By Brent Kendall 

WASHINGTON -- The Justice Department hammered away in court Thursday at the viability of a plan by Aetna Inc. and Humana Inc. to sell off assets to alleviate antitrust concerns about their proposed $34 billion merger.

The department, which is suing to block the merger, questioned the ability of the proposed asset buyer, California-based Molina Healthcare Inc., to keep the market for private Medicare plans for senior citizens competitive if Aetna and Humana combine.

Currently the two large health insurers compete head-to-head in hundreds of counties for the sale of Medicare Advantage plans, which are government-backed alternatives to traditional Medicare.

Justice Department lawyer Ryan Kantor said Molina's own documents showed that its board members had concerns about the wisdom of buying assets from Aetna and Humana.

Molina ultimately did so, agreeing to pay $117 million for assets representing about 290,000 Medicare Advantage enrollees in 21 states. Currently, Molina focuses largely on Medicaid, the government health-care program for the poor.

Mr. Kantor introduced as evidence several internal Molina documents as he questioned Molina Chief Financial Officer John Molina on the witness stand.

In one document, Mr. Molina wrote a memo to his board earlier this year in which he said Aetna was likely to keep its better-performing assets for itself while selling others to Molina. Mr. Molina in the memo also said his company didn't have the same level of administrative manpower or experience as Aetna and Humana.

In a separate email exchange, Molina board member Dale Wolf, the former CEO of Coventry Health Care, which is now owned by Aetna, said Molina was "woefully under-resourced" to take on the Aetna-Humana assets unless it could acquire new talent. He also said the assets were "a very different business from what we do."

In a different email, another board member wondered how the company's newly acquired enrollees would feel about transitioning from Aetna "to a relatively unknown Molina." Mr. Molina wrote back in response, "We have built in a 10% decline in membership for that very reason."

Mr. Molina in the internal discussions said his company shouldn't stretch itself, and should pursue the Aetna and Humana Medicare assets only "if we can get a clear bargain."

He testified Thursday that Molina did in fact get a good price on the assets, though only if it can make the deal work, which he said the company intends to do. Mr. Molina said his company would make the necessary investments, including in hiring new employees, and was "good at building name recognition."

He also said Molina had made more than 20 acquisitions previously and experienced few problems in integrating those assets into its business.

Buying the Aetna-Humana assets would help diversify Molina's revenue streams and would make investors and customers happy, Mr. Molina said. He added that some of the board members' concerns at the time were based on incomplete information.

The trial is set to run through Dec. 30. A decision by U.S. District Judge John Bates on whether to allow the Aetna-Humana merger is expected in January.

Aetna CEO Mark Bertolini is expected to take the witness stand early next week.

--Anna Wilde Mathews contributed to this article.

Write to Brent Kendall at brent.kendall@wsj.com

 

(END) Dow Jones Newswires

December 08, 2016 16:50 ET (21:50 GMT)

Copyright (c) 2016 Dow Jones & Company, Inc.
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