Noticias

The Chilean competition authority, the National Economic Prosecutor’s Office (Fiscalía Nacional Económica, or “FNE”) blocked the acquisition of Isapre Colmena Salud S.A. (Colmena) by Nexus Chile SpA, controller of Isapre Nueva MasVida (Nueva MasVida), after concluding that the proposed transaction would substantially lessen competition in the market of private healthcare insurance companies (locally known as “Isapres”).

The acquirer, Nexus Chile SpA, is a private investment fund related to an American business group, Nexus Chile Health LLC. The target, Isapre Colmena is the fourth-largest health-insurance company in Chile.

The FNE executed a closeness of competition assessment, concluding that there were a relevant portion of consumers who consider Colmena and Nueva Masvida as close competitors.

The merger scrutiny showed that the proposed transaction would cause price increases in health insurance plans offered to new clients and in health plans of current insured individuals. These price increases would be applied on the top of what the healthcare regulation actually allows the Isapres to adjust according to an annual cap.

The FNE also noted that, even without price increases, similar effects may occur as a result of the proposed transaction through quality deterioration. It was concluded that the merged entity could degrade the conditions, coverage or benefits included in the health insurance plans, and the overall quality of service provided by the merged entity would be diminished as a result of the transaction.

In addition, the FNE found that members of collective plans of the acquirer (Nexus affiliate) could also be exposed to the closure of their plans.

The analysis also concluded that the concentration would facilitate coordination among the merged entity and its competitors in the health insurance industry.

“By legal mandate, the FNE is impaired to clear transactions that could substantially lessen competition and raise relevant antitrust issues that harm consumers, such as price increases or quality reduction of their health plans. Health insurance is a basic consumer service for those who opt for the private healthcare regime, while being particularly sensitive, as it implies a relevant mandatory monthly health contribution”, said National Economic Prosecutor, Ricardo Riesco.

None of the claimed countervailing arguments were verifiable or sufficient

In addition, the parties argued the transaction would generate efficiencies (cost savings) that could outweigh their incentives to raise prices or diminish quality of health plans. They also claimed that a new rival’s entry would be able to mitigate the proposed merger’s anticompetitive effects.

However, the FNE dismissed such claims. Efficiencies were not verifiable, merger-specific or sufficient to address the concerns. In addition, new entry was qualified as a ‘niche entry,’ insufficient to compete head-to-head with the parties after the merger.

Proposed remedies were ineffective

The parties offered a package of behavioral remedies, which included commitments to regulate price increases and quality of the health plans. Those commitments were considered by the FNE to be insufficient to offset the anticompetitive effects raised by the merger. While the FNE warned the parties that a structural remedy was the appropriate solution to restore the lost competition as a result of the merger, no divestiture remedy was offered by the parties.

The investigation

The FNE investigated this transaction since April 2021. It was extended to a second phase once the FNE concluded that it could raise anticompetitive concerns.

Chile has a mandatory merger control regime in force since July, 2017. The FNE is legally entitled to block transactions that substantially lessen competition. This is the fourth time the FNE exercises such power.

The FNE’s decision is subject to judicial review, if challenged by the notifying parties before a competition specialized court (Honorable Tribunal de Defensa de la Libre Competencia), through a special appeal, within ten days from the notification of the prohibition decision.

The investigation’s final report and prohibition decision will be available on the FNE’s website, once confidential aspects are resolved with the notifying parties.