Aetna trial day 12: what you need to know
The witnesses were Jonathan Orszag and Christine Hammer (an independent consultant hired to evaluate the efficiencies). The defense gave Orszag plenty of time to explain why Professor Nevo's merger analysis was wrong, while DOJ tried to discredit Orszag and point out flaws in his arguments.
In response to questioning, Orszag said that recent studies showed greater nesting parameters for MA and traditional Medicare, and that Professor Nevo had incorrectly oversimplified his merger model (Nevo said MA groups set prices at the county level). That doesn't happen in real life; single-county plan segments only exist in 4% of counties.
He also testified that Nevo's model predicted 24% profit margin for MA groups, but the MLR would hold profits to only 15%. CMS rules protected consumers from big price increases, and the model didn't include entry into insurance markets, which was robust. Most entrants wouldn't acquire enough market share to replicate Humana, but they wouldn't need to.
DOJ was represented by Craig Conrath, and he pointed out that in a previous New York case Orszag failed to offer reliable evidence and speculated. He got Orszag to admit he didn't look at Aetna's profitability in the 17 complaint counties, or at its profitability on the exchange in Florida. Also, Humana has stayed on the exchanges. Orszag countered that it had raised prices and therefore won't be a large competitor.
DOJ also noted that Orszag relied on a paper for his analysis, and this paper said "the rates of transition to traditional medicare among seniors were still relatively low." So even when seniors were defaulted out of MA to traditional Medicare, a lot of them switched back to MA. DOJ pointed out that Orszag's analysis incorporated factors that aren't part of the hypothetical monopolist test.
Orszag responded that real life examples were more reliable than the hypothetical monopolist test, but admitted that he didn't independently check the efficiencies. DOJ hammered home that his attempts to identify potential entrants in counties ignored that fact the Cigna was under sanction by CMS and that many companies were finding it difficult to compete in those markets.
Craig Conrath struggled to discredit and rebut Mr. Orszag. After they were finished, they called up Ms. Christine Hammer. She spoke about how Gokhale's efficiency claims were not credible--he failed to show that the supposed efficiencies were cognizable.