but will remain receptive to any efforts to reach a settlement with the DOJ that will allow us to complete the transaction and deliver its benefits at a critical time when American consumers are seeking high quality healthcare services with greater value at less cost.”

In its statement in response to the DOJ’s decision to challenge the company’s merger with Anthem, Cigna officials called into question whether it would even continue with the merger. Today, the Department of Justice announced that it will challenge our proposed merger with Anthem. Given the nature of the concerns raised by the DOJ and the overall status of the regulatory process, which under the terms of the merger agreement was led by Anthem, Cigna is currently evaluating its options consistent with its obligations under the agreement.”

Cigna officials also stated, “In light of the DOJ's decision, we do not believe the transaction will close in 2016 and the earliest it could close is 2017, if at all.”

Andrew Gurman, president of the American Medical Association, applauded the DOJ’s actions to block the mergers. “The prospect of reducing five national health insurance carriers to just three is unacceptable. Given the mergers' potential to significantly compromise market competition, the AMA strongly supports the antitrust challenge from federal regulators,” Gurman said in a prepared statement.

“Today's action by the DOJ acknowledges the AMA's concern that patients' interests can be harmed when big insurers acquire rivals and develop strangleholds on local markets. Allowing commercial health insurers to become too big and exert control over the delivery of health care would be bad for patients and vitality of the nation's health care system,” Gurman said.

 

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