Antitrust Analysis of Health Plan Mergers

• Pages: 115-169

115

CHAPTER V

ANTITRUST ANALYSIS OF HEALTH PLAN

MERGERS

A. Overview

Over the last decade, the health insurance industry has experienced a

number of mergers and acquisitions. Further consolidation is likely as the

industry reacts and adapts to the Patient Protection and Affordable Care

Act (PPACA)1 (including any potential replacement) and its expansion

of health coverage for U.S. citizens.2 The merits of health plan

consolidation—like the merits of hospital and physician consolidation—

continue to be debated. Proponents point to increased efficiencies that

come from purchasing an existing network rather than building one from

scratch.3 They also note that many health insurance purchasers prefer

larger health plans with broad regional or statewide networks and a

variety of plan and service options.4 Others note that providers prefer to

contract with health plans with more covered lives and the promise of

higher patient volumes.5 Health plans also argue that they face a

1. Patient Protection and Affordable Care Act, Pub. L. No. 111-148, 124

Stat. 119 (2010).

2. Indeed, some health plans already have begun seeking to acquire

hospitals and providers (in addition to other health plans) in an effort to

replicate the care continuum hospitals are building. See, e.g., Melanie

Evans, Highmark Completes West Penn Deal, Announces New System,

MODERN HEALTHCARE (Apr. 29, 2013), available at

http://www.modernhealthcare.com/article/20130429/NEWS/304299948.

3. Nancy Dean Beaulieu, An Economic Analysis of Health Plan

Conversions: Are they in the Public Interest?, NATIONAL BUREAU OF

ECONOMIC RESEARCH 153-163 (2004), available at http://www.nber.org/

chapters/c9872.pdf.

4. See, Cory S. Capps, PhD., Federal Health Plan Merger Enforcement is

Consistent and Robust 11 (2009), available at

http://www.bateswhite.com/media/pubication/35_media.227.pdf.

5. See e.g., Complaint ¶¶ 32-43, United States v. UnitedHealth Group, No.

1:05-CV-02436 (D.D.C., Dec. 20, 2005) [hereinafter United/Pacificare

Complaint], available at http://www.justice.gov/atr/cases/f213800/

213815.pdf.

116 Health Care Mergers and Acquisitions Handbook

challenging marketplace in which customers are seeking a broad array of

product choices and sophisticated health care cost and quality

management tools, and consolidation allows health plans to respond to

these issues by lowering their cost structure and diversifying their

business in terms of product design and product emphasis.6

Opponents of consolidation, on the other hand, counter that health

plans are consolidating rather than winning business through

competition, and that the market power obtained by health plans through

consolidation enables them to extract unfair concessions from providers

that are not passed on in the form of lower costs for consumers. Perhaps

not surprisingly, many health plan mergers have faced strong opposition

from health care provider and consumer organizations.7 Prior to DOJ

challenges of the recent Anthem/Cigna and Aetna/Humana challenges,

many of these same organizations asserted that significant attention had

been focused on hospital and provider consolidation by federal antitrust

enforcement agencies, with seemingly less focus by the agencies on

6. America’s Health Insurance Plans, Health Plan Competition and Provider

Consolidation (Updated) (Oct. 13, 2011), available at

http://www.ahipcoverage.com/2011/10/13/health-pla n-competition-and-

provider-consolidation-updated/.

7. See e.g., AMERICAN MEDICA L ASSOCIATION, COMPETITION IN HEALTH

INSURANCE: A COMPREHENSIVE STUDY OF U.S. MAR KETS, 2011 UPDATE

(2011). In 2012, this report concluded that 70% of U.S. health markets

lack sufficient insurance competition. AME RICAN MEDIC AL ASSOCIATION ,

COMPETITION IN HEA LTH INSURANCE: A COMPREHENSIVE STUDY OF U.S.

MARKETS, 2012 UPDAT E (2012); see also AMERICAN HOSPITAL

ASSOCIATION , THE CASE FOR REINVIGORATING AN TITRUST

ENFORCEMENT FOR HEALTH PLAN MERGERS AND ANTICOMPET ITIVE

CONDUCT TO PROTECT CONSUMERS AND PROVIDERS AND SUPPORT

MEANINGFUL REFORM (2009), available at http://www.aha.org/

letter/2009/090511-ltr-antitrust-rep.pdf; Leemore S. Dafny, Are Health

Insurance Markets Competitive?, 100 AM. ECON. REV. 1399 (2010)

(study showing evide nce that health insurer s possess and exercise market

power in an increasing number of geographic markets); Edward L.

Langston, M.D., Prepared Statement of the American Medical

Association to the Senate Committee on the Judiciary Concerning

Perspectives on Competition Policy and the Health Care Marketplace

(Sept. 6, 2006); James C. Robinson, Consolidation and the

Transformation of Competition in Health Insurance, 23 HEALTH AFFAIRS

16 (2004) (study of consolidation in the health plan sector finding that in

a majority of states, the top five insurers accounted for more than 50

percent of enrollees).

Antitrust Analysis of Health Plan Mergers 117

health plan consolidation.8 These historic concerns may be dampened in

light of the DOJ’s successful lawsuits to enjoin the Anthem/Cigna and

Aetna/Humana mergers. This recent litigation aside, federal antitrust

challenges to health plan mergers occurred only a handful of times, and

in each case the matter was resolved through a consent decree or

abandonment of the transaction by the parties. By contrast, in that same

time period, twice as many federal antitrust challenges to hospital and

physician mergers have occurred, with several cases litigated through to

court decisions (including decisions of appellate courts).9 Of course,

8. See AM ERICAN MEDIC AL ASSOCIATION, COMPETITION IN HEALTH

INSURANCE: A COMPREHENSIVE STUDY OF U.S. MARKETS (2007); see

also Heal th Insurance Industr y Antitrust Enforce ment Act of 2009:

Hearing on H.R. 3596 Before the H. Comm. on the Judiciary, Subcomm.

on Courts and Competition Policy, 111th Cong. 4 (2009) (Testimony of

David Balto, Senior Fellow, Center for American Progress Action Fund).

available at http://judiciary.house.gov/_files/hearings/pdf/

Balto091008.pdf (“[T]here has been no meaningful federal antitrust or

consumer protection enforcement against health insurers. None.”). Prior

to his election as President of the United States, Se nator Barack Obama

was particularly critical of the Bush administrat ion for lackluster ant itrust

enforcement, and specifically alleged that there had been “over 400 health

care mergers in the last 10 years” that had resulted in 95 percent of

insurance markets being “highly concentrated” and an “87 percent”

increase in premiums over the past six years. Senator Barack Obama,

Statement for the American Antitrust Institute (Sept. 27, 2007),

available at http://www.antitrustinstitute.org/files/aai-%20Presidential

%20campaign%20-%20Obama%209-07_092720071759.pdf.

9. St. Alphonsus Med. Center-Nampa v. St. Luke’s Health Sys., 20 14 WL

407446 (D. Idaho 2014) (court decision ordering divestiture of hospital

acquisition of primary care physician practice in suit brought by private

plaintiffs and Federal Trade Commission (FTC)); FT C v. Phoebe Putne y

Health Sys., 2013 U.S. Dist. LEXIS 68658 (M.D. Ga. 2013) (after U.S.

Supreme Court rulin g on state action doct rine, granting FTC r equest for

temporary restraining order to stop integration of Phoebe Putney Health

System a nd former Palmyra Park Hospital in Albany, Georgia); FTC v.

OSF Healthcare Sys., 852 F. Supp. 2d 1069 (N.D. Ill. 2012) (enjoining

defendant hospitals from consummating their affiliation agree ment);

Reading Health Sys. and Surgical Inst. of Reading, 2012 FTC LEXIS 194

(2012) (FTC order dismissing complaint after parties abandoned

transaction that FTC alleged would substantially reduce competition for

surgical services i n the area surround ing Reading, Penns ylvania);

Renown Health, 2012 FTC LEXIS 184 (2012) (decision and order) (FTC

challenge to acquisi tion by Renown Heal th of two cardiolo gy groups in