Centene's $17 billion pick-up of WellCare is likely to attract antitrust scrutiny from federal and state regulators as the combined company would have considerable concentration in a handful of states.
Centene and its rival WellCare both serve Medicaid beneficiaries in the same nine states and have significant overlap in certain markets, the most problematic territories being Missouri, Nebraska and Georgia, where the combined company would have significant market share, according to analysts at Jefferies.
The company would control 75% of the Medicaid market in Missouri, 67% in Nebraska and 61% in Georgia by Jefferies' analysis. The concentration issue is slightly more acute in those states because there would be fewer providers left following the combination. Missouri, for example, currently has only three Medicaid managed care providers: Centene, WellCare and UnitedHealth Group.
Other states like Florida, Illinois and New York might draw scrutiny as well, but increased competition makes it less of an issue in those locations. Florida would have more than 10 competitors remaining after the merger, according to data with the state.
"The two of them do compete head-to-head and I think it's going to get a lot of scrutiny at the DOJ because it's been increasingly aggressive about these mergers," antitrust lawyer David Balto, a former policy director of the Federal Trade Commission, told Healthcare Dive, referring to two previous horizontal mergers that were blocked in 2016.
DOJ intervened in merger attempts between Anthem's attempt to buy Cigna and Aetna's bid for Humana because the agency said the deals would increase concentration and stifle competition in various markets across the country. The department won both cases, preventing the combinations.
Centene CEO Michael Neidorff sought to downplay antitrust concerns during a call Wednesday with investors, seemingly trying to differentiate competition in Medicaid markets from commercial ones.
"When you're looking at Medicaid particularly, there is not the same issues from a competitive standpoint. You know, we don’t set the rates. The rates are set by the state," Neidorff said. "The requirement is that there be multiple plans for recipients to choose from. So while there is some overlap in some of the states, we believe it's all very manageable."
"The two of them do compete head-to-head and I think it's going to get a lot of scrutiny at the DOJ because it's been increasingly aggressive about these mergers."
But some experts pushed back on that idea, noting competition is beneficial regardless of the type of market.
"The market may not function like commercial health insurance, but the state is still a customer, and like customers in other markets, states could be harmed by a loss of competition. For example, if companies bid to be awarded a Medicaid contract, a reduction in the number of bidders could lead to less desirable bids from the state's point of view," Chris Garmon, a former economist with the FTC, told Healthcare Dive.
Neidorff said the two companies will now begin working with states and dealing with their concerns. He added he expects it "will be a successful process."
Previous antitrust scrutiny
In other proposed tie-ups, regulators moved to block mergers partially due to the combined market share and subsequent loss of competition in government-sponsored health plans — the same concern with Centene and WellCare.
DOJ blocked Aetna's attempt to acquire Humana in 2015, saying in its complaint the merger "is unprecedented in the Medicare Advantage industry and affects hundreds of markets across the country."
The department alleged the merger would harm more than 1.5 million Americans due to the loss of competition among MA plan providers it said would be felt in 364 counties in 21 states. "In these counties, Medicare Advantage serves approximately 1.6 million seniors, nearly 980,000 of whom have enrolled with Aetna or Humana," the complaint read.
The deal was also blocked because of the loss of competition in the public exchanges for individuals and families.
Both WellCare and Centene also sell plans on the Affordable Care Act exchanges. Centene covers 1.5 million consumers and WellCare covers 5,000, according to the latest annual filings.
Before DOJ weighed in, some state regulators alleged the Aetna-Humana deal was anticompetitive in their markets and moved to intervene.
For the Centene-WellCare union, "It's clear there’s got to be divestitures," Balto said.
Centene executives did acknowledge a "prudent amount of divestitures" were included in the deal during Wednesday's call, though they did not elaborate in which markets.
While those horizontal mergers were blocked under the Obama administration, it's not entirely clear whether the Trump administration would view this deal differently.
Tim Greaney, former assistant chief in DOJ's antitrust division, told Healthcare Dive the department has a long track record of challenging horizontal mergers in the healthcare industry, no matter the administration.
"A horizontal merger with large market share is definitely going to get very close scrutiny," Greaney said.
Balto added that after DOJ's successful challenge of the mergers of Aetna-Humana and Anthem-Cigna, "it's really extremely unusual for it to change directions" on its view of horizontal mergers.
During a speech in September, U.S. Assistant Attorney General Makan Delrahim emphasized the need to modernize and speed up the merger review process. He said it's taken longer to complete reviews and that it's possible to speed up the process "without compromising the quality" of reviews.
Looking back on the history of merger reviews, particularly horizontal ones, Delrahim said he agreed with a theory from former Assistant Attorney General William Baxter that "mergers are an important and extremely valuable capital market phenomenon, that they are to be in general facilitated, and that it is socially desirable that uncertainty and risk be removed wherever possible to do so, subject, of course, to the very important limitation that where a merger threatens significantly to lessen competition, it should be halted."