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From Health Law Daily, February 22, 2017

Anthem–Cigna merger halted for likely impact on the ‘national accounts’ market

By Kathryn S. Beard, J.D.

In determining that the proposed acquisition of Cigna Corp. by Anthem, Inc. would not be permitted to go forward, the D.C. District Court ruled only on the United States’ first claim against the health insurance giants. A newly unsealed opinion revealed the court’s decision that the likely impact of the merger on the market in 14 states for the sale of health insurance to "national accounts"—customers with more than 5,000 employees, usually spread over at least two states—was sufficient to enjoin the transaction. The court therefore did not address competition for national accounts across the entire United States, whether the merger would harm competition downstream in "large group" employers, or harming competition upstream in the market for the purchase of health care services from hospitals and physicians (U.S. v. Anthem, Inc., February 8, 2017, Jackson, A.).

National accounts market. The opinion centers on the 14 states where Anthem operates as the Blue Cross Blue Shield (BCBS) licensee. It determined that the health insurance market selling to national accounts is a product market for purposes of antitrust laws, and that those 14 states are a relevant geographic market for that product where Anthem has the exclusive right to compete under the BCBS banner in that market. Furthermore, large national employers have a unique set of characteristics and needs driving purchasing processes and divisions, and both Anthem and Cigna have business units devoted to national accounts. The court determined that the proposed merger is likely to result in higher prices and have other anticompetitive effects; furthermore, because only four carriers serve the national accounts market, the merger of two of them is presumptively unlawful. Although Anthem presented evidence to rebut that presumption, the U.S. carried its burden to show that competition would be substantially lessened.

Unverifiable benefits. The court also questioned Anthem’s assertion that the two companies’ customers would save money because each’s members would be able to benefit from lower rates that the other had negotiated with its provider networks, saying that such benefits are not verifiable. Essentially, the court wrote, Anthem asked it to "ignore the risks" of the merger "on the grounds that consumers might benefit . . . in other ways at the end of the day." Because there were no verifiable benefits and it found that competition would be harmed, the court enjoined the transaction.

Cigna opposition. The opinion lastly noted that throughout the trial, Cigna was "actively warning against" the merger, noting that 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 noted that the two companies have "a fundamental difference of opinion" about Anthem’s strategy to lower provider rates and what it will do to the Cigna brand, in addition to when, how, and whether any savings can be achieved or verified. In the days after the opinion was issued to the parties, Cigna filed a lawsuit to terminate the agreement while Anthem countered with a request to enjoin Cigna from termination (see Swan song for Anthem’s acquisition of Cigna?, February 9, 2017; Tale of two mergers: Cigna-Anthem goes south; Humana, Aetna drop plans, February 15, 2017).

The end of mergers? In 2015, proposed mergers were announced between four of the five largest health insurance companies in the United States. In addition to Anthem’s proposed acquisition of Cigna, Aetna Inc. attempted to purchase Humana Inc., and the subject quickly came under scrutiny (see To merge or not to merge, that was the question before a Senate subcommittee, September 24, 2015). While the companies indicated that the proposed acquisitions were in response to the Patient Protection and Affordable Care Act (ACA) (P.L. 111-148), concerns about the resultant impact on the Medicare Advantage (MA) program were raised, in addition to concerns about stifling competition and slowing innovations. In July 2016, the DOJ filed lawsuits to prevent the two transactions, and the idea that Anthem and Cigna were not necessarily on the same page about the acquisition came to light as Cigna appeared less-than-enthusiastic about fighting the DOJ (see DOJ lawsuit steps in between Aetna-Humana and Anthem-Cigna mergers, July 21, 2016). Humana and Aetna also recently terminated their pending merger agreement after the D.C. District Court halted that transaction (see Aetna, Humana plan separate futures after dissolving merger plans, February 14, 2017; Aetna’s $47 billion purchase of Humana enjoined, January 23, 2017).

The case is Civil Action No. 16-1493 (ABJ).

Attorneys: Adam T. Severt, U.S. Department of Justice, for the United States of America. Andrew Keith Mann (White & Case LLP), Matthew Aaron Tabas (Arnold & Porter Kay Scholer LLP) and Robert Dale Grimes (Bass, Berry & Sims PLC) for Anthem, Inc. Andrew J. Forman (Paul, Weiss, Rifkind, Wharton & Garrison LLP) for Cigna Corp.

Companies: United States of America; Anthem, Inc.; Cigna Corp.

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