Lessons from Aetna/Humana: What Do Health Care Mergers Face Today?

7 Min Read By: Eleanor Tyler

Aetna Inc.’s $37 billion deal to buy rival insurer Humana Inc. was blocked recently by a federal judge, thwarting one of two large mergers that would reshape the U.S. health-care landscape.

Judge John D. Bates of the U.S. District Court for the District of Columbia held January 23 that the Department of Justice can likely prove its case that Aetna and Humana’s merger would harm competition in Medicare Advantage markets in 364 counties in 21 states. Judge Bates also said that the merger will likely harm competition in at least three public exchange markets under the Affordable Care Act (ACA), even though Aetna pulled out of those markets during the merger challenge in a bid to undermine the government’s case.

About two weeks later, on February 8, Judge Amy Berman Jackson also blocked Anthem Inc.’s proposed $48 billion takeover of Cigna Corp., but her opinion explaining the decision is currently sealed. Even without benefit of Judge Jackson’s take on these megamergers, Judge Bates’s reasoning provides several lessons that other merging parties, particularly in health care, should consider.

What Efficiencies?

Efficiencies arguments based on cost weren’t successful in Aetna’s case. The proffered efficiencies are not cognizable under the law, and even if they are, the parties aren’t likely to pass any savings on to consumers, Judge Bates said.

Judge Bates’s opinion fits into a longer chain of decisions that support federal antitrust enforcers’ skeptical view of procompetitive merger efficiencies. The lessons of those decisions—and Judge Bates’s in particular—may resonate with Judge Jackson.

Parties face an uphill battle in proving any efficiencies defense in health-care mergers since the Federal Trade Commission successfully challenged a merger between the Saltzer Medical Group and St. Luke’s Health System, St. Alphonsus Med. Ctr.–Nampa Inc. v. St. Luke’s Health Sys., Ltd., 778 F.3d 775 (9th Cir. 2015).

In St. Alphonsus, the district court ordered St. Luke’s to divest Saltzer because the combined entity could raise prices for insurers. Although the parties argued that the combined entity would significantly improve patient outcomes, the court concluded that the proposed efficiencies were not “merger specific,” because they could be achieved by less restrictive means.

The U.S. Court of Appeals for the Ninth Circuit affirmed the order unraveling the deal, saying it remained “skeptical about the efficiencies defense in general and about its scope in particular.”

Though there have been glimmers of success for efficiencies defenses at the district court level since St. Alphonsus, appellate courts have rejected proffered efficiencies in challenged health-care mergers.

Based on the Ninth Circuit’s precedent, any efficiencies defense faces a high bar. The parties have to “clearly demonstrate” that the challenged deal produces “extraordinary efficiencies” in order to rebut the government’s prima facie case under Clayton Act §7. Particularly, merger efficiencies based on improvements in quality of care, as opposed to cost of services, are difficult to quantify and prove in court.

As more cases pile up rejecting different efficiencies defenses in health-care mergers, the mountain a successful defense must climb grows steeper. If merging parties believe they have substantial efficiencies or consumer benefits from a merger, proving them to the agency during negotiation is key. If the parties fail to convince the agency, convincing a court after a challenge is filed is onerous.

Something’s Gotta Give

The Aetna opinion also may signal that rapid consolidation in health care is reaching a competitive limit.

The relationship between providers and insurers has been described as an “arms race” to improve bargaining position. Regulators have challenged hospital deals by arguing that, when providers gain negotiating leverage, the result will be higher prices for consumers. Regulators alleged confidently that any increase in price will be passed through to consumers by health insurers on the losing side of the bargaining table.

In the Aetna decision, however, the court agreed with the DOJ that the opposite isn’t necessarily true. It is not evident that when insurers win in negotiating with providers, any price reductions they secure will wind up in consumers’ pockets, the court said.

In their approach to health-care mergers, the agencies seem to be signaling that each side of the health-care “arms race” has consolidated enough and neither should be allowed to gain a sizable advantage that way.

The Aetna opinion seems to embrace a view that consumers are not benefiting from this contest. Even if leviathan hospital groups and insurance companies extract better prices from one another, reduced competition on each side of the table means each side has less incentive to pass any savings on to consumers. Regardless of which side wins, consumers lose if both sides do not face robust competition.

Given that consumers are the most visible constituency protected by the antitrust laws, merging parties should expect to provide explicit proof of likely consumer benefit behind arguments about efficiencies based on scale and bargaining power.

Efficiencies arguments based on cost were not successful in Aetna’s case. Parties should watch how the court views the alleged cost advantages of the Anthem/Cigna deal, as well. In that case, the parties argued the merger would reduce costs because they can extract lower prices from providers.


Another takeaway from Judge Bates’s decision: strong-arm tactics and gamesmanship are a dangerous route when dealing with the government.

The court found that Aetna threatened to leave ACA exchanges if the government challenged the Humana merger. Aetna then, as a litigation tactic, pulled out of those exchanges the government identified as competitively impacted. Aetna argued that doing so was a business decision, and that the merger wouldn’t reduce competition in those markets because Aetna would no longer compete in those exchanges anyway.

That argument failed. The court agreed with the DOJ that litigation posturing is not business as usual and found that Aetna was likely to return to the most profitable ACA markets when the threat of litigation passed.

Many companies divest assets or leave markets to ease a settlement with the merger authorities—that is standard procedure in contested mergers. Aetna’s tactic was treated differently because Judge Bates found that Aetna tried to hide its motivations for leaving the ACA markets and undermine the government’s case against the merger, rather than making actual business decisions or divesting in good faith.

If a company is large enough to threaten damage to specific markets, merger authorities are less likely to approve a merger that enhances that company’s market power. Throwing weight around is not ultimately a good strategy for merger review.

Layers of Review

There is substantial uncertainty about the priorities for a Trump administration in antitrust enforcement. But the Aetna case highlights another consideration for lawyers involved in health care mergers regardless of what happens at the top of the agencies for the next few years.

Eight states and the District of Columbia joined the court challenge to the Aetna-Humana merger; 11 states and the District of Columbia sued with the federal government to halt the Anthem-Cigna deal. Health-care entities, highly regulated at both the state and federal level, are accustomed to balancing their regulatory approach to take both into account. It is important to remember that the complementary regulatory role of federal and state authorities extends to merger review.

Every state in which a company operates might be concerned about consumer and competitive impacts of a proposed merger. States also work together through the National Association of Attorneys General (NAAG) to investigate and challenge anticompetitive conduct. Even with federal approval, merging parties might have to accommodate state concerns or battle resistance to their tie-up in court.

Furthermore, although Republican administrations are generally viewed as more “business friendly” and less likely to block mergers that fall on the margin of anticompetitive impact, the staff who evaluate mergers within the DOJ and FTC stays from administration to administration. Expect a level of continuity in how mergers are reviewed and what actions are recommended to any new personnel at the top of the agencies.

What’s Next?

Judge Bates’s opinion is well-reasoned and relies on copious record citations. His result rests on two independent grounds in two separate markets. It therefore has the markings of an opinion that will hold up on appeal. Aetna has said it is still weighing its options on whether to seek review in the D.C. Circuit.

The bottom line: according to data from Bloomberg Law Litigation Analytics, both judges are upheld on appeal more than 70 percent of the time, though neither has had many antitrust cases go to trial.

For More Information

Text of the court’s decision is at http://src.bna.com/lSl.

By: Eleanor Tyler

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