May 1, 2017

Appeals court panel deals another blow to Anthem-Cigna merger

Daily Briefing

    A three-judge panel of the U.S. Court of Appeals for the District of Columbia on Friday upheld a lower court ruling that blocks a proposed merger between health insurers Anthem and Cigna.

    Case details

    The Department of Justice (DOJ) is challenging the proposed merger between Anthem and Cigna, which would have made the combined company the nation's largest insurer by enrollment, in court. DOJ has 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 insurance exchanges.

    Federal District Court for the District of Columbia Judge Amy Berman Jackson in February ruled against the merger over anti-competitive concerns, effectively blocking it from taking effect.

    Following the ruling, Cigna filed a lawsuit against Anthem seeking to unilaterally terminate the proposed merger. In response, Anthem countersued to block Cigna from terminating the deal. A Delaware judge in mid-February issued a temporary restraining order that blocks Cigna from immediately terminating the deal. The court is scheduled to hold a hearing on the issue on May 8.

    Meanwhile, Anthem appealed Jackson's ruling to block the proposed merger. The insurer argued that the $2.4 billion in lower payments to health care providers the insurer believes it can achieve through its merger with Cigna should outweigh any potential anti-competitive effects the merger would have on the health insurance market.

    DOJ had urged the appeals court not to overturn the lower court's ruling, arguing that there is no compelling reason why the decision should be overturned. DOJ said there is evidence to counter Anthem's argument that the proposed merger would create efficiencies in the health insurance market.

    Ruling details

    According to Modern Healthcare, two judges on the panel ruled to uphold the lower court's ruling to block the proposed merger, while the third judge ruled that the merger should be allowed to proceed.

    Judge Judith Rogers in the panel's majority opinion wrote, "We hold that the district court did not abuse its discretion in enjoining the merger based on Anthem's failure to show the kind of extraordinary efficiencies necessary to offset the conceded anticompetitive effect of the merger in the 14 Anthem states: the loss of Cigna, an innovative competitor in a highly concentrated market."

    However, Judge Brett Kavanaugh in his dissenting opinion wrote that the proposed merger would result in cost savings for large employers that purchase coverage from Anthem and Cigna. He wrote, "There is little basis to doubt that the cost savings [f]or employers as a result of the merger would be large—and far larger than the increased fees charged by insurers to employers as the result of the merger."

    Reaction

    Deputy Assistant Attorney General Brent Snyder of DOJ's antitrust division in a statement said the panel's ruling "confirms the district court's conclusion that the merger would not have provided real benefits to consumers, but instead would have harmed competition in these important markets."

    Health care provider organizations praised the ruling. For instance, American Medical Association President Andrew Gurman in a statement said, "The appellate court sent a clear message to the health insurance industry: a merger that smothers competition and choice, raises premiums, and reduces quality and innovation is inherently harmful to patients and physicians."

    Anthem in a statement said it was disappointed by the panel's ruling, adding that the company is "committed to completing the transaction," and is "currently reviewing the opinion and will carefully evaluate [its] options."

    Cigna declined to comment on the ruling, the Wall Street Journal reports.

    According to Modern Healthcare, Anthem and Cigna could choose to appeal the decision and request an en banc hearing with the full D.C. Circuit court.

    Andrea Murino, a partner and co-chair of Goodwin Procter's antitrust group, said she expects that Anthem will request an en banc hearing. She added, "I don't think that Anthem's chances of success are huge, but they are not zero," noting Kavanaugh's dissenting opinion (Kendall/Wilde Mathews, Wall Street Journal, 4/28; Livingston, Modern Healthcare, 4/28; Nather, "Vitals," Axios, 5/1; Morse, Healthcare Finance News, 4/28).

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