3 Health Plan Mergers Through the Lens of New DOJ/FTC Rules

Linking the final federal guidelines to deals closed, abandoned, and still in play.

Would the final 2023 merger guidelines from the U.S. Department of Justice and the Federal Trade Commission have affected this year’s biggest deals? Here’s a look at the key guideline takeaways and the deals in question. They include one that’s still on the table following a state justice request to the DOJ.

1. One rule to rule them all.

The new guidelines combine and apply rules for all merger types into a single document. In addition to horizontal mergers, the final DOJ and FTC rules apply to vertical mergers (different provider types) and cross-market mergers (different geographies)

2. Tougher market share and market concentration limits for horizontal mergers.

The new guidelines change the market share and market concentration levels that would make a horizontal merger “presumptively unlawful”: a combined 30% market share or a market concentration of over 1,800 as calculated by the Herfindahl-Hirschman Index (HHI). Horizontal mergers consolidate the number of entities that offer similar services.

The HHI:

• Reflects how evenly market share is distributed
• Ranges from 0-10,000
• Helps identify markets that are moderately concentrated (HHI of 1,500-2,500) or highly concentrated (more than 2,500)

With a new market concentration of 1,800 making a merger presumptively unlawful, the DOJ and FTC have signaled that middle-moderate deals may be at higher risk for review and blockage. For vertical mergers, the guidelines soften but essentially maintain the presumption that a 50% market share suggests a monopoly.

Market share and concentration aside, companies must report any deal valued at more than $101 million to the DOJ and FTC.

Cigna and Humana: Had the deal proceeded and with Cigna retaining its Medicare Advantage business, the companies combined MA market share would have been 20% (18% Humana, 2% Cigna). But the dollar value of the deal alone would have initiated government review — in addition to its consolidation of two of the largest Pharmacy Benefit Managers in the U.S., a space the FTC is also reviewing.

3. Claiming efficiency won’t cut it

The final merger guidelines reject cost savings and efficiencies as a general defense against mergers deemed illegal and anti-competitive. The DOJ and FTC permit a “narrow path” for this defense, including evidence that:

• The merger will produce unique benefits not achievable any other way
• These benefits can be proven
• Said benefits do not decrease market competition

The government has been skeptical of merger savings and efficiency claims (Crowell). Alternatively and on the provider side, consolidation can raise prices without improving quality (KFF).

4. Prove your case — economically, competitively, comprehensively

Where the draft guidelines had relegated economic and evidentiary analysis the appendix, the final version elevates them to the main body and in front of market definitions. Companies are already used to more rigorous evidentiary standards when working with the FTC and DOJ, including potential merger harms. The final guidelines add labor market impacts to those harms.

UnitedHealth Group and Change Healthcare: UnitedHealth Group proved its case in one of the bigger recent M&A surprises. In March 2023, the DOJ dropped its appeal of a federal district court ruling that permitted United to acquire Change Healthcare in a $13 billion deal. That ruling required Change to sell its claims editing business, which was a part of the government’s anti-competitive claims.

5. The role of the states.

While the final guidelines do not address State roles in M&A review, they do come into play. States challenge mergers using federal antitrust law and/or their own statutes. The National Academy for State Health Policy (NASHP) has proposed model legislation that would require state review of mergers below the FTC/DOJ threshold of $101 million.

Elevance Health and BlueCross BlueShield of Louisiana: The deal that was off is now back on. In September, Elevance’s acquisition was delayed by state concerns including those of the Louisiana Department of Justice (LADOJ). At LADOJ’s request, the federal DOJ encouraged the Louisiana Department of Insurance to “carefully consider the competitive impacts” of the Elevance-BCBS-LA merger. Several factors — the state Blues’ plan conversion to a for-profit company and changes to a new joint nonprofit foundation, including profit distribution and board governance — appear to be shifting the tide for a deal that could close in early 2024.