A federal judge blocked the proposed $54 billion tie-up between national insurers Anthem and Cigna late Wednesday, saying the combination would harm competition in the national employer market.
In a 12-page order, U.S. District Judge Amy Berman Jackson said the merger would eliminate the firms' head-to-head competition for the administrative services business of large employers and result in higher prices and reduced innovation in the market.
The judge also said Cigna, which has long shown lukewarm commitment to the merger, is “actively warning against it.” During the trial, Cigna officials presented “compelling testimony” that undermined the projections of future savings that would result from the merger. The two also have deep disagreements in strategy. Anthem attempted to cast these differences as a “side issue,” according to the order.
The judge's decision wasn't a surprise. Most analysts expected the deal to be blocked, especially in light of the recent court ruling blocking the merger between insurers Aetna and Humana, which had a better chance of closing at the outset.
Anthem may owe Cigna a $1.85 billion breakup fee.
In the order, Judge Jackson disagreed with Anthem's claim that the merger would deliver medical cost savings of more than $2 billion. She said the insurers didn't prove that they couldn't deliver those savings as standalone companies.
Further, she questioned the combined company's ability to negotiate lower rates from healthcare providers.
“Anthem is asking the court to go beyond what any court has done before: to bless this merger because customers may end up paying less to healthcare providers for the services that the providers deliver even though the same customers are also likely to end up paying more for what the defendants sell,” Jackson wrote in the order.
But Anthem's own internal documents show the insurer isn't planning on passing any savings along to customers, she wrote.
Anthem and Cigna struck a deal to merge in July 2015, and the Justice Department, 11 states and the District of Columbia sued the block the merger in July 2016. The trial, which kicked off in November, was split into two parts. The first focused on competition in the national employer market, and the second dealt with competition in 35 local markets.
Because the judge determined that competition would be harmed in the national market, she did not rule on the question of competition in the local markets.