Most recent horizontal merger case offers clues for Anthem outcome
We wrote last week on our blog that the judge assigned to the Anthem-Cigna merger is likely to look at recent precedent, specifically the Staples-Office Depot merger that was blocked this past May. The case is not only the most recent major antitrust merger case brought by the government, it also has parallels to the Anthem-Cigna case which may illuminate how the decision will be made. Staples and Office Depot are what is called “office supply superstores” or OSSs. This was established when the two corporations attempted to merge in the 1990s but were blocked by the courts and the Federal Trade Commission. OSSs are uniquely able to serve large companies for all their office supply needs, thereby constituting a distinct product market. The market in question also involved a business-to-business sales relationship. Staples and Office Depot are national companies with the infrastructure to serve clients with a multitude of locations across the country, such as a commercial bank. The court found that this convenience was a defining characteristic; national availability and one-stop-shopping are something that Fortune 500 companies value greatly. The merging companies argued that regional players could be stitched together to create a national office supply vendor network. The court however rejected this notion, acknowledging the convenience and cost savings of national availability. Under that market definition, Staples and Office Depot would have a combined market share 15 times larger than its nearest competitor. One of the two markets in question in the Anthem-Cigna case is national accounts, defined by their size (in the low thousands and up) and their presence in multiple states. They are, generally speaking, Fortune 500 or 1000 companies. The DOJ argues that the product market is national accounts and the geographic market is the United States. Plans for national accounts are defined by their convenience, especially for a product like health insurance, for which individual employees value the ability to take their plan with them should they relocate. Staples will likely be important precedent, meaning the judge will look to how the judge solved the issues in the Staples case in order to solve the issues in the Anthem case. Like Staples, Anthem can be considered a national player through its relationship with other Blue Plans, who let Anthem use their local networks of doctors. However, Anthem argued that this characterization is unfair and separated itself from the Blue Plans because the relationship disadvantages their case. It will be up to the judge to decide how like Staples Anthem really is, especially considering its relationship to other Blue Plans. Anthem will have trouble here because internal documents and consumer attitudes show that Anthem behaves like a national player. If the judge accepts this argument from the DOJ, she should then look to Staples. In both cases, market shares were then high enough to presume unlawfulness.
If the court accepts the DOJ's characterization of the Blue national network of healthcare providers, then it should block the Anthem-Cigna merger to be consistent with the ruling in Staples. The stakes are even higher here - it would be unfortunate for the price of office supplies to go up, but it could be catastrophic for consumers to suddenly face restricted provider networks and higher fees. Going by the most recent horizontal merger litigation, the court should block the merger of Anthem and Cigna.