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From Antitrust Law Daily, February 9, 2017

Anthem to fight for right to merge with Cigna after district court blocks deal

By Jeffrey May, J.D.

In response to a federal district court’s decision to block Anthem, Inc.’s proposed $54 billion acquisition of Cigna Corp., Anthem has pledged to continue the fight for what would be the largest merger in the history of the health-insurance industry in the U.S. Court of Appeals in Washington, D.C. Yesterday, the federal district court in Washington, D.C. enjoined the combination "due to its likely impact on the market for the sale of health insurance to 'national accounts’—customers with more than 5000 employees, usually spread over at least two states—within the fourteen states where Anthem operates as the Blue Cross Blue Shield licensee" (U.S. v. Anthem, Inc., February 8, 2017, Jackson, A.).

The court released an order, summarizing its decision. A full opinion was filed under seal, and the parties were asked to identify portions, if any, that should remain under seal.

Complaint. In a July 2016 complaint, the Department of Justice and the States of California, Colorado, Connecticut, Georgia, Iowa, Maine, Maryland, New Hampshire, New York, Tennessee, and Virginia, and the District of Columbia challenged the merger on a number of grounds. According to the complaint, the combination of Anthem—the largest member of the Blue Cross and Blue Shield Association—and Cigna—another commercial health-insurance option—would substantially lessen competition for the sale of health insurance to national accounts in the parts of the 14 states where Anthem sells under a Blue license and in the United States generally.

The government also contended that the transaction would substantially lessen competition for the sale of health insurance to large-group employers in 35 metropolitan areas, and would be presumptively unlawful in 20 of those markets. In addition, potential anticompetitive effects were identified in the sale of health insurance on the public exchanges in Colorado and Missouri. Lastly, the government alleged that the proposed merger would eliminate competition between Anthem and Cigna for the purchase of health care services in 35 metropolitan areas. According to the complaint, the harm to competition in any one of these markets was sufficient to enjoin the transaction.

Anticompetitive effects. The court found the government carried its burden to demonstrate that the proposed combination was likely to have a substantial effect on competition in a highly concentrated market for "national accounts" in the 14 markets. It also found likely anticompetitive effects in the market for the sale of commercial health insurance to large group customers in the Richmond, Virginia market. Thus, the court decided that it was not necessary to consider the potential impact on a national market for national accounts. The court also found it unnecessary to reach the proposed merger's impact on the downstream market for the sale of health insurance to "large group" employers (more than 100 employees) in 35 markets or the upstream market for the purchase of healthcare services from hospitals and physicians in the same 35 markets.

National accounts market. The court agreed that the government’s market was properly limited to the sale of health insurance to national accounts in the 14 states in which Anthem enjoyed the exclusive right to compete under the Blue Cross Blue Shield banner. The government’s use of 5000 employees as the threshold was consistent with how both Anthem and Cigna identified the accounts within their own companies, it was noted. The defendants failed to sway the court by arguing that large customers that were national accounts could "slice" their insurance business and contract with multiple carriers to cover different geographic regions and employee preferences.

This market was found to be highly concentrated and presumptively unlawful under the joint U.S. Department of Justice/FTC Horizontal Merger Guidelines. In addition, the evidence showed that the merger would likely have anticompetitive effects, including higher prices and reduced innovation.

"Efficiencies." Anthem took the lead in defending the transaction and contended that any anticompetitive effects would be outweighed by the efficiencies it would generate. The purported overriding benefit of the merger was that the new company would be able to deliver Cigna’s highly regarded value-based products at the lower Anthem price. The court was not convinced.

"Anthem is encouraging the Court to ignore the risks posed by the proposed constriction in the health insurance industry in the relevant market on the grounds that consumers might benefit from the large size of the new company in other ways at the end of the day," the court said. "But this is not a cognizable defense to an antitrust case; the antitrust laws are designed to protect competition, and the claimed efficiencies do not arise out of, or facilitate, competition."

The court also noted that Cigna had sown doubt into the record in connection with the question of whether the merger will benefit competition. According to the court, Cigna was "actively warning against [the merger]."

"Cigna officials provided compelling testimony undermining the projections of future savings, and the disagreement runs so deep that Cigna cross-examined the defendants’ own expert and refused to sign Anthem’s Findings of Fact and Conclusions of Law," the court pointed out. While Anthem attempted to chalk up the difference to a mere "rift between the CEOs," the court was concerned that "the relationship between the companies is marked by a fundamental difference of opinion over the effect the Anthem strategy to impose lower rates on providers and move members away from Cigna’s network will have on the collaborative model of care that is central to the Cigna brand."

Aetna’s $37 billion attempt to buy Humana. The decision by Judge Amy Berman Jackson follows a decision by Judge John Bates of the same court blocking another mega-merger in the health insurance industry. Last month, Aetna’s $37 billion attempt to buy Humana was enjoined on the grounds that it would likely substantially lessen competition in the market for individual Medicare Advantage plans in 364 counties on the public exchanges under the Affordable Care Act in three Florida counties.

Department of Justice reaction. "Today’s decision is a victory for American consumers," said Brent Snyder, Acting Assistant Attorney General in charge of the Department of Justice Antitrust Division. "This merger would have stifled competition, harming consumers by increasing health insurance prices and slowing innovation aimed at lowering the costs of healthcare. In concluding that Anthem’s acquisition of Cigna would violate federal antitrust laws, the court has protected consumers and the competition on which they rely. I thank the hardworking staff of the Antitrust Division and our state partners, who conducted a thorough investigation and offered a clear and compelling presentation across a two-phase trial and never wavered in their commitment to protect competition in these markets."

Anthem pledge. Today, Anthem announced its plan to appeal the decision and to request an expedited hearing.

"If not overturned, the consequences of the decision are far-reaching and will hurt American consumers by limiting their access to high quality affordable care, slowing the industry’s shift to value based care and improved outcomes for patients, and restricting innovation which is critical to meeting the evolving needs of healthcare consumers," said Anthem Chairman and CEO Joseph R. Swedish. "Moving forward, Anthem will continue to work aggressively to complete the transaction while remaining focused on serving as America’s valued health partner, delivering superior health care services to our approximately 40 million members with greater value at less cost."

Cigna response. In light of the disagreements between Cigna's leadership and Anthem's top management regarding the proposed transaction, it is not surprising that Cigna did not respond as strongly as Anthem in defending the deal. Reacting to the judge's order, Cigna said that it would "carefully review the opinion and evaluate its options in accordance with the merger agreement."

The case is No. 1:16-cv-01493-ABJ.

Attorneys: Adam T. Severt, U.S. Department of Justice, for the United States. Paula Lauren Gibson, Office of the Attorney General, for State of California. Rachel O. Davis, Office of the Attorney General, for State of Connecticut. Andrew Keith Mann (White & Case LLP) for Anthem, Inc. Andrew J. Forman (Paul, Weiss, Rifkind, Wharton & Garrison LLP) for Cigna Corp.

Companies: Anthem, Inc.; Cigna Corp.

MainStory: TopStory AcquisitionsMergers Antitrust AntitrustDivisionNews DistrictofColumbiaNews

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