Speculation swirling around potential block of big payer mergers

Sources close to the deals are saying the U.S. Department of Justice is about to block the proposed mergers between Anthem and Cigna, and Aetna and Humana.

Federal regulators are expected to file a lawsuit as early as this week or next on the proposed deals.

So far, neither the DOJ nor the insurers are saying anything official. Until the legal complaint is filed, the results of the closed review sessions remain speculative.

A former Deputy Assistant Attorney General for Economic Analysis with the Antitrust Division of the DOJ said she had no special insight into the DOJ's concerns.

"I don't think we know what the concerns are until we see the complaint," said Fiona Scott Morton, senior consultant for Charles River Associates in Boston, who is a professor of Economics at the Yale School of Management and was formerly with the Justice Department.

[Also: Report: DOJ plans to file lawsuits to block Anthem/Cigna, Aetna/Humana mergers]

That's if there is a complaint.

If the complaint is filed, the insurers would have to decide whether to pursue litigation or to abandon the deals.

If their cases goes to litigation, the insurers would have to prove that the mergers are procompetitive, and good for consumers, Scott Morton said.

So far it appears they've been unsuccessful in making this claim to the DOJ, if the word on the street is accurate.

Paul Keckley, a healthcare industry expert who manages The Keckley Report, believes the reports are true, though he was surprised the DOJ is projected to reject both insurance proposals.

"The twist on this was Aetna and Humana," he said.

[Also: Humana stock plummets as merger with Aetna given marginal odds of going through]

The Aetna and Humana deal, which revolves around Medicare Advantage, was seen as less complicated and better able to make the argument for divestiture as a remedy to anti-competitive concerns.

"Showing the Justice Department they have buyers for these plans, good buyers, which have the potential to be formidle markets," said Paul Ginsburg, director of the Leonard D. Schaeffer Initiative for Innovation in Health Policy.

The merger between Anthem and Cigna faced more hurdles and the belief that the merger would drive premiums higher, Keckley said.

Ginsburg said Anthem and other BCBS plans are significant competitors for large self-insured employers, and represent more competitive disruption.

"You can't sell pieces of Cigna because this is a national market," Ginsburg said. "You can easily sell pieces of Humana. Medicare Advantage is a very local market. The problem with Anthem and Cigna is, it had no obvious remedy."

Yet even the Aetna and Humana deal had its issues.

[Also: California regulator signs off on $37 billion Aetna-Humana merger]

The merger would displace about 300,000 Medicare Advantage lives that have nowhere else to go, Keckley said.

"It's more of a math game around Medicare Advantage," he said.

Billions are at stake for the insurers.

Anthem would be looking at paying $1.8 billion to end the deal, according to Keckley.

Then there's the billions to be saved in combined operations.

Attorney Rob Fuller of Nelson Hardiman in Los Angeles said he believes the insurers have too much at stake to walk away from the deals if the DOJ files a complaint.

Also, as providers take on more risk, Fuller said, payers are becoming more like third party administrators, with less power and relevance in the market. They need this.

Ginsburg said he believes the DOJ is paying attention to insurer concerns that the markets have become more competitive under the Affordable Care Act, that medical loss ratios are affecting them and they need to become more efficient.

"I think DOJ is listening to that as well," Ginsburg said.

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However, he said, "I think their ultimate decision is really based on, will the purchasers of health insurance, consumers and employers, will they be harmed by this?"

The main objection to the mergers is the DOJ's concern about how taking the nation's top five insurers down to three, would harm consumers, according to those interviewed and by all reports.

The Justice Department has no jurisdiction to set rates.

As far as how the mergers would affect providers, Fuller predicts the insurers would use "blunt force trauma" in setting rates with hospitals, once they had that combined clout.

Fuller also expressed skepticism that any insurer savings resulting from combined operations would be passed on to consumers.

Seven U.S. Senators also expressed this doubt in a letter sent to federal regulators.

Twitter: @SusanJMorse