(Story updated at 3:43 p.m. ET)
Experts say Aetna is unlikely to win an appeal of a U.S. District Court judge's decision to effectively block a $37 billion merger with Humana that would have altered the Medicare Advantage landscape.
An appeal by Aetna and Humana could allow the merger a chance to close in what some expect will be a more lenient antitrust environment under President Donald Trump's administration. But some experts say Trump will have no bearing on the court's ruling.
U.S. District Judge John D. Bates blocked the merger on antitrust grounds, claiming that it would substantially reduce competition in violation of antitrust law.
“Specifically, the proposed merger is likely to substantially lessen competition in the sale of individual Medicare Advantage plans in 364 counties identified in the complaint and in the sale of individual commercial insurance on the public exchanges in three counties in Florida identified in the complaint,” .
In those 364 counties, Medicare Advantage serves approximately 1.6 million seniors, nearly 980,000 of whom have enrolled with Aetna or Humana, according to the U.S. Justice Department's complaint.
Judge Bates revealed that Aetna's decision to pull its exchange plans out of 17 counties was not a business decision based on losing money, but “a strategy to improve its litigation position.”
The Justice Department and healthcare industry associations applauded the decision.
“Today's decision is a victory for American consumers—especially seniors and working families and individuals,” Deputy Assistant Attorney General Brent Snyder, who is currently heading the Justice Department, said in a statement. “Competition spurs health insurers to offer higher quality and more affordable health insurance to seniors who choose Medicare Advantage plans and to low-income families and individuals who purchase insurance from public exchanges. This merger would have stifled competition and led to higher prices and lower quality health insurance.”
The "decision rightly puts the needs of patients first in ensuring they have access to health care coverage that is affordable,” Rick Pollack, president and CEO of the American Hospital Association, said in a statement. Dr. Andrew Gurman, president of the American Medical Association said seniors “were the big winners today.”
Aetna spokesman T.J. Crawford said the insurer's lawyers are reviewing the 158-page opinion and “are giving serious consideration to an appeal after putting forward a compelling case." Hartford, Conn.-based Aetna may owe Louisville-based Humana a $1 billion breakup fee if the merger ultimately falls through.
But Aetna will have a tough time winning in an appeals court. “This seems to me to be an opinion that is very thorough and strong and grounded in facts and applicable case law,” said Andrea Murino, partner and co-chair of the antitrust group at law firm Goodwin Procter. She added that the two insurers' chances of winning in appellate court “don't seem to be enormous.”
The court's decision wasn't a shock. Many analysts expected the court to block the merger, though Aetna executives have continuously reiterated their confidence in the merger. Ana Gupte, an analyst with Leerink Partners, had given it a 1-in-3 chance of being approved.
But the ruling does set an important precedent in how Medicare markets are defined.
Aetna and Humana originally announced their intent to merge on July 2, 2015. The Justice Department, along with eight states and the District of Columbia, sued to block the merger in July 2016, saying it would reduce competition and raise prices in Medicare Advantage plans—the private, managed-care version of traditional Medicare—as well as plans sold through the Affordable Care Act's public health insurance exchanges.
The key issue in the trial that wrapped up at the end of December concerned whether traditional fee-for-service Medicare competed with Medicare Advantage. The Justice Department argued they were separate markets and did not compete, while the insurers argued the opposite. Humana is the second-largest Medicare Advantage insurer, while Aetna is the fourth-largest and is rapidly adding more members.
In the , Judge Bates wrote that most evidence shows industry stakeholders and the public view Medicare Advantage and traditional Medicare as two distinct markets and not easily substituted for one another. Supplemental Medicare plans are also unlikely to alleviate anticompetitive effects of the merger, he said.
Most telling, Bates wrote, is data from the Kaiser Family Foundation on the number of seniors who leave Medicare Advantage plans for traditional Medicare plans. “The switching data presents a clear picture: Medicare Advantage enrollees rarely switch plans, but when they do, they overwhelming stay within Medicare Advantage.”
That Bates views the Medicare Advantage and Medicare fee-for-service markets as separate is a “significant setback to the industry from a consolidation perspective,” Barclays analyst Joshua Raskin wrote in a research note Monday. Because the Medicare Advantage market is already heavily consolidated, “There are few large combinations in the industry that would seem feasible,” he said.
While Aetna and Humana earlier this year some Medicare Advantage assets to Molina Healthcare to satisfy the government's concerns, Bates decided the divestiture would not restore the competition lost by the merger. The court said Molina's experience as primarily a Medicaid insurer is not likely to make it a successful competitor in Medicare Advantage.
On competition in the ACA exchanges, Bates found that the Aetna-Humana merger would reduce rivalry among marketplace plans in three Florida counties. Last summer, Aetna announced it was drastically pulling back from its participation in the individual insurance marketplaces, saying an unbalanced risk pool had led to significant losses.
Finally, Bates said there's little evidence that the insurers would pass on to consumers any “efficiencies” or other benefits that would result from the merger.
Meanwhile, rival insurers Anthem and Cigna are waiting to learn if their $54 billion merger will be approved by U.S. District Judge Amy Berman Jackson. That case hinges on whether the merger will reduce competition in the national market, so it's unlikely that the decision in the Aetna-Humana case will have much influence over Jackson's decision, said Tim Greaney, co-director of the Center for Health Law Studies at St. Louis University.
Jackson has also likely already made up her mind in the Anthem-Cigna case and could rule any day, he said.