Anthem, Cigna Face Off Against U.S. to Save $48 Billion DealBy and
U.S. antitrust enforcers say merger will raise consumer costs
Washington showdown precedes Aetna-Humana trial in December
A Justice Department lawyer said Monday at the start of an antitrust trial in Washington that the biggest merger in the history of the American health-insurance industry should be blocked because it will increase the companies’ dominance and cut consumer choice.
An attorney for Anthem responded that the combined company will be able to lower rates paid to health-care providers and that those savings will be passed on to employers. Anthem Chief Executive Officer Joseph Swedish later took the stand and disputed the government’s assertion his company would simply “drop the hammer” on providers by imposing lower rates.
It’ll be up to U.S. District Judge Amy Berman Jackson to determine which side has the most persuasive evidence during a two-part trial that’s scheduled to span more than a month. In the first phase, the U.S. will attempt to prove that the combined company will hurt large national employers. The second part, set to start Dec. 12, will focus on the proposed tie-up’s effect on local markets.
The merger is the most complex in the industry’s history and will harm consumers in at least 60 markets, government attorney Jon Jacobs said, adding the judge should reject the companies’ argument that by combining they will be able to lower rates.
Those savings don’t count "if the only way you get them is through more market power,” he said. “The more concentrated the market, the more likely you’ll have higher prices, lower quality, reduced consumer choice and less innovation.”
Swedish, 65, who was called as a witness by the Justice Department, told the court his company wouldn’t use market power to wrest discounted reimbursement rates from health-care providers in all cases.
In its complaint, the government alleged an Anthem executive told Swedish the merger would combine companies with conflicting strategies: Cigna’s collaboration with doctors on the one hand, “and ‘drop the hammer’ on the other.”
Justice Department lawyer Scott Fitzgerald pressed Swedish on that point, prompting the CEO to disavow the terminology as “very old school.”
“We don’t live in a discount world anymore,” Swedish said, prompting the judge to remind him that reduced cost was a pillar of his company’s trial defense.
The Anthem-Cigna lawsuit is one of two federal health-care antitrust cases going to trial in the waning days of the Obama administration, which is trying to prevent the industry from shrinking. The second case, against the $38 billion tie-up of Aetna Inc. and Humana Inc., opens before another judge in Washington on Dec. 5.
By challenging the deals earlier this year, President Barack Obama’s administration seized an opportunity to further shape the future of health care after passage of the Affordable Care Act.
President-elect Donald Trump has said his administration will be more pro-business than his predecessor’s, but he has also said he would block AT&T Inc.’s plan to buy Time Warner Inc. Trump, who is to take office on Jan. 20, said Friday that he would nominate Senator Jeff Sessions to be attorney general. The Alabama Republican doesn’t have a clear track record on antitrust issues, leaving his approach to competition preservation unclear.
The American Medical Association is also opposed to the merger, claiming it will reduce choice for consumers.
“Allowing Anthem and Cigna to create a health insurance Goliath would compromise physicians’ ability to advocate for their patients,” AMA President Andrew Gurman said in an e-mailed statement as the trial started. “Competition and choice hang in balance.”
Jackson, a 2011 Obama appointee, heard the parties’ opening statements before a full courtroom, with spectators also filling a second, separate, courtroom. Jacobs, the Justice Department lawyer, showed the judge a slide presentation featuring charts and graphs. Some of the slides were blacked out on courtroom video screens because they contained confidential information.
Anthem is a member of the Blue Cross and Blue Shield Association and operates under a Blue license in all or parts of 14 states. By combining with Cigna, Anthem’s share of the national-account market in those states would be about 48 percent, according to the government’s presentation.
Anthem said there’s plenty of competition in the market because large companies don’t have to rely only on national networks to provide insurance to employees. They can turn to regional insurers, said the company’s lawyer, Christopher Curran. International Business Machines Corp., for example, uses multiple insurers for its employees, he said.
“It’s a menu selection these employers make,” he said.
The run-up to the Anthem-Cigna trial was marked by acrimony between the companies, with each accusing the other of breaching terms of their deal. Cigna stands to collect a $1.85 billion breakup fee if the merger is blocked.
Jacobs said while merging the health insurers would be a difficult task “under the best of circumstances,” in this case there was “an unusual amount of conflict” between those businesses.
Curran responded that the “strained relations” won’t hurt integration. The insurers are working well together on the merger, he told the judge.
Last month, the U.S. won an order compelling the companies to turn over written correspondence between the two, which the government argued was relevant to combating the carriers’ claims that their combination would create a more efficient company. The U.S. could use those letters as evidence during the trial.
Backing the Justice Department are 11 states, including New York, California and Connecticut, plus the District of Columbia.
The case is U.S. v. Anthem Inc., 16-cv-1493, U.S. District Court, District of Columbia (Washington).