The Justice Department is weighing whether to appeal the decision of a federal judge who dismissed its legal challenge to UnitedHealth Group’s proposed $13 billion acquisition of technology company Change Healthcare.
“We respectfully disagree with the court’s decision and are carefully reviewing the opinion to assess next steps,” Jonathan Kanter, Assistant Attorney General for the Justice Department’s Antitrust Division, said Tuesday.
Judge Carl Nichols in the U.S. District Court for the District of Columbia on Monday rejected the agency’s attempts to block the deal. Nichols’ full opinion on the memorandum has yet to be printed. UnitedHealth and Change Healthcare said they were happy with the decision but declined to comment further.
“Ultimately, it indicates the likelihood that other antitrust disputes will not go to court and will be allowed to be resolved,” said Kaenen Gertz, managing partner at consulting firm Insurtech Advisors.
Shares of healthcare companies under antitrust law in connection with proposed mergers edged up slightly on the news. This hit the market as a whole, which fell more than 1% on Tuesday.
Hertz said the Justice Department’s challenge to the UnitedHealth-Change Healthcare deal was based on a “creative” interpretation of antitrust law.
While problems with horizontal mergers are typical of the Department of Justice and the Federal Trade Commission, agencies tend to block very few vertical mergers and generally assume that vertical integration promotes competition. But this may change. In 2020, federal regulators announced they were revising their merger rules to expand their scope of oversight. The Biden administration in 2021 directed the FTC to prioritize health investigations, with a focus on mergers.
“More serious problems, especially in healthcare, will be associated not so much with horizontal as with vertical integration,” Hertz said. “After all, the more you own throughout the patient’s life cycle, the more control you have.”
The Ministry of Justice has 60 days to appeal the decision. However, UnitedHealth and Change Healthcare can close the deal as little as 10 days after the decision is made.
If the agency files an appeal, it must either declare that the district court was wrong in its factual findings or made a legal error, said Kevin Ham, a partner in the Hunton Andrews Kurth law firm’s antitrust group. Ham previously served as head of the FTC’s antitrust arm and worked on UnitedHealth’s $4.3 billion acquisition of DaVita in 2019.
Several vertical merger proposals have been successfully challenged in court.
“When you talk about a vertical deal, there is no intuitive loss of competition. You are not talking about two companies that are currently competing in the market and you are going to take one of them out. The harm theory is more subtle. It requires storytelling,” Ham said. “Here you are talking about the importance of change for United’s insurance competitors, and the Justice Department is claiming that United will abuse the information they get from, say, Cigna, Aetna or Anthem. It’s a more complex story.”
UnitedHealth said it will sell the ClaimsXten Change Healthcare business for $2.2 billion to TPG Capital. Nichols’ order stated that UnitedHealth should ditch its claims-editing software.
According to Tim Gary, a healthcare lawyer and CEO of consultancy Crux Strategies, the sale will remove UnitedHealth’s information about pay rate vendor requests from insurers. But the company will still have an understanding of how much insurers end up paying suppliers, he said.
“Gold is what comes back, not the bill goes,” Gary said. “I seriously doubt that Optum cared about the part they sell. They want payment information to come back.”
This story has been updated. An earlier version stated that the Department of Justice had 10 days to appeal the decision.