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 The U.S. Justice Department sued in July to stop Anthem's purchase
of Cigna, a deal that would have created the largest U.S. health
insurer by membership, and Aetna Inc's planned $33 billion
acquisition of Humana.
The merger would have worsened an already highly concentrated market
and is likely to raise prices, Judge Amy Berman Jackson of the U.S.
District Court for the District of Columbia said while issuing the
ruling against Anthem's deal.
Last month, a different U.S. judge ruled against Aetna's proposed
deal for Humana.
Government antitrust officials argued that both deals would lead to
less competition and higher prices for Americans. The acquisitions
would have reduced the number of large national U.S. insurers from
five to three.
Jackson had separated the Justice Department's case into two trials.
Her ruling focused only on the first one in which the Justice
Department argued that the tie-up would hurt the ability of large
national employers to get competitive rates for the health coverage
they provide workers.
The second trial considered overlaps in the two insurers' business
selling health benefits to individuals, and administering Medicare
Advantage coverage to the elderly.
Anthem argued that there was enough competition because large
companies with more than 5,000 employees often used multiple smaller
players in the national market, but the judge disagreed.
"Regional firms and new specialized 'niche' companies that lack a
national network are not viable options for the vast majority of
national accounts, and they will not ameliorate the anticompetitive
effects of this merger," Jackson wrote.
Cigna intends to carefully review the opinion and evaluate its
options in accordance with the merger agreement, it said in a
statement.
Anthem said on Thursday that it intends to promptly file a notice of
appeal and request an expedited hearing of its appeal to reverse the
court's decision.
PROTECTING CONSUMERS
Acting Assistant Attorney General Brent Snyder of the Justice
Department's Antitrust Division said the ruling had prevented
American consumers from facing higher health insurance premiums and
less innovation.
Bill Baer, who was head of the Justice Department's antitrust
division when it decided to sue to block both the insurance deals
but has since left the agency, also hailed the decision. "Together
with the decision on Aetna and Humana, this preserves five large
national providers of critically important health insurance
products," he said.
The fifth player, UnitedHealth Group Inc. was not involved in the
deals.
Some Wall Street analysts expect all four of the companies to now
move on, although Aetna and Humana have not committed to doing so.
Their deal expires Feb. 15.
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"The likelihood of success in an appeal would be very low," said
Matthew L. Cantor, a partner in the law firm of Constantine Cannon
in New York. 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.
The deals were announced at a time when former President Barack
Obama's national healthcare reform law was fully in place and the
four insurers were growing in the individual insurance market it
established. The insurers said new costs, from higher taxes to
investments in new Obamacare products, were driving their need for
scale.
That landscape is less certain now. Aetna and Humana have cut back
Obamacare enrollment for 2017 after losses, and President Donald
Trump and fellow Republicans are weighing a "repeal and replace"
path for Obamacare.
More deals may be in the offing, JPMorgan analyst Gary Taylor said
in a research note. "Given Anthem and Cigna's pursuit of Humana in
2015, we think new potential combinations could emerge." He does not
expect shares in either Anthem or Cigna to move given that investors
had expected this ruling.
Cigna is entitled to receive from Anthem a $1.85 billion break-up
fee if the deal fails to win regulatory approval, according to the
merger agreement. The agreement also requires Cigna to have put
forth its best effort on that front.
But Anthem and Cigna disagreed about the deal in court, Jackson
wrote in her order, with Cigna refusing to sign off on Anthem's
interpretation of how the companies could garner savings.
Anthem is the largest member of the Blue Cross Blue Shield
Association and operates BCBS plans in 14 states. It and said it
could apply its discounts to Cigna members while Cigna said its
collaborations with doctors would save money.
Pre-merger integration was stalled and incomplete, the judge said.
(Additional reporting by Akankshita Mukhopadhyay and Dipika Jain in
Bengaluru; Editing by Bernard Orr, Leslie Adler, Gopakumar Warrier)
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