DOJ review of $37B Aetna-Humana deal will focus on coverage overlaps

On July 3, 2015, Aetna and Humana announced that they entered into an agreement under which Aetna will acquire all outstanding shares of Humana for a combination of cash and stock valued at $37 billion or approximately $230 per Humana share based on the closing price of Aetna common shares on July 2, 2015. Aetna and Humana are currently the third and fourth largest U.S. health insurers by revenue, with UnitedHealth Group sitting at the top and Cigna and Anthem rounding out the top five. If Cigna and Anthem, presently in merger discussions, announce a deal, they would become number one in the industry, with UnitedHealth knocked down to number three.

According to an Aetna news release, “The complementary combination brings together Humana’s growing Medicare Advantage business with Aetna’s diversified portfolio and commercial capabilities to create a company serving the most seniors in the Medicare Advantage program and the second-largest managed care company in the United States. The combined entity will help drive better value and higher-quality health care by reducing administrative costs, leveraging best-in-breed practices from the two companies — including Humana’s chronic-care capabilities that measurably improve health outcomes for larger populations — and enabling the company to better compete with more cost effective products.”

Bruce D. Broussard, president and CEO of Humana, stated, “Through the use of technology and integrated services to simplify the consumer experience, the combined entity will be even more effective in meeting the health needs of many more people — especially people with chronic conditions, who will benefit from Humana’s home health, pharmacy management, and data analytics programs.

The combination of Aetna and Humana:

  • Increases Aetna’s Medicare Advantage membership to 4.4 million and improves Aetna’s ability to serve members and their providers with cutting-edge technology and best practices.
  • Brings together two companies with leading percentages of membership in Medicare plans rated four Stars or higher.
  • Creates a leading health care services and pharmacy benefit franchise, serving members who use over 600 million prescriptions annually.

Bidness Etc,  quoting a Bloomberg Intelligence report, said that the parties have agreed to  complete their formal Hart-Scott-Rodino (P.L. 94-435) (HSR Act) filing requirements by July 17, and believes that review of the deal will likely be assigned to the U.S. Department of Justice (DOJ), which typically reviews health insurance mergers. The Federal Trade Commission (FTC) generally reviews mergers of hospital networks and pharmaceutical manufacturers.

According to Bidness, the DOJ antitrust review will involve the analysis of Aetna and Humana data to determine U.S. Metropolitan Statistical Area, counties, and local regions where their coverage overlaps. In addition, Bidness believes that state insurance commissions and state attorney generals may get involved in the review if one or both of the parties have a significant number of enrollees in that particular state. Because the parties overlap in their Medicare Advantage coverage in several areas in the South and Midwest, Bidness believes that the DOJ may require divestitures in counties where the Medicare Advantage plans exceed 40 percent of the market share.

According to the Wall Street Journal, Aetna CEO Mark Bertolini hopes that being the first to merge might give them an edge with DOJ review. However, if additional mergers are announced (Cigna-Anthem), the Aetna-Humana deal may not be considered by the DOJ on it own merit, but in combination with other health insurance industry mergers. Nevertheless, the Journal reported that Bertolini and Broussard both say: (1) they are confident the transaction will be approved, citing complementary, rather than overlapping strengths; and (2) the merger would result in lower costs for consumers.