In a decision issued this week, the U.S. District Court for the District of Columbia rejected the Department of Justice’s request to block UnitedHealth Group’s proposed acquisition of Change Healthcare. The loss is significant, as it is DOJ’s first antitrust challenge to a merger to reach a decision in litigation during the Biden administration, and follows two recent losses by the Federal Trade Commission in the agency’s internal adjudicative process. Although Assistant Attorney General Jonathan Kanter has stated that the Antitrust Division is “reviewing the opinion closely” to evaluate whether to appeal, in an aggressive enforcement environment, this ruling highlights the value of being ready and willing to defend a transaction through litigation.
In seeking to block UnitedHealth’s proposed $13 billion acquisition of Change, DOJ offered three theories of competitive harm resulting from the proposed transaction, one of which related to horizontal competition between the parties, and the other two from a vertical relationship between the companies. The court rejected all three.
First, DOJ argued, and UnitedHealth/Change did not dispute, that UnitedHealth and Change together would account for over 90 percent of the market for the sale of first-pass claims editing solutions in the United States. However, the court found that in assessing the likely competitive effects of the transaction, it must account for UnitedHealth’s proposed sale of Change’s claims editing business to a private equity buyer through a divestiture agreement signed after DOJ filed its complaint.
In ruling that the divestiture of Change’s claims editing business was sufficient to maintain competition in the claims editing market, the court specifically rejected DOJ’s position that the divestiture buyer’s lack of experience in claims editing and status as a private equity investor “doom” the effectiveness of the divestiture. Rather, the court found that the evidence established that the new owner’s incentives “are geared toward preserving, and even improving, [the business’] competitive edge.” The court also stated that the new owner will maintain the business’s current leadership team and has “concrete plans” to more than double R&D spending by the business. The court cited DOJ’s Merger Remedies Policy, which recognizes that “in some cases a private equity purchaser may be preferred” to a strategic buyer because a private equity firm has more “flexibility in investment strategy, [i]s committed to the divestiture, and [i]s willing to invest more when necessary.”
In support of its first vertical theory of competitive harm, DOJ argued that, through the transaction, UnitedHealth would obtain access to its rivals’ competitively sensitive data, which in turn would chill innovation. The court found, however, that UnitedHealth already has access to competitively sensitive data of its rivals through its Optum business, and that DOJ had failed to show that UnitedHealth had misused such data or violated company policies to safeguard the information. In particular, the court cited both UnitedHealth’s preexisting corporate antitrust firewall policy, which expressly prohibits the sharing of competitively sensitive customer data, and an additional policy issued to customers after DOJ filed its complaint addressing specific concerns in relation to the transaction, as well as existing customer contracts that require UnitedHealth to use all “reasonable commercial means” to protect and prevent the sharing of customer data. The court ruled that DOJ failed to prove that UnitedHealth would abandon these protections in favor of misusing the competitive information of its rivals.
Similarly, the court found that DOJ had failed to prove that UnitedHealth’s access to its rivals’ competitively sensitive data would result in less innovation, citing testimony of “actual market participants,” who denied that they would innovate less as a result of the deal. The court held that governing law requires the court to make a “predictive judgment” based on “record evidence” and a “fact-specific showing,” but DOJ’s vertical theories were “unsupported by any real-world evidence” of anticompetitive effects. The court repeatedly cited to precedent from DOJ’s unsuccessful attempt to block AT&T’s vertical acquisition of Time Warner, emphasizing that “antitrust theory and speculation cannot trump facts.”
The court also rejected DOJ’s alternative vertical theory that, post-merger, UnitedHealth is likely to raise rivals’ costs by withholding or delaying product offerings. The court found that the evidence established that UnitedHealth had never withheld a product from a rival or sold degraded versions of products to disadvantage its competitors. The court found, to the contrary, that the evidence demonstrated that UnitedHealth has a strong incentive to maintain quality product offerings (or otherwise risk sales to over 80% of the market).
In the current enforcement environment, it remains critical to carefully evaluate the potential antitrust risks posed by a transaction early in the deal planning process, and to allow for extended regulatory review and the prospect of defending the transaction in court where a transaction might generate significant scrutiny. Similarly, merging parties should consider pursuing potential divestitures or other fixes to address potential competitive concerns. Although the antitrust agencies have been increasingly resistant to merger settlements, especially those involving behavioral commitments, courts recently have been less skeptical and more willing to approve remedies that balance all interests.