Aetna, Cigna Stocks Slide Amid Report Feds Moving To Block Deals

July 20--A report that the U.S. Department of Justice is readying legal challenges to sweeping insurance industry acquisitions involving Aetna and Cigna sent company shares tumbling on Wall Street and drew little comment from the companies involved.

The report, posted early Tuesday morning by Bloomberg, left investors speculating whether federal regulators would block the proposed $54 billion purchase of Cigna by Anthem and the proposed $37 billion acquisition of Humana by Aetna.

But the companies involved said little as speculation continues to mount about potential antitrust issues.

"We don't comment on speculation or rumor, but we are steadfast in our belief that the merger is good for consumers and the health care system," Aetna spokesman T.J. Crawford said.

Representatives of the other companies involved and the Department of Justice would not comment. The companies, in announcing the deals last summer, said combining into larger businesses would enable them to cut costs through administrative efficiency, negotiate better prices for customers from ever-larger hospital chains and spend more on health technology.

Bloomberg, citing unidentified sources, said federal officials worry that the mergers would undermine competition. Offers to divest Medicare Advantage plans and other assets were not persuasive, Bloomberg reported.

Ana Gupte, an analyst at Leerink Partners, said the prospect that the Justice Department will challenge the deals is "not entirely a surprise."

Divestitures proposed by Aetna and Anthem to allay concerns about competition in health insurance markets may not be sufficient to regulators, she said. Or proposals to shed businesses and insurance plans may be viewed by regulators as "reversible and not sustainable," with insurers eventually returning to their original products, Gupte said.

She said she believes Aetna and Humana would fight the Justice Department in court while Anthem and Cigna "could go either way," following through with a legal challenge against the federal government or walking away from the deal.

U.S. Sen. Richard Blumenthal, D-Conn., who spoke out against the two insurance deals last month, said Tuesday he believes the Department of Justice is moving toward blocking the deals. He and other Democratic senators, including Elizabeth Warren and Ed Markey of Massachusetts, called the Aetna and Anthem deals "job killers" that also would lead to higher prices, fewer choices and reduced health care quality for consumers and patients.

"We're hearing informally from former officials ... that a decision is near [and] it will be in favor of the view that I've expressed against these mergers," Blumenthal said. "They have said to us that the arguments seem to be taking hold that these mergers would be very bad for jobs ... as well as consumers."

Connecticut Attorney General George Jepsen raised concerns about competition in the health care industry earlier this month should the acquisitions be approved. Jepsen said it could create an anticompetitive environment, "which could lead to higher prices and negative effects on quality of care through reduced products, service and innovation." He declined further comment Tuesday.

The high-profile opposition may be a factor working against the insurance companies, Bloomberg analyst Jennifer Rie said.

"It could be a bit political, too," she said. "It's an election year. There's been a massive amount of political opposition."

Still, the market issues would be the root problems for Aetna and Anthem.

The prospect of a combined Anthem and Cigna may create "too concentrated a market with no good fix or remedy," she said. And in the Aetna-Humana deal, federal regulators may have determined that proposed divestitures do little to compensate for the potential loss of competition, Rie said.

Thomas Greaney, a former Justice Department antitrust official who now teaches at the St. Louis University School of Law, said federal officials likely have been "lining up witnesses, data and expert testimony" in preparation for a legal challenge at the same time they were negotiating with the insurance companies.

"It's not clear that divestitures are off the table, but it certainly looks like they've not reached an agreement," he said.

Jefferies analyst David Windley said that if the companies sue to block opposition from the Justice Department, legal action could extend for about six months.

"In all likelihood, especially on the Aetna-Humana side, they'd craft a solution or a fix," he said. "The desire to own Humana is pretty strong."

Shares of Aetna, Anthem and Cigna closed down more than 2 percent Tuesday. Humana dropped nearly 4 percent.

Courant columnist Dan Haar contributed to this story.

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