What comes next for Anthem and Cigna
Cigna “intends to carefully review the opinion and evaluate its options.” Anthem will “continue to work aggressively to complete the transaction.”
National Blue Cross and Blue Shield carrier Anthem plans to appeal last week’s decision blocking its $54 billion deal to acquire rival insurer Cigna. But it’s not at all clear that Cigna is on board. The companies may end up in court fighting each other over a substantial breakup fee.
Anthem CEO Joseph Swedish said the insurer is “significantly disappointed by the decision” and would request an expedited hearing to reverse the court’s decision. Cigna, on the other hand, said it is reviewing the opinion and evaluating its options.
Cigna may prefer to collect the $1.85 billion breakup fee that was part of the merger agreement ($1.2 billion after taxes) and add the sum to as much as $14 billion in capital the company will have available to pursue a different deal. Analysts have suggested Cigna could make a play for a smaller company that specializes in government-sponsored plans, such as WellCare, Centene or Molina Healthcare, or even go after Humana, whose merger agreement with Aetna was blocked by a federal judge in January.
Anthem doesn’t need Cigna’s consent to appeal the court ruling. Anthem also could argue Cigna hasn’t done enough to see the merger through and doesn’t deserve the breakup fee, said Matthew Cantor, an antitrust attorney at Constantine Cannon.
Cantor and other antitrust experts doubt Anthem has much chance of getting the ruling overturned on appeal or reaching a settlement with President Donald Trump’s administration.
The relationship between Anthem and Cigna has deteriorated since the deal was struck a year and a half ago, and even factored into the judge’s decision. U.S. District Judge Amy Berman Jackson wrote that the animosity between the two was “the elephant in the room.”
In fact, Jackson said Cigna officials are “actively warning against” the merger by presenting evidence and testimony that undermined the projections of future savings that would result from the combination. The two also have deep disagreements in strategy. While Anthem wants to strongarm providers for deeper discounts, Cigna’s model is based off of collaboration with providers. Anthem attempted to cast these differences as a “side issue,” according to the order. Jackson said it couldn’t be ignored.
Jackson also concluded that the combination of Anthem and Cigna would harm customers in the national accounts market within the 14 states where Anthem operates under the Blue Cross and Blue Shield brand.
There are just four insurers in the nation that are competing to provide administrative services to large, multistate employers with more than 5,000 employees: UnitedHealth, Aetna, Cigna and the Blue Cross and Blue Shield Association, of which Anthem is the largest member. Under these administrative services only, or ASO, contracts, health insurers process claims, organize provider networks and handle other health plan logistics for selffunded employers.
If approved, the four players in this so-called “national accounts” market would be reduced to three. A merged Anthem and Cigna would become the largest ASO seller.
Jackson wrote in the 12page order that the merger would reduce competition, and will likely increase prices and stifle innovation. She disagreed with Anthem that another health insurer could step in to remedy the lost competition.
Jackson disagreed with Anthem’s claim that the merger would deliver medical cost savings of more than $2 billion to customers. She questioned the combined company’s ability to secure lower rates from providers. She also raised the question as to whether Anthem’s use of its market power to “strong-arm” healthcare providers would lead to a lower quality of healthcare.
“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.
One of Anthem’s strategies is to require providers to extend Anthem’s discounted fee to its health plan affiliates, the judge noted in the order. “But even the Anthem executives have expressed doubts that the providers will take this lying down,” the order stated.