A split DC Circuit panel affirmed a U.S. District Court’s permanent injunction against the US$54 billion merger between Anthem and Cigna, holding the district court did not abuse its discretion in enjoining the merger based on Anthem’s failure to show the extraordinary efficiencies necessary to offset the anticompetitive effect of the merger in fourteen states.
In July 2015, Anthem reached an agreement to merge with Cigna. The US Department of Justice, eleven states, and the District of Columbia filed suit to permanently enjoin the merger on the ground it was likely to substantially lessen competition in at least two markets in violation of Section 7 of the Clayton Act. Under Section 7 of the Clayton Act, a merger between two companies may not proceed if the effect of the merger may be to substantially lessen competition in any section of the country.
Following a six-week bench trial, Judge Amy B. Jackson enjoined the merger, rejecting Anthem’s defense that the merger’s anticompetitive effects would be outweighed by its efficiencies because the merger would yield a superior Cigna product at Anthem’s lower rates. The district court also found the merger would likely pose a substantial anticompetitive effect in the market for the sale of health insurance to large group employers in Richmond, Virginia.
Anthem and Cigna challenged the district court’s decision on the principal ground that the court improperly declined to consider the claimed US$2.4 billion in medical savings that the merger would bring. According to Anthem, the merger’s efficiencies would benefit customers directly by reducing the costs of medical claims through lower provider rates, without harm to the providers. Anthem argued that the combined company, with its greater volume, would be able to obtain discount rates that are no worse than either of the companies could achieve separately. The government argued in response that Anthem conceded the merger would be anticompetitive but for the claimed medical cost savings, and that Anthem’s appeal instead relied on factual disputes concerning the claimed medical cost savings, which were not verified, not specific to the merger, and not real efficiencies.
Under Clayton Act jurisprudence, any claimed efficiency must be shown to be “merger-specific,” meaning that the efficiency cannot be achieved by either company alone, because if so, the merger’s asserted benefits can be achieved without the concomitant loss of a competitor. The DC Circuit agreed with the district court’s conclusion that Anthem had not shown the claimed efficiencies were merger-specific, rejecting Anthem’s argument that the combined company would allow Anthem to use rebranding to create a new product that features both Cigna’s customer-facing programs and Anthem’s generally lower rates. The court found that testimony from Anthem’s Senior Vice President confirmed that, in the short term, rebranding would simply involve Anthem offering Cigna customers Anthem products in a manner no different than Anthem selling new business in the market. The court also found Anthem’s evidence was “woefully insufficient” to show it could not develop better customer-facing programs in the absence of the merger.
The court further found that Cigna is a leading innovator in collaborative patient care, and that the merger diminished Cigna’s capacity for further innovation with its collaborative model. The court found this threat to innovation was anticompetitive in its own right, and that the problem was neither answered by Anthem’s evidence nor offset by the purported efficiency of offering a degraded Cigna product at a lower rate.
It is widely expected that Anthem and Cigna will either request a rehearing en banc before the DC Circuit or will appeal to the US Supreme Court.
The case is United States, et al. v. Anthem, Inc., et al., No. 17-5024.
