With ongoing concerns from antitrust officials, the DOJ is preparing lawsuits to block two of the largest healthcare mergers on record. A final decision is expected this week.
2016 has been a rollercoaster ride of mergers and acquisitions, and the Justice Department’s move to block the Aetna-Humana and Anthem-Cigna mergers is just the latest development. According to the New York Times, antitrust officials are concerned that both the $37 billion deal between Aetna and Humana, and Anthem’s proposed $48 billion acquisition of Cigna, would harm competition in the healthcare industry.
Should the DOJ successfully block the mergers, 2016 could break records for its breadth of abandoned deals; some $723 billion worth of agreements have been withdrawn so far this year.
Whichever way the Justice Department rules, the decision is sure to have a significant impact. Should these healthcare giants succeed in arguing that the mergers would benefit consumers and the healthcare system alike, the health insurance landscape would be drastically altered.
The two newly formed supergiants would insure almost 90 million members between them, reports CNN, and the DOJ worries that such consolidation would stifle competition within the industry.
On the other side of the coin, the companies argue that in the current healthcare climate, these mergers make sense; following the Affordable Care Act, their profits were limited and they were forced to deliver more care at a lower rate.
Aetna contends that this expansive healthcare overhaul created pressure to merge, and thereby remain competitive in a rapidly changing health insurance landscape.
If the Justice Department does successfully block the mergers, however, Anthem will have to pay a breakup fee to Cigna (to the tune of $1.85 billion, according to their merger agreement). Aetna would similarly have to pay Humana $1 billion, though both Anthem and Aetna have the right to challenge the DOJ’s findings.
A Rollercoaster Ride
Despite the fact that the deals target two very different insurance markets, officials worry that the consolidation of five major insurance providers to three would ultimately raise insurance prices for consumers.
According to Assistant Attorney General William Baer, the two mergers are a "convenient shortcut to increase profit for these two companies,” adding that the DOJ has “zero confidence” the deals would benefit consumers.
A successful Justice Department lawsuit would not be the first of 2016, a year replete with blocked and abandoned deals. A proposed $35 billion Baker Hughes acquisition of oil-field services company Halliburton was blocked over similar antitrust concerns, and Staples and Office Depot were forced to abandon their $6.3 billion merger earlier this year.
Both Anthem and Aetna are expected to challenge the DOJ’s decision, though Aetna is both the most adamant in its contestation, and the most likely to close the deal, according to industry analysts. All four companies have experienced a drop in share prices following the Justice Department’s alleged lawsuits, though the prices have subsequently rebounded.
The final decision will likely be announced this week, just as the Democratic National Convention gets underway. Policymakers, healthcare providers, and insured Americans alike await the results with bated breath.
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