Feds' case against UnitedHealth-Change merger had 'serious flaws', judge says

The federal government's case against the UnitedHealth Group bid to buy Change Healthcare merger faced "serious flaws," a judge has ruled.

Earlier this week, it was revealed that District of Columbia Judge Carl Nichols would allow the merger to move forward. But that sealed opinion has now been released in full. In it, Nichols writes that the feds failed to prove that UnitedHealth would misuse data gained as part of the deal and that its competitors would be less innovative as a result.

The crux of the Department of Justice's (DOJ's) challenge to the merger is that it would make Optum privy to data on UnitedHealthcare's competitors in the insurance market, which it could use to gain an advantage. UnitedHealth Group executives countered that Optum already has access to data on competitors and misusing it would deal a major financial blow to the company's multiplayer strategy.

Nichols weighed the government's case across both horizontal and vertical consolidation concerns. For one, he said that while Optum's services and Change Healthcare both include claims editing, the latter has agreed to divest its claims editing business, called ClaimsXten, to close the deal. Nichols ordered that the divestiture be made in his opinion.

"The evidence demonstrates that the divestiture will restore the competitive intensity lost because of the acquisition," he wrote.

Change Healthcare has already found a buyer for its ClaimsXten business: TPG Capital. Nichols notes in the opinion that TPG has significant experience in the healthcare market and has indicated that it plans to invest in expanding ClaimsXten once that acquisition closes, which would preserve that competition in the market.

Nichols wrote that the feds also failed to prove the deal would be anti-competitive from a vertical consolidation perspective. He noted that no payer industry witnesses, including executives at major competitors Cigna, Aetna and Anthem, argued that they would be less innovative out of fear that UnitedHealth would access their data, and the government put forth no evidence to prove that UnitedHealth Group would misuse those data.

"The evidence adduced at trial established that for it to be likely that the proposed acquisition would substantially lessen competition, United would have to uproot its entire business strategy and corporate culture, intentionally violate or repeal longstanding firewall policies, flout existing contractual commitments and sacrifice significant financial and reputational interests," Nichols wrote.

For example, UnitedHealth Group CEO Andrew Witty testified that it would be "nonsensical" for Optum to develop tools that are only of use to UnitedHealthcare and spurn other potential payer partners. Optum does pilot some of its programs with UnitedHealthcare members, with the goal of building scale down the line, Nichols said.

Witty added that using Optum as a tool to make UnitedHealthcare more profitable "would be a destruction of my whole fiduciary responsibility" at the helm of UnitedHealth Group.

While Nichols' ruling puts the case to bed for now, the DOJ hinted in a statement that it may consider an appeal of the case. Assistant Attorney General Jonathan Kanter said in a statement that the agency was "reviewing the opinion closely to evaluate next steps," as officials at the DOJ "respectfully disagree" with Nichols' ruling.

UnitedHealth Group said in a statement that it plans to begin combining with Change "as soon as possible."