Aetna’s $37 billion acquisition of Humana has been blocked by a federal judge, who ruled it would violate antitrust laws and seriously limit competition in the Medicare Advantage (MA) market and a handful of health insurance exchanges.

The decision from U.S. District Judge John Bates may leave Aetna on the hook for a $1 billion breakup fee to be paid to Humana.

Much of the 158-page ruling dealt with the impact of the merger on MA. The U.S. Department of Justice had argued if the two companies combined, it would have an unlawful concentration of the MA market in 364 counties across 21 states.

Aetna and Humana tried to counter by saying both MA and traditional Medicare needed to be included in any competitive analysis. They also promised any efficiencies from the merger would be passed on to consumers.

None of the arguments, or a planned sale of MA assets to Molina Healthcare to create a new rival in those markets, swayed Bates.

 “There is clear evidence that the proposed merger would eliminate valuable head-to-head competition between two close rivals, one of which (Aetna) has been particularly aggressive in recent years,” Bates wrote. “All of this evidence establishes that the merger is likely to substantially lessen competition.”

For Affordable Care Act exchange markets, Aetna and Humana argued anticompetitive concerns weren't present in this area because Aetna withdrew exchange plans from 17 counties in Georgia and Missouri for 2017.  Bates concluded Aetna only made that move to avoid “judicial scrutiny” and improve its position in court.

For three counties in Florida where both insurers had been participating, he did rule the merger would substantially lower competition.

The final piece was Aetna’s defense that efficiencies from the merger would outweigh any impact on competition. Bates said he would consider that defense, but said “proof of extraordinary efficiencies” would be required—which the companies failed to provide, in Bates’ opinion.

“It is very likely that a significant share of the claimed efficiencies may be retained by the merged firm rather than being passed on to consumers,” Bates wrote.

The ruling was applauded by American Medical Association President Andrew Gurman, MD, who praised how Bates handled the definition of Medicare Advantage competition. 

"The court’s ruling sets a notable legal precedent by recognizing Medicare Advantage as a separate and distinct market that does not compete with traditional Medicare. This was a view advocated by the AMA, as well as leading economists. AMA also applauds the decision for protecting competition on the public exchanges," Gurman said in a statement.

Aetna and Humana did not immediately respond to requests for comment.

With one insurance megamerger blocked, another may soon follow. The New York Post has reported a very similar ruling is expected in the separate antitrust case against the $54 billion merger of Anthem and Cigna.