DOJ sues to derail Aetna-Humana, Anthem-Cigna mergers on anti-trust grounds (updated)

Breaking News. The anticipated shoe has dropped. With all the US news concentrating on the Republican convention, the US Department of Justice, late today, without much fanfare beyond the presser, lobbed lawsuits at Aetna and Anthem to stop their respective acquisitions of Humana and Cigna. US Attorney General Loretta Lynch was joined by Principal Deputy Associate Attorney General William Baer, who had been the DOJ’s point person for this anti-trust review.

According to CNN’s report, Mr Baer said “the two mergers would leave consumers at risk by reducing benefits and raising premiums. He also stressed that the most vulnerable would be hit the hardest and that competition would be reduced. “These are so-called solutions that we cannot accept,” Baer said. He added that the mergers are a “convenient shortcut to increase profit for these two companies,” and that the DOJ had “zero confidence” that they would benefit consumers.”

Reuters reported that Aetna and Humana expect “to vigorously defend the companies’ pending merger,” Anthem’s response was “more muted”, as industry observers expected, as it has been more problematic not only in size and with Medicare Advantage divestiture, but also with reports of disagreements on management and governance.

If these mergers were successful, the Big Five in US health insurance would be reduced to the Big Three, with the $48 bn Anthem-Cigna matchup besting UnitedHealthCare for the #1 pole position with 45 million covered persons.

Why is this important to those of us in telehealth, telemedicine and telecare? We are still seeking ‘who pays for it’ (remember our Five Big Questions/FBQs?) and when five becomes three, and things are unsettled….negotiations grind to a halt. (This Editor will reference the post-2008 years where health tech US deals and development came to a screeching stop as we waited to find out what was in that mystery ACA bill. Recovery/reset took years….)

Earlier reports via Bloomberg News and Reuters noted that both sets of insurance companies faced substantial opposition from the start. In March, the Senate Subcommittee on Antitrust, Competition Policy and Consumer Rights held hearings including Mr Baer’s testimony, which was largely critical of the mergers. The influential Center for American Progress (CAP), the leading liberal ‘think tank’ in Washington (Washington Post) issued a report shortly before the hearings, which undoubtedly impacted the thinking of both the DOJ and the Senate subcommittee.

Opposition over the past few months also built on the state level. In the US, insurance is regulated by states, through licensing by state Departments of Banking and Insurance (DOBI) or similarly named agencies. The $34 bn Aetna-Humana merger would combine two of the largest supplementary Medicare Advantage (MA) providers; the DOJ specifically cited it would affect 1.6 million people in 364 counties who are MA customers. These plans sell to policyholders on an even lower level–the county. MA insurers in a state may not cover all counties with their plans, but 40 to 50 percent market share in any county may mean required divestiture.

Smaller states like Missouri and large like California (split decision by two departments) disapproved the mergers. According to the Bloomberg report, quoting Wells Fargo analysts, Aetna obtained approvals from 18 of 20 states where regulatory sign-off was needed. Anthem lagged with approvals in just 10 of 24 states.

The Anthem-Cigna merger was also marred by reports of conflicts on future management and governance of a single entity.

If they are blocked or do not challenge, Cigna and Humana reportedly have strong cash positions and will look for other acquisitions such as WellCare, Molina and Centene. More to come.

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