Market Monopoly Cause of Court Blocking Cigna-Anthem Merger

February 24, 2017 - The full opinion of United States District Court for the District of Columbia blocking Anthem’s acquisition of Cigna became publicly available earlier this week and provides details into the court’s decision.

In the memorandum opinion, Judge Amy Berman Jackson based the bulk of her decision on the effects of the Anthem-Cigna merger on market competition. In particular, the judge keyed in on the example of the insurance market in Richmond, VA, in which the merged entity would control 77 percent of the sector (with similar negative effects to occur in 35 other markets).

The plaintiffs in the case — the Department of Justice and 11 states — found that even without a merger, Anthem controlled 61 percent of the health insurance without a merger. Disregarding Blue Cross Blue Shield entities, Anthem by itself owned 48 percent of the healthcare market.

After calculating the potential market shares within in various regions as well as a framework of antitrust violations, the court ruled in favor of blocking the merger.

“In light of this evidence, the Court holds that plaintiffs have met their burden to prove by a preponderance of the evidence that the merger will have anticompetitive effects on the Richmond, Virginia market for the sale of large group health insurance.”

READ MORE: How Health Insurance Mergers Could Change the Payer Industry

The court analyzed major legal arguments highlighting the anticompetitive nature of the merger including a reduction in competitors, customer inability to negotiate, smaller opportunities for new competition to join the market, reduced market innovation, and significant harm to large employer group within major geographic healthcare markets.

Two types of anticompetitive legalities examined by the courts included coordinated and unilateral effects. Coordinated effects are two competitors overtly coordinate behavior to rise profits above competition when markets already have noticeably low competition. Unilateral effects are when two companies merge to create a monopoly that immediately eliminates market competition.

The court ruled based on the nature of the Cigna-Anthem merger that the merger pursued both coordinated and unilateral effects. The market conditions and new market entrants wouldn’t have been able to stop price increases or ameliorate these effects.

Cigna-Anthem’s merger would have reduced the number of national insurance carriers from four to three, and the court found that the reduction would be significant. The court cited merger guidelines to base their argument that reducing large competitors would have negative consequences for consumers.

“A merger between two competing sellers prevents buyers from playing those sellers off against each other in negotiations,” the court said. “This alone can significantly enhance the ability and incentive of the merged entity to obtain a result more favorable to it, and less favorable to the buyer, than the merging firms would have offered separately absent the merger.”

READ MORE: After Terminated Merger, Cigna Demands $13B from Anthem

Notably, the court found that the merger would have been a detriment to efforts aimed at improving or innovating in the healthcare payer marketplace. Both Cigna and Anthem cited their efforts in improving healthcare efficiency, but the court found a merger agreement would have inhibited innovation due to adjustments in consumer rates and relationships.

“As executives from both defendants testified, efforts to move members out of Cigna’s network, or to require Anthem network providers to apply Anthem rates to Cigna patients, will erode Cigna’s relationships with it providers,” the court said.

“Because these relationships are fundamental to Cigna’s ability to advance its model of collaborative care, Cigna’s capacity to innovate in this area will be harmed as well. For all of these reasons, the Court finds that the merger is likely to slow innovation in the market.”

Since the ruling, Cigna and Anthem terminated the merger with fallout including a $13 billion dollar lawsuit filed by Cigna towards Anthem’s legal performance and a retaliatory restraining order filed by Anthem. The merger was heavily publicized as a beneficial agreement for improving quality, but has been hotly debated from policymakers and healthcare stakeholders due to antitrust violations.

“While Anthem has also moved to incorporate quality and cost savings incentives into its provider contracts, Cigna has sought to differentiate itself with its approach towards reducing costs by increasing health,” the court stated. “Eliminating this competition from the marketplace would diminish the opportunity for the firm's ideas to be tested and refined, when this is just the sort of innovation the antitrust rules are supposed to foster. Considering all of these circumstances, and for all of the reasons set forth in greater detail in this opinion, the Court is persuaded that the merger should not take place.”

Opposition towards these mega-mergers (e.g., Cigna-Anthem, Aetna-Humana) agreed that these monopolistic agreements would damage the healthcare market and limit consumer choices for healthcare.