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From Antitrust Law Daily, February 22, 2017

Details behind order blocking Anthem’s acquisition of Cigna released

By Jeffrey May, J.D.

The federal district court in Washington, D.C. has released a detailed opinion, supporting its February 8 decision to block Anthem, Inc.’s proposed $54 billion acquisition of Cigna Corp. The court elaborated on the reasons for enjoining what would be the largest merger in the history of the health-insurance industry at the urging of the U.S. Department of Justice Antitrust Division, 11 states, and the District of Columbia (U.S. v. Anthem, Inc., February 8, 2017, released February 21, 2017, Jackson, A.).

The release of the redacted decision comes just days after the U.S. Court of Appeals in Washington, D.C. granted an emergency motion to expedite an appeal of the court’s injunction. Oral argument in the appeal is expected on March 24.

Anthem is alone in pursuing the appeal as there is a dispute between the insurers over whether to proceed with the combination, which was announced in 2015. The court identified the rift as a "chill in the relationship between the merging parties."

Cigna moved to terminate its proposed merger agreement with Anthem after the district court issued the injunction. Cigna reportedly disclosed in a regulatory filing that a temporary restraining order has been issued at Anthem’s request to prevent Cigna from walking away from the deal pending the Delaware court's review of the matter.

The court concluded that, based on the entire record, the plaintiffs carried their burden to show that the effect of the acquisition may be to substantially lessen competition in violation of Section 7 of the Clayton Act. The government established a prima facie case that the merger was presumptively anticompetitive. While there was possibly some evidence of efficiencies, the claimed efficiencies were not merger-specific or verifiable. Also, they did not outweigh the anticompetitive effects of the merger. Thus, the government carried its burden to demonstrate that there was a substantial likelihood of an effect on competition if the merger were to proceed.

Although the government challenged the merger on a number of grounds in its 2016 complaint, the court focused on the likely impact of the merger on the market for the sale of health insurance to "national accounts" in 14 states. Additionally, it held that the merger was likely to cause anticompetitive harm in the market for the sale of medical insurance coverage to large group employers in the Richmond, Virginia, area.

Relevant market. According to the government's 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 court accepted the government's proposed relevant market for purposes of reaching its decision to enjoin the transaction. The market for the sale of health insurance to national account customers, defined as employers with more than 5000 employees, was a relevant antitrust product market, the court held. The "business reality" was entirely consistent with the plaintiffs’ economic analysis, the court explained.

As for the relevant geographic market, the court held that the 14 states in which Anthem enjoyed the exclusive right to compete under the Blue Cross Blue Shield banner comprised a relevant geographic market for the sale of healthcare insurance to national accounts. The defense unsuccessfully contended that the proposed market was "gerrymander[ed]" and "lack[ed] economic coherence." The court detailed how economic expert testimony supported the market definition.

Presumption. The market share and level of concentration for the national accounts market in the 14 states supported the presumption that the transaction was unlawful. According to the government's evidence, the Big Four insurance carriers--Anthem, Cigna, Aetna, and United--were by far the most significant competitors for national accounts. Moreover, the plaintiffs’ evidence of price effects bolstered the presumption created by the market shares and market concentration evidence, it was noted.

The court found that the merger would likely eliminate direct competition between Anthem and Cigna, reduce the number of national carriers from four to three, and diminish innovation. Moreover, new entrants and other market conditions identified by the defense were not sufficient to forestall price increases and ameliorate these effects.

"Efficiencies." While Anthem attempted to defend the transaction by pointing to efficiencies, such as cost-savings, the claimed efficiencies did not outweigh the anticompetitive effects of the merger, in the court's view. There were questions whether the justifications raised by the defendants fell within the category of efficiencies at all. The court explained that the efficiencies evidence failed to supply a defense for several reasons: the medical cost savings were not merger-specific; there were questions about whether a significant portion of the medical cost savings and the general and administrative savings could be achieved; and it was questionable whether the medical cost savings could even be characterized as an "efficiency."

Impact on large group employers. Lastly, the court considered the government's claim that the market for the sale of commercial insurance to large group employers in 35 local markets would be harmed by the merger. The court held that the 35 local markets were valid markets. However, after finding that the transaction was likely to lessen competition substantially in Richmond, Virginia, the court did not reach any of the other markets.

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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