Anthem-Cigna $48B Merger Decision Could Doom Future Mega-Mergers

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By Matthew Loughran

A court order blocking Anthem Inc.'s proposed $48 billion purchase of Cigna Inc. could doom future attempts to get health insurance mega-mergers approved ( United States v. Anthem, Inc. , 2017 BL 39459, D.D.C., No. 1:16-cv-1493, 2/8/17 ).

Judge Amy Berman Jackson of the U.S. District Court for the District of Columbia Feb. 7 said the proposed merger would have an anticompetitive effect on the sale of health insurance to “national accounts” within the 14 states where Anthem operates as the Blue Cross Blue Shield licensee. National accounts are defined as customers with more than 5,000 employees, usually spread over at least two states.

The court’s decision comes only weeks after Judge John D. Bates, a different judge in the same court, blocked a proposed merger between two of the other top five national insurance companies, Aetna and Humana.

Anthem said it will appeal Jackson’s decision to the U.S. Court of Appeals for the District of Columbia Circuit. Meanwhile, Cigna has said it will carefully review its appeal options. Aetna’s CEO has said that his company will decide whether to appeal its court decision by Feb. 15. Anthem, Cigna, Aetna and Humana are currently four of the five largest insurance companies in the country, exceeded only by Minnesota-based UnitedHealth Group.

Attorneys who spoke to Bloomberg BNA after Jackson ruled said the decision, if coupled with an opinion blocking the Aetna-Humana merger, could spell the end for any further attempted mega-mergers, particularly in the health-care industry.

“These decisions ought to be a strong message to the health-care industry—both on the payer and the provider sides—that competition, not assertions of ‘efficiencies’ stemming from aggregation of market power—is the law of the land,” Jack Rovner, a health-care and antitrust attorney with The Health Law Consultancy in Chicago, told Bloomberg BNA.

Rejected Efficiencies

In her decision, Jackson rejected claims by Anthem and Cigna that the merger would create specific efficiencies within the market that would benefit consumers. “The antitrust laws are designed to protect competition, and the claimed efficiencies do not arise out of, or facilitate, competition,” the court said.

Anthem and Cigna claimed that the merger would create substantial efficiencies because it would provide “Cigna’s highly regarded value-based products at the lower Anthem price.” However, the court said that the prices and products offered didn’t need the merger to be available to consumers. The court also pointed to some internal documents from Anthem showing the company had begun to consider ways to recapture the savings generated by the proposed merger for itself and not pass them on to consumers.

“The court applied textbook merger analysis in requiring efficiencies to be merger-specific and verifiable,” Michael A. Carrier, Distinguished Professor of Law at Rutgers Law School in Camden, N.J. told Bloomberg BNA. Carrier added that the court’s decision reflected a “stricter approach than many courts have applied.”

Consumer Choice

Some antitrust attorneys highlighted the court’s reliance on consumer choice in deciding to block the merger. “A particularly important point is the judge’s recognition of the value to consumers in being able to choose different approaches to obtaining health-care coverage,” Douglas Ross, a health care and antitrust attorney with Davis Wright Tremaine LLP in Seattle, told Bloomberg BNA.

Ross pointed out that the two insurers operate very differently. He noted Anthem “drives a hard bargain and delivers low prices to its members” while Cigna “works with providers to find new and innovative ways to deliver better health-care and this doesn’t always mean lower costs.” The court emphasized the need for these choices in the marketplace, Ross said.

“This competition is particularly valuable right now, as the nation considers what the right approach is to containing costs while delivering value in a post-Obamacare world,” he said.

David A. Balto, an antitrust attorney in Washington, agreed. “The record before the court was compelling that this merger would result in higher premiums, lower reimbursement and poorer service to consumers and it was clear that the deal would kill Cigna’s recent pro-consumer innovations,” he told Bloomberg BNA.

Balto said the companies should “focus on competing for consumers through lower prices and better services instead of paying millions to lawyers and lobbyists for this lost cause.”

Patient and Provider Reactions

A number of patient and provider groups cheered the court’s decision. Andrew W. Gurman, M.D., president, American Medical Association in Chicago, issued a statement applauding the “fact-based ruling” by the court “which stopped in its tracks the creation of an immense corporate entity that would have been too big to regulate with virtually unlimited power over the health care of millions of consumers.”

Gurman added that the decisions in both the Anthem-Cigna and the Aetna-Humana cases “demonstrate the vital role the U.S. Department of Justice and state attorneys general have in protecting patients and physicians from harmful mergers that substantially lessen competition in highly concentrated health insurance markets.”

A California health care consumer advocacy coalition, Health Access California, agreed. “The judge was right to block this merger, which would lead to reduced competition, increased prices, and more market power for insurers with a troublesome track record,” Anthony Wright, executive director of Health Access California, said in a statement. “Bigger is not better, and the case was clear that consumers would be negatively impacted,” he added.

Market Reactions

The court decisions don’t appear to have had much of a negative effect on the markets for any of the four insurers. In fact, Humana and Anthem both seem to have gotten stronger after the news.

Investors initially reacted very differently to the news of the Anthem-Cigna merger decision than they did after Judge Bates blocked the Aetna-Humana merger.

The markets were closed when the decision was announced, but Anthem stock opened Feb. 9 to an initial quick drop over the first hour of trading. The stock lost less than 1 percent in value, hitting just under $158 per share before 10:00 am. But over the course of the day, the insurer’s stock rallied finishing up almost 2 percent at just over $162 per share.

Cigna, meanwhile, took a dive as trading opened, dropping almost 2 percent to just over $145 per share within 6 minutes of the market opening. But the stock rose back to its pre-decision level by the end of the day, closing right where it left off at just under $148 per share.

As a comparison, in the two days after the court’s decision blocking its proposed merger, Aetna shares dropped by 4 percent from just over $122 a share to just over $117 per share. But in the days since, the stock price has recovered most of that value, closing on Feb. 9 at just over $121 per share.

Humana’s shares experienced a similar roller coaster ride, rising by just over 2.5 percent on Jan. 23, the day that the court’s decision was announced, to close at just over $205 a share, up from just over $200 a share. The insurer’s stock gave back much of those gains the next day, closing at just under $200 per share. However, in the weeks since the court’s decision, Humana has surged back up to close just below $207 a share on Feb. 9.

The court’s order only summarized the judge’s conclusions. As of Feb. 9, the full memorandum opinion remained sealed pending a confidentiality review of its contents by the parties.

Anthem is represented by White & Case LLP in Washington; Arnold & Porter Kay Scholer LLP in Washington; Bass, Berry & Sims PLC in Nashville, Tenn.; and Nelson Mullins Riley & Scarborough LLP in Washington. Cigna is represented by Paul, Weiss, Rifkind, Wharton & Garrison LLP in Washington.

Attorneys from the DOJ represented the federal government. Attorneys general from California, Connecticut, Georgia, Iowa, Maine, Maryland, New Hampshire, New York, Virginia, Colorado, Tennessee and the District of Columbia represented those parties.

To contact the reporter on this story: Matthew Loughran in Washington at mloughran@bna.com

To contact the editor responsible for this story: Peyton M. Sturges at PSturges@bna.com

For More Information

The court's order is at http://src.bna.com/l7Q.

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