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Health Insurance Merger Challenges: Of Antitrust and the Affordable Care Act

The Department of Justice and attorneys general from multiple states last week sued to halt two health insurance mergers, each worth billions of dollars.

The challenged deals are Anthem's planned merger with Cigna and Aetna's proposed acquisition of Humana.  The deals would whittle down the number of top competitors in the health insurance industry from five to just three: an Anthem-Cigna entity, an Aetna-Humana entity, and the current industry giant UnitedHealth Group.  Each would have revenue of more than $100 billion a year.

The Justice Department alleges the mergers "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 suit against Anthem and Cigna is primarily concerned with competition in the market for employer-provided commercial health insurance and public exchanges created by the Affordable Care Act ("ACA").  The complaint against Aetna and Humana, meanwhile, alleges that their merger would substantially lessen Medicare Advantage competition.  The lawsuits come after a year-long investigation and attempts by the companies to persuade antitrust officials that their concerns could be allayed by selling off assets.

“There are some mergers which can be solved through divestitures," said Bill Baer, the acting associate attorney general. "We’ve seen nothing to suggest that these can.”

The lawsuits evidence strong resistance to consolidation in the industry by antitrust officials—though some commentators claim that consolidation is what the Obama Administration ordained when it passed the ACA.  For example, the law encourages health care providers to form networks called accountable care organizations, through which hospitals and doctors coordinate Medicare services and share financial and medical responsibility for the care of a minimum of 5,000 beneficiaries for at least three years.  Indeed, the ACA emphasizes integration as a way to reduce health costs and thereby increases incentives for healthcare providers to merge (we previously discussed this dynamic here).

Against the backdrop of the ACA, federal competition authorities have suffered a series of recent setbacks in health industry regulation.  Last month, the Northern District of Illinois rejected the FTC’s attempt to block the merger of two Chicago-area hospitals.  At the same time, West Virginia’s Health Care Authority approved a proposed merger in that state after the West Virginia legislature passed a new law making hospital mergers exempt from federal antitrust law.  And in May, the Middle District of Pennsylvania rejected the FTC's challenge to another hospital merger.  The judge in the Pennsylvania case commented that it is "no small irony that the same federal government under which the FTC operates has created a climate that virtually compels institutions to seek alliances such as the hospitals intend here."  The editorial page of The Wall Street Journal also did not miss that “irony.

Are recent antitrust cases involving healthcare mergers becoming Rorschach tests for one’s views on the highly politicized ACA?  Given the huge dollar amounts at issue and the potential for industry uncertainty as four of the five biggest market players go head-to-head with the antitrust regulators, this latest healthcare consolidation battle could be the most high-stakes yet.