UnitedHealth Group and Change Healthcare may not wrap up their merger until at least next year under a new agreement with the Justice Department, as the Biden administration ramps up antitrust scrutiny and federal regulators experience a surge of merger filings across industries.
UnitedHealth's Optum data analytics and health services subsidiary in January unveiled plans to buy revenue cycle management company Change Healthcare for $8 billion, in a move company officials said would drive greater connectivity among its healthcare delivery systems—but that critics said could reduce competition in health IT services.
"It's the scale of it that I think has people worried," said Paddy Padmanabhan, CEO of Damo Consulting.
UnitedHealth Group, which owns the largest insurance company in the U.S., is also one of the nation's largest employers of physicians.
While Change Healthcare stockholders approved the pending merger in April, but the companies are still awaiting approval from federal regulators.
Under the planned deal, Change Healthcare would merge with OptumInsight, Optum's data analytics and consulting arm. The American Hospital Association in March raised concerns that the merger would reduce competition in claims clearinghouse, payment accuracy, revenue-cycle management and clinical decision support services.
The Justice Department issued a request for additional information and materials from the companies in March.
UnitedHealth and Change Healthcare now have entered into a new "timing agreement" with the Justice Department, according to a form filed with the Securities and Exchange Commission last week, under which they agreed not to complete their merger before 120 days from whenever the two businesses have complied with a request for information.
The Justice Department reportedly has been weighing a possible lawsuit to block the merger, people familiar with the matter told The Information.
Typically, a waiting period—the period after filing for a merger when companies aren't allowed to close their deal and during which federal regulators review the proposed transaction—expires 30 days after companies comply with a request for information, unless the agency seeks to extend the review period.
As part of the timing agreement with, UnitedHealth and Change Healthcare also agreed that they wouldn't certify such compliance with the request for information before September 15.
That pushes back a potential closing date for the merger until at least January 2022, unless the Justice Department OK's the merger before 120-day period. Initially in January 2021, UnitedHealth and Change Healthcare officials said they expected to close their merger in the second half of 2021.
An Optum spokesperson in an email to Modern Healthcare said the company doesn't have an update on anticipated timing beyond the timeline shared in its SEC filing. The Justice Department said it had no comment on its merger review.
An extension "slows things down" and gives federal regulators a chance to further analyze the pending merger, said John Fanburg, a managing member and chair of healthcare law at law firm Brach Eichler. He added that antitrust concerns have been growing across industries, as the Biden administration has said it plans to take a more critical eye toward mergers.
"Clearly, the president wants more scrutiny," Fanburg said.
For UnitedHealth and Change Healthcare, agreeing to an extended waiting period also illustrates that they're cooperating with regulators.
While the UnitedHealth-Change Healthcare merger has received antitrust criticism from the industry, the extended waiting period could also speak to resource and capacity challenges at the Federal Trade Commission. Earlier this month, the FTC warned companies that a sharp uptick in merger filings this year was delaying regulatory reviews.
In many ways, UnitedHealth's core business doesn't overlap strongly with Change Healthcare's, said Stephanie Davis, a senior research analyst who covers healthcare technology at investment bank SVB Leerink. The biggest area of overlap between the two companies is in revenue-cycle management, which is a very small part of what UnitedHealth does.
In a research note published in January, Davis and SVB Leerink analyst Stephen Tanal wrote that the deal would expand OptumInsight's provider business, which currently represents just 35% of its revenue. The majority of Change Healthcare's revenue, 60%, comes from healthcare provider customers.
Davis said she expects the deal ultimately to be approved but may be conditional on UnitedHealth and Change Healthcare making changes to their business. In a March filing with the SEC, Change Healthcare said the companies would agree to sell some assets if required for antitrust approval.
"It sounds like Optum (and) Change are both very willing to be cognizant of the changes they need to make or potentially spin off some assets in order to make a deal happen," she said.
Health insurers including UnitedHealth have been expanding the products and services they offer through acquisitions in recent years.
Blue Cross and Blue Shield of Michigan earlier this month acquired Triarq Health, a healthcare management services organization that manages physicians' offices. Cigna last year established a division focused on health services, dubbed Evernorth, which in February acquired telehealth company MDLive.
In another deal plagued by antitrust concerns, Aetna in 2018 closed a merged with CVS Corp. In an unusual move, even after the Justice Department approved the merger and the companies closed the transaction, Aetna and CVS were asked to continue operating separately as a federal judge continued a review. The judge eventually signed off on the deal in 2019.
