A District of Columbia federal judge has ruled for the U.S. Department of Justice (DOJ) in the government’s suit to block the proposed $37 billion merger between health insurance giants Aetna Inc. and Humana Inc. U.S. District Judge John D. Bates, in a 156-page opinion, said if the companies proceeded with their merger it would substantially reduce competition for Medicare Advantage plans in 364 counties. Judge Bates agreed with the DOJ that the Medicare Advantage market does not include traditional Medicare plans, one of the major points of contention during the 13-day trial in December. Judge Bates said:
Aetna and Humana compete in a Medicare Advantage product market that does not include Original Medicare, as both contemporary business documents and econometric evidence confirm. 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.
Although government-provided Medicare and Medicare Advantage plans offered by private insurers may be functionally interchangeable regarding their basic offerings, the evidence shows that Medicare Advantage plans are a distinct market, Judge Bates said. For one, competition is fierce among Medicare Advantage providers and is less rigorous outside of that market, he said. Also, when seniors decide to switch from a Medicare Advantage plan, they typically opt for another Medicare Advantage plan, rather than moving over to traditional Medicare, Judge Bates said. And the companies’ own business documents draw a distinction between Medicare Advantage and traditional Medicare plans, he said.
Judge Bates also blasted Aetna over its decision to pull out of Affordable Care Act public health insurance exchanges in three states, saying the company made the move to dodge court scrutiny. As a result, the judge said he gave Aetna’s withdrawal from the exchanges little weight in his analysis of the merger’s competitive effects, though he did not go so far as to agree with the DOJ that he should look at the case as though the move had never been made. Judge Bates said:
The court finds that Aetna is likely to offer plans on the exchanges only in the three complaint counties in Florida in 2018 and beyond, and that the merger is likely to substantially lessen competition in those counties.
Aetna and Humana had characterized Aetna’s decision to withdraw from the markets as a business decision unrelated to the potential antitrust consequences. Judge Bates was not convinced by the insurers’ arguments that the merger’s detrimental effects to competition would be overcome by efficiencies created by the transaction. Aetna and Humana claimed their union would generate some $2.8 billion in savings that could be passed on to consumers, but a significant share of that amount would likely be retained by the merged firm, he said. Proposals by Aetna and Humana to divest Medicare Advantage plans to managed care company Molina Healthcare were also not enough to assuage Judge Bates’ concerns about the anti-competitive effects of the deal.
The plan to merge two out of the remaining five large national health insurance companies was revealed in the summer of 2015. The DOJ announced its decision to challenge the merger in July and at the same time said it would seek to block Anthem Inc.’s $54 billion plan to acquire Cigna Corp. The Anthem-Cigna trial ended last month. It remains to be seen whether Judge Bates’ decision to enjoin the Aetna-Humana deal will influence U.S. District Judge Amy B. Jackson, who is overseeing the Anthem-Cigna case.
The case is U.S. et al. v. Aetna Inc. et al., (case number 1:16-cv-01494) in the U.S. District Court for the District of Columbia.
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