By Leslie Small
On June 30, the Trump administration released the first major update to regulators’ guidance on vertical mergers and acquisitions since 1984.
In the new guidelines, the Federal Trade Commission and Dept. of Justice pointed out that there are “distinct considerations” unique to vertical mergers, relative to horizontal deals, that require separate guidance. “For example, vertical mergers often benefit consumers through the elimination of double marginalization, which tends to lessen the risks of competitive harm.”
But FTC commissioner Rohit Chopra — who voted against the new guidelines alongside fellow commissioner Rebecca Slaughter — wrote in a dissenting statement that it is short-sighted to “assume that a merger’s impact on competition can be measured by weighing the likely occurrence of certain abusive conduct against the potential for efficiencies that lower consumer prices.” This “balancing theory,” he argued, “doesn’t capture the ways that vertical mergers can restructure the market to make it difficult or impossible for other companies to compete with a merged firm.”
The administration’s new guidelines do comport with how regulators have typically viewed different types of transactions — with more scrutiny reserved for horizontal deals than vertical ones. For instance, the DOJ successfully blocked Aetna Inc. from purchasing Humana Inc. and Anthem, Inc. from buying Cigna Corp. (both horizontal deals) but allowed the CVS Health Corp./Aetna and Cigna/Express Scripts deals to close with few or no conditions.
When it comes to vertical transactions, “the law here is very undeveloped,” so in that sense the new guidelines are potentially important, says David Balto, a Washington, D.C.-based antitrust attorney. But Balto says that “they just don’t elaborate competitive concerns in here as well as they should have.”
Legal considerations aside, the new guidelines might influence the health care industry’s business strategies, according to Avalere Health consultant Tim Epple.
“I think it sort of brings into sharp focus what exactly has been happening with the insurers as they acquire the various PBM, pharmacy [and] other partners downstream,” he says. “I think it probably pushes them to acquire smaller platforms or more tech-enabled platforms that plug into their existing offerings, as compared to really purchasing more market share like they’ve done through some of the mergers or large scale acquisitions.”