Anthem Says No Talks To Terminate Merger With Cigna

The Justice Department has told Anthem Inc. (Indianapolis IN) that the health insurer’s planned takeover of Cigna Corp. (Bloomfield CT) threatens competition and probably can’t be fixed by selling parts of their businesses, according to a person familiar with the matter.

The companies met June 24 with Bill Baer, the department’s No. 3 official, in a bid to get their $48 billion deal approved and hear about the government’s concerns, said the person, who spoke on the condition of anonymity because the merger review is confidential. The meeting had been expected.

The Justice Department has indicated that it’s open to hearing about proposals from the company to resolve the problems, two people familiar with the matter said. Still, its skepticism that the deal can be fixed raises the likelihood that the U.S. will sue to block it.

The government is on track to make a decision on the combination by around mid-July, according to another person familiar with the matter. Spokesmen for Anthem, Cigna and the Justice Department declined to comment.

In a written statement last week, Anthem said: “Anthem and Cigna continue to be in ongoing dialogue with the Department of Justice and state regulators regarding the compelling combination of our two companies to increase consumer access to high-quality, affordable health care.”

The insurers are squaring off against antitrust enforcers who have taken aggressive stances against deals to protect consumers, challenging tie-ups in industries ranging from pay-TV to oil-field services.

Baer’s decision on the Cigna takeover, along with a pending deal between Aetna Inc. (Hartford CT) and Humana Inc. (Louisville KY), gives the Obama administration another opportunity to shape the future of health care–a pillar of the U.S. economy–after passage of the Affordable Care Act.

One of the department’s key concerns with the Anthem-Cigna deal is that it would reduce options for large employers that depend on insurers with national reach, one of the people said.

If the Justice Department sues to block the deal, the companies will be required to defend their deal in court, according to their merger agreement. If the acquisition is stopped on antitrust grounds, Anthem must pay Cigna a $1.85 billion fee, though Anthem could avoid that payment if it establishes that a “willful breach” by Cigna led to the failure to get antitrust approval, according to the agreement. Anthem shares closed the week up 4% at $131.67, while CIGNA gained $0.56 to $128.27.

Steve’s Take: While the U.S. Department of Justice is mulling anti-trust enforcement in the planned merger of health insurance giants Anthem and Cigna, I thought, what’s the big issue? Everybody in the healthcare sector knows that bigger is better for all parties, right?

I found myself wondering about this after the steady diet from the mainstream press of arguments supporting this bigger-is-better principle and the tough job federal employees have questioning these mammoth transactions.

Then I came across Ryan Cooper’s opinion piece in The Week (June 30, 2016) suggesting that even Goldman Sachs thinks monopolies are pillaging American consumers. As we’ve seen in the healthcare industry recently, an endless binge of consolidation has resulted in markets dominated by a few powerful giants.

Right now, for example, we’re looking at four of the biggest health insurers combining into two. Cooper points to a Center for American Progress report (pdf) offering an overview of American monopolization and anti-trust. It cites strong research showing consolidation leads to higher prices, a decrease in research, innovation, and corporate investment, and poor service quality.

But even more convincing are quotes from Goldman Sachs analysts saying, “Oligopolistic markets are powerful because they simultaneously satisfy multiple critical components of sustainable competitive advantage–a smaller set of relevant peers faces lower competitive intensity, greater stickiness, and pricing power with customers due to reduced choice, scale cost benefits including stronger leverage over suppliers, and higher barriers to new entrants all at once.”

Cooper concludes that if the government would only force American businesses to compete by enforcing anti-trust law, that might be the easiest and best way to help the average citizen. He’s right.