Anthem and Cigna Corp. are about to get their chance to fight for their $53 billion merger in a District of Columbia courtroom. The faceoff with the U.S. Justice Department will pit their promised benefits for consumers against providers' bargaining power and the government's arguments that employers and consumers will actually experience higher prices and worse service if the companies are allowed to combine.
The Justice Department came out swinging against the proposed merger in July, alleging that the deal and Aetna's concurrent $37 billion acquisition of Humana would “fundamentally reshape the health insurance industry.” In the Anthem-Cigna case, federal and state regulators claim the consolidation would dramatically lower competition in national and some regional markets.
In the first portion of the trial, expected to last through Dec. 2, U.S. District Judge Amy Berman Jackson will hear arguments on the national implications of the deal. The companies compete for business from large, self-insured employers to handle functions such as claims administration and designing provider networks.
A second portion of the trial—unless Jackson decides there's already enough cause to spike the deal after the first—will address regional markets.
Jackson has said she plans to rule on the case by late January. That would be around the same time Donald Trump is inaugurated and his administration takes over the Justice Department. Antitrust experts, however, say there's little evidence to suggest Trump would pull the plug on the government's cases against the insurance deals. DOJ rarely, if ever, consults the White House on antitrust cases and the division's work is widely considered to be driven by its career staff's judgment.
According to the Justice Department's complaint (PDF), the increased market share accomplished by the union of Anthem and Cigna would harm employers, other insurers, providers and consumers.
Anthem counters that the combined company would be able to negotiate better deals with healthcare providers, lowering insurance rates for consumers and large businesses. In an earnings call this month, Anthem CEO Joseph Swedish asserted the merger will save consumers more than $2 billion a year.
“This is truly a compelling opportunity to positively impact the health and well-being of our members and advance our commitment to expand access to high-quality affordable healthcare for consumers,” he said.
That argument isn't sitting well with hospitals, which argue they rely on their ability to negotiate adequate rates from private plans to be able to carry the burden of charity care and high-cost services such as emergency care. Although consumers may see lower costs, they could also see a drop in healthcare quality, according to Hall, Render, Killian, Heath & Lyman attorney Bill Berlin. “It becomes a take-it-or-leave-it negotiation with providers,” Berlin said.
The dueling consumer-provider interests will fuel some interesting arguments in court, said attorney Bill Horton from the firm Jones Walker. Jackson will have to balance the concerns of several interested groups as she determines whether to block the deal. “There are two different kinds of competitive impact,” Horton said. “To some extent, it's like squeezing a balloon. If you believe one of those arguments it weakens the other.”
Anthem may need to show up with more than proposed efficiencies to bolster its case. Few judges have signed off on contested mergers based on promised benefits, according to George Hay, an antitrust professor at Cornell Law School. “Courts are typically pretty skeptical of claims of efficiencies, partly because you can't see them,” Hay said. “We're talking about the future.”
The Justice Department and some antitrust experts have questioned whether those efficiencies will ever materialize. The government's lawyers have argued in court documents that the success of the business integration would be undermined by the caustic relationship exposed by mutual allegations of violating the merger agreement.
If the deal does fall through or fails to receive the necessary regulatory approvals by April 30, 2017, Cigna stands to garner a $1.85 billion windfall from Anthem thanks to the merger agreement.
Arguments in the Aetna-Humana case are scheduled to begin Dec. 5 before U.S. District Judge John Bates, also in Washington.
