Humana Settles With DOJ Regarding Arcadian

On March 27, 2012, the DOJ announced it would require Humana, a leading health insurer in the United States with 2010 revenues of approximately $33.6 billion, and Arcadian, which had approximately 62,000 MA members in 15 states and 2010 revenues of $622 million, to divest assets relating to Arcadian’s MA business in parts of five states in order for Humana to proceed with its acquisition of Arcadian.  The DOJ required divestitures of health plans in 51 counties and parishes in Arizona, Arkansas, Louisiana, Oklahoma and Texas.  The transaction, as originally proposed, likely would have resulted in higher prices, fewer choices and lower quality MA plans purchased by Medicare beneficiaries.

According to the DOJ, individuals eligible for Medicare, primarily senior citizens, may elect to enroll in a privately provided MA plan instead of traditional Medicare.  In establishing the MA program, Congress intended that vigorous competition among private MA insurers would lead insurers to offer seniors a rich set of affordable benefits, provide a wide array of health-insurance choices, and be responsive to the demands of seniors.  Approximately 71,000 people were enrolled in MA plans in 51 counties and parishes, accounting for more than $700 million in annual commerce.

The transaction as proposed would have eliminated competition between Humana and Arcadian, two of the few significant sellers of MA plans in 45 of the counties and parishes, allowing Humana to increase prices and reduce the quality of MA plans sold to seniors there.  The original deal would have created a combined company controlling between 40% and 100% of the MA health insurance market in these counties and parishes.

Under the proposed settlement, Humana was required to divest the MA plans in the 51 counties and parishes to one or more acquirers approved by the DOJ that had the intent and capability to be an effective competitor.  The DOJ required divestitures of health plans in five additional counties and one additional parish to facilitate the divestiture of the plans in the other 45 counties and parishes for administrative reasons.  The six additional plans were contiguous to and under the same CMS contract and plan ID as plans in the relevant geographic markets.  There was also language in the proposed settlement that ensured that the buyer of the divested assets would have a sufficient health provider network to vigorously compete against Humana/Arcadian in the future.   The DOJ noted that to compete effectively, the buyer would needed contracts with healthcare providers at competitive rates.  Therefore, the DOJ required Humana to assist the buyer in establishing a cost competitive provider network.

Lessons Learned

First, the DOJ defined Medicare Advantage plans sold to individuals as a relevant product market and counties and parishes as relevant local geographic markets.   Second, the DOJ identified competitive concerns in geographic markets where the combined markets were any where from 40%-100%.  Third, the DOJ will not simply require divestitures in the areas where competitive problems exist rather the DOJ will seek divestitures in other contiguous geographic markets, if necessary, to make sure that the buyer can be successful going forward.  Here, the DOJ required divestitures in six local areas that did not raise competitive concerns because the divestitures were necessary to insure that the buyer could administer the plans that it was acquiring.  Fourth, the DOJ may require the parties to assist the buyer in establishing a cost competitive provider network as the DOJ recognizes that a buyer can only be successful if it has contracts with providers at competitive rates.

Andre Barlow
(202) 589-1838
abarlow@dbmlawgroup.com