Courts in US block second health merger
• Deals would have concentrated industry even more
A federal judge on Wednesday ruled against US health insurer Anthem’s proposed $54bn merger with smaller rival Cigna, derailing an unprecedented effort to consolidate the country’s health insurance industry.
The US justice department sued in July to stop Anthem’s purchase of Cigna, a deal that would have created the largest US health insurer by membership, and Aetna’s planned $33bn acquisition of Humana.
The merger would have worsened an already highly concentrated market and is likely to raise prices, Judge Amy Berman Jackson of the US District Court for the District of Columbia said while issuing the ruling against Anthem’s deal.
Last month, a different US judge ruled against Aetna’s proposed deal for Humana.
Government antitrust officials argued that both deals would lead to less competition and higher prices for Americans. The acquisitions would have reduced the number of large national insurers in the US from five to three.
Jackson had separated the justice department’s case into two trials. Her ruling focused only on the first one in which the department argued that the tieup would hurt the ability of large national employers to get competitive rates for the health coverage they provide workers.
SECOND TRIAL
The second trial considered overlaps in the two insurers’ business selling health benefits to individuals, and administering Medicare Advantage coverage to the elderly.
Anthem argued that there was enough competition because large companies with more than 5,000 employees often used multiple smaller players in the national market, but the judge disagreed.
“Regional firms and new specialised ‘niche’ companies that lack a national network are not viable options for the vast majority of national accounts, and they will not ameliorate the anticompetitive effects of this merger,” Jackson wrote.
Cigna intends to carefully review the opinion and evaluate its options in accordance with the merger agreement, it said.
Cigna CEO David Cordani has estimated that his company will have $7bn to $14bn of deployable capital, with the high end including extra debt the company could take on if it decided to make acquisitions.
Anthem said on Thursday that it intends to promptly file a notice of appeal and request an expedited hearing of its appeal to reverse the court’s decision.
Acting assistant attorneygeneral Brent Snyder of the justice department’s antitrust division said the ruling had prevented US consumers from facing higher health insurance premiums and less innovation.
Bill Baer, who was head of the justice department’s antitrust division when it decided to sue to block both the insurance deals but has since left the agency, also hailed the decision.
“Together with the decision on Aetna and Humana, this preserves five large national providers of critically important health insurance products,” Snyder said.
The fifth player, UnitedHealth Group, had not been involved in the deals.
Some Wall Street analysts expect all four of the companies to now move on, although Aetna and Humana have not committed to doing so. Their deal expires on February 15.
“The likelihood of success in an appeal would be very low,” said Matthew L Cantor, a partner in the law firm of Constantine Cannon in New York.
He noted points in the judge’s order about the concentrated national market, the high barrier to entry for competitors, and the companies’ roles as direct competitors.
The deals were announced at a time when former president Barack Obama’s national healthcare reform law was fully in place and the four insurers were growing in the individual insurance market it established.
OBAMACARE
The insurers said new costs, from higher taxes to investments in new Obamacare products, were driving their need for scale.
That landscape is less certain now. Aetna and Humana have cut back Obamacare enrolment for 2017 after losses, and President Donald Trump and fellow Republicans are weighing a “repeal and replace” path for Obamacare.
More deals may be in the offing, JPMorgan analyst Gary Taylor said in a research note. “Given Anthem and Cigna’s pursuit of Humana in 2015, we think new potential combinations could emerge.”
He does not expect shares in either Anthem or Cigna to move given that investors had expected this ruling.
Cigna is entitled to receive a $1.85bn break-up fee from Anthem if the deal fails to win regulatory approval, according to the merger agreement. The agreement also requires Cigna to have put forth its best effort on that front.
But Anthem and Cigna disagreed about the deal in court, Jackson wrote in her order, with Cigna refusing to sign off on Anthem’s interpretation of how the companies could garner savings.
Anthem is the largest member of the Blue Cross Blue Shield Association and operates BCBS plans in 14 states. It said it could apply its discounts to Cigna members while Cigna said its collaborations with doctors would save money.
Premerger integration was stalled and incomplete, the judge said.