Takeaways
- The American Medical Association’s amicus brief in the Tunney Act review of Aetna/CVS underscores the unique challenges of finding a qualified divestiture buyer in health insurance markets. Among other factors, brand name is important to a company’s ability to compete.
- For any state with problematic overlaps, the core set of buyer candidates will include both existing Medicaid managed care competitors and companies that are expected to bid on Medicaid managed care in that state, said Tim Greaney, a law professor at UC Hastings who previously worked at the DOJ Antitrust Division. Other companies that already have a network for commercial insurance or Medicare Advantage might also qualify as adequate buyers, he said.
- Given the small number of Medicaid managed care companies within each state, Centene and WellCare may seek to find divestiture buyers that do not already compete in problematic geographies, said Patrick Souter, of counsel at Gray Reed & McGraw and professor of healthcare studies at Baylor University School of Law.
Buyers of assets divested by Centene and WellCare are likely to be closely scrutinized by the DOJ, particularly because of the pending Aetna/CVS matter in federal district court and the DOJ’s successful effort to block the attempted Humana/Aetna merger in 2017. This divestiture process, should it be required, is manageable but creates a burden on the merging parties to find a strong buyer or buyers.
Although the federal court’s Tunney Act review of Aetna/CVS is likely idiosyncratic and therefore not expected to affect future merger reviews, as
reported, an
amicus brief by the American Medical Association, or AMA, highlights the unique nature of finding an adequate buyer in health insurance markets. In its filing, the AMA raised concerns that WellCare - the divestiture buyer for Aetna/CVS - would not be able to replace Aetna in the marketplace because “the WellCare brand is not as well known as Aetna’s, and the divestiture terms drastically limit WellCare’s use of the Aetna brand.”
Tim Greaney, a law professor at UC Hastings who previously worked at the DOJ Antitrust Division and has been involved in the Aetna/CVS matter, noted that “it’s not like just anyone can pop in” and successfully operate the divested WellCare/Centene divestitures. Rather, for any state with problematic overlaps, the core set of buyer candidates will include both existing Medicaid managed care competitors and companies that are expected to bid on Medicaid managed care in that state, he said.
There is also potential for a large insurance company that has not been very active in Medicaid managed care to buy divested assets, Greaney added. Companies that already have a network for commercial insurance or Medicare Advantage might qualify as adequate buyers, he said.
Also lingering in the background of the WellCare/Centene regulatory review is the DOJ’s objections to Molina as a divestiture buyer in the failed Humana/Aetna merger. In general, Molina was not seen by the DOJ and the federal district court as an adequate buyer for reasons specific to the merger and to Molina. For example, the court noted in its 2017
opinion that “none” of Molina’s past attempts to compete in the Medicare Advantage market had succeeded.
More relevant to the WellCare/Centene transaction was the DOJ’s criticism in Humana/Aetna that Molina lacked Medicare provider networks. In siding with the agency, the court relied on testimony from industry executives who said that building a provider network can take up to 18 months in a new market and up to 12 months in a market where an insurance company already has provider relationships. While WellCare/Centene is different from Humana/Aetna in that it focuses on Medicaid rather than Medicare, the strength of provider networks is nonetheless likely to be a focus of the divestiture review, as
reported.
In terms of finding an appropriate buyer or buyers for Centene and WellCare, there are relatively few existing market participants in the states where the companies will need to make divestitures, commented Patrick Souter, of counsel at Gray Reed & McGraw and professor of healthcare studies at Baylor University School of Law. “Therefore, the dense market concentration limits possible buyers in that state who may acquire the unit,” he said.
Although it may be difficult for the merging companies to find a buyer or buyers who do not already compete as Medicaid managed care organizations in the problematic geographies and would be willing to enter those markets, this type of buyer may be the best fit for WellCare/Centene, Souter said. While he echoed
concerns about the difficulty of building a Medicaid provider network because of the government program’s low reimbursement rates, Souter said that if the buyer “is not currently in the marketplace it would appear that it would be easier to obtain DOJ approval.”
Reorg M&A’s previous coverage of this transaction can be found
HERE.
--Ryan Lynch