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Anthem-Cigna Trial Off to Fascinating Start

The trial began today to challenge the $48 billion merger between Anthem and Cigna, two of the nation’s largest health insurers. The suit by the Justice Department to block the merger was driven by concerns over effects on consumers and whether Anthem would be able to use its considerable muscle to drive down reimbursements to providers. In their opening arguments, Mr. Jacobs for the U.S. and Mr. Curran for Anthem laid out their arguments for why Judge Amy Berman Jackson should rule one way or another by January 4.

The Justice Department stated in opening arguments that the merger should be considered presumptively unlawful based on market shares alone. In phase one of the trial which concerns national accounts, Mr. Jacobs stated that the government would focus on market definition, the increase in concentration due to the merger, and show that the market shares actually understate the problem posed by this merger. In phase two, the government will try to show that the new company would have considerable buying power, which would allow it to “bring down the hammer” on providers, bullying them into taking lower reimbursements.

Mr. Curran took the “hammer” argument and without using the same terminology, turned it on its head and said that the market power the government alleged to be problematic was actually a pro-competitive efficiency. He pointed to an automatic pass-through of savings characteristic of one insurance product in question in this case. Judge Jackson interjected and asked whether any other case had a product definition that ensured pass-through savings and put forth the simplest version of the question, “is market power good for efficiencies or bad because it’s anticompetitive?”

Merger cases almost always include efficiencies arguments, but a defining moment of the day came when Mr. Curran laid out the case that this would be a very different kind of efficiencies argument. The commercial market for ASOs, or administrative services only plans, is in question. Characteristics of this product market make it highly unusual when considering a traditional efficiencies argument, because savings obtained by insurance plans are automatically passed onto employers paying their employees’ medical expenses. The question will now rest on whether the combined Anthem-Cigna can harm consumers through egregious fees or through restricted provider networks.

It is already clear that this fight will be based largely on market definition, specifically whether or not “national accounts” is a real or relevant market definition. The U.S. argued that both Anthem and Blue Cross Blue Shield (which partners with Anthem to “stitch” together a national network in the 36 states where Anthem does not compete) view some customers as national accounts and therefore national accounts is a valid relevant market. In opening, Mr. Curran rebutted that statement, instead offering a view of Anthem as a strong, but regional player.

Blue plans’ relationship to Anthem is complicated by the national best effort rule, one of several regulations designed to keep the national Blue network and Anthem together. The rule states that ⅔ of revenue from Anthem must come from its Blue plans. Mr. Jacobs pointed out that Anthem’s acquisition of Cigna complicates that prospect, adding to an already tense dynamic between leadership of the two corporations.

The changing landscape of health insurance and health care models underpinned opening arguments as well. Anthem stated it would help usher in the future of reimbursement using the value-based methodology, and “supercharge” that process through its acquisition of Cigna. The new company would be able to negotiate better with providers and pass through savings automatically, both through the value model and traditional discount models. However, a somewhat stunning moment came later in the day when Anthem CEO Joseph Swedish nearly walked back the core of Mr. Curran’s opening argument in an attempt to downplay the new company’s monopsony power.

Mr. Swedish will testify again tomorrow and David Cordani, CEO of Cigna, will testify soon, according to the Wall Street Journal.

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