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Justice Department Blocks Mergers of Major Health Insurers

By Jad Chamseddine, CQ Roll Call

July 21, 2016 -- In the Obama administration's most significant decision on antitrust, the Justice Department is seeking to halt further health insurance industry consolidation by trying to block a pending merger between Anthem Inc. and Cigna Corp. and Aetna Inc.’s proposed acquisition of Humana Inc.

The Justice Department brought suit in federal court to prevent Anthem from pursuing its agreement last summer to buy Cigna for about $54.2 billion, a move made within a month of Aetna reaching a deal to acquire Humana for $37 billion. While the insurers immediately said that they plan to fight the lawsuit, businesses in these situations typically embark on an analysis of whether it makes more financial sense to scrap the deals.

"If allowed to proceed, these mergers would fundamentally reshape the health insurance industry," Attorney General Lynch said in a Thursday press conference.

The deals would reduce the number of large national health insurance providers to three from five, and "drastically" constrict competition in key markets at the "expense of consumers" through increased premiums and lower quality care, Lynch said.

Speaking after Lynch, Principal Deputy Associate Attorney General Bill Baer, who was promoted a few months ago from his role as head of the antitrust division, said the mergers would have a negative effect on "seniors, working families and individuals, employers" and would be problematic for doctors and hospitals.

The transaction would hurt innovation by taking out two important industry participants, Cigna and Humana, Baer said. He added the mergers would "reduce competition for the many Americans who obtain health insurance through public exchanges" established by President Barack Obama’s signature legislation, the health law PL 111-148 , PL 111-152), also known as Obamacare.

The merging parties made repeated assurances their transactions would aid consumers because the combined entities could negotiate better prices by "forcing cost concessions from doctors and hospitals." But Baer said the Justice Department rejected that notion because it failed to take into consideration the effect it would have on the quality of care.

"The antitrust laws don’t work that way. You don’t get to buy a competitor, and eliminate substantial competition, just to increase bargaining leverage with health care providers," Baer said.

He also ruled out potential divestitures, which are often used to restore competition by forcing the merging companies to sell assets to a third party. The remedies the businesses offered were "incomplete and impractical," Baer said. "We’ve seen nothing to suggest they can salvage the merger."

When announced, the mergers faced almost immediate criticism from consumer advocacy groups, lawmakers and health professionals who argued the combinations would hurt competition by eliminating rivals.

Sen. Richard Blumenthal, D-Conn., was one of the first lawmakers to criticize further consolidation in the health industry, and was quick to praise the Justice Department on Thursday for taking a stand against the mergers.

"I am pleased that the Department of Justice heeded my call to preserve competition and consumer choice in the health insurance market, along with pleas from other consumer advocates," Blumenthal said in an emailed statement. "Such mammoth mergers threaten jobs, hike prices, lessen choice, and lower health care quality."

Amy Klobuchar, D-Minn., who is ranking member of the Senate Judiciary Subcommittee on Antitrust, Competition Policy, and Consumer Rights, said Thursday the mergers deserved "close scrutiny" by the antitrust enforcement agency. She lauded the Justice Department’s "aggressive defense of competition," calling it the "best medicine to control health insurance premiums." The subcommittee held a hearing last year, grilling the CEOs of Anthem and Aetna over the effect of the proposed mergers on health insurance.

Besides lawmakers, the health industry itself was apprehensive about the proposed deals. The merger agreements led to an uneasy alliance between the American Hospital Association and the American Medical Association (AMA) in opposing the health insurance merger proposals, a rare accord between two groups that have been at odds over the pace of hospital consolidation.

The AHA called the Justice Department’s decision to file suit "good news for consumers" and warned against reduced competition in the insurance market, adding that resulting price increases would reduce "availability of coverage for all Americans."

The AMA similarly lauded the government for "fighting to protect patients and physicians from a health insurance system dominated by a few corporate Goliaths with unprecedented market power."

Not all organizations praised the government’s actions. America’s Health Insurance Plans, a trade association for health insurance providers, said some mergers among health insurers can deliver "significant benefits by combining complimentary areas of expertise," adding that several state insurance regulators across the country approved the transactions.

The decision is a blow to Anthem, which called the Justice Department’s announcement "unfortunate and a misguided step backwards" for those seeking access to affordable health care. Anthem alluded to the fact it may fight the suit in federal court, but said it would continue speaking with the DOJ over a possible fix.

Aetna was more forceful in defending its acquisition of Humana in its statement: "Aetna and Humana look forward to making this clear in court, where a judge will review the transaction based on its merits."

But mergers often fall apart after the government makes it clear it will block the transaction. Halliburton Co. also vowed earlier this year to fight the government's decision to block its acquisition of Baker Hughes Inc., only to walk away from the deal a few weeks later.

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