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Under Review: How DOJ, FTC Decide Whether To OK Health Insurance Mergers

The fate of the proposed Anthem-Cigna and Aetna-Humana mergers likely will come down to two concepts: costs and choices.

“Will consumers pay higher prices? Will they have alternatives? That’s what regulators will be looking at in these mergers,” George Hay, a professor of antitrust law and economics at Cornell University, told California Healthline.

But it could take a while to figure to what extent consumers will be affected.

In July, Anthem agreed to acquire Cigna for $48.4 billion, which would make the combined company the nation’s largest insurer by enrollment with about 53 million customers. That same month, Aetna reached an agreement to acquire Humana for $37 billion, setting the company up to become the second-largest insurer.

Shareholders of all four companies have approved their respective deals.

But before they can take their spots as the No. 1 and No. 2 biggest insurers, they need the OK from antitrust regulators. That could take a year or longer.

Basics of Antitrust Law

In the case of mergers and acquisitions, the most-applicable statute is Section 7 of the Clayton Act, which states that such deals are unlawful when the effect “may be substantially to lessen competition, or to tend to create a monopoly.”

The biggest concern among antitrust regulators used to be predatory business practices, such as monopolization, that would allow “bigger and meaner companies to beat up on the smaller competitor,” Hay said.

But that’s not the focus with these deals. Instead, officials will be taking into account the effect on and protections for consumers, Hay said.

The statute aims to prevent noncompetitive conditions in the market to protect consumers from unchallenged price increases. Unlike other aspects of antitrust law, Section 7 is “forward-looking in the sense that it’s designed to prevent problems from occurring,” Hay said.

The Concerns

According to the Coalition to Protect Patient Choice, for health insurance, those problems can include:

  • Higher premiums;
  • Lower-quality plans; and
  • Limited access to providers.

For example, unilateral plan price increases could go unchallenged in an in industry with fewer insurers. Meanwhile, less competition could limit insurers’ incentive to cover a broad range of services, according to CPPC.

Mergers also could push providers’ reimbursement rates to “levels that are not viable.” But to maintain some payment, doctors and hospitals could be forced to accept “unfairly low prices,” Hay said.

And those that don’t could be squeezed out of an insurer’s network, further harming patients, according to CPPC.

The merger review process is in place to prevent these conditions (and similar issues in other industries).

How it Works

Premerger Notification

Any companies that are above a certain size — usually determined by revenue — and considering a merger are required to file a report called the “first request” with the Federal Trade Commission and Department of Justice (the subsequent review is conducted by just one of those agencies).

The report includes information about the companies’:

  • Lines of business; and
  • Sales.

Despite its name, the report is not a request. “It’s a bit of a misnomer,” Hay said, noting that the report is required by law and must be submitted before any proposed deal can move forward.

When the report is filed, the merger is suspended for 30 days. During that time, the reviewing agency determines whether the deal can proceed or if more information is necessary.

Second Request

A “second request” is issued when companies involved in a deal have any overlapping lines of business, as is the case for the four insurers. The second phase is “a much more intense investigation,” Hay said.

According to FTC, the second request typically asks for any documents that could help inform the reviewing agency about the companies’:

  • Products or services;
  • Market conditions; and
  • The potential competitive effects of the merger.

The reviewing agency waits for the companies to submit all of the requested data before considering the deal again. The clock stops, and there is no timeline for companies to file the information, Hay said. It can take two months or more than a year.

Waiting Period Expires or Agency Challenges Deal

When all of the information is supplied, the clock starts again. The reviewing agency typically has 30 days to review the documents and make its decision.

After the waiting period, one of three things will happen based on the investigation’s outcome.

If no issues are found, the reviewing agency will sign off on the deal or simply let the waiting period expire, allowing the merger to proceed.

If anticompetitive issues are identified, the reviewing agency can:

  • Work with the companies to reach a settlement to address any problems; or
  • File for a preliminary injunction in federal court to block the deal if the companies attempt to proceed with the merger without addressing the issues.

According to FTC, the most common way for companies to restore competition under a merger is to divest overlapping assets or business units.

Where They Stand

Right now, the Anthem-Cigna and Aetna-Humana deals are in the “second request” phase.

They were required to comply with the request because of the significant overlap in their businesses. The proposals will remain pending until the insurers submit the necessary information and reach deals to satisfy regulators’ concerns.

But the available fixes — or potential divestitures — are more complex for the insurers, which sell nearly identical products and do not have fixed assets (like insurance plans in separate parts of the country) to divide up.

Hay said alternatives could include spinning off contracts that the insurers have with employers. But the potential settlements are “much more awkward” for these types of deals, he said.

That, combined with the time it could take for the insurers to submit their competition-related documents, is why experts expect the deals to be under scrutiny for more than a year.

Around the nation

Here’s what else is happening on the road to reform.

Add it to the list. Republican presidential candidate Ben Carson has unveiled a health care system reform plan that would repeal the Affordable Care Act, the Washington Post‘ “Post Politics” reports.

In the ACA’s defense. Acting CMS Administrator Andy Slavitt at a recent congressional hearing defended the performance and sustainability of the ACA’s state-run insurance exchanges in the face of criticism of misspent funding, Modern Healthcare reports.

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