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The proposed megamerger has been shot down. Find out what it means for healthcare execs.
As the future of the Affordable Care Act (ACA) hangs in the balance, courts have been feeling the pressure, as demonstrated by a federal judge’s decision to block a proposed merger between Aetna and Humana, according to experts.
“Consumers have become hypersensitive to the lack of choice created by the ACA,” says David Reid, founder and CEO, EaseCentral. “In some markets consumers are reduced to a single plan option. Courts appear to be feeling the pressure.”
Christian Auty, principal from Much Shelist, agrees. “This sector just got even more complicated, and your jobs just got even more difficult,” Auty says. “There is already an incredible amount of uncertainty around just what might replace the ACA. Of course, these companies decided to merge before Trump was elected, but ironically the business case for a larger, more stable entity might be stronger now than when the merger was announced. The result of the court’s outright rejection is that there will be more players competing, even as the rules of the game are in considerable flux.”
The $37 billion merger case is significant and a restructuring deal may be a possibility, according to experts.
The decision can be appealed of course, according to Auty, although many industry watchers are already suggesting any appeal will be an uphill battle.
“Most commentators also agree that the opinion was well-reasoned and, certainly, Aetna’s pre-merger decision to withdraw preemptively from certain ACA markets did not help its cause,” he says. “The deal is not dead yet, but it is not looking good unless enforcement priorities change dramatically with the new administration.”
Both Aetna and Humana remain with strong core businesses and for the time being will continue to independently pursue Medicare Advantage growth, in particular, says Dan Renick, RPh, president, Precision for Value.
“Initial expert legal reactions portend unlikely success upon appeal in the near-term, though broad signals from the Trump administration suggest a future Justice Department antitrust team that may be more open to these deals down the road,” he says.
Next: Seven ways the merger will affect the industry
Here are seven takeaways from this move.
1. Future mergers are less likely to pass. “However, the new administration's reduction in regulations and repeal of the ACA take pressure off of having to create risk pools at the same scale as under the ACA,” Reid says. “The ability for smaller, nimble, and innovative solutions that focus on consumer driven participation and solutions will again be possible. The ability to prosper will no longer be limited to the largest companies.”
2. Mergers will be even more highly scrutinized under the new administration. Under the Obama administration mergers faced pressure but the atmosphere was more favorable toward fewer payers as evidenced by the result of the ACA, according to Reid. “The new administration places a great deal of emphasis on the pressure of market competition to reduce cost and provide more innovative solutions. Mergers in the future are likely to be even more difficult unless carefully structured.”
3. Contracting power won't be further consolidated in what already is a very cost-sensitive market linked to the nature of premium calculations. “UnitedHealth remains atop the lucrative Medicare Advantage market with 23.7% of January 2017 enrollment, or roughly 4.6 million members. Humana continues to run second with 3.3 million beneficiaries while Aetna remains a distant fourth with 1.4 million enrollees,” Renick says.
4. Companies need not bother with business pursuits that will be viewed as limiting choice or lessening competition for Medicare beneficiaries. “This constituency only grows in importance as the eligible population expands and will continue to color all aspects of healthcare for decades to come,” Renick says.
5. Concerns are less about national market share gains versus local market competition. The local market is “where the rubber really meets the road for consumer choice, notably with Medicare beneficiaries,” Renick says. “This is quite a contrast to large entities like PBMs that are heavily focused on commercially insured populations, where tremendous consolidation has occurred in past years with little legal resistance.”
6. Insurers can only scale so much to drive efficiency and profits. “Going forward, consolidation will not be a panacea and executives will continue to look for other ways to increase returns,” Auty says. “This may mean an increased emphasis on vertical integration-that is, more involvement by payers at the provider and patient level to more effectively manage risk.”
7. Anthem-Cigna fate is still in question. “With respect to Anthem-Cigna, that case concerns a different merger with different facts,” Auty says. “The trial has been over for some time now and it is likely that the judge has already decided what the ruling will be. [The judge] may review the Aetna-Humana opinion, but it is unlikely to affect her decision, so the assumption that because one merger was defeated the other will be defeated is wrong. The Anthem-Cigna merger has been far from smooth, however, with conflict among the payers sometimes leaking into court, and of course it is the larger of the two mergers, so there is reason to believe that it may share the fate of the Aetna-Humana deal.”