Judge blocks proposed acquisition of Humana

Aetna’s $37 billion deal to buy rival insurer Humana was blocked by a federal judge Monday, thwarting one of two large mergers that would reshape the U.S. healthcare landscape. Aetna said it was considering an appeal.

The transaction would violate antitrust laws by reducing competition among insurers, U.S. District Judge John D. Bates in Washington ruled. With the deal defeated, Aetna owes Humana a $1 billion breakup fee under the terms of the merger agreement.

“We’re reviewing the opinion now and giving serious consideration to an appeal after putting forward a compelling case,” T.J. Crawford, an Aetna spokesman, said. A Humana spokesman didn’t immediately respond to a request for comment.

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The ruling is another victory for antitrust enforcement efforts initiated by the Obama administration. A separate Justice Department challenge, against Anthem’s $48 billion bid for Cigna, is also awaiting a ruling.

“If the judge blocked this deal, there is very little, if any, chance that the Anthem-Cigna deal gets cleared,” Jason McGorman, a Bloomberg Intelligence analyst, said by e-mail. He added that analysts and investors had thought that the Aetna-Humana deal “had a better chance of settlement/clearance” than Anthem-Cigna.

The Obama Justice Department frustrated a slew of mega-mergers amid a wave of record deal-making, including Comcast’s attempted takeover of Time Warner Cable, Halliburton’s deal for Baker Hughes and AT&T’s bid for T-Mobile US. The Trump administration is taking over investigations into AT&T’s deal for Time Warner and Bayer AG’s proposed combination with Monsanto Co.

The government case against Aetna-Humana merger focused on the market for private health plans for the elderly, known as Medicare Advantage. The U.S. argued the Aetna-Humana deal would have eliminated competition between the insurers in 364 counties in 21 states and likely would force senior citizens to pay higher premiums for Medicare Advantage plans. It also threatened competition on the insurance exchanges established under Obamacare, the Justice Department said.

Aetna countered that the Medicare market is much larger than the Justice Department claims because it includes both Medicare Advantage plans and original Medicare, providing more choice for seniors than the government portrayed. Competition on the exchanges isn’t an issue, they said, because Aetna withdrew from all 17 counties at issue in the government’s case.

The judge sided with the government’s view of the Medicare Advantage market. “In that market, which is the primary focus of this case, the merger is presumptively unlawful—a conclusion that is strongly supported by direct evidence of head-to head competition as well. The companies’ rebuttal arguments are not persuasive,” Bates wrote.

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