Officials with the antitrust division of the U.S. Justice Department likely will file lawsuits this month to block Anthem's $53 billion acquisition of Cigna Corp. and Aetna's $37 billion deal for Humana, Bloomberg first reported Tuesday, citing anonymous sources.
Halting both major pending health insurance deals would mark a strong antitrust stance in the waning months of the Obama administration—which is fighting to preserve the legacy of the Affordable Care Act and increasingly has cracked down on other large corporate transactions. Seven Democratic U.S. senators have also urged the Justice Department to flex its muscles and stop the mergers.
“The weather in Miami does not tell you at all what the weather will be in Washington, D.C.,” David Balto, a former antitrust attorney for the Justice Department and the Federal Trade Commission, told Modern Healthcare in February after Aetna won a critical approval in Florida. Balto heads the Coalition to Protect Patient Choice, a consumer interest group that is also backed by hospitals, and he has been one of the most outspoken critics of the pending insurance transactions.
Spokespeople for the Justice Department, Anthem and Cigna declined to comment on the Bloomberg report. Humana, which has had its stock battered over the speculation of its deal not closing, did not immediately respond to a request for comment.
Aetna spokesman T.J. Crawford said, “We don't comment on rumors or speculation, but we are steadfast in our belief that this deal is good for consumers and the healthcare system as a whole.”
Both deals have faced immense scrutiny from hospitals, doctors and consumer groups in the 12-plus months since they were announced. Critics have argued the pursuits of Aetna and Anthem to bulk up would result in higher premiums and anti-competitive behavior. But the CEOs of Aetna and Anthem each have said their respective deals would lower healthcare costs and balance out the effects of increased consolidation among hospitals and health systems.
“These have always been high-risk transactions,” said Ira Gorsky, an analyst at investment brokerage Elevation. “It's a matter of whether or not there's a path to close.”
Antitrust observers and financial analysts have increasingly viewed the Anthem-Cigna deal as more difficult to complete because it would create a highly concentrated market for employer coverage. It's also unclear how Anthem would resolve issues with the Blue Cross and Blue Shield Association.
Gorsky believes Aetna's transaction with Humana is more likely to withstand federal pushback, as long as the insurer can prove selling some Medicare Advantage assets to another buyer appeases anti-competitive concerns.
“We're talking about 350,000 lives,” Gorsky said. “That's an unprecedented amount of lives.”
The marriage between Anthem and Cigna has been fraught with tension and obstacles from the start, when there was disagreement over whether Cigna CEO David Cordani would take over the combined company after Anthem CEO Joseph Swedish retires. Discord also appeared between the two sides as they worked with regulators.
Aetna's acquisition of Humana was a clear play for the expanding and profitable Medicare Advantage market, and most people expected divestitures in counties and regions where there was significant overlap between the two.
“The question has always been would the parties divest enough business to enough buyers to satisfy" the Justice Department, said Jeff Miles, an antitrust attorney with Ober Kaler in Washington.
Aetna would become the largest Medicare Advantage insurer in the country, but executives argued that it would still only have a nominal slice of the entire Medicare market since seniors and disabled people can still enroll in traditional Medicare. However, many economists and antitrust regulators don't believe Medicare Advantage and traditional Medicare compete with each other.
If the deals go belly up because of federal regulatory action—and if the insurers decide not to litigate against the Justice Department's decision—Anthem would have to pay Cigna a termination fee of $1.85 billion, and Aetna would have to pay Humana $1 billion, according to terms of their agreements.
If Aetna or Anthem decide to litigate the matter, it will be an uphill climb. The chances of winning against federal regulators who want to block a merger are “very poor” these days, Miles said.