Aetna, Humana map legal strategy to salvage merger

Fri Jul 22, 2016 12:00am EDT
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By Caroline Humer and Carl O'Donnell

NEW YORK (Reuters) - Health insurer Aetna Inc (AET.N: Quote), whose $33 billion purchase of Humana Inc (HUM.N: Quote) has been spurned by the U.S. government, faces a tough but not impossible legal battle to try to reinstate the deal.

Aetna vowed to fight “to the very end” after the Department of Justice filed suit earlier on Thursday to block the merger, which had been in the works for more than a year. Antitrust reviewers say the combination will hurt consumers and the companies' proposed fix - selling some health plans to a competitor - is insufficient.

The Justice Department simultaneously sued to block Anthem Inc’s (ANTM.N: Quote) proposed $45 billion deal for Cigna Inc (CI.N: Quote), moving against an unprecedented effort to consolidate the U.S. health insurance market.

Of the two deals, analysts and investors see Aetna and Humana as having a slight chance to reverse the decision through a court battle. They face a Justice Department empowered by a series of high-profile successes against mega-mergers, scuttling deals in industries from oil services to retail stores and telecommunications.

"My initial impression from the complaint ... is that the Justice Department and the states are on much safer ground" in their argument against an Aetna-Humana tie-up, said Beau Buffier, co-head of the antitrust group at Shearman & Sterling in New York.

The Justice Department lawsuit focused on a county-by-county analysis of where Aetna and Humana have what is deemed too much market share in providing Medicare Advantage for elderly people and in the individual health plans created under President Barack Obama's healthcare reform law.

Aetna will argue in court that the Justice Department defined the market for Medicare Advantage too narrowly, which has caused it to see competition issues where they do not exist, Chief Executive Officer Mark Bertolini said in an interview. The government has failed to take into account that seniors can not only choose between Medicare Advantage plans sold by private players, but also have the government-run Medicare program as an option.

"Let a judge decide. Is Medicare Advantage competitive with Medicare fee-for-service? If that is indeed the case, then there isn't any market we need to divest," Bertolini said. "If we have to divest, can we provide an appropriate remedy? And we have."   Continued...

A trader points up at a display on the floor of the New York Stock Exchange August 20, 2012.  REUTERS/Brendan McDermid