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Updated at 5:45 p.m. with Aetna comment, UofL professor’s analysis of industry dynamics.

The U.S. Department of Justice is getting ready to file lawsuits to stop Aetna from buying Humana, according to Bloomberg.
Aetna wants to buy rival health insurer Humana for $37 billion. If the DoJ believes that the merger would materially reduce competition, it could initiate legal action to stop the deal.
Bloomberg, citing people familiar with the situation, said today that antitrust regulators believe the deal “would harm consumers” and that the companies’ proposed remedy — to sell billions in assets — is “unlikely to sway” the regulators.
The sources also told the news agency that a decision “could come this week and will be made by next week.”
Shares of both companies fell sharply on the news. Aetna’s shares closed at $115.15, down 2.71 percent. Humana’s shares were down more than 5 percent during the day, hit a new 52-week low of $150 and closed at $153.38, down nearly 4 percent. Broader markets changed little.
Aetna would not tell Insider Louisville whether the company believes that a lawsuit is imminent or whether the DoJ’s preparation for legal action was standard procedure or meant to put pressure on the companies to divest more assets.

Aetna spokesman T.J. Crawford said the company does not comment on rumors or speculation.
“We are steadfast in our belief that this deal is good for consumers and the health care system as a whole,” Crawford said.
Humana could not be reached Tuesday.

Antitrust lawyers and analysts differ materially on the chances for the merger’s success. Just Monday, TheStreet had reported that Jefferies analyst David Windley upgraded Humana’s stock to “buy” because “he believes the acquisition by Aetna is likely to go through, based on legal expert calls and a divestiture analysis.” Also on Monday, an antitrust lawyer who represents health care providers told Insider Louisville that although he opposes the merger, he believes it is likely to be consummated, because he views the government’s case as rather weak.

Hospital mergers beget insurance mergers

Elizabeth Munnich
Elizabeth Munnich

While Elizabeth Munnich, assistant professor of economics at the University of Louisville, said she believes the Aetna-Humana merger is more likely go through than the proposed marriage of rivals Anthem and Cigna, she expects Aetna and Humana to fight for their deal in court if the DoJ files suit.

She also said that the DoJ officials’ considerations as to whether to intervene also will be affected by two recent antitrust lawsuits in the health care business that did not go the government’s way.

Last month, a judge ruled in favor of Advocate Health Care and NorthShore University HealthSystem over the opposition from the Federal Trade Commission, which plans to appeal the decision. Only a month earlier, the FTC had lost a hospital merger case in Pennsylvania.

In previous years, the FTC had won many such lawsuits, said Munnich, who studies health care markets and the impact of mergers on the industry.

Hospital systems have been merging for years and at an even faster pace since the Affordable Care Act, aka Obamacare, because they are facing growing costs from caring for sicker patients and administrative challenges related to care coordination and the sharing of electronic medical records, Munnich said.

The ACA has provided incentives for health care providers to offer better care at a lower cost, she said. For example, Medicare pays providers a lump sum for a procedure, such as a knee replacement. To keep costs low — and to pocket as much of a profit as possible — or to incur as little of a loss as possible — the provider will want to make sure that the procedure goes well so that the patient can be released as soon as possible and does have to be readmitted.

How much money the provider gets paid for such a procedure by an insurance company is negotiated between the provider and the insurer.

As hospital chains have gained market share through mergers and acquisitions, they have been able to use their size to exact from insurers higher reimbursement rates. To counterbalance hospital systems’ increasing bargaining power, insurance companies have been on a merger tear as well, to use their increasing bulk to force hospitals to accept lower reimbursement rates.

But don’t count on those lower rates helping consumers: Munnich said that evidence is growing that consumers have to pay higher insurance premiums in markets with fewer insurers.

That does not necessarily mean, however, that consumers should cheer for hospital system mergers: When hospitals negotiate for higher reimbursement rates from insurance companies, consumers may have to pay more as well. When insurance companies have to pay hospitals more for procedures, the insurers tend to recover the higher payments to hospitals through higher premiums from consumers. Patients also incur higher out-of-pocket expenses, because more expensive procedures can mean consumers hit their deductibles more quickly. Insurers also may lower the deductibles to make up for the higher reimbursement rates. Consumers also may incur higher co-pays.

Those complex dynamics help explain why the negotiations between Aetna, Humana and the regulators are taking so long.

“It is plausible that consumers could lose either way,” Munnich said.

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Boris Ladwig
Boris Ladwig is a reporter with more than 20 years of experience and has won awards from multiple journalism organizations in Indiana and Kentucky for feature series, news, First Amendment/community affairs, nondeadline news, criminal justice, business and investigative reporting. As part of The (Columbus, Indiana) Republic’s staff, he also won the Kent Cooper award, the top honor given by the Associated Press Managing Editors for the best overall news writing in the state. A graduate of Indiana State University, he is a soccer aficionado (Borussia Dortmund and 1. FC Köln), singer and travel enthusiast who has visited countries on five continents. He speaks fluent German, rudimentary French and bits of Spanish, Italian, Khmer and Mandarin.