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Outline of Aetna Decision

Product Market

  • Aetna's defense depended a lot on whether they could convince Judge Bates that Original Medicare and Medicare Advantage were in the same market. This would have been disastrous for the DOJ's case because the increases in market share from the Aetna/Humana merger would not look scary in a much bigger market that included Original Medicare. Indeed, it would be hard to imagine a merger among Medicare Advantage competitors that would violate antitrust laws if this argument was excepted. Fortunately, Judge Bates recognized that Original Medicare was very different than Medicare Advantage.

  • Judge Bates relied on two legally accepted tests to determine that Original Medicare and Medicare Advantage were in different markets. First is a set of factors the Supreme Court listed in the famous Brown Shoe case. These factors are often referred to as "practical indicia" by courts because they look at how the market views the products in practice. Judge Bates reasoned that if Original Medicare and Medicare Advantage were in the same market, then there should be competition between Medicare Advantage and MedSupp, a supplemental insurance seniors would need to combine with Original Medicare to get similar coverage as Medicare Advantage. When looking at the business documents of Aetna and Humana, Judge Bates simply could not find much evidence of competition between MedSupp and Medicare Advantage. That, along with other practical indicators, showed that Medicare Advantage and Original Medicare are in separate markets.

  • Second, Judge Bates looked to the economic evidence presented on both sides in what is called a "Hypothetical Monopolist Test." This test asks economists to look at whether a hypothetical monopolist in the market the plaintiff proposes (here the DOJ) could raise prices by a small but significant amount. If they can, then the plaintiff's market is correct. If enough customers leave for another product, then the market must include that other product. Here, there was a battle of the experts where each side had an economist that presented models to show their side was right and the other side was wrong. However, Judge Bates concludes that "the expert case too tilts clearly toward the government." The DOJ's expert was simply more persuasive, in large part because he presented calculations not only under his own model, but showed that even when relying on estimates provided by Aetna Medicare Advantage and Original Medicare were in separate markets for the majority of the markets.

  • [Good Quote - "Professor Nevo has performed a battery of tests that all point to the same conclusion: the sale of individual Medicare Advantage plans satisfies the hypothetical monopolist test and thus is a relevant product market. That result generally holds up whether Nevo uses a critical loss analysis or a merger simulation, and whether he uses his own estimates, Orzsag’s, or those from the academic literature."]

Competitive effects

  • Once a relevant market is established, the DOJ must then show that the concentration in that market increases by enough to raise competitive concern. The typical way to do that is through a calculation called HHI, which produces a number that gets larger the more concentrated a market is. For example, a highly concentrated market has an HHI of over 2,500 and a merger is considered anticompetitive in a highly concentrated market if it increases the HHI by 200 or more. These thresholds are determined by the FTC and DOJ's Horizontal Merger Guidelines, and the Guidelines' HHI thresholds have largely been adopted by courts.

  • Judge Bates states "There is no suspense about the outcome of this HHI analysis here: the Aetna-Humana merger easily surpasses the Guidelines’ concentration thresholds in all 364 of the complaint counties. Indeed, in more than 75% of the counties, the post-merger HHI would be greater than 5,000, and in more than 70% of the counties, the merger would cause an HHI increase of more than 1,000 points. And in 70 counties where Aetna and Humana are the only MAOs currently in the market, the postmerger HHI would reflect a merger to monopoly."

  • The DOJ did not just rely on HHI figures. The DOJ presented, and Judge Bates relied upon, extensive evidence of head to head competition between Aetna and Humana. Judge Bates remarked that "This head-to-head competition benefits seniors who shop for Medicare Advantage plans in the form of broader networks and lower costs."

  • Judge Bates concludes "Together, this evidence suggests that there is significant head-to-head competition between Aetna and Humana, that it drives improvements to plan cost and quality, and that—if the merger were consummated—that competition would be lost, with some resulting deterioration in the Medicare Advantage products offered."

  • Judge Bates did not buy the argument that government regulation would prevent anticompetitive effects from occurring.

  • Judge Bates likewise did not believe new entry would counteract anticompetitive effects. Judge Bates challenged many of the premises that Aetna's economic expert relied on to make the case that new entry was likely. Judge Bates ultimately found the DOJ's expert witness more persuasive, as well as business documents and testimony that shows significant barriers to entry. Judge Bates also found that even if a new entrant appeared, they were unlikely to replace the competition lost.

Molina Divestiture

  • Under the law, a divestiture must replace the competition lost as a result of the proposed merger. This includes the competitive intensity lost.

  • Judge Bates found that the divestiture would not counteract the loss of competition from the proposed merger.

  • Approximately 60% of the divested Plans are PPOs, a market that Molina has expressly avoided in the past. Indeed, this fact caught Molina by surprise. In an email approximately two weeks after Molina agreed to the divestiture—Mr. Molina stated “[H]ow did we miss this?!”

  • Judge Bates found that Molina would have significant problems with the divestiture, including that Molina likely could not build a provider network in the time available and that there are reasons to doubt Molina has the internal capabilities to manage the divested plans.

  • Judge Bates commented on the fact that the purchase price was extremely low, and found that this was evidence that "Molina has serious doubts about its own ability to manage all the divestiture plans but is willing to try given the low risk to the company reflected in the bargain price." Judge Bates remarked that the low price "does not give the Court confidence in Molina’s ability to effectively replace the competition lost by the merger."

Public Exchanges

  • The DOJ alleged that the merger would hurt competition on the public exchanges in 17 counties. Aetna withdrew from all 17 exchanges shortly after the complaint was filed.

  • Judge Bates remarkably found that Aetna withdrew from the 17 counties in order to improve it's litigation position. The DOJ argued that because of this, that Judge Bates should look at potential competition when analyzing the DOJ's claims in these 17 counties. Judge Bates declined, and instead identified three counties in Florida where Aetna was likely to compete after 2017. Judge Bates found that the merger would substantially lessen competition in those three counties.

  • Judge Bates kind of split the baby in his analysis of public exchanges. Judge Bates states "the case law does not support defendants’ approach of viewing competition as an on off switch where a merging party can simply switch it off entirely by withdrawing from a market (potentially temporarily). Rather, courts routinely view competitors that may have one foot in and one foot out of the market as actual competitors, and evaluate the anticompetitive effects of a merger using the standard tools of antitrust analysis." Yet Judge Bates declined to do as the DOJ suggests by looking at the facts as they were in 2016. Instead, Judge Bates looked to which of the 17 counties were projected to be profitable and selected those counties for analysis as markets where Aetna and Humana would likely compete.

  • However, Judge Bates is clear in his opinion of Aetna's attempt to manipulate the litigation process. Judge Bates states "Courts appropriately guard their ability to ascertain the actual facts at issue, rather than allow a party to thwart judicial review through its own machinations." Judge Bates is cautious not to create "incentives for firms to take similar actions in the future to evade antitrust review." Judge Bates listed extensive evidence of Aetna withdrawing from the 17 counties in retaliation to the DOJ complaint, including evidence of an attempts to shield damning communications from discovery.


  • Judge Bates was not persuaded that the claimed efficiencies would counteract the harms from the deal.

  • Significantly, Aetna and Humana's own expert admits that in the health insurance industry only about 50% of reductions in marginal costs will be passed through to consumers. Aetna and Humana could also not identify what efficiencies would benefit consumers in the markets that would be negatively impacted by the merger. Instead, they tried to argue that this case was an exception to the general rule that efficiencies should be evaluated in the context of the impacted markets - an argument that Judge Bates soundly rejected.

  • Judge Bates is critical of the methods Aetna and Humana used in estimating efficiencies, finding several examples where the efficiencies are probably less than claimed.

  • Judge Bates expertly sums up Aetna's efficiency claims, stating "Aetna and Humana have put forward very little evidence that would tempt a consumer in one of the challenged markets to choose the merger over continued competition. For that reason, their efficiency defense fails."

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