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Heft not enough to justify insurer deals, top DOJ lawyer says

November 16, 2015

Health companies saying they need to consolidate to preserve their heft when negotiating with service providers isn’t enough to justify mergers, a top U.S. antitrust enforcer said Friday in comments that could hint at the Justice Department’s thinking on two major health insurance deals.
 
Assistant Attorney General William Baer, who leads the department’s antitrust division, said that consumer choice is a bigger priority than health companies’ desire to add market share and gain leverage over providers like hospitals.
 
“Courts have long rejected that countervailing market power justifies anti-competitive mergers or agreements,” Baer said. “It’s not at all clear that consumers win when a merger is justified solely on creating negotiating power—the so-called second 800-pound gorilla defense.” He spoke by video at a Yale Law School conference on health care.
 
Baer’s department is reviewing two major health insurer acquisitions: Anthem Inc.’s $48 billion agreement to buy Cigna Corp., and Aetna Inc.’s $35 billion deal for Humana Inc. The deals would shrink the number of large publicly traded U.S. health insurers to three from five.
 
His stance could undercut a key argument by health insurers, which say the mergers will give them necessary size. Anthem CEO Joseph Swedish told Congress in September that the deal with Cigna would “enhance our ability to manage the cost drivers that negatively impact affordability for consumers.”

Physicians and hospitals have criticized the proposed mergers. The American Medical Association, which represents doctors, wrote to Baer this month urging him to block the mergers.
 
The Affordable Care Act was designed to encourage collaboration among health-care organizations in ways that cut costs and improve quality, Baer said. The department is trying to determine how proposed mergers will affect the future of the health care marketplace.
 
“Mergers and other forms of integration can lead to cost savings and improvements in quality of care,” Baer said. “Not all acquisitions meet that test.”
 
Baer has previously said he will assess the health insurance industry as a whole, given the surge of deals, to make sure competition is preserved and the mergers don’t lead to higher costs for consumers.
 
“A trend toward consolidation in the health-care insurance market is something we need to factor in,” Baer said during a July interview on Bloomberg TV.
 

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