Judge Open to Anthem’s Consumer Benefit Claim

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By Liz Crampton and Eleanor Tyler

Anthem Inc. appeared to have at least one judge open to its argument March 24 that its bid to merge with Cigna Corp. would help consumers, but the court hearing also highlighted tough barriers ( U.S.A. v. Anthem Inc., D.C. Cir., No. 17-05024, filed 2/10/17 ).

Anthem argued before a panel of three judges in the U.S. Court of Appeals for the District of Columbia Circuit that a district court ruling blocking the merger was wrong because it ignored the $2.4 billion in medical cost savings the company says it can wrestle from doctors and hospitals.

U.S. Circuit Judge Brett Kavanaugh appeared most convinced by the insurer’s argument that the deal would lead to savings that could be passed on to consumers. He also seemed persuaded that those savings could be good for competition.

If the merger helps employers deliver health care to employees, he said, “that seems like an improvement in competition and consumer welfare. That seems like a good.”

The two other judges, Judith Ann Wilson Rogers and Patricia Ann Millett also engaged in Anthem’s claim of benefits from the merger, but they pursued other lines of questioning, such as why Anthem can’t offer new services without acquiring Cigna.

Kavanaugh also pointed to one of the biggest problems for Anthem’s case at the two-hour hearing. He cited the lower court’s determinations of fact that Anthem’s alleged cost savings from the merger aren’t verifiable and could be achieved by less restrictive means than merging with Cigna. Kavanaugh asked Anthem how it would circumvent the deference normally due such decisions about facts.

Christopher Curran, arguing on behalf of Anthem, said the lower court applied the wrong legal standard to the facts, which means the appellate court is free to take a fresh look at whether those savings should be weighed in favor of the merger.

‘Upward Climb.’

The factual findings of the lower court are a big barrier to clearing the merger. Anthem faces an “a real upward climb” on its appeal, Constantine Cannon LLP partner Matthew Cantor told Bloomberg BNA. The lower court opinion hinges on factual determinations that are given due deference in the appellate court, he noted.

Kavanaugh said at the argument that the American Hospital Association and American Medical Association, groups that oppose the merger, submitted amicus briefs stating the deal would grant the new insurance company increased bargaining leverage against hospitals. The merged company could then extract lower reimbursement rates for services covered by insurance, causing harm to hospitals and doctors.

The judge posed what he called a “big picture question” to Justice Department attorney Scott Westrich. “This merger allegedly would help employers at the expense of hospitals and doctors,” Kavanaugh said. “What is wrong with that if the goal is to help employers?”

Westrich said we can’t know for certain if there will be a reduction of costs if reimbursement rates go down. He also said the question is outside the scope of what the judges should be considering under Section 7 of the Clayton Act, which gives antitrust officials the authority to block anticompetitive deals, not deals that impact costs.

Price vs. Competition

The argument returned repeatedly to whether cost reductions demonstrate an improvement in competition. Millett and Rogers asked whether factors other than price, like losses in consumer choice and quality, might offset the lower prices Anthem is touting from the deal.

Millett asked if the lower costs would benefit just Anthem customers or consumers at large. She also asked Curran why Anthem can’t roll out a product like Cigna’s customer-facing wellness programs without purchasing Cigna.

Rogers asked if a Cigna customers would be able to keep the current plan after the merger. Curran said they could, but that Anthem’s past experience shows that very few would choose to do so at the higher cost.

Market Power?

The judges also asked whether any cost savings would come from Anthem gaining market power to wield over hospitals and doctors, which could be considered anticompetitive.

Westrich for the DOJ noted that the lower court didn’t rule on the government’s argument that rate reductions would reflect Anthem’s new power as a buyer, which means the appeals court doesn’t need to decide on that issue. But anticompetitive impacts are a harm to be avoided, not a benefit, he said.

Curran countered that the anticipated cost savings to employers are so large that “we win if they have to be considered.” And they do have to be considered, he added, because if Anthem can deliver its product more cheaply as a result of the deal, “that is an efficiency” that must be weighed.

In response, Kavanaugh noted that the employers Anthem claims will save on provider rates did not file a brief supporting the deal. That’s a “dog that didn’t bark,” he said.

To contact the reporters on this story: Liz Crampton in Washington at lcrampton@bna.com, Eleanor Tyler in Washington at etyler@bna.com

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

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