The DC Circuit Court of Appeals issued a decision today upholding the trial court’s injunction preventing the merger of giant health insurers Anthem and Cigna because it would would be anticompetitive. The American Antitrust Institute (AAI) had joined with numerous consumer groups to file an amicus brief urging the Court of Appeals to affirm the district court decision. The proposed merger would have been the largest in the history of the health insurance industry, combining two of the four national carriers.
On appeal, Anthem did not challenge the district court’s finding that the merger would have anticompetitive effects, but rather contended that the court failed to properly consider its efficiencies defense. Specifically, Anthem claimed that it would be able to achieve significant savings by reducing reimbursements to health care providers, which would be passed on to national employers that are self-insured and would exceed the higher fees resulting from the elimination of competition between Anthem and Cigna.
The Court of Appeals applied a stringent test to Anthem’s efficiencies theory, concluding that the district court “reasonably determined that Anthem failed to show the kind of ‘extraordinary efficiencies’ that would be needed to constrain likely price increases in this highly concentrated market, and to mitigate the threatened loss of innovation.”
Specifically, the Court of Appeals upheld the district court’s rejection of Anthem’s defense on the grounds that the supposed medical cost savings were not verified and could be achieved without the merger. The Court also upheld the lower court’s determination that if the savings were achieved they would undermine the quality of the insurance product offered by Cigna, which emphasizes collaborative relationships with providers to reduce health care expenditures and improve patient health.
The Court’s decision was 2-1. The dissenting judge, questioning the facts found by the district court, concluded that the merger was not anticompetitive in the health insurance market. But he would have remanded the case to the district court for further fact finding on whether the merged firm’s likely reduction of reimbursements to health providers would result from the exercise of monopsony power (i.e., market power on the buying side), which the government had alleged, but the lower court did not fully address.
The majority criticized the dissent for, among other things, assuming that “the prices paid by consumers (regardless of the quality of the resulting product) are the sole focus of the antitrust law.” This reasoning is flawed, according to the Court, because “the principal objective of antitrust policy is to maximize consumer welfare by encouraging firms to behave competitively.”
Wholly apart from the fact that the “threat to innovation is anticompetitive in its own right,” and any price reduction was likely to come at the expense of product quality, the Court emphasized the transitory nature of any price reductions. The Court concluded: “The ability of a firm to obtain lower prices for inputs for its product should” be viewed skeptically, “especially in light of the prophylactic nature of the Clayton Act, when high market concentrations may have the future effect of permitting capture of those savings.”
In January 2016, the AAI submitted a letter to the U.S. Department of Justice (DOJ) Antitrust Division outlining the myriad competitive and consumer concerns surrounding the proposed health insurance mergers of Aetna-Humana and Anthem-Cigna.
AAI President Diana Moss, firstname.lastname@example.org
AAI Vice President Richard Brunell,email@example.com