- Aetna will pay Humana the $1 billion contractual breakup fee after they mutually agreed to end their plans for a $37 billion merger, the companies announced on Tuesday.
- The decision follows a court ruling from Judge John B. Bates of the U.S. District Court for the District of Columbia that blocked the deal in the antitrust case brought on by the Department of Justice in July 2016.
- Bates concluded that the health insurance companies' "proffered efficiencies do not offset the anticompetitive effects of the merger" and the deal would "substantially lessen" competition in the Medicare Advantage (MA) market and public exchanges.
After the merger was proposed in 2015, both companies were heavily scrutinized by antitrust regulators due to concerns over the substantially increased presence the combined company would have in the market, particularly in the MA market. The DOJ contended that this would lead to increased prices to consumers, reduced market competition and diminished innovation efforts. "The government identified 364 counties across 21 states where it argues that concentration in the Medicare Advantage market would rise above the presumptively unlawful level if the merger proceeds, and 17 counties across 3 states where that would be true in the public exchange markets," according to Bates. Aetna and Humana are two of the five largest insurance companies in the U.S.
While Aetna previously indicated it was "giving serious consideration to an appeal" to overturn Bates' ruling, Aetna-Humana are now accepting that "both companies need to move forward with their respective strategies in order to continue to meet member expectations," Aetna CEO Mark T. Bertolini said in a statement.
Aetna also dropped its plans to sell some of its MA assets to Molina Healthcare – a strategy it had hoped would ease antitrust concerns – and it "will pay the applicable fees associated with that termination."
Shareholders filed a class action lawsuit against Aetna last month arguing they lost more than $1 billion after the court blocked its merger.
Meanwhile, the other two insurance giants in the "Big Five" that are being challenged by the DOJ's antitrust division – Anthem and Cigna – are requesting a speedy appeal to Judge Amy Berman Jackson's recent decision to also block their $54 billion merger. The breakup fee Anthem would have to pay Cigna if they fail to finalize their deal is $1.85 billion. Court documents suggest Cigna may be trying to avoid pursuing a completed merger with Anthem any further.
Aetna took into account the possible termination of its deal with Humana when it reported its 2017 profit forecast and said it expects its operating earnings to grow to $8.55 per share from $8.23 in 2016. Humana will provide its 2017 financial guidance around 4 p.m. EST today, the payer announced.