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February 9, 2017

Judge blocks Anthem, Cigna megamerger, citing 'anticompetitive effects'

Daily Briefing

A federal judge Wednesday blocked a proposed $48 billion megamerger between health insurers Anthem and Cigna.

The proposed merger between Anthem and Cigna would have made the combined company the nation's largest insurer by enrollment. The ruling to block the deal comes after another federal judge last month blocked a separate proposed megamerger between insurers Aetna and Humana, citing concerns about competition. If both of the proposed mergers occurred, the United States' five largest health insurers would be condensed to three.

Anthem-Cigna case details

Anthem in July 2015 announced plans to acquire Cigna.

The Department of Justice (DOJ) last summer filed a lawsuit challenging the deal. DOJ expressed concerns about the proposed merger's potential effects on nationwide commercial networks that serve large employers, local commercial markets, and markets of individual plans sold through the Affordable Care Act's (ACA) insurance exchanges.

Last month, DOJ during opening statements in the case argued that the Anthem and Cigna merger would harm competition because, if the merger were allowed to proceed, employers would have only a few insurer choices. DOJ attorney Jon Jacobs also argued that the companies would have difficulty implementing the merger, citing "an unusual amount of conflict between" them.

But Anthem attorney Christopher Curran defended the proposal, arguing that Anthem sought to merge with Cigna as a way to mitigate "fundamental cost problems" with the U.S. health insurance market. He added that increasing the companies' scale could help the combined company offer better rates and allow the new company to increase use of value-based payment models.

Curran also claimed that the "strained relationship" between the two companies would not affect their integration.

Ruling details

Federal District Court for the District of Columbia Judge Amy Berman Jackson ruled that the proposed deal would have violated antitrust law and harmed consumers by significantly reducing the number of insurance companies able to serve large employers that provide coverage for their workers.

In the ruling, Jackson wrote that the two companies' businesses significantly overlap. As a result, merging the companies would harm consumers in the 14 regions where Anthem sells commercial plans and one region for large group customers, Jackson wrote.

Further, Jackson wrote that evidence presented in the case showed that the merger likely would "result in higher prices, and ... have other anticompetitive effects." Specifically, Jackson wrote that the merger would "eliminate the two firms' vigorous competition against each other for national accounts, reduce the number of national carriers available to respond to solicitations in the future, and diminish the prospects for innovation in the market."

AHA: Anthem-Cigna merger would reduce competition in 800+ markets

Jackson also cited a rift between the two insurers in her ruling, calling it "the elephant in the courtroom." She wrote, "Anthem urges the court to look away, and it attempts to minimize the merging parties' differences as a 'side issue,' a mere 'rift between the CEOs,'" adding, "But the court cannot properly ignore the remarkable circumstances that have unfolded both before and during the trial."

DOJ praises ruling, while Anthem states intent to appeal

Bill Baer, who headed DOJ's antitrust division at the time the lawsuit was filed, said, "Together with the decision on Aetna and Humana, this preserves five large national providers of critically important health insurance products."

Similarly, Brent Snyder, acting head DOJ's antitrust division, called the ruling "a victory for American consumers" that protects "the competition on which they rely."

According to the Wall Street Journal, the ruling "almost certainly kills" the proposed merger.

However, Anthem—which would owe Cigna a $1.85 billion breakup fee under the terms of their agreement if the deal does not proceed—has said it will appeal the ruling. The company in a statement said it "promptly intends to file a notice of appeal and request an expedited hearing of its appeal to reverse the court's decision so that Anthem may move forward with the merger." Anthem CEO Joseph Swedish added that the company "will continue to work aggressively to complete the transaction."

Su: Where providers stand with narrow networks—and where they're going

According to the Journal, a Cigna spokesperson declined to comment on Anthem's decision to appeal.

Industry reaction

Several industry stakeholders praised Jackson's decision.

The American Medical Association (AMA) called Jackson's ruling an "important victory for consumers." AMA President Andrew Gurman said the organization "agrees with ... Jackson's conclusion that Anthem's strategy of gaining size to strong-arm physicians would not have benefited consumers. Instead, it would diminish prospects for innovation in health care delivery and payment."

In addition, American Hospital Association President Rick Pollack in a statement said the ruling "confirms that [DOJ] made the right decision in challenging the Anthem-Cigna megamerger." He added, "As a result, millions of Americans have been protected from higher insurance costs, fewer choices of providers, and less innovation in health care delivery."

(Sullivan, The Hill, 2/8; Bartz/Humer, Reuters, 2/9; de la Merced, "DealBook," New York Times, 2/8; Kendall/Wilde Mathews, Wall Street Journal, 2/9; Wilde Mathews, Wall Street Journal, 2/9; Yu, USA Today, 2/9; Johnson, "Wonkblog," Washington Post, 2/8).

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