Aetna-Humana $37 Billion Merger Blocked on Antitrust Grounds

The broken deal means Aetna owes $1 billion to Humana and may signal how the Anthem-Cigna ruling will be decided.

A federal judge this week blocked Aetna's plans to buy Humana in a $37 billion deal, thwarting the effort to create a mega-insurer that would have had unprecedented reach and influence in the health insurance market.

Agreeing with the Department of Justice attorneys who filed the suit, the judge said a merger of between the two already giant companies would stifle competition and hurt consumers.

An Aetna spokesman said the company is considering an appeal of the decision. Humana did not immediately issue a response. With the deal quashed, the terms of the proposed merger agreement require that Aetna now pay Humana a $1 billion breakup fee.

In a separate but similar case, Anthem is still awaiting a court's decision on its effort to purchase Cigna for $48 billion.

U.S. District Judge John D. Bates in Washington said in his ruling Monday that the Aetna/Humana merger would violate antitrust laws by reducing competition among insurers to the point that consumers could not be assured of fair market pricing and availability.

Arguments for Merger 'Not Persuasive'
Calling the proposed merger "presumptively unlawful" in the market for private Medicare Advantage plans, Bates also wrote in the 158-page ruling that he had "serious concerns" regarding the companies' claims that the savings from operating the companies as one would result in lower costs for customers.

"It is very likely that a significant share of the claimed efficiencies may be retained by the merged firm rather than being passed on to consumers," Bates wrote. He said his conclusion was "strongly supported by direct evidence of head-to-head competition as well. The companies' rebuttal arguments are not persuasive."

Aetna pulled out of the Affordable Care Act exchanges in 17 counties across Florida, Georgia and Missouri after the Justice Department sued to block the merger. Aetna made the move "specifically to evade judicial scrutiny of the merger," he wrote.

Ruling Suggests Possible Anthem/Cigna Outcome
The ruling is not surprising, says Randal Schultz, a partner at the law firm of Lathrop & Gage and chair of the firm's Healthcare Strategic Business Planning Practice group.

"It's what a lot of us expected, given the nature of healthcare today. We're looking for ways to provide care efficiently, and also ways to pay for healthcare efficiently," Schultz says. "A huge insurer can affect both of those elements because they will be the only game in town for a lot of employers not big enough to self-insure. They would be able to charge whatever premiums they want, and they could dictate the fees paid to providers."

The ruling also gives a strong hint as to the outcome of the Anthem/Cigna deal, he says, because the issues at hand are essentially the same. Allowing one and not the other would put the government in an awkward position and encourage an appeal by Aetna, Schultz notes.

"I think the decision is logical, especially now with all the changes coming down the pike with changes to the Affordable Care Act and other parts of how we provide and pay for healthcare," he says.

"In addition, if the merger went through there would still need to be some regulations and requirements in place for a company that dominates markets like this, and Trump has put a moratorium on new regulations for some time. The judge made the right decision."