A federal antitrust judge has blocked the proposed $37 billion merger of Aetna Inc. and Humana Inc. and thwarting competition in the public health exchange market had a big impact on the ruling.This morning U.S. District Court Judge John D. Bates in Washington, D.C., blocked the proposed merger of two of the nations biggest commercial health insurers. In July 2015 Aetna announced a preliminary deal to acquire Humana in a stock swap transaction valued at $37 billion. The deal would have established what Aetna called a leading Medicare Advantage and commercial player with enhanced nationwide presence that could achieve $1.25 billion in combined savings and serve a base of more than 14 million total members, including 3.2 million Medicare Advantage members, Aetna says.The merger would have created what Aetna called a company serving the most seniors in the Medicare Advantage program and the second-largest managed care company in the United States.But in July 2016 the U.S. Department of Justice and the attorneys general of 11 states sued Aetna and Humana on antitrust grounds. This morning the U.S. District Court for the District Court of Columbia ruled in favor of the Department of Justice and the states in large measure because of the antitrust impact the deal would have on the public exchange market.The government alleges that the effect of the merger between Aetna and Humana may be to substantially lessen competition in the public exchange markets in 17 counties in Florida, Georgia, and Missouri, Bates wrote in his ruling. The wrinkle here is that shortly after the complaint was filed, Aetna announced that it would no longer offer on-exchange plans for 2017 in any of those 17 counties.After three years of losses and minimal volume, health insurer Aetna in August announced it was pulling backand nearly out altogetherof 17 public health exchanges and reducing its participation in public exchanges that serve individuals from 778 to 242 counties. At the time Aetna noted the primary reason for dropping out of most public exchanges is big losses it has suffered. Since January 2014 the health insurer says it has taken a pre-tax loss of $430 million related to its exchange business, including a pre-tax loss of $200 million on exchange business in the second quarter.Aetna updated its forecast in November and said for 2016 it expected to post a pre-tax loss of $350 million. That compares to an earlier projected loss of $300 million, according to Aetna.But Bates says Aetna cut back on the public exchange market to better facilitate its planned merger with Humana. The court finds that Aetna withdrew from the 17 counties to improve its litigation position, Bates wrote in his ruling. The Court further finds that Aetna is likely to compete in the public exchanges in only the three complaint counties in Florida after 2017, and that the merger may substantially lessen competition in those three counties. The market definition in this portion of the case is undisputed: Each county is a separate geographic market, and on-exchange health plans is the relevant product market. Bates cited e-mail evidence to back his conclusion that Aetna withdrew from the public exchange market to strengthen its merger position. There is significant evidenceprimarily in the form of contemporaneous e-mails among senior Aetna executivesthat Aetna thought of the 17 complaint counties as one unit, and that it withdrew from those 17 counties to improve its position in this lawsuit, Bates wrote. This evidence shows that Aetna and its CEO, Mark Bertolini, were willing to offer to expand its participation in the exchanges if DOJ did not block the merger, or conversely, was willing to threaten to limit its participation in the exchanges if DOJ did.Bates also agreed with the Department of Justice argument that the merger of Aetna and Humana would constrict health exchange competition in Florida, where up to 1.6 million consumers signed up for a first-time policy or renewed their coverage on Healthcare.gov in 2016, according to HealthInsurance.org. The court finds the proposed merger is likely to cause a substantial lessening of competition in these three counties in Florida, the judges ruling says. The court concludes that the proposed merger is likely to substantially lessen competition in violation of section 7 of the Clayton Act in the public exchange markets in the three complaint counties in Florida.Aetna and Humana have yet to say if they will appeal the ruling or if the two companies still intend to pursue a merger, although an Aetna spokesman told Bloomberg News an appeal is still viable. Were reviewing the opinion now and giving serious to consideration to an appeal after putting forward a compelling case, the Aetna spokesman says.Aetna and Humana also have yet to talk publicly about the parts of the ruling dealing with antitrust in the public exchange market.Healthcare e-commerce and information technology analysts are unsure if the ruling against Aetna and Humana will have a big impact of the future of public health exchanges and primarily Healthcare.gov. Given the murkiness of what will happen with appealing Obamacare and replacing, its hard to know if this ruling will have an impact, saysStanley Nachimson, principal of healthcare payments consulting firm Nachimson Advisors.The entire future of the exchange market is murky.

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