The rationale behind the U.S. Justice Department’s lawsuit against Optum and Amedisys (Nasdaq: AMED) is multi-faceted, citing potential adverse impacts on competition, home-based care workers and payers.

Optum, a subsidiary of UnitedHealth Group (NYSE: UNH) in June 2023 penned its agreement to acquire Amedisys in an all-cash transaction of $101 per share, or about $3.3 billion. The transaction is expected to close this year. Last summer, DOJ began investigating potential antitrust concerns related to the deal, which culminated in a lawsuit filed last week.

The state attorneys general of Maryland, Illinois, New Jersey, and New York are also plaintiffs in the suit.

DOJ’s chief concern is that the combination of the two companies would dampen competition in the hospice and home health space. Should the transaction proceed, Optum would control 30% or more of the home health or hospice services in eight states, according to the Justice Department’s complaint. The deal would expand Optum’s home health and hospice footprint to five additional states, allowing the company to gain nearly 500 locations in 32 states.

“UnitedHealth Group Incorporated and Amedisys, Inc. are two of the largest home health and hospice service providers in the country,” DOJ indicated in the complaint. “Today, competition between UnitedHealth and Amedisys benefits millions of Americans who need home health or hospice services. But the proposed merger between UnitedHealth and Amedisys would forever eliminate that competition.”

The DOJ alleges that UnitedHealth Group is overcoming the competition by acquiring them rather than beating them in the market. The insurance mammoth last year also purchased the home health and hospice provider LHC Group for $5.4 billion.

The nation’s top law enforcement agency performed a similar investigation — and filed a lawsuit — when Optum acquired the health care technology company Change Healthcare. A federal court eventually allowed that deal to proceed.

The two parties to the acquisition attempted to ameliorate the antitrust issues by agreeing to sell around 100 Amedisys locations to the PE-backed home health and hospice provider VitalCaring. The VitalCaring transaction would be contingent on approval of the UnitedHealth Group acquisition.

However, the DOJ argues that this step wouldn’t go far enough.

“The proposed divestiture, however, will not eliminate the threat to competition presented by the merger. VitalCaring will not replace the competitive intensity lost by the merger. The company has operated for only three years, and the hodgepodge of assets that it would acquire would nearly double VitalCaring’s size immediately,” the DOJ complaint said. “Not only does VitalCaring’s quality lag behind both UnitedHealth and Amedisys, but several of VitalCaring’s previously acquired assets saw quality decrease post-acquisition. VitalCaring’s private equity investors have significantly written down their valuations of the company due to its poor financial performance.”

VitalCaring in a statement on Friday defended its position, its quality metrics and its ability to absorb the new assets. The company stated that its publicly reported quality scores “consistently exceed” national averages.

The company contends that both the UnitedHealth Group-Amedisys acquisition and the pending divestiture, were in the “best interest of patients and stakeholders,” and questioned the accuracy of DOJ’s perspective.

“We are deeply disappointed in the DOJ’s decision to seek to block this strategic transaction,” VitalCaring CEO April Anthony said in a statement. “Our management team is highly experienced, and our investors are committed to the long-term growth of the company. We are fully prepared to successfully integrate the divested assets into VitalCaring’s operations and to build upon the proven track record of success that this leadership team brings to these markets and this task. The divested assets will be an important part of VitalCaring’s ongoing efforts to expand and enhance our service offerings throughout the US, and we are fully capable of integrating the assets and continuing to be a high quality and highly competitive service provider.”

Optum has also launched a website designed to defend the deal in the court of public opinion.

In addition to potential effect on competition, the Justice Department argues that the Amedisys-Optum transaction would damage the labor market, saying that, “Competition between the two companies also benefits the skilled nurses who provide home health and hospice services.” Competition supports higher wage and better employment terms, according to the DOJ complaint.

One outstanding question is how the forthcoming change in presidential administration, and a new attorney general, could affect the lawsuit. The Trump administration would have the option of dropping the suit or continuing to pursue it, creating a wild card for 2025.

Another potential side effect could be a cooling effect on large acquisitions, though this could be mitigated by the unique nature of the Optum-Amedisys deal, according to Tyler Giesting, director of health care and life sciences for the digital services firm West Monroe. Few companies can rival the size and reach of UnitedHealth Group, particularly if it assumed control of Amedisys. 

“I personally don’t think this has a significant chilling effect beyond what it’s already had on the market because of how long this has been playing out,” Giesting told Hospice News. “If you’re an owner or operator or a financial sponsor of an organization contemplating growth via acquisition, you’ve already kind of mentally baked into your thinking the regulatory review that may occur with any transaction. This is already on folks’ radar.”