Potential upheaval of the insurance industry remains on trial as two major merger cases that could help define national insurance markets are progressing in the same Washington, D.C., building.
Anthem is facing an uphill battle in its attempts to convince a U.S. district judge that its $54.2 billion proposal to take over Cigna meets legal scrutiny, analysts said. The government wrapped up its arguments this week in a separate challenge to the $37 billion merger bid between Aetna and Humana.
If the insurers are successful in their arguments, the “big five” insurers would be down to three companies. Attorney General Loretta Lynch has said this would “fundamentally reshape the health insurance industry” and kill competition in key markets.
The second phase of the Anthem trial began Wednesday. U.S. District Judge Amy Berman Jackson is considering the closing arguments from the first phase, which focused on the merger's impact on the national market. She could rule at any time that the government has already shown the merger to be unlawful.
The U.S. Justice Department sued to stop both mergers in July, arguing that they would reduce competition and result in higher prices, fewer choices for consumers and lower quality care.
Tim Greaney, co-director of the Center for Health Law Studies at St. Louis University, said the government has done a good job of making its core argument in the Anthem trial and has sewn doubt that the insurers' could provide better and less expensive services by working together, as both claim.
“There's a lot of uncertainty around the verifiability of merger-specific savings,” he said.
A source with Anthem, speaking on background, said he did not think the judge has signaled her intent clearly, and the ruling could go either way.
One clear difference in the two trials has been the relationships between the companies proposing to merge. Hostility between executives at Anthem and Cigna was first noted when their deal was announced. The trial has only shown more disagreements. Humana CEO Bruce Broussard, however, said Wednesday that he and the Anthem CEO “almost finished each other's sentences” when they first met.
The Anthem case began late last month with opening arguments that focused on whether innovation in value-based payment models could be expanded as a result of the merger and whether the insurers could use their market power to drive down prices without sacrificing quality.
Bill Horton, a partner in the healthcare practice at Jones Walker, said tensions between the two companies were obvious during management testimony. The judge definitely took note of the bad blood.
“It appears that she's skeptical of the ability of the combined companies to achieve efficiencies and cost savings based on what can fairly be categorized as the companies' inability to work together at this stage of the process,” he said.
Anthem executives testified that Cigna was not cooperating with developing an integration strategy and the judge's questioning showed skepticism that the companies could work together.
If the judge bases a ruling on those factors, questions the trial has raised about the definition and nature of national insurance markets will remain. She could, however, issue a ruling that helps determine whether competition for accounts with large businesses across multiple states would be undermined by mergers of major insurers, Horton said.
Anthem's claim that competition would remain robust is also challenged by the fact that Anthem competes in 14 states as a licensee of the Blue Cross and Blue Shield Association, he said.
The next phase of the trial is focused on how the merger would affect local markets and is more likely to deal with straightforward antitrust questions, Horton said.
The national markets relating to Medicare Advantage and Medicare's traditional fee-for-service program are the big question in the Aetna trial. The government maintains that the two are separate markets while Aetna lawyers argue that the CMS regulates them as functional substitutes.
Greaney said the judge for that trial, U.S. District Judge John Bates, must attempt to predict the future of the markets as he considers his ruling. If the judge rules against the insurance companies, Greaney said, they will have to decide whether to appeal the decision or attempt to work with the new administration of President-elect Donald Trump.
It would seem antithetical to Trump's statements about the importance of competition and relying on the market to create the best choices for consumers for the new administration to drop its challenge of the merger, he said.
“I don't think you could find an economist who would say let's rely on competition and have monopolized insurance markets and hospital markets,” he said.
Cigna and Humana would receive payments if their respective mergers fall through. Aetna would pay Humana $1 billion and Cigna would get $1.85 billion from Anthem.