$54 billion Anthem-Cigna merger blocked by federal judge

The $54 billion acquisition of Cigna by Anthem has met the same fate as the $37 billion merger of Aetna and Humana: blocked by a federal judge on antitrust grounds.

This decision was expected after the Aetna-Humana ruling, as the arguments from the U.S. Department of Justice against the Anthem-Cigna merger, which would create the largest commercial insurer in the nation, were similar. Its lawsuit said the deal would limit competition in an already concentrated health insurance market, leading to higher prices for consumers.

U.S. District Judge Amy Jackson Berman agreed the proposed acquisition would violate federal merger guidelines.

“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,” Berman wrote in her ruling.

Anthem’s response was to argue newer insurance carriers would “shake up the market,” with large, national customers dividing up their business among smaller, regional insurers. Berman said this was unrealistic, as fragmentation comes with extra costs and administrative burdens. Private insurance exchanges wouldn’t help either, Berman said, calling those “largely just another vehicle for delivering the major national carriers’ products to the market.”

Like the Aetna-Humana ruling, Berman cast doubt on Anthem’s claims the deal’s anticompetitive impact was outweighed by the efficiencies it would create. Anthem said the deal would reduce medical expenditures by more than $2 billion, but Berman said the insurer failed to prove the promised savings were dependent on the merger or that customers would benefit.

“Anthem’s own documents reveal that the firm has considered a number of ways to capture the network savings for itself and not pass them through to the customers as it insisted in court that it would,” Berman wrote.

The two companies responded to the ruling differently. Anthem said in its statement that it will appeal the decision.

“If not overturned, the consequences of the decision are far-reaching and will hurt American consumers by limiting their access to high quality affordable care, slowing the industry’s shift to value based care and improved outcomes for patients, and restricting innovation which is critical to meeting the evolving needs of healthcare consumers,” said Anthem Chairman, President and CEO Joseph Swedish.

Cigna made no such commitment, saying in a statement its now “reviewing its options.” The two companies had been bickering behind the scenes, with Anthem lawyers suggesting in court Cigna wanted back out of the deal and collect a $1.85 billion break-up fee.

That may happen at any time, according to Cigna, would said in a SEC filing that it didn’t agree to extend its merger agreement with Anthem past Jan. 31. Anthem had previously claimed the deadline was April 30.

Major medical organizations applauded the news that a second insurance mega merger had been blocked. The American Hospital Association said Berman’s ruling would protect providers and patients, while American Medical Association President Andrew Gurman, MD, said the rejection of the argument that “strong-arming physicians” would benefit customers should be applied to any proposed insurance mergers in the future.

“The significant absence of health insurer competition in most markets is detrimental to patients and poses an important public policy problem,” Gurman said.