Aetna tried to leverage Obamacare involvement for government merger support, ruling says
The DOJ argued during the 13-day trial that the effect of the merger would substantially lessen competition in the public exchange markets.
Aetna tied its proposed $37 billion merger with Humana to remaining on the insurance exchanges in 17 counties and felt the government owed the insurer goodwill for helping to craft a workable Affordable Care Act plan, according to court documents.
During the Department of Justice investigation of the proposed $37 billion merger, but before filing an injunction, Aetna tried to leverage its participation in the exchanges for favorable treatment, United States District Court Judge John D. Bates said in his Monday ruling against the merger.
The DOJ argued during the 13-day trial that the effect of the merger would substantially lessen competition in the public exchange markets in those 17 counties in Florida, Georgia, and Missouri.
"The wrinkle here is that shortly after the complaint was filed, Aetna announced that it would no longer offer exchange plans for 2017 in any of those 17 counties," Bates said. "The Court finds that Aetna withdrew from the 17 counties to improve its litigation position."
[Also: Court blocks Aetna, Humana merger]
On May 11, 2016, during a deposition of Aetna CEO Mark Bertolini, Aetna's counsel said that if Aetna was not "happy" with the result of an upcoming meeting regarding the merger, "we're just going to pull out of all the exchanges," the ruling said.
"Bertolini affirmed his counsel, stating 'Nice,"" Bates said.
"The next day, Bertolini and other staff met with Health and Human Services Secretary Sylvia Burwell. Aetna Executive Vice President Steven Kelmar told Burwell that if the merger was blocked, Aetna 'would likely have to revisit its plans for and presence on the public exchanges,'" the ruling said.
Also, in a phone call on June 15, 2016, Bertolini asked Burwell to put in a good word with the DOJ for Aetna, "For all that we've done with you," according to the court documents.
When asked during his deposition what he meant, Bertolini said, according to the ruling, "It was about my involvement in helping them get the Affordable Care Act structured and properly done. And so that was our feeling was that we were doing good things for the administration and the administration is suing us."
In preparation for the phone call, Kelmar sent Bertolini talking points which stated: "By getting this deal done, I can make the commitment that we will expand our exchange footprint and continue to take a leadership position on expanding the value of exchanges to a greater part of the population," and, conversely, "if we can't get to a good path forward on this deal the break-up fee of 1 billion dollars will significantly impact our business model and have some very tough consequences for us and the market."
[Also: AMA wants court to block Aetna-Humana merger]
Ultimately, Bertolini expressed this sentiment in a July 5, 2016, letter to the DOJ.
"This evidence shows that Aetna and its CEO, Bertolini, viewed participation on the exchanges as closely connected to DOJ's attempt to block the merger," Bates said.
Aetna has been losing money on the exchanges since the start of the ACA. In 2014, Aetna predicted it would lose $70 million, and instead lost $100 million, the court ruling said. Aetna planned to keep going forward despite the losses, because it said it expected that a new market would be unprofitable for an initial period
If the deal doesn't go through by Feb 15, Aetna must pay Humana $1 billion break up fee.
The government saw the transaction as part of "an industry-wide rush to consolidate," court records state.
Following its acquisition of Coventry in 2013, Aetna became the fourth largest Medicare Advantage insurer in the country.
On at least two occasions, UnitedHealth had approached Aetna about a potential acquisition, and on other occasions Aetna had made indirect inquiries about acquiring Cigna.
On July 21, 2016, the United States, along with several states filed a complaint seeking to permanently block the Aetna-Humana merger, due to the lessening of competition in the individual Medicare Advantage market in 364 counties across 21 states and the market for individual insurance sold on the public exchanges in those 17 counties.
To answer anti-competition concerns, in August 2016, Aetna and Humana each entered into a separate agreements to sell Molina some of their Medicare Advantage plans.
Second, on August 15, 2016, Aetna announced that it no longer planned to offer plans on the public exchanges in 11 states where it had offered plans in 2016, including those that cover all 17 counties in the complaint.
However, the court said Molina's core business is Medicaid. It made forays into Medicare Advantage in the past but none succeeded.
Aetna and Humana approached 14 potential buyers about a sale of certain assets. Three submitted bids for all the divestiture assets: Molina, InnovaCare, which does business only in Puerto Rico and WellCare, which had trouble with law enforcement as well as with Centers for Medicare and Medicaid compliance, the court said.
Aetna has said it is considering an appeal.
"After putting forward a compelling case that addressed each of the Department of Justice concerns, we are disappointed with the court's decision and will carefully consider all available options," Bertolini and Humana CEO Bruce Broussard said in a joint statement. "We continue to believe a combined company will create access to higher-quality and more affordable care, and deliver a better overall experience for those we serve."
Twitter: @SusanJMorse
