Antitrust Trial for Anthem, Cigna Begins; what to expect with Republicans in charge

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Anthem Inc. (Indianapolis IN), Cigna Corp. (Bloomfield CT) and the U.S. government on Monday (November 21, 2016) offered a federal judge very different views of the impact their proposed $48 billion combination will have on health-insurance markets.

@Antheminc @Cigna and @TheJusticeDept offer judge very different views on proposed #merger Click To Tweet

A Justice Department lawyer said at the start of an antitrust trial in Washington that the biggest merger in the history of the American health-insurance industry should be blocked because it will increase the companies’ dominance and cut consumer choice.

An attorney for Anthem responded that the combined company will be able to lower rates paid to healthcare providers and that those savings will be passed on to employers, according to Bloomberg. Anthem CEO Joseph Swedish later took the stand and disputed the government’s assertion his company would simply “drop the hammer” on providers by imposing lower rates.

It’ll be up to U.S. District Judge Amy Berman Jackson to determine which side has the most persuasive evidence during a two-part trial that’s scheduled to span more than a month. In the first phase, the U.S. will attempt to prove that the combined company will hurt large national employers. The second part, set to start Dec. 12, will focus on the proposed tie-up’s effect on local markets.

The merger is the most complex in the industry’s history and will harm consumers in at least 60 markets, government attorney Jon Jacobs said, adding the judge should reject the companies’ argument that by combining they will be able to lower rates.

Those savings don’t count, “if the only way you get them is through more market power,” he said. “The more concentrated the market, the more likely you’ll have higher prices, lower quality, reduced consumer choice and less innovation.”

Swedish, 65, who was called as a witness by the Justice Department, told the court his company wouldn’t use market power to wrest discounted reimbursement rates from healthcare providers in all cases.

In its complaint, the government alleged an Anthem executive told Swedish the merger would combine companies with conflicting strategies: Cigna’s collaboration with doctors on the one hand, “and ‘drop the hammer’ on the other.”

Justice Department lawyer Scott Fitzgerald pressed Swedish on that point, prompting the CEO to disavow the terminology as “very old school.” Swedish pushed back, saying, “We don’t live in a discount world anymore,” prompting the judge to remind him that reduced cost was a pillar of his company’s trial defense.

The Anthem-Cigna lawsuit is one of two federal healthcare antitrust cases going to trial in the waning days of the Obama administration, which is trying to prevent the industry from shrinking. The second case, against the $38 billion tie-up of Aetna Inc. (Hartford CT) and Humana Inc. (Louisville KY), opens before another judge in Washington on Dec. 5.

By challenging the deals earlier this year, President Barack Obama’s administration seized an opportunity to further shape the future of health care after passage of the Affordable Care Act.

President-elect Donald Trump has said his administration will be more pro-business than his predecessor’s, but he has also said he would block AT&T Inc.’s plan to buy Time Warner Inc. Trump, who takes office on Jan. 20, said Friday that he would nominate Senator Jeff Sessions to be attorney general. The Alabama Republican doesn’t have a clear track record on antitrust issues, leaving his approach to competition preservation unclear.

The American Medical Association (Chicago) is also opposed to the merger, claiming it will reduce choice for consumers.

“Allowing Anthem and Cigna to create a health insurance Goliath would compromise physicians’ ability to advocate for their patients,” AMA President Andrew Gurman said in a statement as the trial started.

Judge Jackson, a 2011 Obama appointee, heard the parties’ opening statements before a full courtroom, with spectators also filling a second, separate, courtroom. Jacobs, the Justice Department lawyer, showed the judge a slide presentation featuring charts and graphs. Some of the slides were blacked out on courtroom video screens because they contained confidential information.

Anthem is a member of the Blue Cross and Blue Shield Association and operates under a Blue license in all or parts of 14 states. By combining with Cigna, Anthem’s share of the national-account market in those states would be about 48%, according to the government’s presentation.

Anthem said there’s plenty of competition in the market because large companies don’t have to rely only on national networks to provide insurance to employees. They can turn to regional insurers, said the company’s lawyer, Christopher Curran. International Business Machines Corp., for example, uses multiple insurers for its employees, he said.

The case is U.S. v. Anthem Inc., 16-cv-1493, U.S. District Court, District of Columbia (Washington).

Steve’s Take:

Just because President-elect Trump says he is “pro-business,” and wants less regulation, doesn’t mean his DOJ and Federal Trade Commission (FTC) are going to stop scrutinizing health-industry mergers.

“Federal antitrust litigation is clearly a nonpartisan sport,” says antitrust attorney David Balto, a former policy director at the Federal Trade Commission who has also been critical of the parade of health plan mergers.

“As millions contemplate the meaning of the election of Donald Trump as our 45th President, some might speculate this may lead to the demise of the Justice Department’s challenges to the Aetna-Humana and Anthem-Cigna mergers. They could not be more wrong.” Balto said.

In challenging the health insurance mergers, the Justice Department said the mergers would create an unfair monopoly if the nation’s five largest insurers dwindle to just three, according to Forbes.

UnitedHealth Group is the nation’s largest health plan, but would fall to No. 2 if Anthem is successful in its attempt to buy Cigna. A larger Aetna could become the third-largest health insurer once Humana operations are included.

Though challenging such large health insurance mergers in the Obama era is unprecedented, there’s a recent history of aggressiveness against potential healthcare monopolies dating back to the administration of George W. Bush, a Republican, from 2001 to 2009, and Democrat Bill Clinton from 1993 to 2000.

Forbes points out the example of Chicago hospital operators NorthShore University HealthSystem and Advocate Health Care. The two are now trying to merge to create a powerhouse medical care provider that would be one of the largest health systems in the U.S., treating an estimated three million patients annually.

But the Advocate-NorthShore merger is being challenged by the Federal Trade Commission, which sued each of them separately when Bush was president. While insurers aren’t happy their mergers are being challenged, there’s a long record of FTC and Justice Department challenges of consolidation among doctors and hospitals.

In 2008, NorthShore was ordered to have separate negotiating teams for hospital and certain other services for two different hospitals following a trial and FTC investigation into increased prices. Two years earlier, an Advocate affiliate known as Advocate Health Partners that worked on behalf of more than 2,500 independent doctors settled price fixing charges brought by the FTC, according to the settlement.

Though Trump’s healthcare plan is vague to say the least, he’s talked a lot about the need for increasing competition in healthcare during his campaign.

“Antitrust is built on a wide bipartisan consensus to respect the crucial role of the law to protect competition and the marketplace,” Balto said. “Those are bedrock concepts that both Republicans and Democrats agree with.”

Any fallout from the election would almost certainly not be felt immediately. Both merger cases are expected to be decided before Mr. Trump takes office in January, says The New York Times. But a Trump administration could still have a major say, particularly if either of the companies or the government decide to appeal the initial decision.

Steve's Take: How will @realDonaldTrump impact merger cases? We might be pleasantly surprised. Click To Tweet

All of this, of course, is speculation right now. I say, let’s give Mr. Trump his fair chance to govern. We might be pleasantly surprised.