Division Economists Shape Enforcement Efforts

Division Update Spring 2017

Economists from the Antitrust Division’s Economic Analysis Group (EAG) partner with lawyers on every civil investigation and litigation and also assist on many of the Division’s criminal matters. Occasionally, their contribution is quite public, such as when EAG’s own Robin Allen submitted testimony in U.S. v. Tribune Publishing Co.

More often though, EAG’s contributions occur behind the scenes—helping attorneys apply economic theory, develop economic evidence and testimony, and evaluate the merits of the economic arguments made by parties and their advisors. Taking a moment to highlight a few of these contributions allows us to acknowledge how EAG staff as a whole advances the Division’s mission both through their individual accomplishments and as members of larger teams.

Helen Knudsen—Examining Medicare Advantage Competition

Helen Knudsen

Helen Knudsen

When Helen Knudsen was finishing up her dissertation research, which focused on auctions and experimental economics, she never imagined that she would play a central role in a landmark antitrust case. But soon after accepting a job at the Antitrust Division she was tasked to work on a health care investigation. She quickly found that she had a talent for such matters, especially those that featured mergers between Medicare Advantage insurers, and became the Division’s foremost expert on Medicare Advantage.

So it was that she became the lead economist on the merger between Aetna and Humana. As such, it was her responsibility to identify the most important issues the investigation would need to address and develop a plan for obtaining the relevant data and formulating the empirical and other analyses that would address the issues she identified. One of the key issues in that case was whether Medicare Advantage is in a distinct antitrust product market from traditional, fee-for-service Medicare. While the two means for covering health care for those eligible for Medicare can be functionally similar, the key antitrust question is whether a sufficient number of individuals who have chosen Medicare Advantage would switch to traditional Medicare in the face of a small but significant and non-transitory increase in price.

Helen, along with a team of attorneys and other economists, answered this challenging question using a variety of tools: they reviewed documents and the academic literature, analyzed switching data, and performed complex econometric modeling. They concluded that Medicare Advantage plans do constitute a relevant product market. The court was persuaded by their analysis and blocked the merger, resulting in a significant victory for the Division.

Ron Drennan—Identifying the Connection between Market Definition and Competitive Effects

Ronald Drennan

Ron Drennan

Ron Drennan, who joined the Division in 1998 after receiving a Ph.D. in Economics from Rutgers University, has embraced the role of applying economics and the DOJ/FTC Horizontal Merger Guidelines principles to merger investigations. The process of investigating a proposed merger and then making an enforcement recommendation involves economic analysis as well as provides an opportunity to teach and persuade. A thorough case recommendation will explain how the proposed market definition properly captures the competition potentially at risk from the merger considering the discipline imposed by alternative products.

In 2011, the Division’s challenge of H&R Block’s proposed acquisition of Second Story (maker of TaxAct) represented the first contested merger litigation since the 2010 revision to the Guidelines. The 2010 revisions were viewed by some to minimize the role of market definition in merger review relative to competitive effects. However, many of the factors that contribute to a proposed merger’s likely effect on competition will also inform the Agencies about the appropriate market definition. Market definition has additional significance in litigation as it helps shape the way that courts traditionally view mergers.

As the EAG manager leading the economics team on the H&R Block investigation, Ron had the opportunity to direct the analysis of that merger, including proposing the preferred way to articulate the relevant antitrust market. The proposed market definition–digital do it yourself (DDIY) tax preparation software–was supported by evidence that also spoke to the likely effects of the transaction. Defining the market more narrowly than all forms of tax preparation highlighted the competitive interactions between DDIY rivals in terms of product features and the availability of a free version of their product. The Court ultimately enjoined the proposed merger, opining that DDIY tax preparation software was an appropriate market. Since then Ron has continued to implement this approach effectively, including in the recent challenges to the proposed mergers of Aetna and Humana, and Anthem and Cigna.

Dimitry Mezhvinsky—Studying Competition on the ACA Exchanges

Dimitry Mezhvinsky

Dimitry Mezhvinsky

Prior to 2015, the Division had investigated a number of mergers in the health insurance industry, but none involving the new exchange markets created by the 2010 Affordable Care Act (ACA). These exchanges would, naturally, present different competitive landscapes than those areas where the Division had previously examined insurer competition. In 2015, Aetna, Inc., proposed to acquire Humana, Inc., an insurer that, at the time, competed with Aetna on the ACA exchanges.

Dimitry Mezhvinsky, who joined the Division in 2015 after receiving a Ph.D. in Economics from The Ohio State University, took responsibility for analyzing whether the merger was likely to harm consumers in any ACA exchange markets. Working closely with his legal counterparts, Dimitry helped to develop the evidence that led to the Division’s allegations in its complaint that the merger would indeed harm consumers on the ACA exchanges in 17 counties in Florida, Georgia, and Missouri. Once the complaint was filed, Aetna announced that it was withdrawing from the exchange markets listed in the Division’s complaint, among others. This led to Dimitry’s responsibilities expanding to include determining whether the withdrawal was conducted for legitimate business reasons or simply to evade judicial review.

Judge Bates ultimately enjoined the proposed merger, opining that it would harm competition on the ACA exchanges in 17 counties. The Court dismissed Aetna’s claim that its withdrawal from the ACA exchanges was purely the result of a market-specific cost-benefit analysis as being inconsistent with market realities and determined that Aetna’s withdrawal from the counties listed in the Division’s complaint should not exempt those markets from judicial review. Dimitry’s hard work and careful analysis played a huge part in the Court deciding that the merger would harm competition for exchange customers in at least one of the states at issue.

Updated March 28, 2017