A recent federal court ruling that paved the way for the upcoming purchase of Change Healthcare by UnitedHealth Group (NYSE:UNH) (NASDAQ:CHNG) is a positive sign for the company’s impending acquisition of LHC Group. insurance (NASDAQ: LHCG).
The US Department of Justice has sought to block the $13 billion Change Healthcare transaction on anti-trust grounds, alleging the deal would give UnitedHealth Group access to sensitive information about its competitors in the healthcare space. payers.
“Quality health insurance should be available to all Americans,” Attorney General Merrick B. Garland said in a statement when the DOJ filed the lawsuit in February. “If the largest U.S. health insurer is allowed to acquire a major competitor for critical healthcare claims technologies, it will undermine competition for health insurance and stifle innovation in employer health insurance markets. .”
The Change transaction would merge the Nashville, Tennessee-based technology and data company with UnitedHealth Group’s Optum subsidiary.
UnitedHealth Group said in press releases that it believes the combination will streamline clinical, administrative and payment processes for healthcare providers and payers, resulting in cost savings and greater efficiency.
The company argued that the DOJ lawsuit was “without merit,” according to the company’s statements, and that arbitration would ultimately delay system improvements for their beneficiaries.
Following the court’s ruling, Assistant Attorney General Jonathan Kanter said in a statement that the DOJ “respectfully disagrees” with the ruling and would assess next steps, citing the possibility of an appeal.
Judge Carl J. Nichols also ordered the insurance company to proceed with its plan to divest payment integrity firm ClaimsXten to private equity firm TPG Capital for a cash price of $2.2 billion. of dollars.
The DOJ action has raised questions about potential regulatory hurdles or delays for Optum’s upcoming $5.5 billion purchase of LHC Group. The Federal Trade Commission also requested additional information from the companies while reviewing the deal.
Industry observers said the Change Healthcare decision could make it easier to navigate the LHC Group transaction.
“The judge’s decision in the Change Healthcare case could potentially influence the DOJ to consider moderating, at least to some degree, the more aggressive and militant stance it has envisioned, under the Biden administration, toward healthcare mergers and acquisitions,” said analyst Scott Fidel. for Stephens, stated in a footnote. “As a result, in near-term trading, we expect to see a tightening of the current deal on the pending acquisition of LHC Group by UnitedHealth Group, as a direct implication of Judge Nichol’s decision allowing the acquisition of Change Healthcare to move forward.”
Optum announced the deal with LHC Group in April. The purchase agreement provides that UnitedHealth Group will acquire the common stock of LHC Group for $170 per share. The companies expect the transaction to close before the end of the year.
The LHC Group board and executives have begun discussions about a possible sale from November 2021. The conversations have included several potential buyers, including UnitedHealth Group. Soon after, the company hired investment banks SVB Securities and Jeffries to lay the groundwork for a deal, according to a May filing with the U.S. Securities and Exchange Commission.
The acquisition is part of the insurance company’s broader strategy to grow its homecare business.
“We truly believe that improving and building a high-quality home care offering will be a key part of the future,” UnitedHealth Group CEO Andrew Witty told a conference call. second quarter results call. “And the more that can be linked to other aspects of care, so for example, the medical clinic, virtual and so on, that’s really a central focus of our development of Optum Health.”
The two companies have so far remained mum on the future of the LHC Group’s palliative care segment.
When competitor Humana, Inc. (NYSE:HUM) completed its recent acquisition of home care and palliative care provider Kindred at Home, the company was quick to announce that it would retain the care asset at home and sell the palliative care business with a spin-off. and sale.
Humana then sold a 60% stake in the hospice assets to private equity firm Clayton, Dubilier & Rice, retaining the 40% minority stake.
It remains to be seen whether Optum will follow suit with its new palliative care business. With the deal still pending, neither company is free to discuss what the future may hold after closing.
“The combination of LHC within Optum’s global organization is really important to us, and we are very committed to this transaction,” Witty said on the earnings call. “We believe this will really be a significant improvement in the quality of care that can be delivered. And we think it can really help improve value-based delivery for patients.