Earlier this year, Assistant Attorney General Jonathan Kanter, who leads the Department of Justice’s (DOJ) Antitrust Division, announced that the Antitrust Division would eschew settlements in merger challenges in favor of taking such matters to trial. That strategy was most recently put to the test – and failed – with the September 19 ruling by D.C. District Court Judge Carl Nichols, who declined the DOJ’s request that he enjoin the $13 billion UnitedHealth/Change merger, see here. The ruling is presumably a major disappointment for the Antitrust Division and the States that joined in the challenge (Minnesota and New York), as the Court (1) rejected the DOJ’s argument that the merging parties’ offer to divest Change’s claims payment software business – the only product both UnitedHealth and Change currently offer (and thus one that could potentially raise post-merger concerns about diminished “horizontal” competition) – was insufficient; and (2) rejected the regulators’ arguments that UnitedHealth’s access to, and potential misuse of, competitor data currently stored by Change would cause harm to commercial insurance markets (the DOJ’s “vertical” concerns) were not adequately addressed by “firewalls” on the sharing of competitor information that UnitedHealth announced it would maintain. The ruling – at least for now, pending a possible appeal by the regulators – appears to throw into question the wisdom of the DOJ Antitrust Division’s recently announced preference towards rejecting proposed deal “fixes” offered by the merging parties in favor of taking such matters to trial to seek to enjoin deals in their entirety.
The deal, first announced in January 2021, has been closely watched by the health care industry for well over a year. After a year-long investigation, the DOJ Antitrust Division filed suit to block the deal in February of this year. In announcing the suit, Attorney General Merrick Garland stated that “If America’s largest health insurer is permitted to acquire a major rival for critical health care claims technologies, it will undermine competition for health insurance and stifle innovation in the employer health insurance markets.” He continued: “The Justice Department is committed to challenging anticompetitive mergers, particularly those at the intersection of health care and data.” Specifically, the suit alleged that the proposed transaction would combine the two largest providers of first-pass claims editing technology, providing UnitedHealth with a 90% share of that market, and that Change’s enormous repository of sensitive data about UnitedHealth’s competitors (gained through Change’s processing of claims for those insurers) would provide UnitedHealth the ability to cause harm to the commercial insurance markets.
Notably, prior to the filing of the suit, the merging parties (undoubtedly hoping to avoid a lawsuit), announced that UnitedHealth would divest Change’s claims editing technology (Claims Xten) to a third party. In addition, UnitedHealth also announced that it had “firewalls” within the company that would ensure that data about other insurers would remain inside Optum (the UnitedHealth entity that performs services similar to Change), and not be shared with the commercial insurance arm of UnitedHealth. As such, the trial, which began in August, ultimately focused on whether the steps UnitedHealth had announced to address the objections raised by the DOJ were sufficient to resolve any potential competitive concerns.
After almost two weeks of testimony from senior officers of the merging parties, experts, and other insurers, Judge Nichols issued his ruling on September 19. Judge Nichols rejected the DOJ’s arguments, in full, and found that the steps UnitedHealth committed to take (the divestiture and the firewalls) were sufficient to protect competition in the markets affected by the deal.
Specifically, in an opinion that issued on September 21, Judge Nichols acknowledged that the two merging companies, combined, would have a market share of over 90% in the market for claims editing technology. However, Judge Nichols found that the proposed divestiture of ClaimsXten to a sophisticated buyer (private equity firm TPG) would “restore the competitive intensity lost because of the acquisition.” As such, the parties’ overlapping services in this market did not serve as a basis to enjoin the transaction, given Judge Nichols’s direction that the divestiture proceed as planned.
Judge Nichols also rejected the DOJ’s second argument – that if UnitedHealth was to come into possession of sensitive data about its commercial insurance competitors that was currently in the hands of Change, UnitedHealth could use that information to cause harm to its competitors (and thus damage competition in that market). First, Judge Nichols noted that Optum already had similar competitor data, and that firewalls and contractual prohibitions on the sharing of that information between Optum and UnitedHealth’s commercial insurance business appeared to be sufficient to protect against this risk. Judge Nichols concluded, therefore, that UnitedHealth’s commitment to extend these firewalls to the Change data would adequately address the DOJ’s concerns about the potential for improper data sharing, particularly since, as Judge Nichols noted, if UnitedHealth failed to live up to the commitments it made to respect these firewalls it would face both reputational damage and financial harm for potentially breaching the confidentiality provisions in its contracts with third party insurers. Accordingly, much like his ruling with respect to the divestiture of ClaimsXten, Judge Nichols held that the steps the parties were proposing to take to address the DOJ’s stated concerns appeared satisfactory to protect competition (or, at the very least, that the DOJ had failed to make a compelling case that they would not).
In the aftermath of the Court’s ruling, Assistant Attorney General Jonathan Kanter issued a statement that “We respectfully disagree with the decision and are reviewing the opinion closely to evaluate next steps. Protecting competition and access to affordable healthcare is of the utmost importance to the Antitrust Division.” Whether the Antitrust Division will appeal the ruling remains to be seen. Perhaps more importantly, it also remains to be seen whether this defeat will cause the Antitrust Division to rethink its announced disinclination to settle merger challenges with proposed divestitures and other conduct remedies, instead proceed to trial seeking to derail the mergers in their entirety. The answer to this question – will the result in the UnitedHealth/Change case change Antitrust Division policy on how it handles merger challenges – could have significant implications for any parties contemplating mergers going forward. Stay tuned.