Federal antitrust officials are determining how, and if, transactions will move forward. Here's a roadmap of what's ahead in 2016.
Aetna’s announcement last summer that it will acquire Humana, followed by Anthem’s announced acquisition of Cigna, set in motion a process of antitrust review that will likely continue throughout 2016. At the federal level, the Antitrust Division of the Department of Justice (DOJ) has responsibility for scrutinizing the competitive aspects of the health insurance industry, including these transactions, while the Federal Trade Commission (FTC) commonly oversees provider consolidations. State insurance regulators and attorneys general will also have their chance to examine these deals.
GrimesThe parties have already filed their premerger notifications providing initial information. The DOJ has issued its Second Request, typically seeking voluminous documents and information about the structure of the health insurance market and the parties’ intentions in making the deal. The DOJ will check the reactions of those who have to negotiate with health insurers-hospitals, physicians, and large employers-as well as competing insurers. The parties have probably made presentations advocating the deals. Expert economists are poring over the gathering data.
The DOJ follows the “Horizontal Merger Guidelines” in merger reviews, which cover a wide array of antitrust issues. The agency first must define the relevant markets affected by the merger. This requires an analysis of the products that are sold in competition with each other and which are reasonably substitutable, and the area of effective competition for the sale of those products. Here reviewers will no doubt consider commercial insurance, ASO, and Medicare Advantage plans to determine if they are in the same markets. Geographic markets in past health insurance cases have been considered local, no larger than statistical metropolitan areas. Market definition is a primary battlefield in most merger reviews, with the government typically contending for narrow markets that make the parties’ market shares larger; merging parties usually argue the markets should be broader, which reduces their shares.
Then, the DOJ will evaluate whether the merger is likely to have anticompetitive effects by enabling the merged insurers to raise prices or reduce quality. The presence of other insurers in each market, and the likelihood of entry by competitors will be significant facts.
Merging parties will make arguments that their increased market shares will not harm competition. A transaction may involve efficiencies that reduce anticompetitive effects or bring competitive balance to a playing field in which suppliers or customers have the negotiating upper hand. The parties may be subject to regulatory requirements, such as the Affordable Care Act, that reduce or negate any competitive harm the merger might otherwise have caused.
Many predict the Aetna/Humana and Anthem/Cigna mergers will trigger an ever-increasing domino effect of consolidation, both among smaller health insurers and amongproviders. These projections will likely be considered in the overall analysis.
What will the DOJ decide to do? It could let the mergers close without further action. It may be satisfied competition will still exist with three strong national competitors (including UnitedHealth Group) and numerous local insurers. It could block the mergers by filing a federal court lawsuit to enjoin the parties from closing their deals. Or it could permit the transactions to go forward with conditions, such as the forced divestiture of blocks of business in certain product or geographic markets.
Whatever the ultimate outcome, expect the result to reflect the traditional rules of competitive analysis developed through a century of antitrust enforcement as they are applied by a DOJ that has strengthened enforcement, particularly in the healthcare sector, over the preceding eight years.
R. Dale Grimes is a member of Bass, Berry & Sims PLC, Nashville and Washington, D.C., and leader of the firm’s Antitrust and Trade Practices Group.