Anthem-Cigna Deal Tied to Rival Mergers in Antitrust Review

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Anthem-Cigna Merger to Come Under Regulator Scrutiny

The fate of Anthem Inc.’s proposed takeover of Cigna Corp. is now linked with that of Aetna Inc.’s bid for Humana Inc. as antitrust officials vow to scrutinize the industry as a whole amid the frenzy of dealmaking.

The $48.4 billion purchase of Cigna announced Friday would cut the number of major health insurers to three from five, making it challenging for Anthem and its rivals to win approval from the Justice Department, antitrust experts say.

“You’d have a massive reshuffling and increased concentration,” said Diana Moss, president of the American Antitrust Institute in Washington. “It’s more bottlenecking of the health-care supply chain, which we worry about already.”

Assistant Attorney General Bill Baer, who leads the Justice Department’s antitrust division, has said he will assess the industry as a whole, given the surge of deals, to make sure competition is preserved and the mergers don’t lead to higher costs for consumers.

“A trend toward consolidation in the health-care insurance market is something we need to factor in,” Baer said in an interview this month on Bloomberg TV.

The insurers, whose deals total almost $90 billion including Centene Corp.’s bid for Health Net Inc., face a high hurdle to win approval from a Justice Department that has challenged mergers in industries with few competitors, such as airlines and mobile phones.

The nation’s biggest doctor group weighed in against the mergers Friday, saying they give insurers too much control.

“The lack of a competitive health insurance market allows the few remaining companies to exploit their market power, dictate premium increases and pursue corporate policies that are contrary to patient interests,” the American Medical Association said in a statement.

To help win approval from authorities, Aetna is trying to distinguish itself from Anthem’s takeover by highlighting that its deal is about Medicare Advantage, the privately administered version of the government insurance program for the elderly and disabled, which operates differently than the commercial health-care market.

Complementary Markets

The Anthem-Cigna antitrust review “is manageable and will be successful,” Cigna Chief Executive Officer David Cordani said in an interview. “Beyond the capabilities that are brought together, the geographic overlay is complementary as opposed to redundant in general.”

Health-plan providers are under pressure to get bigger after the 2010 U.S. law known as Obamacare triggered a race for new customers and imposed tougher rules and limits on the industry’s profits. A successful takeover of Cigna would give Anthem more scale in commercial coverage and make it the largest health insurer in the U.S. by members.

The incentives created by health reform to combine and cut costs could offer some leverage to insurers seeking antitrust approval because they can point to government policy as fueling their deals, said Brian Quinn, a professor at Boston College Law School.

“These are natural economic responses to increased regulation and increased pressure on the businesses to become more efficient,” Quinn said. “If I was Anthem and Cigna, I’d take the position that you put these policies into place and as a result we have to consolidate.”

The Senate Judiciary Committee’s antitrust panel plans to hold a hearing in September on consolidation in the market to examine how deals will affect consumers.

“These mergers must be seriously scrutinized to ensure that consumers and health-care providers are protected from mega-insurer market power abuse,” Senator Richard Blumenthal, a Democrat from Connecticut, said Friday in a statement.

Potential Sales

The Justice Department traditionally examines competition in local markets when reviewing health-insurance deals and requires merging companies to sell business lines in those areas that could result in higher costs.

In 2012, for example, the government required Humana to sell Medicare Advantage plans in 51 counties and parishes in five states to proceed with its takeover of Arcadian Management Services Inc.

The challenge with divestitures is that antitrust officials want to ensure that doctors and hospitals affiliated with the plans being sold are willing to transfer to the new buyer so the network can be recreated.

And with two major deals pending at the same time, pulling off asset sales in local markets becomes tougher because there are fewer potential buyers due to consolidation, said Jennifer Rie, a litigation analyst at Bloomberg Intelligence.

Bigger Risk

If the Justice Department changes its approach to insurer reviews and considers a national market for health insurance, that could pose an even bigger risk for the transactions, Rie said.

Anthem and Aetna’s takeovers will also reduce possible future competition by eliminating insurers that could move into new geographic areas or product lines, said Leemore Dafny, a professor at Northwestern University who studies the health-care market. That’s another worry for the antitrust division, she said.

“You’re taking out a potential rival,” said Dafny, a former Federal Trade Commission official.

Then there’s antitrust enforcers’ sensitivity to skyrocketing health-care costs.

“Health-care markets are so important, and it’s been a focus of DOJ and the FTC enforcement activity,” said Andrea Murino, an antitrust lawyer at Goodwin Procter LLP in Washington. “It’s a key sector that affects every single one of us.”

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