The other shoe that most observers have been waiting to drop came down with a thud yesterday. A federal district court judge in Washington D.C., ruled that the proposed $48 billion merger between Anthem and Cigna would lessen competition and — no surprise — result in higher prices for consumers.
It would also result in other adverse outcomes, according to the 12-page decision by Judge Amy Berman Jackson: “It will eliminate the two firms’ vigorous competition against each other for national accounts, reduce the number of national carriers available to respond to solicitations in the future, and diminish the prospects for innovation in the market,” she finds.
A different judge in the same court blocked Aetna’s plans to take over Humana two weeks ago, you’ll recall.
“Though the two proposed insurer combinations were different in many ways, the message from the courts was similar: Judges found that merging top industry rivals threatened higher prices and less service, with the benefits of those deals failing to outweigh the potential harms,” Brent Kendall and Anna Wilde Mathews observe for MarketWatch.
The ruling appears to be welcome news for a least one of the parties.
“Anthem and Cigna’s defense, at trial, was dogged by tension between the two companies over the execution of the merger,” points out C. Ryan Barber for the National Law Journal. “In the buildup to trial…, Berman Jackson was struck by the feud, at one point remarking that it was a ‘bizarre situation’ to make scheduling accommodations for a deal Cigna appeared to no longer desire. In her ruling, Berman Jackson described that discord as the ‘elephant in the room.’”
A pachyderm that would be difficult to tame if the deal were to go through, one might argue. In fact, the government did so in presenting its case.
“In September, the Justice Department revealed court documents that showed the two had accused each other of breaching their agreement,” the New York Times' Michael J. de la Merced and Leslie Picker recall.
“The government argued that the disputes ran counter to a major defense offered by the companies — that the deal could enhance competition by creating billions of dollars in savings. The government argued that such savings required the companies to cooperate in integrating their businesses,” they continue.
Whereto from here?
“An Anthem spokeswoman said via email Wednesday night that the company was reviewing the decision and would not comment,” Neil Versel reports for MedCity News. “Cigna put out a statement shortly after midnight: “Cigna intends to carefully review the opinion and evaluate its options in accordance with the merger agreement.”
If the companies were to appeal, “the likelihood of success … would be very low,” Matthew L. Cantor, a partner in Constantine Cannon in New York, tells Reuters’ Diane Bartz and Caroline Humer. “He noted points in the judge's order about the concentrated national market, the high barrier to entry for competitors, and the companies' roles as direct competitors.”
Judge Berman Jackson closed “with praise for Cigna,” points out Jackie Wattles for CNN Money.
“While Anthem has moved to incorporate quality and cost savings incentives into its provider contract, Cigna has sought to differentiate itself with its approach towards reducing costs by increasing health,” the judge writes. “For this reason, some customers prefer Cigna notwithstanding its discount disadvantage, and there was some testimony from medical personnel that the approach is working.”
Weep not for Cigna, which also is slated to receive a $1.85 billion break-up fee, according to the merger agreement.
The Department of Justice hailed yesterday’s decision, calling it a “victory for consumers.” It brought the action to stop the merger, along with 11 states and the District of Columbia, in July 2016. A trial ran from Nov. 21, 2016, to Jan. 3, 2017.
The American Hospital Association was also gleeful: “Millions of Americans have been protected from higher insurance costs, fewer choices of providers and less innovation in health care delivery," president Rick Pollack said in a statement cited by the Washington Post’s Carolyn Y. Johnson.
There have been no observations on the decision from @POTUS as of 7:28 a.m. this morning.