Anthem’s Appeal: Three Issues to Watch

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By Eleanor Tyler

Anthem Inc. is taking its fight to merge with Cigna Corp. to the U.S. Court of Appeals for the District of Columbia Circuit, which will hear oral arguments on Anthem’s appeal on March 24 ( U.S.A v. Anthem Inc. D.C. Cir. 17-05024, 2/13/17 ).

Anthem appealed on a single issue: whether the court should have weighed Anthem’s purported cost savings from lower negotiated provider rates against the government’s alleged anticompetitive harm from the merger. Anthem contended that the lower court, in siding with the government, imposed an “unattainable” standard to prove that the merger would provide unique benefits that the parties can’t get another way.

In its brief, Anthem framed the argument in policy terms, contending that consumer welfare should be paramount in analyzing a merger under the Clayton Act and that lower costs always benefit consumers.

The Justice Department, along with the 11 states and the District of Columbia, maintained that the merger is anticompetitive and that Anthem didn’t prove its cost savings in court. It also said in its brief that the district court properly applied the prevailing legal standard for the “efficiencies” defense -- i.e., that the claimed efficiencies are sufficient to offset competitive concerns -- which was established in the Ninth Circuit.

Here are three issues to watch in the oral argument.

1. Is the test too harsh? Once the government has shown that a merger is anticompetitive, merging parties face a high burden to establish an efficiencies defense for the deal.

The Ninth Circuit says merging parties must “clearly demonstrate” proof of “extraordinary efficiencies” resulting from the merger to rebut the government’s case, according to St. Alphonsus Med. Ctr.- Nampa Inc. v. St. Luke’s Health Sys. Ltd. , 778 F.3d 775, 790 (9th Cir. 2015).

If the D.C. Circuit decides not to adopt that standard, it could set up a circuit split, leading to a possible appeal to the Supreme Court.

2. Competitive realities. Anthem contended in its brief that it could enforce lower negotiated prices against all providers, whether the lower price is in a Cigna contract or an Anthem contract. Anthem made a policy argument that lower prices are always better for consumers.

The government said that argument ignores the difference between Anthem’s product and Cigna’s. Cigna’s offerings lower costs by reducing utilization, a strategy that depends on cooperation from providers, the government said in its brief. Anthem’s arguments skirt the practical difficulties of getting Cigna’s providers to cooperate at Anthem’s lower reimbursement rates, the DOJ said.

The DOJ brief also pointed to questions about whether providers will have a right to renegotiate their rates post-merger.

The DOJ also argued in its brief that the realities of Anthem’s relationship with Blue Cross Blue Shield mean that Anthem products will predominate for all customers of the merged firm. There might be a cost savings, but it is a loss to the customer in choice and perceived quality, according to the DOJ.

Watch for the appellate court to question the litigants on these issues. If the argument stays aloft in legal precedent and public policy, that will be a good sign for Anthem. If the court needles Anthem on exactly how it would get to its alleged cost savings, it signals concern about whether this should be the test case for a successful “efficiencies” argument.

3. Procedural Questions. Anthem’s brief argued that the appellate court can reverse the district court and declare that Anthem and Cigna can merge.

But, the DOJ argued that if the lower court’s narrow ruling on part of the government’s case falls, the district judge must be permitted to weigh the facts presented on the government’s other arguments on remand.

The appellate court is likely to go with the latter option if it reverses. But the argument about what should happen next procedurally could impact how cases like this are handled in the future. Ruling on the narrowest possible grounds, as the lower court did, is standard judicial restraint. But in a case this complex, that might be a recipe for long, serial rounds of litigation and appeal, undermining the judicial efficiency argument for narrow rulings.

To contact the reporter on this story: Eleanor Tyler in Washington at etyler@bna.com

To contact the editor responsible for this story: Fawn Johnson at fjohnson@bna.com

For More Information

The docket before the D.C. Circuit is ats http://src.bna.com/nh2.

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