As federal trustbusters prepare to investigate the massive insurer consolidations now on the table, legal experts say the outcome of those reviews remains an open question.
Aetna CEO Mark Bertolini said the insurer is ready for government examination as it prepares to buy Humana for $37 billion. Aetna has already discussed possible divestitures.
“We took a conservative view of what we thought we would need to divest,” Bertolini said during a conference call with investors this week.
But the review process will likely be a complex one given the size and reach of Aetna and Humana, experts say. And continuing insurance consolidations might also sway how regulators view the Aetna-Humana deal and others.
In recent weeks, Centene offered $6.3 billion for Health Net, and Anthem has offered about $47 billion in cash and stock for Cigna. The five largest for-profit health insurers in the nation—UnitedHealth Group, Anthem, Aetna, Humana and Cigna Corp.—have all been the subjects of various merger talks.
“These transactions are going to raise a slew of very interesting antitrust issues,” said Jeff Miles, an antitrust expert with law firm Ober Kaler. “It's going to be very interesting to see how all this works itself out.”
Insurers see the mergers as a way to build earnings and diversify their products under the Affordable Care Act, which caps health insurance profits as a percentage of premium revenue. They say consolidating will allow them to leverage lower prices from providers, drugmakers and others, reducing costs for employers and consumers.
But the announcement of the Aetna-Humana deal shortly before the July 4th holiday sparked immediate worries that combining the two insurance giants could lead to higher prices and narrower networks.
The American Hospital Association is among those calling for antitrust attention focused on the deal.
“Any potential deal of this magnitude needs rigorous scrutiny,” said Melinda Hatton, AHA general counsel, in a statement. “That's why the AHA will calls upon the DOJ and Congress to exercise a significant level of scrutiny over this potential deal.”
Aetna did not respond to a request for comment Thursday.
Duke University law professor Barak Richman said the Justice Department, which is responsible for health insurance antitrust reviews, will likely review such deals market-by-market with an eye on the long-term competitive dynamics. Mergers like the Aetna-Humana combination involve many submarkets both in terms of geography and products, he said.
“It's a very, very complicated analysis,” Richman said.
That process may be further complicated if more major insurers announce additional deals in coming weeks and months. The Justice Department will likely view the Aetna-Humana merger with an eye toward any subsequent transactions, Richman said.
“At some point, especially if there are two mergers out of the big five (insurers) you really could say there's an overall lessening of competition because you really have fewer potential entrants into each others' markets,” said Tim Greaney, director of the Center for Health Law Studies at St. Louis University's School of Law and a former assistant chief in charge of healthcare antitrust enforcement at the Justice Department.
Miles, however, doesn't think antitrust scrutiny will kill the Aetna-Humana deal. “I don't think they will be derailed," he said, "but I think there's likely to be some significant divestitures.”
Others say they can't make predictions given the complexity of the issues.“There's a lot of different markets to look at, and they're all at least slightly different to very different, so there's a lot of moving parts to take into account,” said Martin Gaynor, a professor of economics and public policy at Carnegie Mellon University's Heinz College and a former chief economist at the Federal Trade Commission.
It's also unclear exactly how long an antitrust review of the Aetna-Humana deal might take. Right now, the deal is expected to close in the second half of 2016.
In certain large, proposed mergers, the parties must notify the FTC and the Justice Department. The matter then goes to the Justice Department's antitrust division, which has 30 days to either ask for more information with a second request letter or approve the transaction.
In response to second request letters, parties typically have to submit voluminous data to the antitrust division. Once the antitrust division receives that information, it then has another 30 days to decide whether to clear the transaction, file a motion in federal court for a preliminary injunction in anticipation of challenging the merger or enter into an agreement with the parties that would give the government more time to investigate before the deal is consummated, Miles said.
A Justice spokesman declined to comment Thursday on whether the department might look at health insurance mergers. In recent years, however, the Justice Department has gotten involved in a number of proposed deals among insurers including WellPoint's 2012 acquisition of Amerigroup Corp. and Humana's 2012 acquisition of Arcadian Management Services, among others. Both of those situations were resolved through divestitures.