Aetna-Humana merger will face tough antitrust scrutiny

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.