Coverage: Judge blocks Anthem’s $48 billion deal for Cigna

Anthem Inc.’s $48 billion deal to buy Cigna Corp. was blocked by a federal judge, putting an end to the second of two mergers that would have reshaped the U.S. health care landscape.

Zachary Tracer, David McLaughlin and Andrew M. Harris of Bloomberg News had the story:

The transaction violates antitrust laws by reducing competition among insurers, U.S. District Judge Amy Berman Jackson in Washington ruled Wednesday. With the deal defeated, Anthem owes Cigna a $1.85 billion breakup fee under the terms of the agreement they reached in July 2015.

The deal, along with Aetna Inc.’s proposed tie-up with Humana Inc., which was blocked last month, would have reduced the ranks of big U.S. health insurers to three from five and made Anthem the largest by membership.

While the Aetna-Humana case primarily focused on the market for private health insurance plans for the elderly, known as Medicare Advantage, the Anthem-Cigna case largely turned on the market for health plans sold to employers. In her ruling, the judge looked at its likely effect on the sale of health insurance to “national accounts” — customers with more than 5,000 employees, usually spread over at least two states -– within the 14 states where Anthem operates as the Blue Cross Blue Shield licensee.

“Eliminating this competition from the marketplace would diminish the opportunity for the firms’ ideas to be tested and refined, when this is just the sort of innovation the antitrust rules are supposed to foster,” Berman Jackson said in her 12-page order. The judge’s accompanying opinion fully detailing her reasons for ruling against the deal was filed under seal.

Paul Demko of Politico.com reports that Anthem may repeal:

Anthem had argued that the merger would create $3 billion in savings that would largely be passed on to customers through lower rates. The company also pointed to emerging competitors, including private insurance exchanges, as evidence that there would continue to be vigorous competition for national accounts.

The arguments were ultimately unsuccessful. “The evidence has also shown that the merger is likely to result in higher prices, and that it will have other anticompetitive effects: 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,” the court’s summary read.

Anthem can appeal the ruling, but it faces a tight timeline. At the end of April, either of the merging companies can pull the plug on the deal, and Cigna is expected to do so immediately. That would trigger a $1.85 billion breakup fee that Anthem would owe to Cigna.

A Reuters story called it a victory for anti-trust officials:

The decision comes after a U.S. judge blocked a similar deal between rivals Aetna Inc and Humana Inc on Jan. 23.

Wednesday’s ruling marks another victory for anti-trust officials, who sued the companies in July last year to stop the deal, saying it would reduce competition and raise prices for consumers.

Cigna is entitled to receive from Anthem a reverse termination fee of $1.85 billion if the deal fails to win regulatory approval.

The U.S. Justice Department filed lawsuits last July asking a federal court to stop Anthem’s purchase of Cigna and Aetna Inc’s acquisition of Humana, arguing that such consolidation among the largest health insurers was anti-competitive.