United States District Court For The District Of Columbia Dismisses Antitrust Challenge To Healthcare Company’s Acquisition Of Company That Provides Healthcare-Related Data Solutions
10/11/2022On September 19, 2022, Judge Carl Nichols of the United States District Court for the District of Columbia dismissed the Department of Justice and attorneys general of Minnesota and New York lawsuit to block UnitedHealth Group’s proposed acquisition of Change Healthcare. The Court found that the Government failed to meet its burden of proving that the transaction is likely to substantially lessen competition in any relevant healthcare market. United States, et al. v. UnitedHealth Group Incorporated, et al., No. 1:22-cv-0481 (D.D.C, Sep. 19, 2022).
UnitedHealth Group is a vertically integrated healthcare enterprise with two main subsidiaries. UnitedHealthcare is the largest commercial health insurer in the US, and Optum provides a range of healthcare-related services to health insurers, including software solutions for claims editing. Change provides healthcare related data solutions, including market-leading solutions for claims editing via its business ClaimsXten. The proposed transaction would merge Change with UnitedHealth’s subsidiary Optum Insight.
The complaint alleged that the transaction is an illegal horizontal merger because it would allegedly tend to create a monopoly with combined market shares above 90% in the sale of ‘first-pass claims editing solutions’ in the US. In addition, the complaint contended that the transaction is an illegal vertical merger, alleging that UnitedHealth would have both the incentive and ability to use rivals’ data for its own benefit in UnitedHealthcare, withhold innovations, as well as raise competitors’ costs to compete by withholding or delaying the sale of integrated platforms.
To rebut the high market share concerns, UnitedHealth proposed to divest ClaimsXten, including all of Change’s editing products, to the private-equity firm TPG Capital. The Government contended that TPG would not be able to restore the competitive landscape because of its lack of experience in claims editing and status as a private-equity firm. The Court concluded that the evidence demonstrated that the divestiture will likely replace the competitive intensity lost because of the merger. The Court particularly ascribed weight to the significant experience of TPG in the healthcare industry and TPG’s intentions and incentives to invest substantially in the ClaimsXten business, including its intention to double the business’s research and development budget over the next four years. The Court also credited the scope of the proposed divestiture, which includes a large team of individuals with experience managing ClaimsXten that would continue to work with the business post-divestiture.
Next, the Court rejected the Government’s theory on data-misuse and the purported lessening of competitors’ innovation as a result, by finding that Optum Insight’s counter-incentives not to share the data outweighed any theoretical incentives to misuse the data. The Court emphasized that Optum had a multi-player business strategy, and that the success of this strategy “turns on payers and providers trusting that their data will be protected.” UnitedHealth would have to “uproot its entire business strategy and corporate culture,” including its firewall policies already in place, if it were to act in accordance with the Government’s allegations. The Court particularly credited UnitedHealth’s firewalls, customer contracts, its history of compliance with its own firewalls, and convincing witness testimony about the company’s practices and incentives. Testimony from competitors who were asked about future innovation was also deemed inconsistent with the Government’s theory on the merger’s alleged impact on innovation.
Lastly, the Court held that the evidence presented could not establish that Optum likely would withhold integrated platforms from UnitedHealth’s competitors. The Court found that the contrary had been established, as the evidence showed that Optum had never withheld a product from external players and that the company has strong incentives to maintain its multiplayer business strategy. Particular weight was ascribed to several UnitedHealth executives’ testimony on the company’s strategy. The Court held that the witness testimony was “far more probative of post-merger behavior” than the “independent weighing of costs and benefits” of the government’s expert witness.
This case shows, among other things, that the mere incentive and ability to behave anticompetitively is not enough. Actual anticompetitive effects must be likely, which requires a holistic analysis.