The U.S. Department of Justice (DOJ) and four state attorneys general filed a lawsuit to block UnitedHealth Group’s (NYSE: UNH) acquisition of Amedisys (Nasdaq: AMED) this week. The DOJ’s complaint is thorough, with some compelling arguments, and some less so.

Home health veterans have been predicting consolidation of the fragmented industry for a long time. The DOJ seems less enthusiastic about that, however, at least when it comes to large-scale transactions.

Though it took aim at multiple parties it believed would be negatively affected by the deal – patients, payers and home health nurses – the DOJ’s main argument was focused around LHC Group and Amedisys combining.

UnitedHealth Group’s Optum acquired LHC Group for $5.4 billion in 2023. A few months later, it agreed to acquire Amedisys in an all-cash, $3.3 billion deal, outbidding Option Care Health (Nasdaq: OPCH) for the home health provider.

Companies like LHC Group, Almost Family, Amedisys and Kindred at Home were once all independent, large home health providers. In a fragmented industry, they stood out as leaders – and competed with each other. In 2017, LHC Group and Almost Family agreed to combine in a “merger of equals.” A few years later, Optum acquired LHC Group. Humana Inc. (NYSE: HUM), meanwhile, acquired Kindred at Home.

Amedisys and Enhabit Inc. (NYSE: EHAB) – the latter of which went public in 2022 – were two of the last pure play home health companies on the public market. Then, of course, Optum agreed to acquire Amedisys.

There are other home-based care providers left on the market, but none that have the Medicare-certified home health footprints of the aforementioned companies.

The DOJ sees this as an anti-competition concern, for a number of reasons. In today’s members-only, exclusive HHCN+ Update, I dive further into those reasons.

‘Anticompetitive and Illegal’

The DOJ looks different now than it will in a few months after President-elect Donald Trump is inaugurated. The case against the deal could, in theory, be dropped or settled once that change occurs.

Health care companies vertically integrated large assets during Trump’s first term, to be sure. But no deal was quite like this one.

Generally, DOJ leadership changing hands hasn’t meant doing away with these types of lawsuits.

“David Balto, a former antitrust official and lawyer in Washington, said he expected that the Trump administration would likely continue to pursue the lawsuit, calling it relatively straightforward and ‘a mainstream antitrust case,’” The New York Times wrote in its coverage of the lawsuit. “In addition, he said that participation by the four states would also make it more difficult for the administration to drop or settle the case.”

Tyler Giesting, a director of health care and life sciences at West Monroe, told me this week that the results of last week’s elections may make it more difficult for the DOJ to carry out its case successfully “given Republicans’ general viewpoint on dealmaking.”

As for the case itself, the DOJ relied heavily on comments made by Amedisys leaders to make their case, including those from former CEO and current board chair Paul Kusserow.

The DOJ’s complaint provides details around the rivalry between LHC Group and Amedisys, with documented proof that leaders from both companies prioritized winning over one another, particularly in recruitment and market share. When LHC Group agreed to join Optum, Amedisys leaders saw it as an opportunity to lure nurses and take market share from LHC Group, for instance.

“The fact that this merger would extinguish competition at the expense of Americans is not a secret,” the DOJ wrote in its complaint. “Indeed, both UnitedHealth and Amedisys recognize the value that direct competition between the two companies provides to patients today. As Amedisys’ former CEO and current Board Chairman said, the ‘pure competition’ between Amedisys and UnitedHealth means the two companies ‘keep each other honest and we keep driving better and better quality. And who benefits from it? Our patients.’”

The DOJ also said that, in handwritten notes, top Amedisys executives acknowledged that joining Option Care Health was a better move for employees and patients. Option Care Health agreed to acquire Amedisys in May 2023 before UnitedHealth Group came in with a superior offer.

“The merger between Amedisys and OptionCare presented a competitive threat to UnitedHealth’s goal to ‘grow exponentially,’” the DOJ wrote. “To prevent that from happening, UnitedHealth was willing to pay. And pay it did, both through what is commonly known as a “breakup fee” to Option Care for terminating its merger with Amedisys, and then separately by enticing Amedisys with a $3.3 billion merger offer. Even though Amedisys’s Chief Financial Officer and Chief Operating Officer acknowledged in handwritten notes that the OptionCare deal would be better for both employees and patients, Amedisys ultimately agreed to be subsumed into UnitedHealth’s fold.”

Though Optum would own just about 10% of the home health market with Amedisys and LHC Group under its belt – a somewhat small market share compared to some other industry’s titans – those two have significant footprint overlap, particularly in the Southeastern U.S.

In an effort to get ahead of that overlap issue, Amedisys agreed to divest over 100 locations to the home health provider VitalCaring. But the DOJ took issue with VitalCaring as a divestment partner. In addition, it didn’t believe the divestment package would be enough to mitigate the entire overlap issue.

“Even if VitalCaring were an adequate buyer, the divestiture does not resolve the competitive overlap in over 100 home health and hospice markets across 19 states and the District of Columbia, accounting for well in excess of $1 billion in total commerce,” the DOJ wrote. “Nor does the divestiture address the harm to thousands of home health and hospice nurses in labor markets across 18 states. And the divestiture creates a new presumptively anticompetitive and illegal overlap around Biloxi and Gulfport, Mississippi.”

There are over 10,000 home health agencies in the country, but LHC Group (under Optum) and Amedisys are two of the top employers. No competition between the two would reduce mobility and earning power for home health workers, the DOJ believes.

“Nurses who provide home health and hospice services receive better wages and other employment terms as a result of the direct competition between UnitedHealth and Amedisys,” the DOJ wrote.

Through describing both the location overlap and those previous discussions around the recruitment battle between the two providers by company executives, the DOJ makes a strong antitrust case against the deal when it comes to impact on patients and home health workers.

It provides many more supporting points in its 57-page complaint, which was filed in federal court on Tuesday.

Payer, pricing impact 

Where the DOJ’s argument is less convincing is around the potential rise in the “price of home health services.”

Perhaps that’s a blind spot from the DOJ on how home health care works in the U.S.

Broadly, the DOJ argued that providers like LHC Group and Amedisys win market share by accepting lower rates from payers, thus keeping the cost for home health care down.

“Amedisys, for example, acknowledges that rates with Medicare Advantage plans are ‘driven down by price competition,’” the DOJ wrote. “UnitedHealth’s insurance arm acts accordingly, as it has attempted to resist rate increases from Amedisys for UnitedHealth’s own insurance plans by ‘cit[ing] that [Amedisys’s] rates are in line with another national provider with a similar footprint (most likely LHC Group).’”

Whereas rates are generally uniform in traditional Medicare, Medicare Advantage plans negotiate payment with providers. That much is acknowledged in the DOJ’s complaint.

So, competition may keep rates for home health services down, but mostly for the payers themselves. Patients don’t directly benefit from that competition, nor do providers.

UnitedHealth Group is one of the beneficiaries of that system, where MA plans are often paying rates that don’t cover the cost of care for providers.

The stronger argument from the DOJ would have been to suggest that, with UnitedHealth Group owning two of the largest home health providers, it could then squeeze other home health providers on payments. That, in turn, could negatively impact those providers’ businesses (UnitedHealthcare is by far the largest MA administrator), which could then reduce home health access for patients across the country.

Ironically, one of the reasons why LHC Group joined Optum in the first place was because of MA penetration, which has been decimating the home health industry. 

“We recognized that more quickly than a lot of providers, just because of the referrals we got from hospitals,” Keith Myers, now CEO Emeritus of LHC Group and a special advisor to Optum, said at HHCN’s FUTURE conference last year. “We had a much higher percentage of managed care referrals coming our way, and we didn’t have the resources to care for those patients, and we wanted to care for them. The hospital needs us to care for them.”