(Reuters)—The U.S. Department of Justice has significant concerns about Aetna Inc.’s proposed acquisition of health insurer Humana Inc., a source familiar with the situation said on Thursday, and shares of Humana fell more than 11%.
Aetna’s purchase of Humana would combine two of the largest providers of Medicare Advantage plans for elderly people, and investors have long been concerned the deal might pose a competition issue for antitrust regulators.
The Justice Department is also reviewing Anthem Inc’s proposed purchase of Cigna Corp, and investors are worried it will fail because of its impact on competition in the employer insurance market. Together, the two deals will decrease the number of national health insurers to three from five.
News of the Justice Department’s significant concerns come as the department is due to meet with officials from Aetna and Humana on Friday, as first reported by antitrust trade publication MLex.
The source, who was not authorized to speak publicly about the matter, confirmed the department’s concerns, but did not expound on the exact nature of its worries.
However, the issue raised investor worries on both deals.
Jeff Jonas, portfolio manager for Gabelli Funds, which owns Humana and Cigna shares, says that he believes that the Aetna-Humana deal still has a chance to go through with divestitures because there are plenty of buyers for the assets.
“Even after today’s drop, I don’t think people are totally ruling out Aetna and Humana,” Jonas says.
Reuters reported last week that Aetna had begun a process to divest about $1 billion of Medicare Advantage assets to address antitrust concerns.
Antitrust regulators are mainly focused on whether the deal would limit consumer choices for Medicare Advantage health plans for the elderly.
Aetna has argued that Medicare Advantage competes not just with other Medicare Advantage plans, but with traditional Medicare, according to a different source familiar with the matter.
Aetna announced its plans to buy Humana Inc. last summer in a deal now worth about $34 billion. Anthem’s deal for Cigna was announced a few weeks later.
Humana was not immediately available for comment.