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The U.S. Department of Justice is weighing whether to appeal a federal judge’s decision that deny its legal challenge to UnitedHealth Group’s $13 billion proposed acquisition of technology company Change Healthcare.
“We respectfully disagree with the court’s decision and are reviewing the opinion closely to evaluate next steps,” Jonathan Kanter, assistant attorney general of the Department of Justice Antitrust Division, said in a statement Tuesday.
Judge Carl Nichols, in the U.S. District Court for the District of Columbia, on Monday denied the agency’s efforts to block the deal. Nichols’ full memorandum opinion has not yet been unsealed. UnitedHealth and Change Healthcare said they were pleased with the decision, but declined additional comment.
“At the end of the day, it signals a likelihood that other antitrust concerns won’t play out in the court and that they’ll be allowed to go through,” said Kaenen Hertz, managing partner with Insurtech Advisors, a consultancy.
Stocks for healthcare companies under antitrust review for proposed mergers rose slightly on the news. That bucked the broader market, which dipped more than 1% Tuesday.
Hertz said the DOJ’s challenge to the UnitedHealth-Change Healthcare transaction was based on a “creative” antitrust interpretation.
While horizontal merger challenges are typical for the DOJ and the Federal Trade Commission, the agencies seek to block very few vertical mergers and have generally assumed that vertical integration is pro-competitive. But that may be changing. Federal regulators in 2020 announced they were reworking their merger guidelines to broaden the scope of their oversight. The Biden administration in 2021 directed the FTC to prioritize investigations into healthcare, with a focus on mergers.
“The more powerful areas of concern, especially in healthcare, will come less with horizontal and more with vertical integration,” Hertz said. “At the end of the day, the deeper you own through the entire patient life cycle, the more control you have.”
The DOJ has 10 days to appeal the decision, said Kevin Hahm, a partner in the antitrust group of law firm Hunton Andrews Kurth. The agency must either argue the district court got their factual findings wrong or they made a legal error, said Hahm, who previously served as the head of the FTC’s antitrust division and worked on UnitedHealth $4.3 billion acquisition of DaVita in 2019.
Few vertical merger proposals have been successfully challenged in court.
“There’s no intuitive loss of competition when you’re talking about a vertical deal. You’re not talking about two businesses that currently compete in the market and you’re going to take one out. The theory of harm is more nuanced. It requires storytelling,” Hahm said. “Here, you’re talking about Change being important to United’s insurer competitors, and the DOJ’s allegation is that United will misuse the information that they get from, say, Cigna or Aetna or Anthem. That’s a more complex story to tell.”
UnitedHealth had said it would sell Change Healthcare’s ClaimsXten business for $2.2 billion to TPG Capital. Nichols’ order said UnitedHealth must divest the claims editing software.
The sale will remove UnitedHealth’s insight into the pay rates providers request from insurers, said Tim Gary, a healthcare lawyer and CEO of Crux Strategies, a consultancy. But the company will still have an understanding of what insurers eventually pay providers, he said.
“The gold is what comes back, it’s not the bill that goes out,” Gary said. “I seriously doubt that Optum cared about that part that they’re selling off. They want to see the payment information coming back in.”
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