Aetna-Hu­mana merger will face tough an­titrust scru­tiny

Modern Healthcare - - NEWS - By Lisa Schencker

Fed­eral an­titrust re­view­ers will likely look mar­ket to mar­ket in de­cid­ing whether to ap­prove the pro­posed Aetna-Hu­mana merger and other loom­ing health in­sur­ance in­dus­try tieup deals, ex­perts say.

Aetna CEO Mark Ber­tolini said his com­pany is ready for gov­ern­ment ex­am­i­na­tion as it pre­pares to buy Hu­mana for $37 bil­lion. The deal in­cludes a $1 bil­lion fee that Aetna would pay Hu­mana if the merger fails to pass its an­titrust re­view. Aetna has al­ready dis­cussed pos­si­ble di­vesti­tures in par­tic­u­lar mar­kets. “We took a con­ser­va­tive view of what we thought we would need to divest,” Ber­tolini said dur­ing a con­fer­ence call with in­vestors last week. (See re­lated story, p. 22.)

But the re­view process likely will be a com­plex one, given the size and reach of Aetna and Hu­mana, ex­perts say. And other pend­ing in­sur­ance con­sol­i­da­tions also may af­fect how reg­u­la­tors view the Aetna-Hu­mana deal.

In re­cent weeks, Cen­tene Corp. of­fered $6.3 bil­lion for Health Net, and An­them has of­fered about $47 bil­lion in cash and stock for Cigna Corp. The five largest for-profit health in­sur­ers— Aetna, An­them, Cigna, Hu­mana and Unit­edHealth Group—have all been the sub­jects of merger talks.

Duke Univer­sity Law Pro­fes­sor Barak Rich­man said the Jus­tice Depart­ment likely will re­view such deals on a mar­ket-by-mar­ket ba­sis, keep­ing in mind their long-term com­pet­i­tive dy­nam­ics. Merg­ers like the Aetna-Hu­mana com­bi­na­tion in­volve many sub-mar­kets in terms of ge­og­ra­phy and prod­ucts. “It’s a very, very com­pli­cated anal­y­sis,” he said.

That an­titrust re­view process may be fur­ther com­pli­cated if more ma­jor in­sur­ers an­nounce ad­di­tional deals in com­ing weeks and months. The Jus­tice Depart­ment likely will study the Aet­naHu­mana merger with an eye to­ward any sub­se­quent trans­ac­tions, Rich­man said.

“At some point, espe- cially if there are two merg­ers out of the big five (in­sur­ers), you re­ally could say there’s an over­all less­en­ing of com­pe­ti­tion be­cause you re­ally have fewer po­ten­tial en­trants into each oth­ers’ mar­kets,” said Tim Gre­aney, co-di­rec­tor of the Cen­ter for Health Law Stud­ies at St. Louis Univer­sity and a for­mer Jus­tice Depart­ment an­titrust of­fi­cial.

In­sur­ers see the merg­ers as a way to build earn­ings, gain more bar­gain­ing lever­age with providers and drug­mak­ers, and di­ver­sify their prod­ucts in the more reg­u­lated en­vi­ron­ment cre­ated by the Af­ford­able Care Act, which caps ad­min­is­tra­tive costs and prof­its as a per­cent­age of pre­mium rev­enue. They say con­sol­i­dat­ing will al­low them to of­fer lower premi­ums for em­ploy­ers and con­sumers.

But the an­nounce­ment of the Aet­naHu­mana deal shortly be­fore the Fourth of July hol­i­day sparked im­me­di­ate wor­ries among con­sumer and provider groups that com­bin­ing the two in­sur­ance giants could lead to higher premi­ums, lower pay­ments to providers and nar­rower net­works.

Melinda Hat­ton, the Amer­i­can Hos­pi­tal As­so­ci­a­tion’s gen­eral coun­sel, said in a writ­ten state­ment that the AHA “will call upon the (Jus­tice Depart­ment) and Congress to ex­er­cise a sig­nif­i­cant level of scru­tiny over this po­ten­tial deal.”

Aetna of­fi­cials did not re­spond to a re­quest for com­ment. The Jus­tice Depart­ment, which would re­view the merger, de­clined to com­ment.

Jeff Miles, an an­titrust ex­pert with law firm Ober Kaler, said he doesn’t think an­titrust scru­tiny will kill the Aetna-Hu­mana deal. “But I think there’s likely to be some sig­nif­i­cant di­vesti­tures,” he said.

But oth­ers hedged their bets. “There’s a lot of dif­fer­ent mar­kets to look at, and they’re all at least slightly dif­fer­ent to very dif­fer­ent, so there’s a lot of mov­ing parts to take into ac­count,” said Martin Gaynor, a pro­fes­sor of eco­nom­ics and public pol­icy at Carnegie Mel­lon Univer­sity and a for­mer Fed­eral Trade Com­mis­sion of­fi­cial.

It is also un­clear ex­actly how long the an­titrust re­view of the Aet­naHu­mana deal might take. Right now, the deal is ex­pected to close in the sec­ond half of 2016.

In cer­tain pro­posed merg­ers, the par­ties must no­tify the FTC and the Jus­tice Depart­ment. The mat­ter then goes to Jus­tice’s an­titrust di­vi­sion, which has 30 days to ei­ther ask for more in­for­ma­tion with a sec­on­drequest let­ter or to ap­prove the trans­ac­tion.

In re­sponse to sec­ond-re­quest letters, par­ties typ­i­cally have to sub­mit vo­lu­mi­nous data to the an­titrust di­vi­sion. Then the di­vi­sion has 30 days to de­cide whether to clear the trans­ac­tion, file a mo­tion in fed­eral court for a pre­lim­i­nary in­junc­tion be­fore chal­leng­ing the merger, or en­ter an agree­ment with the par­ties for more time to in­ves­ti­gate, Miles said.

In re­cent years, the Jus­tice Depart­ment has got­ten in­volved in a num­ber of pro­posed deals among in­sur­ers in­clud­ing Wel­lPoint’s 2012 ac­qui­si­tion of Ameri­group Corp. and Hu­mana’s 2012 ac­qui­si­tion of Ar­ca­dian Man­age­ment Ser­vices, among oth­ers. Both of those merg­ers went through af­ter they agreed to di­vesti­tures.

Aetna CEO Mark Ber­tolini said his com­pany is ready for gov­ern­ment ex­am­i­na­tion as it pre­pares to buy Hu­mana for $37 bil­lion. The deal in­cludes a $1 bil­lion fee that Aetna would pay Hu­mana if the merger fails to pass its an­titrust re­view.

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