From a product perspective, federal regulators will look at how the proposed mergers affect the markets and how large ERISA employers will be affected, but scrutiny of these mega-mergers will be different from the agency's past antitrust investigations, experts say.
The Aetna/Humana and Anthem/ Cigna proposed mergers may be unprecedented in their scope and potential to alter the healthcare marketplace, but there is precedent to suggest where the Department of Justice will focus its gaze and how it might decide on the key antitrust issues presented in each proposed transaction.
How far that precedent goes with the current mergers is still to be seen.
The scrutiny of these mergers will be different from the DOJ's other antitrust investigations and there is likely to be much more input from third parties, says Jim Smith, MBA, FACHE, senior vice president at the Rochester, NY, office of The Camden Group, a healthcare consulting company. The two pending mergers will get more scrutiny than previous mergers of either insurers or hospital systems simply because of their size, and they will prompt potential losers in the mergers to file complaints, he notes.
Mega-Mergers Among Health Insurers Bode Ill for Hospitals
"Unlike some other mergers where hospitals and other providers might suffer some ill effects but be able to adapt, these mergers have the potential to significantly impact them in a way that is not nearly so easy to overcome," Smith says. "I think we're going to see a great deal of comment from the healthcare community about these mergers and the DOJ will likely give those concerns serious consideration."
Some hospital leaders are already asking to testify at upcoming hearings on consolidation in healthcare by the House Judiciary Committee. The American Hospital Association wrote in an Aug. 5 letter to DOJ that Anthem's proposed acquisition of Cigna and Aetna's proposed acquisition of Humana have "the very real potential" to substantially reduce competition and the insurers' willingness to partner with healthcare providers and consumers in transforming care.
Mindy Hatton, JD, the AHA's senior vice president and general counsel, said in the letter that the proposed deals "merit the closest scrutiny to determine whether remedies, such as divestitures, have any chance of ameliorating the enduring damage they could do as a result of the loss of such significant competition."
Legal Precedent
The DOJ will look at the mergers from a variety of angles beyond just the overlap in markets, Smith says. From a product perspective, regulators will look at how the mergers affect the group market, the individual commercial market, and how large ERISA employers will be affected, he says.
Some legal experts suggest that the precedent most likely to influence federal regulators or provide insight into what path the investigation will take is the long court fight involving Georgia's Phoebe Putney Health System effort to acquire Palmyra Medical Center in 2011. Palmyra was Phoebe's only hospital competitor in the Albany market, which prompted concerns that the acquisition violated antitrust laws, reduced competition, and could increase costs for consumers in southwest Georgia.
The Federal Trade Commission agreed to a deal that would allow the merger in 2013 but then backed out of it a year later. In April, the FTC reached a final agreement which allows Phoebe to keep Palmyra (now operating as Phoebe North) in its system.
But in allowing the acquisition, the FTC pointed out that it was giving up the fight only because of restrictions under Georgia's certificate-of-need (CON) requirements, which regulate the construction and expansion of healthcare facilities. The FTC made clear that it still didn't like the acquisition but agreed to allow it under certain conditions.
For starters, the consent agreement requires Phoebe Putney and its local hospital authority to give the FTC prior notice before acquiring any part of a hospital or a controlling interest in other health care providers in the Albany area for the next 10 years. It also prohibits the hospital authority and Phoebe Putney from opposing a certificate-of-need application for a general acute-care hospital in the Albany area for up to five years.
Payers as 'Clearinghouses'
There are similarities in this case to the current merger proposals that could influence the DOJ, says Patrick Pilch, CPA, MBA, managing director and national leader with BDO Consulting in New York City—but only up to a point.
"To the extent that a larger entity, in this case a payer, restricts or contracts access through the narrowing of networks and shifts significant risk to providers, employers, employees, and patients, there may be some similarities," Pilch says. "The similarities are negated by the overall risk shift occurring from government to commercial payers, consistent with the ACA's objectives of aligning financial payments with clinical outcomes. The payers are becoming clearinghouses and less risk bearing entities."
Predicting how past investigations will influence the DOJ is especially difficult with these mergers because they are unprecedented in some ways, says Mark Rust, JD, partner with the law firm of Barnes & Thornburg in Chicago. There is little experience with mergers of this size that would affect a significant portion of the economy, and the public, in such a dramatic way, he says.
"This is all out of proportion to any experience we've ever had," Rust says. "But it is clear that there will be a market-by-market experience and one very good possibility from past experience is that the merger will be allowed, but there will be markets in which it will not be allowed and they will have given up their presence in those markets."
That was the case, for instance, when UnitedHealth Group acquired PacifiCare, a large insurer in the western United States, he says. That merger was permitted to go forward only if UnitedHealth Group rid itself of assets in certain areas, he notes, and Aetna had a similar experience with US Health.
"To the degree that mergers are permitted to go forward, these companies are very likely looking at divesting in specific areas," he says. "From past experience, that would be the price they have to pay for the merger approval."