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From Antitrust Law Daily, December 5, 2016

Trial begins in U.S. challenge to Aetna-Humana merger

By Jeffrey May, J.D.

The Department of Justice Antitrust Division officially began making its case today for why a federal judge in Washington, D.C. should block the proposed acquisition by Aetna—the nation’s third-largest health-insurance company—of Humana—the fifth-largest health insurer. The government kicked off the trial, contending that the transaction would enhance Aetna’s power to profit at the expense of seniors who rely on Medicare Advantage and individuals and families who rely on the public exchanges for health insurance. In its opening statement, the government identified the hundreds of local markets for Medicare Advantage plans that would be impacted by the transaction, as well as the exchange markets; contended that the transaction is presumptively unlawful in the identified markets; and argued that a proposed remedy would not resolve the restraint on competition resulting from the deal (U.S. v. Aetna, Inc., Case 1:16-cv-01494).

In July, eight states and the District of Columbia joined the Justice Department in its action to stop Aetna’s $37 billion attempt to buy Humana. At the time the complaint was announced, the attorney general said that the Justice Department was willing to engage in settlement discussions. However, Principal Deputy Associate Attorney General William Baer said that the parties’ proposed divestiture remedies were "inadequate, incomplete, and unlikely to solve the competitive problems."

Proposed remedy. In August, the defending companies announced in a joint statement that they would sell certain of their respective Medicare Advantage assets to Molina Healthcare, Inc. for a total of $117 million to resolve the government’s competition concerns. Molina was expected to gain approximately 290,000 Medicare Advantage members in 21 states as a result of the transactions. In their pre-trial brief, the defendants took the position that the proposed divestitures should remedy the competitive concerns.

According to the government, the proposal is inadequate. Aetna and Humana are not selling the assets that are necessary to compete effectively, in the government’s view. "Molina is a trivial participant in individual Medicare Advantage," the Justice Department said.

Market definition. Aetna and Humana reject the government’s market definition. They contend that the relevant market must include original Medicare options in addition to the Medicare Advantage plans. Moreover, they argue that the government’s role in the Medicare Advantage plans would prevent any harm to consumers following a merger. With respect to the government’s argument that the merger would harm families who rely on the public exchanges for health insurance, the defendants point out that Aetna and Humana no longer compete in the 17 exchange counties identified in the government's complaint.

As in past merger challenges, the Antitrust Division will use the parties’ own documents to establish the government's case. In their opening statement, the government offers a handful of examples of documents in which Aetna and Humana identify themselves as close competitors. The government also uses econometric evidence to bolster its market definition.

Anthem’s acquisition of Cigna. The Aetna-Humana merger is one of two deals in the health-insurance industry facing a government challenge. Last month, the government began its trial to block Anthem’s proposed $54 billion acquisition of Cigna. That action was announced at the same time the government disclosed the suit against the Aetna and Humana combination. Anthem, the largest member of the Blue Cross and Blue Shield Association, competes in 14 states as the Blue licensee and partners with other Blue plans to compete throughout the country. Cigna is another commercial health-insurance option for businesses and individuals in markets throughout the country. There is concern that the combination would limit choice for employers in some of the biggest cities in the country, such as New York, Los Angeles and Atlanta, where Anthem and Cigna are two of just a handful of options for employee health insurance. A second phase of the trial in that case is set to begin on December 14.

Attorneys: Craig William Conrath, U.S. Department of Justice, for the United States. Christopher Nathan Thatch (Jones Day) for Aetna Inc. Arthur Norman Lerner (Crowell & Moring LLP) for Humana Inc.

Companies: Aetna Inc.; Humana Inc.; Molina Healthcare, Inc.

MainStory: TopStory AcquisitionsMergers Antitrust AntitrustDivisionNews

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