Anthem, Cigna Clash Over Merger Terms; AMA Weighs in on Pending Deals

geralt / Pixabay

geralt / Pixabay

The Department of Justice is asking a federal judge to compel Anthem Inc. (Indianapolis IN) and Cigna Inc. (Bloomfield CT) to produce letters they have sent accusing each other of breaching an agreement in which Anthem would purchase Cigna, according to the Hartford Courant.

The federal antitrust regulators discovered the letters because Cigna’s lawyer told an official on Aug. 16 that both its in-house attorney and Anthem’s have “exchanged letters accusing each other of breaching the merger agreement.”

DOJ pushes @Antheminc, @Cigna to produce letters accusing the other of breaching merger agreement Click To Tweet

The next day, the DOJ served Anthem and Cigna with a request to produce the documents “discussing Anthem’s or Cigna’s compliance or noncompliance with any term of the Merger Agreement, including documents discussing any actual, potential, or alleged breach of any term of the Merger Agreement.”

The DOJ sued in July to block the deal, stating it would limit insurance competition in some locations and raise costs for consumers, doctors and hospitals. If Anthem’s purchase of Cigna is blocked due to antitrust concerns, Anthem owes Cigna $1.85 billion.

But it could contest the payment by saying that Cigna breached its obligations under the merger agreement. Both companies have refused to comply with the DOJ’s request, saying that the letters are protected, because Anthem and Cigna are allowed to shield their communications necessary to defend this lawsuit.

The Department of Justice, which made its case in a legal filing last Wednesday, said,

“The joint-defense privilege applies only to communications in furtherance of a common legal interest, such as defending this lawsuit. It does not protect adversarial communications like the Breach Letters.”

The DOJ argues that bickering between Anthem and Cigna, including over the future role for Cigna CEO David Cordani, means the companies will not achieve the billions in savings they project will come as a result of the merger. And those billions in savings are integral to the companies’ argument that the merger is good for consumers.

The government lawyers also asked both companies to produce all documents “discussing the company’s competitive strategies or business plans in the event the Transaction is not consummated.” Both companies have said that the government’s requests are overly broad and burdensome.

The filing is only the most recent sign of tension between the two companies. Anthem earlier said in a legal filing that if its acquisition of Cigna isn’t consummated by the time the deal terms expire–a date that could be pushed back to as late as April 30, 2017–it expected that “Cigna will declare that it is terminating the merger agreement the next day.”

In May, The Wall Street Journal reported on correspondence between the two companies that reflected behind-the-scenes quarrels over a range of issues, including the pace and content of disclosures made as part of the Justice Department’s antitrust review.

Steve’s Take: Not that the two giant, pending health-insurance mergers need any additional flack that could undermine either one, but adding to U.S. Justice Department suits to block the two mergers, new analyses pushed by the American Medical Association (AMA) allegedly show competition will be harmed in 24 states if the deals close (pdf).

The AMA, no friend of the insurance industry to begin with, is pumping up already mounting pressure on Aetna, as it tries to buy Humana, and Anthem, which is trying to take over Cigna, says Forbes. The U.S. Justice Department in July sued to block both deals, saying they would hurt competition and raise prices for consumers.

Now the AMA says it wants to help the Justice Department bolster its case and use data from new analyses to get some state attorneys general off the sidelines and involved in the federal government’s case against the Aetna/Humana and Cigna/Anthem deals.

“It is clear that more can be done in certain states where the attorneys general have not yet taken a strong stance against the mergers,” AMA president Dr. Andrew Gurman said. “To ensure patients are better served by dynamic and competitive health insurance markets, the AMA will work to expand the bipartisan group of state attorneys general that has joined the Justice Department to block the massive deals.”

For years, the AMA has kept an eye on competition in the commercial insurance market where doctors say patient choice among health plans has dwindled. This also hurts doctors if they can only be a part of certain health plan preferred lists of providers known as networks. In addition, doctors want more than one insurer paying them so they have leverage in health plan contracts .

The AMA said the two mergers “collectively impact local commercial health insurance markets across 24 states. They include: Arizona, California, Colorado, Connecticut, Florida, Georgia, Illinois, Indiana, Kansas, Kentucky, Louisiana, Maine, Mississippi, Missouri, Nevada, New Hampshire, New York, Ohio, Tennessee, Texas, Utah, Virginia, West Virginia and Wisconsin.

To absolutely no one’s surprise, the insurers deny the AMA’s contention and are challenging the government’s lawsuits.

“Together, Anthem and Cigna, who have limited overlap in a highly competitive industry, will be in a better position to improve consumer choice and quality,” Anthem spokeswoman Jill Becher said. “Most of all, we will be better able to lead the transition to value-based care that will reduce costs while improving health outcomes. Additionally, we will deliver for consumers by operating more efficiently to reduce our own costs.”

Talk about having the deck stacked against your mega-merger-mania dreams.

Steve's Take: The deck is staked against @Antheminc and @Cigna mega-merger-mania dreams Click To Tweet

Of the two deals, analysts and investors see Aetna/Humana as having only a “slight” chance to reverse the DOJ’s decision through a court battle, according to Reuters. They face a Justice Department, empowered by a series of high-profile successes against mega-mergers, ruining deals in industries from oil services to retail stores and telecommunications.

“My initial impression from the complaint…is that the Justice Department and the states are on much safer ground” in their argument against an Aetna/Humana tie-up, said Beau Buffier, co-head of the antitrust group at Shearman & Sterling in New York.

“Overall, this will be all about litigating the fix,” said Andrea Murino, co-chair of Goodwin’s antitrust group based in Washington DC. “What DOJ wants when they come up with a remedy is an immediate and expansive competitive response–to substitute one company in for another without missing a beat.”

Well, if that’s all that’s necessary, what’s the big problem?

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