Expect a chilling effect on future health care consolidations after two health insurance megamergers were blocked by federal courts, analysts say.

A federal judge barred a merger between Aetna and Humana on Jan. 23, followed by a Feb. 8 decision that blocked Anthem and Cigna from consolidating. Both rulings called the deals anticompetitive.

The government has become increasingly successful at blocking mergers in the health care industry, said David E. Dahlquist, a Chicago-based health law attorney who specializes in antitrust law.

“Both of these decisions are likely to chill future mergers,” Mr. Dahlquist said in an interview. “We have the FTC [Federal Trade Commission] winning on the provider side. Now we have the DOJ [Department of Justice] winning on the insurer side. While they are different players in the marketplace, the law that is being applied is very similar, if not the same. The one-sided victories by the government are creating a situation of imbalance.”

Ruling positive and negative for providers

Anthem’s proposed $54 billion merger with Cigna would have been the largest insurer consolidation in history. The merger, along with Aetna’s $37 billion plan to purchase Humana, would have reduced the number of major U.S. health insurers from five to three, reshaping the industry. The Department of Justice and a number of states immediately opposed the mergers, arguing the consolidations would significantly reduce competition to the detriment of patients. Judges ultimately agreed.

For health providers, the decisions are positive because they allow for more insurer options, said Michael R. Greer , an Indianapolis-based health law attorney who specializes in antitrust law. Had the mergers proceeded, Anthem would have gained even greater power to negotiate low rates with physicians, he said.

“The [insurers] already have a huge market position so they can already hammer [providers] with low rates,” Mr. Greer said in an interview. “The reason why [the rulings are] such a big win for providers, is there won’t be this huge concentration of power. Anthem may not be able to hammer them quite as much as if they would’ve merged with Cigna.”

However, the rulings may discourage future health care consolidations between insurers and among health providers, Mr. Dahlquist noted. In recent years, the government has scored a series of legal wins that have blocked provider mergers. In 2013 for example, the Federal Trade Commission successfully stopped the acquisition of Palmyra Medical Center by Phoebe Putney Memorial Hospital (Albany, Ga.), followed by a 2014 win that barred St. Luke’s Health System’s acquisition of Saltzer Medical Group (Nampa, Idaho), an independent physician practice. In 2016, the FTC successfully blocked the merger of Penn State Hershey (Pa.) Medical Center’s merger with PinnacleHealth System (Harrisburg, Penn.).

“Every merger needs to be looked at [based on] the facts of that merger, and the facts of that case, the markets they compete in, [and] the markets they want to expand into,” Mr. Dahlquist said. “That’s why you shouldn’t look at all mergers of health care providers or health insurers as inherently bad, and I think that’s what these [decisions] are unfortunately driving toward.”

A broader takeaway is that the insurance industry needs to develop a better business model, said Barak D. Richman, PhD, an antitrust expert and law professor at Duke University in Durham, N.C. Mr. Richman consulted with several state departments of insurance as they were reviewing the Anthem-Cigna mergers.

“The general story here is that the insurance industry, over a number of years, has been consolidating and has reached a point where it now has passed a threshold where antitrust scrutiny will be very real,” Mr. Richman said in an interview. “One thing that the court cases revealed is that there is a certain prevailing business model in insurance which is: Get as big as you can, balance risk through volume, and use buying leverage to negotiate favorable prices from providers. It looks like that business model has reached its limits and really is not going to be sustainable any longer.”

The current market demands business models that center on value, not volume, Mr. Richman continued. Insurance companies will need to be more deliberate and analytical about how to provide value to patients and generate cost effective care.

“That really is the takeaway, that we need a real shift in the business of health insurance,” he said.

Anthem banking on new administration

Since the rulings, Aetna and Humana have chosen not to appeal and have mutually ended their merger agreement. Cigna is seeking to terminate its agreement with Anthem, but Anthem is fighting the dissolution. The insurance giant is looking toward the Trump administration to potentially turn the case around.

To enforce the termination, Cigna is suing Anthem in the Delaware Court of Chancery seeking a declaratory judgment that Cigna has lawfully terminated the contract, according to an announcement by Cigna. Anthem, meanwhile, is seeking a temporary restraining order to enjoin Cigna from terminating its contract.

“Anthem believes there is still sufficient time and a viable path forward potentially to complete the transaction that will save millions of Americans more than $2 billion in annual medical costs and deliver significant value to shareholders,” according to a company statement . “In addition to filing this lawsuit, Anthem is pursuing an expedited appeal of the District Court’s decision and is committed to completing this value-creating merger either through a successful appeal or through settlement with the new leadership at the Department of Justice.”

Part of that new leadership could include Makan Delrahim, a former Anthem lobbyist now serving as deputy White House counsel. He is rumored to be a top contender to lead the DOJ’s antitrust division.

Records also show that Indiana insurance regulators were supportive of the Anthem-Cigna deal while Vice President Pence was governor of Indiana and that Anthem contributed $100,000 to President Trump’s inaugural committee, according to Senate lobbying reports .

“A lot of folks are talking about the possibility that Trump will appoint people at both the FTC and DOJ antitrust devision [who] are Republicans and tend to be more business friendly, which would mean that maybe some of these mergers would be more likely to make it and less likely to be challenged,” he said.

On the other hand, a couple of leadership changes will not likely reverse the country’s historic antitrust enforcement, Mr. Dahlquist said.

“I don’t believe you’re going to see a systemic shift in the antitrust enforcement policy of this country,” he said. “Even one change at the top is not going to [create] upheaval within the ranks at the FTC and DOJ. The government is on a winning streak; I think that’s going to continue in the short term.”

Concerns about health care consolidations have been bipartisan for decades, according to Deborah L. Feinstein director of the FTC Bureau of Competition. Ms. Feinstein spoke about health care mergers at a recent American Bar Association meeting in Washington.

“I don’t expect to see any change in the government’s approach in continuing to challenge anticompetitive health care transactions,” Ms. Feinstein said during at interview at the meeting.


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