Anthem’s Arguments At Trial Status Conference Fall Flat

Update: Judge John Bates announced today that he will keep the Department of Justice case against Aetna’s proposed acquisition of Humana, but he will hand off the challenge to Anthem’s acquisition of Cigna to Judge Amy Jackson. Bates kept the Aetna-Humana merger because it’s on a tighter deadline; the merger agreement between the two companies expires on December 31st, 2016. He implied that he was considering a mid-fall trial date for this merger.

As we mentioned previously, the Anthem-Cigna deal is in big trouble. Judge Bates was perceived to be favorable toward the companies, and Judge Jackson will probably be less favorably disposed. Moreover, even if she is inclined to schedule the merger trial before the end of the year, there will likely be some delays. And even she rules in favor of Anthem and Cigna, there may not be enough time to get the approval of the remaining 14 state Insurance Commissioner before the merger deadline of April 30, 2017. Anthem has repeatedly stated that Cigna no longer favors its acquisition and if that deadline is reached, it will not be extended, and the merger will fall apart. Anthem would then have to pay Cigna a $1.85 billion break-up fee, and all its efforts would be for nothing.

Yesterday morning, on August 4th, the U.S. District Court for the District of Columbia held a status conference on the Anthem-Cigna and Aetna-Humana health insurance mergers. Anthem argued that its merger with Cigna should receive a speedy trial that would begin in October 2016. However, its arguments fell flat, and the company was hoisted on its own petard.

Judge John D. Bates asked both sides questions about the timing and logistics of the trial. The Department of Justice argued for a trial date of February 17, 2017, which would give them time to gather information and prepare their case. DOJ stated that the two cases were related but that there should be separate trials, and there would be common data, witnesses, and other issues. They stated they would need three weeks to lay out their cases against Anthem-Cigna and two weeks for Aetna-Humana.

On the other side Anthem and Aetna argued that the trials should be held in the fall of 2016. Anthem wanted the trial to begin in October in order to leave 120 days after the trial for the merger to be approved by 14 state Insurance Commissioners. They also said if the merger is not completed by their deadline of April 30, 2017, they will be unable to extend the deadline and the merger will die. Anthem described Cigna as no longer enthusiastic about the merger and as “a suitor that no longer wants to be courted.” Aetna also urged that its case be heard in the fall of 2016 and replied that its merger with Humana was simpler than the other merger. While they have a deadline of December 31st, 2016 for merger approval, they are willing and able to extend that deadline. They also repeated their claim that traditional Medicare and Medicare Advantage were part of the same market, so that the merger would not harm competition.

Near the end of the conference Judge Bates announced that he would set a trial date significantly faster than DOJ’s proposal, but not as quickly as the parties’ proposal. He told them that he would be unable to hear both the Anthem-Cigna and Aetna-Humana cases in 2016, and so he would keep one of the merger cases while sending the other one back for reassignment to another judge. He did not indicate which case he would send back, and only said that there was a 50% chance he would retain one or the other. Judge Bates is viewed as a favorable judge for the merging companies and the case that is re-assigned will be less likely to win approval.

Anthem’s lawyers then rushed back to the stage and strongly urged Judge Bates to begin the trial in October 2016, claiming that DOJ had already conducted a lengthy investigation and that too much time had been wasted. Bates politely but firmly told them that while he considered DOJ’s proposed trial schedule overly long, companies could not pressure the court into scheduling hasty trials because of merger deadlines. He also noted that the companies could extend the deadlines if they chose.

During the conference Anthem openly admitted that its relations with Cigna are tense and that Cigna is no longer interested in being acquired. If Judge Bates sends the Anthem-Cigna case back to be reassigned, the trial will be delayed and the merger will not be completed by April 30, 2017. If that happens the merger will almost certainly fall apart.

Judge Bates will likely finalize a trial date next week.