1. www.garfunkelwild.com What ASCs Need to Know About Insurance Mergers Garfunkel Wild, P.C. 411 Hackensack Avenue 6 th Floor Hackensack, New Jersey 07601 667 Broadway Albany, New York 12207 111 Great Neck Road Suite 600 Great Neck, New York 11021 350 Bedford Street Suite 406A Stamford, Connecticut 06901 Roy W. Breitenbach rbreitenbach@garfunkelwild.com

2. 2© 2015 GARFUNKEL WILD, P.C. Four Questions What are details of proposed mergers? What are details of proposed mergers? How would they affect ASCs? How would they affect ASCs? Will they be approved? Will they be approved? If approved, how can ASCs respond? If approved, how can ASCs respond?

3. 3© 2015 GARFUNKEL WILD, P.C. Merger Details Two mergers proposed July 2015. Two mergers proposed July 2015. Aetna to purchase Humana for $37B. Aetna to purchase Humana for $37B. Anthem to purchase CIGNA for $54B. Anthem to purchase CIGNA for $54B. “Big Five” would be reduced to “Super Three” – United Healthcare, Anthem, and Aetna. “Big Five” would be reduced to “Super Three” – United Healthcare, Anthem, and Aetna.

4. 4© 2015 GARFUNKEL WILD, P.C. Aetna/Humana Aetna is 3 rd largest national health insurer. Aetna is 3 rd largest national health insurer. It serves 46M people globally. It serves 46M people globally. Offers Medicare Advantage, Medicare Supplemental, Medicaid, and commercial policies. Offers Medicare Advantage, Medicare Supplemental, Medicaid, and commercial policies. Primary focus is commercial health insurance, particularly national accounts and large multi-site self insurer employers. Primary focus is commercial health insurance, particularly national accounts and large multi-site self insurer employers.

5. 5© 2015 GARFUNKEL WILD, P.C. Aetna/Humana Humana 5 th largest national health insurer. Humana 5 th largest national health insurer. It has 14M members. It has 14M members. Primary focus is Medicare. Primary focus is Medicare. Second largest MA provider nationally, behind United. Second largest MA provider nationally, behind United.

6. 6© 2015 GARFUNKEL WILD, P.C. Anthem/CIGNA Anthem 2 nd largest national health insurer. Anthem 2 nd largest national health insurer. Largest member of BCBSA, operating under that brand in 14 states. Largest member of BCBSA, operating under that brand in 14 states. Over 38M health insurance customers. Over 38M health insurance customers. Main offerings are small group, Medicare, Medicaid, and individual group products. Main offerings are small group, Medicare, Medicaid, and individual group products.

7. 7© 2015 GARFUNKEL WILD, P.C. Anthem/CIGNA CIGNA 4 th largest national health insurer. CIGNA 4 th largest national health insurer. Has 14M covered lives. Has 14M covered lives. Focuses on commercial health insurance offerings. Focuses on commercial health insurance offerings.

8. 8© 2015 GARFUNKEL WILD, P.C. Aetna/Humana Impacts Primary area of overlap in Aetna/Humana is Medicare Advantage. Primary area of overlap in Aetna/Humana is Medicare Advantage. AHA has identified 1,000 counties where post-merger concentration level for MA would raise competitive concerns. AHA has identified 1,000 counties where post-merger concentration level for MA would raise competitive concerns. Questionable impacts in NY metropolitan area. Questionable impacts in NY metropolitan area. But would remove potential entrant. But would remove potential entrant.

9. 9© 2015 GARFUNKEL WILD, P.C. Anthem/CIGNA Impacts Primary area of overlap is commercial health insurance. Primary area of overlap is commercial health insurance. AHA claims deal may result in 807 metropolitan areas where post-merger concentration level would raise competitive concerns. AHA claims deal may result in 807 metropolitan areas where post-merger concentration level would raise competitive concerns. Significant competitive concerns throughout NY metropolitan area. Significant competitive concerns throughout NY metropolitan area. Concern about BCBSA rules limiting CIGNA’s ability to compete in new markets. Concern about BCBSA rules limiting CIGNA’s ability to compete in new markets.

10. 10© 2015 GARFUNKEL WILD, P.C. Potential Impacts to ASCs Insurer decision making typically focuses on covered-lives impact. Insurer decision making typically focuses on covered-lives impact. Post-merger fewer alternatives, so less concern about covered-lives impact. Post-merger fewer alternatives, so less concern about covered-lives impact. More willing to have narrow networks. More willing to have narrow networks. More willing to “lowball” on price. More willing to “lowball” on price. More restrictive contract terms. More restrictive contract terms. Less willing to do shared savings and other value based payments. Less willing to do shared savings and other value based payments.

11. 11© 2015 GARFUNKEL WILD, P.C. Antitrust Merger Analysis Pre-merger notification and review conducted by the US Department of Justice, Antitrust Division. Pre-merger notification and review conducted by the US Department of Justice, Antitrust Division. Section 7 of the Clayton Act prohibits mergers whose effect “may be to substantially lessen competition, or tend to create a monopoly.” Section 7 of the Clayton Act prohibits mergers whose effect “may be to substantially lessen competition, or tend to create a monopoly.” DOJ’s guiding principle for merger review: Mergers “should not be permitted to create, enhance, or entrench market power, or to facilitate its exercise.” DOJ’s guiding principle for merger review: Mergers “should not be permitted to create, enhance, or entrench market power, or to facilitate its exercise.” Market power = ability to raise price, reduce output, or diminish innovation. Market power = ability to raise price, reduce output, or diminish innovation.

12. 12© 2015 GARFUNKEL WILD, P.C. Antitrust Merger Analysis First, define the product markets. First, define the product markets. Second, define the geographic markets. Second, define the geographic markets. Third, identify market participants (other competitors). Third, identify market participants (other competitors). Fourth, calculate market shares. Fourth, calculate market shares. Fifth, calculate HHIs. (Above 2,500 highly concentrated, when will increase 200 post- merger, presumed anticompetitive effects.) Fifth, calculate HHIs. (Above 2,500 highly concentrated, when will increase 200 post- merger, presumed anticompetitive effects.)

13. 13© 2015 GARFUNKEL WILD, P.C. Antitrust Merger Analysis Sixth, determine if merger is likely to lead to exercise of market power through coordinated interaction. (“Sumo Wrestler Theory Fallacy.”) Sixth, determine if merger is likely to lead to exercise of market power through coordinated interaction. (“Sumo Wrestler Theory Fallacy.”) Seventh, determine if merger is likely to lead to the exercise of market power through unilateral effects. Seventh, determine if merger is likely to lead to the exercise of market power through unilateral effects. Eighth, determine if entry will be (a) likely, (b) timely, and (c) of a significant magnitude to defeat an attempt to exercise market power post-merger. Eighth, determine if entry will be (a) likely, (b) timely, and (c) of a significant magnitude to defeat an attempt to exercise market power post-merger.

14. 14© 2015 GARFUNKEL WILD, P.C. Antitrust Merger Analysis Ninth, determine (a) the magnitude of the efficiencies created by the merger, (b) whether these efficiencies can be obtained only through the merger, and (c) if the efficiencies are likely to reverse the merger’s potential to harm consumers. Ninth, determine (a) the magnitude of the efficiencies created by the merger, (b) whether these efficiencies can be obtained only through the merger, and (c) if the efficiencies are likely to reverse the merger’s potential to harm consumers. Tenth, determine if one of the merging firms would have exited the market absent the merger. Tenth, determine if one of the merging firms would have exited the market absent the merger.

15. 15© 2015 GARFUNKEL WILD, P.C. Congressional Hearings “Examining Consolidation in the Health Insurance Industry and its Impact on Consumers,” US Senate, Committee on the Judiciary, Subcommittee on Antitrust, Competition Policy and Consumer Rights (Sept. 22, 2015). “Examining Consolidation in the Health Insurance Industry and its Impact on Consumers,” US Senate, Committee on the Judiciary, Subcommittee on Antitrust, Competition Policy and Consumer Rights (Sept. 22, 2015). “The State of Competition in the HealthCare Marketplace: The Patient Protection and Affordable Care Act’s Impact on Competition,” US House of Representatives, Committee on the Judiciary, Subcommittee on Regulatory Reform, Commercial and Antitrust Law (Sept. 10, 2015). “The State of Competition in the HealthCare Marketplace: The Patient Protection and Affordable Care Act’s Impact on Competition,” US House of Representatives, Committee on the Judiciary, Subcommittee on Regulatory Reform, Commercial and Antitrust Law (Sept. 10, 2015).

16. 16© 2015 GARFUNKEL WILD, P.C. Potential Outcomes DOJ could “approve” the merger. DOJ could “approve” the merger. DOJ could challenge the merger through commencement of legal action. DOJ could challenge the merger through commencement of legal action. DOJ could condition approval of merger upon modification to transaction, including divestitures, competitive safeguards, etc. DOJ could condition approval of merger upon modification to transaction, including divestitures, competitive safeguards, etc.

17. 17© 2015 GARFUNKEL WILD, P.C. Potential ASC Responses Pursue own merger/acquisition strategy. Pursue own merger/acquisition strategy. Hold insurers to the terms of their provider agreements. Hold insurers to the terms of their provider agreements. Pursue clinical integration/ACO strategy. Pursue clinical integration/ACO strategy. Focus on other payers. Focus on other payers.

18. 18© 2015 GARFUNKEL WILD, P.C. Questions/Assistance Roy W. Breitenbach, Esq. (516) 393-2272 (518) 242-7482 (203) 316-0493 rbreitenbach@garfunkelwild.com rbreitenbach@garfunkelwild.com