December 12, 2016 / 7:30 PM / a year ago

U.S. seeks to undercut Aetna CEO's defense in merger fight

WASHINGTON (Reuters) - The U.S. Justice Department sought on Monday to knock down arguments by Aetna Inc’s (AET.N) chief executive that Medicare Advantage competes with government insurance programs, making Aetna’s proposed merger with Humana legal under antitrust law. Aetna CEO Mark Bertolini testified on Friday and returned to the witness stand Monday morning. The Justice Department sued to stop the merger in July.

Mark Bertolini, Chairman and CEO of Aetna, participates in a panel discussion at the 2015 Fortune Global Forum in San Francisco, California November 3, 2015. REUTERS/Elijah Nouvelage

Judge John Bates of the U.S. District Court for the District of Columbia will likely allow the deal to go forward if he agrees with Aetna that traditional Medicare, managed by the government, competes with Medicare Advantage, run by insurers.

He must also decide if Aetna competes with Humana on the public insurance exchanges established under President Barack Obama’s signature healthcare law.

The Justice Department’s Craig Conrath showed Bertolini documents prepared by Aetna which showed that the combined company would have 4.4 million Medicare Advantage customers. An unidentified company would have the second largest pool of customers with the next largest companies sharing a much smaller number.

There was no mention in the documents of customers whose healthcare costs are covered through enrollment in traditional Medicare plans.

Conrath also showed Bertolini a July 1, 2015 email written in preparation for announcing the merger which showed executives knew there was antitrust risk. The email urged caution in word choice: “We do not have ‘market power,’ (or) ‘pricing power.'”

The government argued that Aetna and Humana compete on public exchanges established under Obamacare in 17 counties, and that Aetna’s decision to pull out of those counties, along with others, was no defense against allegations the merger would violate antitrust law.

Bertolini testified on Friday that the company pulled out of the exchanges because they lost money, and did not target the 17 counties where the two companies overlapped. “I wasn’t aware there was 17 counties until my deposition,” he said.

Deals that are problematic under antitrust law can sometimes pass muster if they show efficiencies.

Bertolini testified on Monday that Aetna’s initial estimate was that the merger would create $1.25 billion in efficiencies. He said that estimate had since been raised to $3 billion, because of combined technology systems, some potential layoffs and other strategies.

He also said he had “very high confidence that we will deliver on those numbers.”

But Conrath noted that a 2013 merger with Coventry remained incomplete and some Coventry computer systems remained outside the Aetna network.

He also said Aetna’s estimates of the cost of the transaction, beyond the purchase price, would eat a chunk of the efficiencies. Aetna estimated that the cost of implementing the deal at $1.5 billion.

Reporting by Diane Bartz; Editing by Tom Brown

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