DOJ’s merger complaints: An attorney’s 4 takeaways

August 8, 2016

Below are some perspectives on what these complaints mean for the parties’ chances and for consolidation in healthcare more generally.

On July 21, 2016, the Justice Department filed (DOJ), in immediate succession, complaints challenging the Anthem-Cigna and Aetna-Humana mergers in the D.C. federal district court. The defendants all have signaled that they intend to proceed and it is currently anticipated that trials will go forward later this year.

Below are some perspectives on what these complaints mean for the parties’ chances and for consolidation in healthcare more generally.

First, the complaints must be read together

Throughout each complaint, the government refers to the other merger. This evidences a more generalized concern from regulators for the state of the payer market, the absence of competition, and the resulting increased cost to consumers and employers.  For example, the DOJ alleges in both complaints, “[t]hese mergers would reshape the industry, eliminating two innovative competitors-Cigna and Humana-at a time when the industry is experimenting with new ways to lower healthcare costs.”  Whether the DOJ would have challenged one merger in the absence of the other remains an open question.

Read separately, Aetna-Humana Likely has a better chance of surviving

While the government’s motivation for challenging both mergers may have stemmed from the same basic concern, the underlying justifications for each challenge are markedly different.

The Anthem-Cigna complaint attacks the merger as broadly anticompetitive, identifying numerous relevant markets and geographies.  The Aetna-Humana complaint, by contrast, relies heavily on the elimination of competition in Medicare Advantage programs. 

Implicit in the government’s argument is the proposition that traditional Medicare, and even Medicare with various add-ons, such as Medicare Part D or a Medicare Supplement plan, is not a competitor to Medicare Advantage. 

Indeed, at times, the Aetna-Humana complaint reads like an ode to the superiority of Medicare Advantage, suggesting, for example, that “Medicare Advantage was designed to harness the benefits of competition among private insurers, and it is a much better deal for many seniors.”  In other words, no matter what, traditional Medicare will still be a bad deal compared to Medicare Advantage.  The success of the DOJ’s challenge may turn on this argument.

Next: The impact on ACA exchanges is critical

 

The impact on ACA exchanges is critical

Both complaints also express concerns regarding competition on public exchanges.  The government is clearly invested in maintaining the viability of public exchanges under the ACA. 

The complaints quote executives for the proposition that the insurance market will continue to evolve from an employer-based model to a retail model, and argue that consolidation will increase costs to individual purchasers and the government. 

Given recent voluntary departures and insolvencies in some markets, however, this argument may not be successful.  Indeed, Aetna already has argued the opposite-that the proposed merger would stabilize ACA exchanges and ensure availability to consumers.

Talking points

Both complaints use talking points that were provided to executives as a weapon against the companies. The complaints note that executives were advised to avoid using words like “markets,” “dominate/dominance,” and “consolidate.” 

Companies considering mergers in the future should take into account whether such advice does more harm than good.

Christian Auty is a principal in the Health Care Law practice group at Chicago-based law firm Much Shelist. He is an experienced litigator who helps pharmaceutical and healthcare clients resolve complex disputes, conduct internal investigations, and respond to regulatory and law-enforcement inquiries.