UnitedHealth announced the all-cash deal in January 2021, saying it would help streamline administrative and payment processes.
UnitedHealth and Change Healthcare offer competing software for processing healthcare claims and together serve 38 of the top-40 health insurers in the country, the Justice Department said in the complaint. They would have at least 75% of that market, it said.
The Justice Department said UnitedHealth knew that access to claims would give it a view into rival health plans at Humana Inc, Anthem Inc, CVS Health Corp's Aetna and Cigna Corp.
"Unless the deal is blocked, United stands to see and potentially use its health insurance rivals' competitively sensitive information for its own business purposes and control these competitors' access to innovations in vital healthcare technology," Principal Deputy Assistant Attorney General Doha Mekki of the Justice Department's Antitrust Division said in a statement.
UnitedHealth said it would fight the lawsuit.
"The Department's deeply flawed position is based on highly speculative theories that do not reflect the realities of the healthcare system. We will defend our case vigorously," it said in a statement.
The lawsuit is a continuation of a tougher approach to antitrust by the Biden administration, which has killed a planned deal by Aon Plc and Willis Towers Watson Plc, and Lockheed Martin's plan to buy engine maker Aerojet Rocketdyne.
Healthcare was among the markets listed as an antitrust priority in a White House executive order issued last summer.
The tougher stance casts a shadow on several other recently struck multibillion-dollar deals.
Citi analyst Daniel Grosslight said the companies are unlikely to want to take part in a protracted lawsuit for an asset Citi views as "nice to have" for UnitedHealth.
Change Healthcare's shares rose about 3% to $20.84, below United's Jan. 5, 2021 offer price of $25.75 per share. UnitedHealth closed off less than 1% to $455.89.
The Justice Department said the deal would give UnitedHealth access to large amounts of sensitive information from its rivals. It said in the complaint, which was filed in the U.S. District Court for the District of Columbia, that it would impact cost of health insurance by employers and their employees.
The case was assigned to Judge Carl Nichols, a former clerk to Supreme Court Justice Clarence Thomas. Nichols was nominated to the court by President Donald Trump.
Seth Bloom, a veteran of the Justice Department now in private practice, called the filing "a strong and non-frivolous complaint."
Representative David Cicilline, a Democrat and advocate of tougher antitrust enforcement, said he was "glad to see" the Justice Department challenge the deal, which he said would "raise healthcare costs and expand a corporate giant."
An official with United's Optum business, which would absorb Change if the deal goes through, told Reuters it has for years had access to and safeguarded the very same information that the Justice Department is concerned about. UnitedHealth has not had access to this information, the official said.
The American Hospital Association has been critical of the deal, arguing that combining healthcare data from Change with UnitedHealth's Optum would reduce competition for the sale of healthcare information technology services for hospitals.
Other critics have included the American Medical Association and two groups of independent pharmacists.
(Reporting by Diane Bartz in Washington, Jon Stempel in New York and Ankur Banerjee in Bengalaru; Editing by Marguerita Choy, Caroline Humer and Bill Berkrot)
By Diane Bartz
