Anthem Gears Up To Fight Merger Ruling - And Potentially Cigna, Too

If Indianapolis-based insurance company Anthem wants to appeal a federal judge’s decision scrapping the company’s upcoming merger with fellow insurer Cigna, it may have a short time window in which to do so.

While the U.S. Justice Department’s suit contained many anti-competitive claims against the merger, Wednesday’s decision only concerns competition in one market — big companies with more than 5,000 employees. In this market, health insurers often offer so-called “Administrative Services Only” contracts, with the companies paying for actual services themselves.

Anthem argued the merged mega-company could be more efficient and also able to negotiate lower prices with providers in a wildly fluctuating insurance market. So even if the actual insurance prices were higher, the overall cost of healthcare would be lower.

But Judge Amy Berman Jackson says the court isn’t in a position to speculate on what the merger’s effect would be on providers’ prices, writing that the court shouldn’t have to make complex policy decisions about the overall allocation of the country’s healthcare dollars.

Saint Louis University antitrust law professor Tim Greaney says he’s not too surprised – he says he’s never seen the cost-saving argument exclusively work in an antitrust case:

“It’s awful hard to predict future efficiencies,” he says, “and the courts have put a pretty high burden on that.”

Additionally, Jackson wrote that the two companies’ differing approaches to health coverage—Anthem’s focus on discounts and Cigna’s focus on value-based products —“reducing costs by increasing health,” the judge writes – keep the industry from stagnating.

“Eliminating this competition from the marketplace would diminish the opportunity for the firms’ ideas to be tested and refined, when this is just the sort of innovation the antitrust rules are supposed to foster,” Jackson wrote.

Anthem and Cigna have weathered a contentious relationship — a dynamic the judge calls “the elephant in the courtroom.” Cigna has made it known it’s not interested in extending the merger agreement past its drop-dead date this spring. And according to court documents, Cigna officials provided what Jackson calls “compelling testimony undermining the projections of future savings.”

Greaney says that undermined any promise of cooperation the merger promised. Many mergers’ pledges don’t pan out because of culture clashes between companies.

“The parties don’t seem to be doing much effective integrating pre-merger, that just casts doubt on the predictions of the billions of dollars of promised savings,” he says.

If the decision is upheld, Greaney says the two companies could potentially challenge other claims brought in the suit, since the decision only focused on one market.

However, if the deal doesn’t go through by April 30, Anthem could be forced to pay Cigna a nearly $2 billion “breakup fee.” The contentious nature of the discussions could lead Anthem lawyers to argue Cigna didn’t bargain in good faith and isn’t entitled to the money, though.

Anthem says it intends to file a notice of appeal and request an expedited hearing to reverse the court’s decision.

“Anthem is significantly disappointed by the decision, as combining Anthem and Cigna would positively impact the health and well-being of millions of Americans—saving them more than $2 billion in medical costs annually,” said CEO Joseph Swedish in a press release.