Updated at 4:35 p.m.
Washington — A federal judge on Monday rejected a proposed merger between Aetna and Humana, saying the deal would “be likely to substantially lessen competition” in the Medicare Advantage market.
Judge John Bates of the U.S. District Court in Washington, D.C., also said that Aetna withdrew from Affordable Care Act (ACA) exchanges in 17 counties “to evade judicial scrutiny of the proposed merger.”
Aetna spokesman T.J. Crawford said, “We’re reviewing the opinion now and giving serious consideration to an appeal after putting forward a compelling case.”
The U.S. Justice Department last July sued to block the $37 billion Aetna-Humana merger, as well as another merger planned between Anthem and Cigna.
In its opposition to the Aetna-Humana tie-up, the Justice Department argued the merger would hurt competition in the Medicare Advantage market in 364 counties and also hurt competition in several ACA state marketplaces where individual health insurance policies are sold.
The Justice Department said the merger would affect 1.6 million people in Medicare Advantage and 700,000 more in the public exchanges.
Attorneys for Aetna and Humana argued the tie-up would bring about efficiencies that would result in lower premiums and that a deal with Molina Healthcare would divest Aetna of customers where the merger might threaten competition.
In his 158-page decision, Bates rejected both arguments, saying, “The Court concludes that defendants’ proffered efficiencies do not offset the anti-competitive effects of the merger,” and that “neither entry by new competitors nor the proposed divestiture to Molina would suffice to replace competition eliminated by the merger.”
“Today’s decision is a victory for American consumers – especially seniors and working families and individuals,” said Deputy Assistant Attorney General Brent Snyder, head of the Justice Department’s Antitrust Division.
Snyder said the court’s decision will save customers and taxpayers up to $500 million a year.
“The Justice Department and our state partners brought this case because substantial evidence showed that direct competition between Aetna and Humana led the companies to offer more generous benefits at lower prices,” he said.
Under the terms of the merger, Aetna will have to pay Humana a $1 billion “break-up” fee if the deal does not go through. The companies’ merger agreement, which has already been extended twice, is due to expire on February 15.
During a 13-day trial last month, Aetna attorneys argued that traditional Medicare would provide plenty of competition to any consolidation in the Medicare Advantage market that would result from the proposed merger.
Medicare Advantage is available as an alternative to older Americans who are eligible for Medicare. Premiums for Medicare Advantage plans, which are sold by commercial insurers, are subsidized by the government.
But unlike traditional fee-for-service Medicare, Medicare Advantage plans do not allow patients to visit any hospital or doctor that takes Medicare, but limits them to a specific network of providers. On the other hand, Medicare Advantage plans cap out-of-pocket costs and usually provide more generous drug benefits than traditional Medicare.
Bates wrote that Humana’s Medicare Advantage plans are available to 91 percent of Medicare beneficiaries nationally. Between 2013 and 2016, Humana added more seniors to its individual Medicare Advantage plans than any of its rivals, the judge said.
He also said that Aetna, “although historically oriented more toward the sale of commercial health insurance, has also been growing rapidly in Medicare Advantage, expanding, with the help of its acquisition of Coventry Health Care, into 640 new counties in the past four years.
In his opinion, Bates said traditional Medicare can provide some competition to Medicare Advantage, but ruled “competition within that market, between Medicare Advantage plans, is far more intense than competition with the products outside of it.”
The American Medical Association, which like most major provider organizations strongly opposed further health insurer consolidation, hailed Bates’ decision.
“Elderly patients were the big winners today as a federal court imposed an injunction on Aetna’s $37 billion acquisition of Humana,” said AMA President Andrew W. Gurman. “The court ruling halts Aetna’s bid to become the nation’s largest seller of Medicare Advantage plans and preserves the benefits of health insurer competition for a vulnerable population of seniors.”
Gurman also said, “The court’s ruling sets a notable legal precedent by recognizing Medicare Advantage as a separate and distinct market that does not compete with traditional Medicare.”
Bates also said Aetna decided to quit offering coverage in 17 counties in Florida, Georgia and Missouri under the Affordable Care Act exchanges to bolster its legal arguments in the antitrust lawsuit.
“There is significant evidence – primarily in the form of contemporaneous emails among senior Aetna executives – that Aetna thought of the 17 complaint counties as one unit, and that it withdrew from those 17 counties to improve its position in this lawsuit,” Bates wrote.
Sen. Richard Blumenthal, D-Conn., who opposed both the Aetna-Humana and Anthem-Cigna mergers, said the latter is likely to be knocked down by a federal judge, too.
“If anything the case for Anthem and Cigna is weaker, less convincing, than this one,” Blumenthal said. “The handwriiting is on the wall, both literally and figuratively.”
He said both mergers would lead to higher prices, fewer choices, poorer care and job losses.
Jonathan Gruber, an economics professor at the Massachusetts Institute of Technology and a health care specialist, said rejection of the Aetna-Humana merger “is not good news” for Anthem and Cigna.
“But they are very different mergers,” he added.
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