A Tale of Two Mergers and Administrations

Written by:
February 2nd, 2017

On Monday, January 23, U.S. District Judge John Bates issued his highly-anticipated decision regarding the Department of Justice’s anti-trust challenge that blocked the proposed $37 billion- merger between Aetna and Humana. The ruling in favor of the Department of Justice (DOJ) is significant because of the merger’s potential to cause Medicare Advantage disruptions and other uncommon market activity, and possibly reveal DOJ policy.

Firstly, the merger had the capacity to significantly disrupt the Medicare Advantage (MA) market. The merger promised the reality of increased efficiencies for the combined entity while strengthening the new organization’s market position. Detractors argued that such a market position would create a monopolistic dynamic in certain markets, yielding a negative impact on providers. Supporters concluded that the new economies of scale would benefit consumers over time through lower premiums while the degree of “competition” against Medicare fee-for-service (CMS administered Medicare benefits) would increase, strengthening the overall market.

Secondly, merger approval would have catalyzed other uncommon market activity responding to the new competitor. The exact causal, M&A impact of a united Aetna-Humana entity is unclear, but its conceivable that regional transaction volume for regional payers and other providers could increase in certain markets. While some markets would benefit from increased consolidation, the overall effects of increased M&A in some geographies could have deleterious consequences. The DOJ carried the burden to responsibly balance these dynamics.

This brings us to the third point of significance in examining DOJ policy itself. Department and court watchers have hoped to identify a pattern for how regulators might treat a transaction of this magnitude. Similarly, the Anthem and Cigna proposed merger represents another case study for the methodological construct in blocking such deals. Current evidence suggests a general orientation against nationally scaled combinations that would have an absolute impact on the health care market. However, more than any other industry, health care economies are local and can only be evaluated with a nuanced understanding of the underlying markets. Such analysis is arduous and difficult but is certainly within the mandate of regulators assessing the anti-trust impacts of these transactions. Any failure to discharge this level of rigorous analysis deprives the market and local health care settings of efficiencies that could advance the system.

Aetna and Humana could appeal Judge Bates’ decision and re-litagate under different dynamics with new DOJ leadership. Should that happen, it will be critical that great rigor is applied to understanding the associated nuanced effects. Health care benefits from efficiency, competition, and choice. These are hallmarks that should pervade our decision-making process as we continue to advance patients’ interests.

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