· unit 8 anthem/cigna table of contents . anthem/cigna . the transaction . anthem, inc. and cigna...
Post on 02-May-2018
241 Views
Preview:
TRANSCRIPT
MERGER ANTITRUST LAW Unit 8: Anthem/Cigna
Class 22
Fall 2017 Georgetown University Law Center Dale Collins
COMPLETE
Unit 8 ANTHEM/CIGNA
Table of Contents
Anthem/Cigna The transaction
Anthem, Inc. and Cigna Corp., Press Release, Anthem Announces Definitive Agreement To Acquire Cigna Corporation (July 24, 2015) ........... 5 Anthem, Inc., Agreement Presentation, Anthem and Cigna: Combination
Creates Premier Health Services Company ............................................ 12
American Med. Ass'n, Letter to Willima Baer, Ass't Att'y Gen., Antitrust Div., U.S. Dep't of Justice, re Aetna’s proposed acquisition of Humana and Anthem’s proposed acquisition of Cigna (Nov. 11, 2015) ............................ 36 American Med. Ass'n, Markets Where an Anthem-Cigna Merger
Warrants Antitrust Scrutiny .................................................................... 53
The trial U.S. Dep’t of Justice, Antitrust Div., News Release, Justice Department
and State Attorneys General Sue to Block Anthem’s Acquisition of Cigna, Aetna’s Acquisition of Humana (July 21, 2016) ............................... 66 Complaint, United States v. Anthem, Inc., No. 1:16-cv-01493 (D.D.C.
filed July 21, 2016) ................................................................................. 68
Anthem, Inc., News Release, Anthem Statement Regarding Action by the Department of Justice (July 21, 2016) ......................................................... 111
Cigna Corp., News Release, Cigna Comments on DOJ Position Regarding Proposed Transaction with Anthem (July 21, 2016) ................................... 113
Anthem, Inc., Form 8-K (filed Jan. 19, 2017) (reporting that it delivered written notice to Cigna that Anthem has elected to extend the “Termination Date” (as defined in the Merger Agreement) through and including April 30, 2017) ..................................................................... 115
Order (Feb. 8, 2017) (enjoining transaction)1 .................................................... 117 Notice of Appeal (Feb. 9, 2017) ........................................................................ 129
Anthem, Inc., Press Release, Anthem Responds to U.S. District Court’s Decision on Acquisition of Cigna (Feb. 9, 2017) ........................................ 131
The appeal Emergency Motion of Appellant Anthem, Inc. for Expedited Consideration
of Appeal (Feb. 13, 2017) ........................................................................... 133
Cigna’s termination of merger agreement Cigna Corporation, News Release, Cigna Terminates Merger Agreement
with Anthem (Feb. 14, 2017) ................................................................ 146
1 A 140-page Memorandum Opinion accompanied this order. We will not read the opinion, but
if you are interested you may find it here on AppliedAntitrust.com along with many other materials from the case.
2
Unit 8 ANTHEM/CIGNA
Anthem, Inc., News Release, Anthem Files Suit Against Cigna Seeking a Temporary Restraining Order to Enjoin Cigna from Terminating the Merger Agreement, Specific Performance Compelling Cigna to Comply with the Merger Agreement and Damages (Feb. 15, 2017) .................. 149
Order Granting Motion for Temporary Restraining Order (Feb. 15, 2017) (restraining Cigna from terminating merger agreement) ...................... 157
Response of the United States and Plaintiff States in Opposition to Defendant-Appellant’s Motion to Expedite (Feb. 15, 2017) ......................................... 158
Appellant Anthem, Inc.'s Reply in Further Support of its Emergency Motion for Expedited Consideration of Appeal (Feb. 16, 2017) ................. 183
Order (Feb. 17, 2017) (granting motion for expedited appeal) .......................... 194
Opinion, United States v. Anthem, Inc., No. 17-5024 (D.C. Cir. Apr. 28, 2017) (affirming grant of permanent injunction) .......................... 196
Breach of contract action Complaint, Cigna Corp. v. Anthem Inc., C.A. No. 2017-0109-JTL (Del. Ch.
filed Feb. 17, 2017) (seeking payment of $1.85 billion antitrust reverse termination fee and damages for breach of contract) .................................. 263
Teleconference Plaintiff's Motion for a Temporary Restraining Order and the Court's Ruling (Feb. 15, 2017) .............................................................. 314
3
The Transaction
4
Anthem Announces Definitive Agreement to Acquire Cigna Corporation
• Combination will create the premier health services company with critical diversification to lead the transformation of health care for consumers by enhancing health care access, quality and affordability• Cigna shareholders receiving consideration of $103.40 per share in cash and 0.5152 shares of Anthem stock in exchange for each Cigna share, reflecting a value of $188.00 based on Anthem’s unaffected share price as of May 28, 2015• Combination expected to drive adjusted earnings per share accretion approaching 10% in year one, with accretion more than doubling in year two• The combined company will cover approximately 53 million medical members with well positioned commercial, government, consumer, specialty businesses along with a market-leading international franchise
Page 1 of 7Anthem Announces Definitive Agreement to Acquire Cigna Corporation | ...
4/27/2017http://www.businesswire.com/news/home/20150724005167/en/Anthem-An...
5
July 24, 2015 06:00 AM Eastern Daylight Time
INDIANAPOLIS & BLOOMFIELD, Conn.--(BUSINESS WIRE)--Anthem, Inc. (NYSE:ANTM) and Cigna Corporation (NYSE:CI) today announced that they have entered into a definitive agreement whereby Anthem will acquire all outstanding shares of Cigna in a cash and stock transaction and Cigna shareholders will receive $103.40 in cash and 0.5152 Anthem common shares for each Cigna common share. The total per share consideration equates to approximately $188.00 for each Cigna share based on Anthem's closing share price on May 28, 2015, valuing the transaction at $54.2 billion on an enterprise basis.
The combined company will be an industry leader with enhanced diversification and capabilities to advance the transformation of health care delivery for consumers. Following the transaction, Anthem will have more than $115 billion in pro forma annual revenues, based on the most recent 2015 outlooks publicly reported by both companies and will gain meaningful diversification covering approximately 53 million medical members with well positioned commercial, government, consumer, specialty and international franchises. Upon the close of the transaction, Joseph Swedish will serve as Chairman and Chief Executive Officer of the combined company and David Cordani will be President and Chief Operating Officer. In addition, effective upon closing, the Anthem Board of Directors will be expanded to 14 members. David Cordani and four independent directors from Cigna’s current Board of Directors will join the nine current members of the Anthem Board of Directors.
The agreement provides an “unaffected” premium to Cigna’s shareholders of approximately 38.4%, based on the unaffected closing price of Cigna’s shares on May 28, 2015. Under the terms of the transaction, the consideration consists of approximately 55% cash and 45% Anthem shares, and the combined company would reflect a pro forma equity ownership comprised of approximately 67% Anthem shareholders and approximately 33% Cigna shareholders.
“We are very pleased to announce an agreement that will deliver meaningful value to consumers and shareholders through expanded provider collaboration, enhanced affordability and cost of care management capabilities, and superior innovations that deliver a high quality health care experience for consumers. We believe that this transaction will allow us to enhance our competitive position and be better positioned to apply the insights and access of a broad network and dedicated local presence to the health care challenges of the increasingly diverse markets, membership, and communities we serve. The Cigna team has built a set of capabilities that greatly complement our own offerings and the combined company will have a competitive presence across commercial, government, international and specialty segments. These expanded capabilities will enable us to better serve our customers as their health care needs evolve,” said Joseph Swedish, President and Chief Executive Officer of Anthem.
Page 2 of 7Anthem Announces Definitive Agreement to Acquire Cigna Corporation | ...
4/27/2017http://www.businesswire.com/news/home/20150724005167/en/Anthem-An...
6
“Our companies share proud histories and an even brighter future. Going forward our new company will deliver an acceleration of innovative and affordable health and protection benefits solutions that help address our health system's challenges and provide supplemental insurance protection, and health care security to consumers, their families, and the communities we share with them. The complementary nature of our businesses will allow us to leverage the deep global health care knowledge, local market talent, and expertise of both organizations to ensure that consumers have access to affordable and personalized solutions across diverse life and health stages and position us for sustained success,” said David M. Cordani, President and Chief Executive Officer of Cigna.
Utilizing Anthem’s and Cigna’s complementary strengths, the combined company will be able to deliver higher quality health care as America’s valued health partner. By combining Anthem’s Blue Cross and Blue Shield footprint in 14 states and Medicaid footprint via its Amerigroup brand in 19 states with Cigna’s broad portfolio of health and protection services in the U.S. and globally, the combined company will offer a comprehensive range of high quality, high value products and services to the full spectrum of customers – individuals, employers and State and Federal governments.
The transaction is expected to close in the second half of 2016, pending the receipt of customary approvals, including certain state regulatory approvals and expiration of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act. In addition, the transaction is subject to customary closing conditions, including the approval of Cigna’s shareholders of the merger agreement and Anthem’s shareholders of the issuance of shares in the transaction. Anthem is confident in its ability to obtain all necessary regulatory and other approvals.
The combined company expects to achieve adjusted earnings per share accretion approaching 10% in year one, with the accretion more than doubling by year two following the closing of the transaction. We are confident in our ability to achieve synergy targets and are committed to retaining investment grade debt ratings. Anthem expects its debt-to-capital ratio to be approximately 49% at the time of close, with a plan to bring the ratio down to the low 40% range within 24 months. Anthem has received committed financing from Bank of America, Credit Suisse and UBS Investment Bank in connection with the transaction.
Anthem and Cigna management will host a conference call to discuss the transaction at 8:30 AM EDT today, July 24, 2015. Additional materials regarding the transaction are available on our website at www.betterhealthcaretogether.com/.
Anthem’s lead financial advisor is UBS Investment Bank and Credit Suisse also served as financial advisor and its legal advisor is White & Case LLP. Morgan Stanley is acting as Cigna’s financial advisor, and Cravath, Swaine & Moore LLP is acting as legal advisor to Cigna.
Conference Call
Anthem and Cigna will hold a conference call and webcast at 8:30 a.m. Eastern Daylight Time (“EDT”) today, July 24, 2015, to discuss the transaction. The conference call should be accessed at least 15 minutes prior to its start with the following numbers. An investor presentation is available for download at www.antheminc.com or www.cigna.com/aboutcigna/investors under the “Investors” link.
877-871-3172 (Domestic) 877-344-7529 (Domestic Replay)
412-902-6603 (International) 412-317-0088 (International Replay)
Page 3 of 7Anthem Announces Definitive Agreement to Acquire Cigna Corporation | ...
4/27/2017http://www.businesswire.com/news/home/20150724005167/en/Anthem-An...
7
The access code for the July 24, 2015, conference call is 4135855. The access code for the replay is 10069758. The replay will be available from 1:00 p.m. EDT on July 24, 2015, until the end of the day on August 7, 2015. A webcast replay will be available following the call.
About Anthem, Inc.
Anthem is working to transform health care with trusted and caring solutions. Our health plan companies deliver quality products and services that give their members access to the care they need. With nearly 71 million people served by its affiliated companies, including more than 38 million enrolled in its family of health plans, Anthem is one of the nation’s leading health benefits companies. For more information about Anthem’s family of companies, please visit www.antheminc.com/companies.
About Cigna
Cigna Corporation (NYSE:CI) is a global health service company dedicated to helping people improve their health, well-being and sense of security. All products and services are provided exclusively by or through operating subsidiaries of Cigna Corporation, including Connecticut General Life Insurance Company, Cigna Health and Life Insurance Company, Life Insurance Company of North America and Cigna Life Insurance Company of New York. Such products and services include an integrated suite of health services, such as medical, dental, behavioral health, pharmacy, vision, supplemental benefits, and other related products including group life, accident and disability insurance. Cigna maintains sales capability in 30 countries and jurisdictions, and has more than 88 million customer relationships throughout the world. To learn more about Cigna®, including links to follow us on Facebook or Twitter, visit www.cigna.com.
Important Information for Investors and Shareholders
This communication does not constitute an offer to sell or a solicitation of an offer to sell or a solicitation of an offer to buy any securities or a solicitation of any vote or approval, nor shall there be any sale of securities in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such jurisdiction. No offering of securities shall be made except by means of a prospectus meeting the requirements of Section 10 of the Securities Act of 1933, as amended, and otherwise in accordance with applicable law.
The proposed transaction between Anthem, Inc. (“Anthem”) and Cigna Corporation (“Cigna”) will be submitted to Anthem’s and Cigna's shareholders and stockholders (as applicable) for their consideration. In connection with the transaction, Anthem and Cigna will file relevant materials with the U.S. Securities and Exchange Commission (the “SEC”), including an Anthem registration statement on Form S-4 that will include a joint proxy statement of Anthem and Cigna that also constitutes a prospectus of Anthem, and each will mail the definitive joint proxy statement/prospectus to its shareholders and stockholders, respectively. This communication is not a substitute for the registration statement, joint proxy statement/prospectus or any other document that Anthem and/or Cigna may file with the SEC in connection with the proposed transaction.
INVESTORS AND SECURITY HOLDERS OF ANTHEM AND CIGNA ARE URGED TO READ THE JOINT PROXY STATEMENT/PROSPECTUS AND OTHER DOCUMENTS FILED WITH THE SEC CAREFULLY IN THEIR ENTIRETY WHEN THEY BECOME AVAILABLE AS THEY WILL CONTAIN IMPORTANT INFORMATION ABOUT THE PROPOSED TRANSACTION. Investors and security holders will be able to obtain free copies of the registration statement containing the joint proxy
Page 4 of 7Anthem Announces Definitive Agreement to Acquire Cigna Corporation | ...
4/27/2017http://www.businesswire.com/news/home/20150724005167/en/Anthem-An...
8
statement/prospectus and other documents filed with the SEC by Anthem or Cigna (when available) through the website maintained by the SEC at http://www.sec.gov. Copies of the documents filed with the SEC by Anthem will be available free of charge on Anthem’s internet website at http://www.antheminc.com or by contacting Anthem’s Investor Relations Department at (317) 488-6168. Copies of the documents filed with the SEC by Cigna will be available free of charge on Cigna’s internet website at http://www.cigna.com or by contacting Cigna’s Investor Relations Department at (215) 761-4198.
Anthem, Cigna and their respective directors and executive officers and other members of management and employees may be deemed to be participants in the solicitation of proxies in respect of the proposed transaction. You can find information about Anthem’s executive officers and directors in Anthem’s annual report on Form 10-K for the year ended December 31, 2014 and its definitive proxy statement filed with the SEC on April 1, 2015. You can find information about Cigna’s executive officers and directors in Cigna’s annual report on Form 10-K for the year ended December 31, 2014 and its definitive proxy statement filed with the SEC on March 13, 2015. Additional information regarding the interests of such potential participants will be included in the joint proxy statement/prospectus when it is filed with the SEC. You may obtain free copies of these documents using the sources indicated above.
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
This document, and oral statements made with respect to information contained in this communication, contain certain forward-looking information about Anthem, Inc. (“Anthem”), Cigna Corporation (“Cigna”) and the combined businesses of Anthem and Cigna that is intended to be covered by the safe harbor for “forward-looking statements” provided by the Private Securities Litigation Reform Act of 1995. Forward-looking statements are statements that are not generally historical facts. Words such as “expect(s),” “feel(s),” “believe(s),” “will,” “may,” “anticipate(s),” “intend,” “estimate,” “project” and similar expressions (including the negative thereof) are intended to identify forward-looking statements, which generally are not historical in nature. These statements include, but are not limited to, statements regarding the merger between Anthem and Cigna; Anthem’s financing of the proposed transaction; the combined company’s expected future performance (including expected results of operations and financial guidance); the combined company’s future financial condition, operating results, strategy and plans; statements about regulatory and other approvals; synergies from the proposed transaction; the combined company’s expected debt-to-capital ratio and ability to retain investment grade ratings; the closing date for the proposed transaction; financial projections and estimates and their underlying assumptions; statements regarding plans, objectives and expectations with respect to future operations, products and services; and statements regarding future performance. Such statements are subject to certain known and unknown risks and uncertainties, many of which are difficult to predict and generally beyond Anthem’s and Cigna’s control, that could cause actual results and other future events to differ materially from those expressed in, or implied or projected by, the forward-looking information and statements. These risks and uncertainties include: those discussed and identified in Anthem’s and Cigna’s public filings with the U.S. Securities and Exchange Commission (the “SEC”); those relating to the proposed transaction, as detailed from time to time in Anthem’s and Cigna’s filings with the SEC; increased government participation in, or regulation or taxation of health benefits and managed care operations, including, but not limited to, the impact of the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010, or Health Care Reform; trends in health care costs and utilization rates; our ability to secure sufficient premium rates including regulatory approval for and implementation of such rates; our participation in the federal and state health insurance exchanges under Health Care
Page 5 of 7Anthem Announces Definitive Agreement to Acquire Cigna Corporation | ...
4/27/2017http://www.businesswire.com/news/home/20150724005167/en/Anthem-An...
9
Reform, which have experienced and continue to experience challenges due to implementation of initial and phased-in provisions of Health Care Reform, and which entail uncertainties associated with the mix and volume of business, particularly in Individual and Small Group markets, that could negatively impact the adequacy of our premium rates and which may not be sufficiently offset by the risk apportionment provisions of Health Care Reform; our ability to contract with providers consistent with past practice; competitor pricing below market trends of increasing costs; reduced enrollment, as well as a negative change in our health care product mix; risks and uncertainties regarding Medicare and Medicaid programs, including those related to non-compliance with the complex regulations imposed thereon and funding risks with respect to revenue received from participation therein; our projected consolidated revenue growth and global medical customer growth; a downgrade in our financial strength ratings; litigation and investigations targeted at our industry and our ability to resolve litigation and investigations within estimates; medical malpractice or professional liability claims or other risks related to health care services provided by our subsidiaries; our ability to repurchase shares of its common stock and pay dividends on its common stock due to the adequacy of its cash flow and earnings and other considerations; non- compliance by any party with the Express Scripts, Inc. pharmacy benefit management services agreement, which could result in financial penalties; our inability to meet customer demands, and sanctions imposed by governmental entities, including the Centers for Medicare and Medicaid Services; events that result in negative publicity for us or the health benefits industry; failure to effectively maintain and modernize our information systems and e-business organization and to maintain good relationships with third party vendors for information system resources; events that may negatively affect Anthem’s licenses with the Blue Cross and Blue Shield Association; possible impairment of the value of our intangible assets if future results do not adequately support goodwill and other intangible assets; intense competition to attract and retain employees; unauthorized disclosure of member or employee sensitive or confidential information, including the impact and outcome of investigations, inquiries, claims and litigation related to the cyber attack Anthem reported in February 2015; changes in the economic and market conditions, as well as regulations that may negatively affect our investment portfolios and liquidity; possible restrictions in the payment of dividends by our subsidiaries and increases in required minimum levels of capital and the potential negative effect from our substantial amount of outstanding indebtedness; general risks associated with mergers and acquisitions; various laws and provisions in Anthem’s governing documents that may prevent or discourage takeovers and business combinations; future public health epidemics and catastrophes; and general economic downturns. Important factors that could cause actual results and other future events to differ materially from the forward-looking statements made in this communication are set forth in other reports or documents that Anthem and/or Cigna may file from time to time with the SEC, and include, but are not limited to: (i) the ultimate outcome of the proposed transaction, including the ability to achieve the synergies and value creation contemplated by the proposed transaction, (ii) the ultimate outcome and results of integrating the operations of Anthem and Cigna, (iii) disruption from the merger making it more difficult to maintain businesses and operational relationships, (iv) the risk that unexpected costs will be incurred in connection with the proposed transaction, (v) the timing to consummate the proposed transaction, (vi) the possibility that the proposed transaction does not close, including, but not limited to, due to the failure to satisfy the closing conditions, including the receipt of required regulatory approvals and the receipt of approval of both Anthem’s and Cigna’s shareholders and stockholders, respectively, and (viii) the risks and uncertainties detailed by Cigna with respect to its business as described in its reports and documents filed with the SEC. All forward-looking statements attributable to Anthem, Cigna or any person acting on behalf of Anthem and/or Cigna are expressly qualified in their entirety by this cautionary statement. Readers are cautioned not to place undue reliance on these forward- looking statements that speak only as of the date hereof. Except to the extent otherwise required by federal securities law, neither Anthem nor Cigna undertake any obligation to republish revised forward-looking statements to reflect
Page 6 of 7Anthem Announces Definitive Agreement to Acquire Cigna Corporation | ...
4/27/2017http://www.businesswire.com/news/home/20150724005167/en/Anthem-An...
10
events or circumstances after the date hereof or to reflect the occurrence of unanticipated events or the receipt of new information. Readers are also urged to carefully review and consider the various disclosures in Anthem’s and Cigna’s SEC reports.
ContactsAnthem Contacts:Investor RelationsDoug Simpson, 317-488-6181Douglas.simpson@anthem.comMediaKristin Binns, 917-697-7802Kristin.binns@anthem.comorCigna Contacts:Investor RelationsWill McDowell, 215-761-4198William.mcdowell2@cigna.comMediaMatt Asensio, 860-226-2599Matthew.asensio@cigna.com
Page 7 of 7Anthem Announces Definitive Agreement to Acquire Cigna Corporation | ...
4/27/2017http://www.businesswire.com/news/home/20150724005167/en/Anthem-An...
11
Anthem and Cigna:
Combination Creates Premier Health Services Company
1
12
Safe Harbor Statement (1 of 2) Safe Harbor Statement Under The Private Securities Litigation Reform Act of 1995: This document, and oral statements made with respect to information contained in this communication, contain certain forward-looking information about Anthem, Inc. (“Anthem”), Cigna Corporation (“Cigna”) and the combined businesses of Anthem and Cigna that is intended to be covered by the safe harbor for “forward-looking statements” provided by the Private Securities Litigation Reform Act of 1995. Forward-looking statements are statements that are not generally historical facts. Words such as “expect(s),” “feel(s),” “believe(s),” “will,” “may,” “anticipate(s),” “intend,” “estimate,” “project” and similar expressions (including the negative thereof) are intended to identify forward-looking statements, which generally are not historical in nature. These statements include, but are not limited to, statements regarding the merger between Anthem and Cigna; Anthem’s financing of the proposed transaction; the combined company’s expected future performance (including expected results of operations and financial guidance); the combined company’s future financial condition, operating results, strategy and plans; statements about regulatory and other approvals; synergies from the proposed transaction; the combined company’s expected debt-to-capital ratio and ability to retain investment grade ratings; the closing date for the proposed transaction; financial projections and estimates and their underlying assumptions; statements regarding plans, objectives and expectations with respect to future operations, products and services; and statements regarding future performance. Such statements are subject to certain known and unknown risks and uncertainties, many of which are difficult to predict and generally beyond Anthem’s and Cigna’s control, that could cause actual results and other future events to differ materially from those expressed in, or implied or projected by, the forward-looking information and statements. These risks and uncertainties include: those discussed and identified in Anthem’s and Cigna’s public filings with the U.S. Securities and Exchange Commission (the “SEC”); those relating to the proposed transaction, as detailed from time to time in Anthem’s and Cigna’s filings with the SEC; increased government participation in, or regulation or taxation of health benefits and managed care operations, including, but not limited to, the impact of the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010, or Health Care Reform; trends in health care costs and utilization rates; our ability to secure sufficient premium rates including regulatory approval for and implementation of such rates; our participation in the federal and state health insurance exchanges under Health Care Reform, which have experienced and continue to experience challenges due to implementation of initial and phased-in provisions of Health Care Reform, and which entail uncertainties associated with the mix and volume of business, particularly in Individual and Small Group markets, that could negatively impact the adequacy of our premium rates and which may not be sufficiently offset by the risk apportionment provisions of Health Care Reform; our ability to contract with providers consistent with past practice; competitor pricing below market trends of increasing costs; reduced enrollment, as well as a negative change in our health care product mix; risks and uncertainties regarding Medicare and Medicaid programs, including those related to non-compliance with the complex regulations imposed thereon and funding risks with respect to revenue received from participation therein; our projected consolidated revenue growth and global medical customer growth; a downgrade in our financial strength ratings; litigation and investigations targeted at our industry and our ability to resolve litigation and investigations within estimates; medical malpractice or professional liability claims or other risks related to health care services provided by our subsidiaries;…
2
13
Safe Harbor Statement (2 of 2) Safe Harbor Statement Under The Private Securities Litigation Reform Act of 1995 Continued: …our ability to repurchase shares of its common stock and pay dividends on its common stock due to the adequacy of its cash flow and earnings and other considerations; non- compliance by any party with the Express Scripts, Inc. pharmacy benefit management services agreement, which could result in financial penalties; our inability to meet customer demands, and sanctions imposed by governmental entities, including the Centers for Medicare and Medicaid Services; events that result in negative publicity for us or the health benefits industry; failure to effectively maintain and modernize our information systems and e-business organization and to maintain good relationships with third party vendors for information system resources; events that may negatively affect Anthem’s licenses with the Blue Cross and Blue Shield Association; possible impairment of the value of our intangible assets if future results do not adequately support goodwill and other intangible assets; intense competition to attract and retain employees; unauthorized disclosure of member or employee sensitive or confidential information, including the impact and outcome of investigations, inquiries, claims and litigation related to the cyber attack Anthem reported in February 2015; changes in the economic and market conditions, as well as regulations that may negatively affect our investment portfolios and liquidity; possible restrictions in the payment of dividends by our subsidiaries and increases in required minimum levels of capital and the potential negative effect from our substantial amount of outstanding indebtedness; general risks associated with mergers and acquisitions; various laws and provisions in Anthem’s governing documents that may prevent or discourage takeovers and business combinations; future public health epidemics and catastrophes; and general economic downturns. Important factors that could cause actual results and other future events to differ materially from the forward-looking statements made in this communication are set forth in other reports or documents that Anthem and/or Cigna may file from time to time with the SEC, and include, but are not limited to: (i) the ultimate outcome of the proposed transaction, including the ability to achieve the synergies and value creation contemplated by the proposed transaction, (ii) the ultimate outcome and results of integrating the operations of Anthem and Cigna, (iii) disruption from the merger making it more difficult to maintain businesses and operational relationships, (iv) the risk that unexpected costs will be incurred in connection with the proposed transaction, (v) the timing to consummate the proposed transaction, (vi) the possibility that the proposed transaction does not close, including, but not limited to, due to the failure to satisfy the closing conditions, including the receipt of required regulatory approvals and the receipt of approval of both Anthem’s and Cigna’s shareholders and stockholders, respectively, and (viii) the risks and uncertainties detailed by Cigna with respect to its business as described in its reports and documents filed with the SEC. All forward-looking statements attributable to Anthem, Cigna or any person acting on behalf of Anthem and/or Cigna are expressly qualified in their entirety by this cautionary statement. Readers are cautioned not to place undue reliance on these forward- looking statements that speak only as of the date hereof. Except to the extent otherwise required by federal securities law, neither Anthem nor Cigna undertake any obligation to republish revised forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events or the receipt of new information. Readers are also urged to carefully review and consider the various disclosures in Anthem’s and Cigna’s SEC reports.
3
14
Non-GAAP Measures
Non-GAAP Measures: This presentation includes certain non-GAAP financial measures. These non-GAAP measures may be different from non-GAAP financial measures used by other companies. The presentation of this financial information, which is not prepared under any comprehensive set of accounting rules or principles, is not intended to be considered in isolation of, or as a substitute for, the financial information prepared and presented in accordance with GAAP. This data should be read in conjunction with previously published company reports on Forms 10-K, 10-Q and 8-K. We refer you to the Appendix of these presentation materials for reconciliations to the most directly comparable GAAP financial measures and related information.
4
15
This communication does not constitute an offer to sell or a solicitation of an offer to sell or a solicitation of an offer to buy any securities or a solicitation of any vote or approval, nor shall there be any sale of securities in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such jurisdiction. No offering of securities shall be made except by means of a prospectus meeting the requirements of Section 10 of the Securities Act of 1933, as amended, and otherwise in accordance with applicable law.
The proposed transaction between Anthem, Inc. (“Anthem”) and Cigna Corporation (“Cigna”) will be submitted to Anthem’s and Cigna's shareholders and stockholders (as applicable) for their consideration. In connection with the transaction, Anthem and Cigna will file relevant materials with the U.S. Securities and Exchange Commission (the “SEC”), including an Anthem registration statement on Form S-4 that will include a joint proxy statement of Anthem and Cigna that also constitutes a prospectus of Anthem, and each will mail the definitive joint proxy statement/prospectus to its shareholders and stockholders, respectively. This communication is not a substitute for the registration statement, joint proxy statement/prospectus or any other document that Anthem and/or Cigna may file with the SEC in connection with the proposed transaction.
INVESTORS AND SECURITY HOLDERS OF ANTHEM AND CIGNA ARE URGED TO READ THE JOINT PROXY STATEMENT/PROSPECTUS AND OTHER DOCUMENTS FILED WITH THE SEC CAREFULLY IN THEIR ENTIRETY WHEN THEY BECOME AVAILABLE AS THEY WILL CONTAIN IMPORTANT INFORMATION ABOUT THE PROPOSED TRANSACTION. Investors and security holders will be able to obtain free copies of the registration statement containing the joint proxy statement/prospectus and other documents filed with the SEC by Anthem or Cigna (when available) through the web site maintained by the SEC at http://www.sec.gov. Copies of the documents filed with the SEC by Anthem will be available free of charge on Anthem’s internet website at http://www.antheminc.com or by contacting Anthem’s Investor Relations Department at (317) 488-6168. Copies of the documents filed with the SEC by Cigna will be available free of charge on Cigna’s internet website at http://www.cigna.com or by contacting Cigna’s Investor Relations Department at (215) 761-4198.
Anthem, Cigna and their respective directors and executive officers and other members of management and employees may be deemed to be participants in the solicitation of proxies in respect of the proposed transaction. You can find information about Anthem’s executive officers and directors in Anthem’s annual report on Form 10-K for the year ended December 31, 2014 and its definitive proxy statement filed with the SEC on April 1, 2015. You can find information about Cigna’s executive officers and directors in Cigna’s annual report on Form 10-K for the year ended December 31, 2014 and its definitive proxy statement filed with the SEC on March 13, 2015. Additional information regarding the interests of such potential participants will be included in the joint proxy statement/prospectus when it is filed with the SEC. You may obtain free copies of these documents using the sources indicated above.
Important Information for Investors and Shareholders
5
16
Participants
6
Joseph Swedish Anthem President and Chief Executive Officer
David Cordani Cigna President and Chief Executive Officer
Wayne DeVeydt Anthem EVP and Chief Financial Officer
Doug Simpson Anthem VP Investor Relations
17
Transaction Summary • $188.00 per share in the form of ~55% funded through cash and
~45% funded through Anthem stock
• 38.4% premium to Cigna’s unaffected stock price*
• Anthem shareholders to own ~67% and Cigna shareholders to own ~33% of the combined company
• Cash portion financed through cash on hand and new debt issuance; equity portion through issuance of Anthem shares to Cigna shareholders
• Pro forma debt-to-cap approximately 49% at closing projected to decline to low 40% two years post-close
• Committed to retaining investment grade debt ratings
• Shareholder vote required for both companies
• Regulatory approvals including Hart-Scott-Rodino, state departments of insurance and other regulators
• Anticipated closing in the second half of 2016
7 * Calculated as of Anthem’s and Cigna’s closing stock price on May 28, 2015; stock consideration based on a fixed exchange ratio of 0.5152x 18
Commercial- Risk 15%
ASO 66%
Medicare 4%
Medicaid 11%
FGS 3%
International 1%
Expanded Footprint Enhances Ability to Compete
8
Source: Company Filings. Note: Medical membership data as of 1Q 2015. Revenue projection based on the most recent 2015 outlook publicly reported by both companies.
+
38.5M Members
53.2M Members
Combined Company Generates Over $115 Billion in Annual Revenue
Leading Position • Commercial Risk
• Commercial ASO
• Government
• Individual
• Specialty
• International
Commercial- Risk 17%
ASO 61%
Medicare 4%
Medicaid 14%
FGS 4%
19
Innovative Solutions Driving Affordability & Choice
• Leadership position in advancing provider collaboration and new payment models
• Proven health and wellness programs
• Local focus advancing affordability
• Technology centric investments across industry’s largest base of membership
• Enhanced administrative efficiency
• Comprehensive product and funding offerings • Serving employer-sponsored, individual, state
and federal government and international customers
• Breadth of served segments addresses evolving needs of consumers over their lifetime
• Diverse value based specialty products
Affordability Choice
9
20
Combination of Complementary Businesses
Affordability:
• Most recognizable brand • Local focus • A leading Commercial franchise • Strong Public Exchange execution • A leading and growing Medicaid
franchise • A leading Medicare Supplement
and improving Medicare Advantage business
• Well-positioned for Dual Eligible opportunity
Choice: Anthem Cigna
• Strong Commercial player with broad geographic coverage
• Middle Market ASO/Stop Loss solutions
• A leading Specialty capability (Behavioral Health, Dental, Pharmacy, Disability & Life)
• Proven wellness programs • Medicare position with leading
physician-engagement model • Differentiated International
businesses
Diversified and Complementary Platforms 10
21
Three Pillars to Benefit Combined Entity
Provider Collaboration
11
Managing Total Cost of
Care
Consumer Centricity
Data and Insights
Talent
Affordability
Quality
Choice/ Personalization
22
Affordability Driven By Provider Collaboration and Connected Care
12
CUSTOMER
Provider Collaboration
Enhanced Personal Health Care Program
Realized Outcomes Select Models
Fewer acute inpatient admissions
Decrease in outpatient surgery costs
Fewer inpatient days per 1,000
Reduction in admission of high risk patients
Reduction in ER visit costs
Decrease in ER utilization
PROVIDER
Both companies are aligned in their goals to drive better health, choice and long-term affordability 23
Total Cost of Care Advantage
13
Demonstrated ability to drive medical cost savings for the nation's leading companies
Company A • 150,000+ members • 6%+ in Year 1 savings
Company B • 200,000+ members • 15%+ in Year 1 savings
Discounts alone do not capture the full value
Healthy
Healthy at Risk
Chronic
Acute
Broad and Proven Health, Wellness & Engagement Capabilities Serving:
24
Consumer-centric Approach Caters to Member Needs
14
1 2
Choice & Control
Ease & Affordability
Feeling confident you are covered and will be taken care of in the
event of a health issue
Understanding your costs and coverage so there aren’t any
negative surprises when you need to use your benefits
Minimal interaction with your insurer, except when you have a question or an issue arises – then
high engagement through personalized, effortless service
is demanded
Extensive research has identified the primary drivers of great consumer experiences
Confidence in coverage
Clarity in coverage
Ease of getting help
Health & Wellness Focus
3
Keys to a successful retail-oriented approach
Leading Data Analytics
4
25
Compelling Financial Rationale
15
Synergies
• Confidence in ability to capture run-rate synergies approaching $2 billion pre-tax within two years post-close
• Expected PBM synergies have not been included in assumptions
Balance sheet
• Committed to retaining investment grade debt ratings
• Pro forma debt to cap of approximately 49% at closing with intent to decline to low 40% two years post-close
• Expect to maintain our dividend
• Will maintain flexibility with regards to share repurchases
Adjusted EPS
• Approaching 10% accretion to Adjusted Earnings per Share in first year post-close
• Accretion more than doubles in year two
* Transaction expected to close in the second half of 2016; 2018 estimate assumes transaction close on 12/31/2016
$17.00+ Adjusted Earnings per Share in 2018* 26
Identifiable and Achievable Synergies
• Administrative structure
• Operational efficiencies
• Network efficiencies and medical management
• Cross leverage best in class capabilities
• Leverage Cigna Specialty capabilities across Anthem
• Unique capabilities to serve growing Dual Eligible population
• Potential PBM synergies have not been included
One-time implementation costs estimated to be ~$600 million spread over two years
Precedent transactions comfortably affirm a synergy level approaching $2 billion
Confidence in ability to achieve annual synergies
approaching
$2 billion
16
27
$14.00
$3.00
$17.00
2015* 2018
Value Creation for Both Sets of Shareholders
+
Adjusted Earnings per Share
Greater than
+
+
• * 2015 Adjusted EPS guidance excludes greater than $0.25 per share of net unfavorable items. See appendix for the GAAP reconciliation table. • ** Transaction expected to close in the second half of 2016; 2018 estimate assumes transaction close on 12/31/2016
• Strong growth from Medicaid, Individual / Exchange, Medicare Advantage, Dual Eligible, and Specialty
• Confidence in ability to achieve annual run-rate synergies approaching $2 billion by year 2
+
$17.00+ Adjusted Earnings per Share in 2018**
17
$10.00
28
A Clearly Defined Financing Plan
($ in billions)
Available cash $6
Term loans and public debt $22
Equity issued to Cigna shareholders $21
Total $49
Financing considerations Anticipated financing sources
• Received committed financing for the transaction
• Permanent financing anticipated to include combination of term loans, public debt and equity portion of the merger consideration issued to Cigna shareholders
• Debt-to-cap at close will be approximately 49%
• Committed to de-levering and project to decline to low 40% debt-to-cap two years post-close
• Committed to retaining investment grade debt ratings
18
29
Continues Anthem's and Cigna's Strong Track Records of Value Creation
Source: FactSet data as of unaffected date of 5/28/15 Note: Share price performance over two years prior to unaffected date of 5/28/15
19
Anthem and Cigna Management teams have delivered on their promises • Both Management teams have an established track record of execution in this dynamic environment
• Industry leading execution in several end markets
• Successfully integrated and continue to outperform with Amerigroup and HealthSpring platform acquisitions
Anthem 109% Cigna 97%
75%
100%
125%
150%
175%
200%
225%
250%
05/13 09/13 01/14 05/14 09/14 01/15 05/15
Anthem Cigna
30
$80
$100
$120
$140
$160
05/14 07/14 09/14 10/14 12/14 02/15 03/15 05/15Cigna
Compelling Transaction for Cigna Shareholders
Unaffected Price on 5/28/15: $135.87
Acquisition Price: $188.00*
10-day Trading Average as of 5/28/15: $133.82
Median WS Target Price on 5/28/15: $145.00
38.4% Premium
29.7% Premium
40.5% Premium
Source: Bloomberg
• Cigna shareholders to participate in significant upside of combined company • Approaching $2 billion of annual run-rate synergies + potential upside from PBM optionality • Anthem’s industry leading capital deployment track record
Will participate in the significantly enhanced value of the combined company
20 * Calculated as of Anthem’s closing stock price on May 28, 2015 31
21
Consideration Mix and Value Creation
Given stock component, Cigna shareholders
will share in the synergy value
Total consideration
Cash consideration
Stock consideration
$188.00 per share*
$103.40 per share
$84.60 per share*
* Calculated as of Anthem’s closing stock price on May 28, 2015
32
Summary
22
Diverse well positioned global growth platform with over $115 billion in combined annual revenue and 53 million medical members
Enhances ability to advance health care access, affordability and quality for our customers
Meaningful opportunities to improve operational efficiency and lower health care costs
Approaching 10% accretion to Adjusted EPS in year 1; more than doubling in year 2
Anthem and Cigna Boards unanimously support the transaction
Anthem and Cigna are highly confident in the ability to consummate the transaction
Anthem is committed to leading the change in health care delivery as a trusted partner for consumers
33
34
We have referenced "Adjusted Net Income Per Diluted Share" (or “Adjusted EPS”), a non-GAAP measure, in this document. This non-GAAP measure is intended to aid investors and analysts when comparing our financial results among periods. Management also uses this measure as a basis for evaluating performance, allocating resources, forecasting future operating periods and setting incentive compensation targets. A reconciliation of this measure to the most directly comparable measure calculated in accordance with GAAP is presented below. For additional details, refer to our earnings results press releases and SEC filings, including but not limited to our Annual Report on Form 10-K for the year ended December 31, 2014, and our Quarterly Report on Form 10-Q for the three months ended March 31, 2015, available at www.antheminc.com.
*Estimated based on projections as of 7/24/15.
Full Year 2015
Outlook* Net income per diluted share Greater than $9.75 Add / (Subtract) - net of related tax effects: Net realized gains on investments ($0.33) Other-than-temporary impairment losses on investments $0.08 Loss on extinguishment of debt $0.00 Amortization of other intangible assets Greater than $0.50 Net adjustment items Greater than $0.25 Adjusted net income per diluted share Greater than $10.00
GAAP Reconciliation
24
35
November 11, 2015 The Honorable William Baer Assistant Attorney General United States Department of Justice Antitrust Division 950 Pennsylvania Avenue, NW Washington, DC 20530 Dear Assistant Attorney General Baer: The American Medical Association (AMA) greatly appreciates the opportunity to provide our comments to the Antitrust Division as it engages in the vital work of investigating Aetna’s proposed acquisition of Humana and Anthem’s proposed acquisition of Cigna. We believe that high insurance market concentration is an important issue of public policy because the anticompetitive effects of insurers’ exercise of market power pose a substantial risk of harm to consumers. Our analyses of the proposed health insurance mergers reveal significant concerns with respect to the impact on consumers in terms of health care access, quality, and affordability. SUMMARY
• The proposed mergers are occurring in markets where there has already been a near total collapse of competition. Under the U.S. Department of Justice/Federal Trade Commission Merger Guidelines, the proposed mergers are presumed to enhance market power in a vast number of commercial and Medicare Advantage markets. Because of persisting high barriers to entry in health insurance markets, the lost competition through these proposed mergers would likely be permanent and the acquired health insurer market power would be durable.
• A growing body of peer-reviewed literature suggests that greater health insurer
consolidation leads to price increases, as opposed to greater efficiency or lower health care costs. The proposed mergers can be expected to lead to a reduction in health plan quality. Insurers are already creating very narrow and restricted networks that force patients to go out of network to access care. The mergers would reduce pressures on plans to offer broader networks to compete for members and would create fewer networks that are simultaneously under no competitive pressure to respond to patients’ access needs.
36
The Honorable William Baer November 11, 2015 Page 2
• Health insurer monopsony, or buyer power, acquired through the proposed mergers would, as the Department of Justice has found in earlier cases, likely degrade the quality and reduce the quantity of physician services. Consumers do best when there is a competitive market for purchasing physician services. When mergers result in monopsony power and physicians are reimbursed at below competitive levels, consumers may be harmed in a variety of ways. Physicians may be forced to spend less time with patients to meet practice expenses. They also may be hindered in their ability to invest in new equipment, technology, training, staff, and other practice infrastructure that could improve the access to and quality of patient care and could enable physicians to successfully transition into new value-based payment and delivery models. Furthermore, in the long run health insurer exercise of monopsony power may motivate physicians to retire early or seek opportunities outside of medicine that are more rewarding. This would exacerbate an already significant shortage of primary care physicians in the United States.
• There is no evidence supporting the insurer’s claim that the proposed mergers would lead
to greater efficiencies and innovative payment and care management programs. There is also no economic evidence that consumers benefit when health insurers merge to respond to hospital consolidation by acquiring countervailing power.
• Fostering competition, not consolidation, benefits American consumers through lower prices, better quality, and greater choice.
• Accordingly, the AMA urges the Department of Justice to block the proposed mergers.
THE FOUNDATION FOR AMA’S CONCLUSIONS The AMA has participated in Congressional hearings on Anthem’s proposed acquisition of Cigna and Aetna’s proposed acquisition of Humana. In the course of these hearings, the AMA has analyzed the likely competitive effects of these mergers both in the sell-side market for insurance and the buy-side market for physician services. The AMA has considered data compiled annually by the AMA on competition in health insurance, recent studies on the effects of health insurance mergers, the testimony of experts called by House and Senate committees, and the written submissions and testimony of the merging parties. The AMA has reviewed this matter from the long-standing AMA perspective that competition in health insurance, not consolidation, is the right prescription for health insurer markets. Competition will lower premiums, force insurers to enhance customer service, pay bills accurately and on time, and develop and implement innovative ways to improve quality while lowering costs. Competition also allows physicians to bargain for contract terms that touch all aspects of patient care. The AMA has concluded that these mergers are likely to impair access, affordability, and innovation in the sell-side market for health insurance, and on the buy side, will deprive physicians of the ability to negotiate competitive health insurer contract terms in markets around the country. The result will be detrimental to consumers. “If past is prologue,” notes Leemore Dafny, Ph.D., “insurance consolidation will tend to lead to lower payments to healthcare providers, but those lower payments will not be passed
37
The Honorable William Baer November 11, 2015 Page 3 on to consumers. On the contrary, consumers can expect higher insurance premiums.”1 Moreover, monopsony power acquired through the mergers would enable the health insurers to control physician payment rates in a manner that could harm the quality of healthcare delivered to consumers.2 Therefore, the AMA opposes the proposed mergers. MARKET SHARES AND MARKET CONCENTRATION Competition is likely to be greatest when there are many sellers, none of which has any significant market share. Unfortunately, health insurance markets are mostly highly concentrated, meaning that typically there are few sellers and they possess significant market shares. The AMA has determined that the proposed mergers are likely to create, enhance, or entrench market power in numerous markets. Commercial Health Insurance For the past 14 years, the AMA has conducted the most in-depth annual study of commercial health insurance markets in the country. From 2001 to 2010, the study was based on the 1997 U.S. Department of Justice (DOJ) and Federal Trade Commission (FTC) Horizontal Merger Guidelines. Beginning with the 2011 Update, the AMA’s study utilizes the 2010 iteration of the Merger Guidelines to classify markets based on whether mergers announced in those markets would raise anticompetitive concerns.3 The AMA’s most recently published study, Competition in Health Insurance: A Comprehensive Study of US Markets (2015 update) is intended to help researchers, policymakers, and federal and state regulators identify areas of the country where consolidation among health insurers may have harmful effects on consumers, on providers of care, and on the economy. It presents health insurance market shares and concentration levels in states and metropolitan statistical areas (MSA). The AMA’s study shows that there has been a near total collapse of competition in commercial, combined HMO + PPO + POS markets. In seven out of 10 metropolitan areas, these markets are highly concentrated. Moreover, 38 percent of metropolitan areas had a single health insurer with a commercial market share of 50 percent or more. Fourteen states have a single health insurer with at least a 50 percent share of the commercial health insurance market. Medicare Advantage The 2015 Update to its Competition in Health Insurance study does not cover the Medicare Advantage markets, which is where the merger of Humana and Aetna will be most acutely felt. However, competitive conditions in Medicare Advantage markets appear to be even more troubling than in the commercial health insurance market studied by the AMA. According to a Commonwealth Fund study published last month, 97 percent of Medicare Advantage markets (evaluated geographically at the county level) are highly concentrated and therefore characterized by a lack of competition.4 1 See Dafny, “Health Insurance Industry Consolidation: What Do We Know From the Past, Is It Relevant in Light of the ACA,
and What Should We Ask?” Testimony before the Senate Committee on the Judiciary, September 22, 2015, at 10. 2 Blue Cross Blue Shield of Michigan and Physicians Health Plan of Mid-Michigan Abandon Merger Plans | OPA | Department
of Justice, available at:http://www.justice.gov/opa/pr/blue-cross-blue-shield-michigan-and-physicians-health-plan-mid-michigan-abandon-merger-plans
3 U.S. Dep’t of Justice and Fed. Trade Comm’n, Horizontal Merger Guidelines (Aug. 19, 2010), available at: https://www.ftc.gov/sites/default/files/attachments/merger-review/100819hmg.pdf.
4 B. Biles, G. Casillas, and S. Guterman, Competition Among Medicare’s Private Health Plans: Does It Really Exist? The Commonwealth Fund, August 2015.
38
The Honorable William Baer November 11, 2015 Page 4 Aetna has argued that insurer share of Medicare Advantage is of no antitrust relevance given that consumers have the option of enrolling in traditional Medicare and therefore, in Aetna’s view, traditional Medicare and Medicare Advantage plans are not separate product markets.5 This argument glosses over the many critically important differences between Medicare Advantage and traditional Medicare that explain why Medicare is not an adequate substitute for Medicare Advantage, such that the proposed mergers should be evaluated for their effects in the Medicare Advantage market separately. Medicare Advantage plans offer substantially richer benefits at lower costs than traditional Medicare.6 Moreover, in Medicare Advantage plans seniors can receive a single plan covering a variety of benefits that seniors in traditional Medicare must assemble themselves. The combination of richer benefits and one stop shopping accounts for the strong preference by many seniors for Medicare Advantage plans. Accordingly, seniors are not likely to switch away from Medicare Advantage plans to traditional Medicare in sufficient numbers to make an anticompetitive price increase or reduction in quality unprofitable to a Medicare Advantage insurer.7 The closest competition to one Medicare Advantage insurer’s plan is another insurer’s Medicare Advantage plan and the presence of many competing Medicare Advantage insurers is what keeps quality competitive. Consequently, the Medicare Advantage and traditional Medicare programs constitute separate and distinct product markets and the proposed mergers should be evaluated for their effects in a Medicare Advantage market.8 THE HEALTH INSURER MERGERS CREATE, ENHANCE, OR ENTRENCH MARKET POWER IN THE SALE OF HEALTH INSURANCE The Anthem-Cigna Merger Utilizing data obtained from HealthLeaders-Interstudy Managed Market Surveyor from January 1, 2013, the AMA has determined the commercial health insurance market concentrations and change in market concentrations that would result from the Anthem-Cigna merger. The AMA analysis shows the proposed Anthem-Cigna merger would be presumed likely, under the Merger Guidelines, to enhance market power in 85 commercial (combined HMO + PPO + POS) MSA markets. The AMA also considered the effect of the merger using states as a geographic market. The AMA found that within 10 of the 14 states (NH, IN, CT, ME, VA, GA, CO, MO, NV, and KY) in which Anthem is licensed to provide commercial coverage, the merger is likely to enhance market power. In the remaining four states (OH, CA, NY, and WI), the merger would potentially raise significant competitive concerns and warrant scrutiny under the Merger Guidelines.
5 Bertolini, “Examining Consolidation in the Health Insurance Industry and its Impact on Consumers,” Testimony before the
Senate Committee on the Judiciary, September 22, 2015, at 5. 6 See U.S. v. United Health Group and Sierra Health Services Inc., Civil No1:08 –cu-00322 (DDC2008); United States v.
Humana, No. 12-cv-00464 (D.D.C. Mar. 27, 2012), available at: www.justice.gov/atr/cases/f281600/281618.pdf). 7 See competitive impact statement, United States v. United health, supra, at 4-5. 8 See U.S. v. United Health Group and Sierra Health Services Inc., Civil No1:08 –cu-00322 (DDC2008) (the DOJ alleged that
MA is a distinct market separate from the Medicare market and obtained a consent decree requiring the divestiture of United’s MA business in the Las Vegas area as a precondition to obtaining merger approval); see also Gretchen A. Jacobson, Patricia Neuman, Anthony Damico, “At Least Half Of New Medicare Advantage Enrollees Had Switched From Traditional Medicare During 2006–11,” 34 Health Affairs (Millwood) 48, 51 (Jan. 2015), available at: http://content.healthaffairs.org/content/34/1/48.full.pdf; R. Town and S. Liu (2003), “The Welfare Impact of Medicare HMOs,” RAND Journal of Economics 34(4): 719-36; L.Dafny and D. Dranove (2008), “Do Report Cards Tell Consumers Anything They Don’t Already Know?” RAND Journal of Economics 39.
39
The Honorable William Baer November 11, 2015 Page 5 Confirming the grave structural harm found by the AMA in numerous commercial health insurance markets is a slightly different market study commissioned by the American Hospital Association (AHA). That study examined MSAs and rural counties as the relevant geographic markets. The AHA reports that the transaction threatens to reduce competition in the sale of commercial health insurance in at least 817 relevant geographic markets. In 600 of these markets the transaction would be presumed to be likely to enhance market power under the Merger Guidelines. In another 217 markets the AHA found that under the Merger Guidelines the merger would potentially raise significant competitive concerns. The health insurers have asked regulators to assume, without evidence, that health insurance markets are competitive “due to numerous competitors” and “other market realities.” For example, in Anthem’s Competitive Impact Analysis that was part of its September 22, 2015, Connecticut Insurance Department application, the insurer contends:
Due to the numerous competitors, changing health care dynamics, new entrants, public and private exchanges, new distribution channels and business models, increasing transparency, sophisticated purchasers, and other marketplace realities, Anthem believes that Anthem’s acquisition of control of CIGNA will not substantially lessen competition in insurance or tend to create a monopoly in the State of Connecticut with respect to any line of business.
Notably, the Anthem “competitive analysis” provides no evidence in support of its contention that the health insurance industry in Connecticut is highly competitive and becoming more competitive. Anthem provides no data to support this opinion—no reporting of market shares, Herfindahl-Hirschman Indices (HHI), or changes in either as a result of the proposed merger. Anthem’s only mention of market shares is the motivation for why it prepared the analysis in the first place: In the commercial health insurance lines of business (as well as vision and dental standalone lines of business), the Anthem-Cigna merger does not meet the pre-acquisition notification exemption standard set forth in the Connecticut General Statutes. Instead, Anthem simply lists competitors to Anthem and Cigna in the individual, small group, large group, standalone vision and standalone dental lines of business as its primary evidence of competition, and argues that the growing use of public and private exchanges, benefit administration platforms, and other technology improvements will further ensure that “competition within the health insurance market will remain vigorous and vibrant.” In contrast, a review of data from the AMA’s 2015 Update to its Competition in Health Insurance study, the Connecticut Insurance Department, and the Government Accountability Office’s December 2014 report on private health insurance concentration, show that Connecticut’s health insurance market is already highly concentrated. Using data from its 2015 Update, a special analysis conducted by the AMA in September 2015 shows that the proposed merger between Anthem and Cigna would exceed federal antitrust guidelines in Connecticut (i.e., increase in HHI of 1,311 points for a post-merger total HHI of 3,855) and in six of its metropolitan areas (MSAs).
The Aetna-Humana Merger Turning to the proposed merger of Humana and Aetna, that merger would combine one of the two largest insurers of Medicare Advantage (Humana) with the fourth largest (Aetna) to form the largest Medicare
40
The Honorable William Baer November 11, 2015 Page 6 Advantage insurer in the country.9 This would further concentrate a market that is already “highly concentrated among a small number of firms.”10 As in the case of the Anthem/Cigna merger, the Aetna/Humana merger would have a substantial impact on a staggering number of markets. According to a market study commissioned by the AHA, more than 1000 markets (defined geographically as counties) would become highly concentrated. Under the Merger Guidelines, the merger is presumed to be likely to enhance market power in 924 counties and potentially raises significant competitive concerns in another 159 counties. In addition to presumptively enhancing market power in Medicare Advantage markets, the Aetna/Humana merger will exacerbate the near total collapse of competition in commercial markets. AMA analysis shows that the merger would be presumed to enhance market power in the commercial markets of health insurance in 15 MSAs within seven states (FL, GA, IL, KY, OH, TX, and UT).
Competition for Contracts in National Market There may also be a national market in which the health insurers compete or potentially compete for the contracts of large national employers. In that market there are only five national health insurance companies remaining today: Anthem, Cigna, Aetna, Humana and United Healthcare. The proposed Anthem/Cigna and Aetna/Humana mergers would pare the number of national players to three. THE HEALTH INSURER MERGERS CREATE, ENHANCE, OR ENTRENCH MONOPSONY POWER IN MARKETS FOR THE PURCHASE OF PHYSICIAN SERVICES Just as the health insurer mergers would enhance market power on the selling side of the market, the mergers also would enhance monopsony or buyer’s power in the purchase of inputs such as physician services, eviscerating physicians’ ability to contract with alternative insurers in the face of unfavorable contract terms and ultimately inefficiently reducing the quality or quantity of services that physicians are able to offer patients. As Professor Dafny explained in her Senate testimony on these mergers, “Monopsony is the mirror image of monopoly; lower input prices are achieved by reducing the quantity or quality of services below the level that is socially optimal.”11 When as here firms can also exercise seller power, the reduced prices for inputs (physician services) cause higher, not lower, output prices (health insurance premiums). See Telecor Communications, Inc. v. S.W. Bell Tel. Co., 305 F.3d 1124, 1136 (10th Cir. 2002) (explaining that monopsony affects consumers because “there is a dead-weight loss associated with imposition of monopsony pricing restraints,” and “[s]ome producers will either produce less or cease production altogether, resulting in less-than-optimal output of the product or service, and over the long run higher consumer prices, reduced product quality, or substitution of less efficient alternative products”). In addition to producing higher insurance premiums and a reduction in the quantity and quality of physician services, the lower than competitive physician reimbursements will deny physicians the rates necessary to support delivery reforms associated with value-based care, the cost of which the physicians—not the health insurers—must bear.
9 Gretchen Jacobson, Anthony Damico, and Marsha Gold, Kaiser Family Foundation Issue Brief, Medicare Advantage 2015
Spotlight: Enrollment Market Update, (June 30, 2015), Figure 1, available at: http://kff.org/medicare/issue-brief/medicare-advantage-2015-spotlight-enrollment-market-update/.
10 Id. at 13. 11 Dafny at 10
41
The Honorable William Baer November 11, 2015 Page 7 In concluding that the mergers would enhance monopsony power, the AMA has followed the analytical techniques supplied by the Merger Guidelines, which require a definition of both a product market and geographic market. The relevant product market is physician services. Insurers purchase many inputs, including physician services. There are no adequate substitutes for physician services, due to training and expertise.12 Moreover, physicians are confined to supplying services within their training and licensure and cannot do something else in response to a decrease in compensation.13 The geographic markets in which health insurers secure services from physicians roughly coincide with the localized geographic markets in which the insurer sells its services to consumers.14 Health insurers must obtain physician coverage in each locale where they sell insurance. Physicians are not mobile—they invest and develop their practices locally. Accordingly, the DOJ has embraced the notion of a localized market in which health insurers purchase physician services.15 As the DOJ explained in the Aetna/Prudential complaint:
The patient preferences that define a localized geographic market for the sale of HMO and HMO-POS products also define a localized geographic market for physician services. Moreover, for an established physician who has invested time and expense in building a practice, the costs associated with moving his or her practice to a new geographic market are considerable, including paying for new office space and equipment and building new relationships with hospitals, other physicians, employees, and patients in the area.16
A loss of competition on the buy side can occur within the localized geographic markets when the merging health insurers hold contracts with a significant number of providers who are financially dependent on contracting with the merging health plans and could not readily replace that business by dealing with other payers.17 According to Professor Dafny, the “textbook monopsony scenario…pertains when there is a large buyer and fragmented suppliers.”18 This characterizes the market in which dominant health insurers purchase the services of physicians who typically work in small practices with 10 or fewer physicians.19 Moreover, if physicians were to refuse the terms of any health insurer, they would likely suffer an irretrievable loss of revenue. That is because medical services can neither be stored nor exported. Consequently, a physician’s ability to consider realistically terminating a relationship with the merged insurers because of
12 See U.S. v. United Health Group and Sierra Health Services Inc., Civil No1: 08 –cu-00322 (DDC2008), affidavit of Professor
David Dranove, PhD (February 25, 2008). 13 Id. 14 See e.g., Capps, C. Buyer Power in Health Plan Mergers, J Comp Law and Econ. 2009; 6:375-391 15 See e.g. U.S. v. Aetna Inc., Complaint, No. 3-99CV 1398-H, ¶ 20 (June 21, 1999), available at
http://www.justice.gov/file/483516/download, (alleging that the relevant geographic markets were the MSAs in and around Houston and Dallas, Texas).
16 Id. at ¶¶ 19-20. 17 Christine White, Sarahlisa Brau, and David Marx, Antitrust and Healthcare: A Comprehensive Guide, at 163 (2013); see also
U.S. Dep’t of Justice and Fed. Trade Comm’n, Horizontal Merger Guidelines, supra 1, at page 33; Federal Trade Commission and U.S. Department of Justice, Improving Health Care: A Dose of Competition (July, 2004), at 15.
18 See Dafny, “Health Insurance Industry Consolidation: What Do We Know From the Past, Is It Relevant in Light of the ACA, and What Should We Ask?,” Testimony before the Senate Committee on the Judiciary, September 22, 2015, at 10.
19 Carol K. Kane, PhD, American Medical Association Policy Research Perspectives: Updated Data on Physician Practice Arrangements: Inching Toward Hospital Ownership, July 2015.
42
The Honorable William Baer November 11, 2015 Page 8 low payment rates depends on that physician’s ability to make up lost business by immediately switching to an alternative health insurer. However, it is difficult to convince consumers (which in many cases are employers) to switch to different health insurers.20 Also, switching health insurers is a very difficult decision for physicians because it impacts their patients and disrupts their practice. The physician-patient relationship is a very important aspect to the delivery of high-quality healthcare. And it is a very serious decision both personally and professionally for physicians to disrupt this relationship by dropping a health insurer. Given the nature of physician practices, even in markets where the merged health insurers lack monopoly or market power to raise premiums for patients, the insurers still may have the power to force down physician compensation levels, raising antitrust concerns. Thus, in the UnitedHealth Group Inc./PacifiCare merger, the DOJ required a divestiture based on monopsony concerns in Boulder, Colorado, even though the merged entity would not necessarily have had market power in the sale of health insurance. The reason is straightforward: the reduction in compensation would lead to diminished service and quality of care, which harms consumers even though the direct prices paid by subscribers do not increase.21 Moreover, the reductions in the number of health insurers can create health insurer oligopolies that, through coordinated interaction, can exercise buyer power. Indeed the setting of payment rates paid to physicians is highly susceptible to the exercise of monopsony power through coordinated interaction by health insurance companies. The payment rates offered to large numbers of physicians by single health insurers are fairly uniform, and health insurance companies have a strong incentive to follow a price leader when it comes to payment rates. Some have argued that physicians who are unhappy with the fees they receive from a powerful insurer could turn away from that insurer and instead treat more Medicare and Medicaid patients. However, physicians cannot increase their revenue from Medicare and Medicaid in response to a decrease in commercial health insurer payment. Enrollment in these programs is limited to special populations, and these populations only have a fixed number of patients. Physicians switching to Medicare and Medicaid plans would have to incur substantial marketing costs to pull existing Medicare and Medicaid patients from their existing physicians. Moreover, public programs underpay providers. Thus, even if a physician dropping a commercial health insurer could attract Medicare and Medicaid, this strategy would be a losing proposition, especially at a time when value-based payment models require practice investments. Consequently, health insurers can exercise monopsony power in the commercial health insurance market.22 20 See e.g. U.S. v. UnitedHealth Group and Pacificare Health Systems, Complaint, No. 1:05CV02436, ¶ 37 (December 20, 2005),
available at http://www.justice.gov/file/514011/download. (As alleged in the United/PacifiCare complaint, physicians encouraging patients to change plans “is particularly difficult for patients employed by companies that sponsor only one plan because the patient would need to persuade the employer to sponsor an additional plan with the desired physician in the plan’s network” or the patient would have to use the physician on an out-of-network basis at a higher cost)..
21 See Gregory J. Werden, Monopsony and the Sherman Act: Consumer Welfare in a New Light, 74 ANTITRUST L.J. 707 (2007) (explaining reasons to challenge monopsony power even where there is no immediate impact on consumers); Marius Schwartz, Buyer Power Concerns and the Aetna-Prudential Merger, Address before the 5th Annual Health Care Antitrust Forum at Northwestern University School of Law 4-6 (October 20, 1999) (noting that anticompetitive effects can occur even if the conduct does not adversely affect the ultimate consumers who purchase the end-product), available at: http://www.usdoj.gov/atr/public/spceches/3924.wpd.
22 Peter J. Hammer and William M. Sage, “Monopsony as an Agency and Regulatory Problem in Health Care,” 71 Antitrust L.J. 949 (2004)
43
The Honorable William Baer November 11, 2015 Page 9 Given the high market concentration levels and large commercial and MA market shares that would result from the proposed mergers in the numerous MSAs and counties identified by the AMA and AHA, the proposed Mergers would create, enhance, or entrench monopsony power.
BARRIERS TO ENTRY AND THE NEED TO PRESERVE POTENTIAL COMPETITION
The market share and concentration data do not overstate the mergers’ future competitive significance in health insurance and physician markets. This is not a case where new market entry could defeat an exercise of monopoly or monopsony power. Instead, lost competition through a merger of health insurers is likely to be permanent and acquired health insurer market power would be durable because barriers to entry prevent the higher profits often associated with concentrated markets from allowing new entrants to restore competitive pricing. These barriers include state regulatory requirements; the need for sufficient business to permit the spreading of risk; and contending with established insurance companies that have built long-term relationships with employers and other consumers.23 In addition, a DOJ study of entry and expansion in the health insurance industry found that “brokers typically are reluctant to sell new health insurance plans, even if those plans have substantially reduced premiums, unless the plan has strong brand recognition or a good reputation in the geographic area where the broker operates.”24 Perhaps the greatest obstacle is the so-called chicken and egg problem of health insurer market entry: health insurer entrants need to attract customers with competitive premiums that can only be achieved by obtaining discounts from providers. However providers usually offer the best discounts to incumbent insurers with a significant business—volume discounting that reflects a reduction in transaction costs and greater budget certainty. Hence, incumbent insurers have a durable cost advantage.25 The presence of significant entry barriers in health insurance markets was demonstrated in the 2008 hearings before the Pennsylvania Insurance Department on the competition ramifications of the proposed merger between Highmark Inc. and Independence Blue Cross. Substantial evidence was introduced in those hearings, showing that replicating the Blues’ extensive provider networks constituted a major barrier to entry. The evidence further demonstrated that there has been very little in the way of new entry that might compete with the dominant Blues Plans in the Pennsylvania health insurance markets. In a report commissioned by the Pennsylvania Insurance Department, LECG concluded that it was unlikely that any competitor would be able to step into the market after a Highmark/IBC merger:
[B]ased on our interviews of market participants and other evidence, there are a number of barriers to entry—including the provider cost advantage enjoyed by the dominant firms in those areas and the strength of the Blue brand in those areas...On balance, the evidence suggests that to the extent the proposed consolidation reduces competition, it is
23 See Robert W. McCann, Field of Dreams: Dominant Health Plans and the Search for a “Level Playing Field,” Health Law
Handbook (Thomson West 2007); Mark V. Pauly, Competition in Health Insurance Markets, 51 Law & Contemp. Probs. 237 (1988); Federal Trade Commission and U.S. Department of Justice, Improving Health Care: A Dose of Competition (July,2004); Vertical Restraints and Powerful Health Insurers: Exclusionary Conduct Masquerading as Managed Care?, 51 Law & Contemp. Probs. 195 (1988).
24 Sharis A. Pozen, Acting Assistant Att’y Gen., Dep’t of Justice Antitrust Div., Competition and Health Care: A Prescription for High-Quality, Affordable Care 7 (Mar. 19, 2012) [hereinafter Pozen, Competition and Health Care], available at http://www.justice.gov/atr/speech/competition-and-health-care-prescription-high-quality-affordable-care.
25 Id. at 7.
44
The Honorable William Baer November 11, 2015 Page 10
unlikely that other health insurance firms will be able to step in and replace the loss in competition.26
The merging health insurers have argued that times have changed and the health insurance marketplaces have made entry easy. The facts however do not bear out that claim. Recent state developments only highlight the barrier to entry problem. The New York Times recently reported “tough going for health co-ops” created under the Affordable Care Act (ACA) to inject competition into health insurance markets.27 According to the Times, many co-ops “appear to be scrambling to have enough money to cover claims as well as enroll new customers as they enter their third year.” According to the Washington Post of October 10, nearly half of the 23 ACA insurance co-ops, subsidized by millions of dollars in government loans, have been told by federal regulators that their finances, enrollment, or business model need to “shape up.” One co-op has folded and four others are preparing to close in late December, including top-tier co-ops that federal officials had regarded as best poised to succeed.28 More closure announcements are expected.29 The quick death of these co-ops illustrate that even with heavy federal subsidies, health insurance is a tough business to enter. Moreover, only two for-profit companies that were not already health insurers, reports the Times, have entered the state marketplaces. One of them is Oscar, which was touted by the CEOs of Aetna and Anthem as an example of successful entry in their testimony before the Senate Judiciary Committee. (Anthem’s CEO referred to Oscar as “emblematic of the changing face of the competitive landscape in the insurance industry.”) However, according to the Times, Oscar estimated in a regulatory filing that it lost about $27.5 million last year, roughly half of its 2014 revenue. The CEO of Oscar, one of the very few new companies to even attempt entry, described the task as “quite daunting.”30 In any event, the insurers’ bold claim of new entry is not evidence and their descriptions of new entry opportunities are as consistent with the insurance markets experiencing net exit as with their assertions of net entry. The Loss of Potential Competition One of the most important implications of the barriers to entry that persist with the advent of the exchanges is the need to preserve the potential competition that would be lost if an incumbent insurer is acquired. Thus, when one of the two largest insurers of Medicare Advantage (Humana) is acquired by the fourth-largest (Aetna) to form the largest Medicare Advantage insurer in the country, the highly concentrated geographic markets where Humana faces little competition are deprived of their most likely entrant, Aetna. The foreclosure of this future market role serves to lessen competition. Professor Dafny expressed concern about this loss of potential competition in her Senate testimony: “[C]onsolidation even in non-overlapping markets reduces the number of potential entrants who might attempt to overcome price-increasing (or quality-reducing) consolidation in markets where they do not currently operate.”31
26 LECG Inc., “Economic Analyses of the Competitive Impacts From The Proposed Consolidation of Highmark and IBC.”
September 10 2008, Page 9. 27 “Tough going for Co-ops,” the New York Times, September 15, 2015, available at
http://www.nytimes.com/2015/09/16/business/health-cooperatives-find-the-going-tough.html?ref=health 28 “Financial health shaky at many Obamacare insurance co-ops,” The Washington Post, October 10, 2015, available at
https://www.washingtonpost.com/national/health-science/financial-health-shaky-at-many-obamacare-insurance-co-ops/2015/10/08/2ab8f3ec-6c66-11e5-9bfe-e59f5e244f92_story.html?postshare=3211444658813888
29 Id. 30 This $1.5 billion Startup is Making Health Insurance Suck Less, Wired, March, 20, 2015, available at
http://www.wired.com/2015/04/oscar-funding/. 31 Dafny, supra note 15, at 13.
45
The Honorable William Baer November 11, 2015 Page 11 Commenting on the loss of potential competition that would accompany the proposed mergers, Professor Thomas L. Greaney, who is one of the country’s leading experts on antitrust in healthcare, observes:
An important issue…is whether the proposed mergers will lessen potential competition that was expected under the ACA (the potential entry by large insurers into each other’s markets, incidentally, was the argument advanced as to why a “public option” plan was unnecessary). At present all four of the merging companies compete on the exchanges and they overlap in a number of states. [citation omitted]. Notably, prior to the announced mergers, these insurers appear to have been considering further expanding their footprint on the exchanges by entering a number of new states. [citation omitted]. Thus reducing the array of formidable potential entrants into exchange markets from the “Big 5” to be “Remaining 3” will undermine the cost containment effects of competition in exchange markets. The lessons of oligopoly are pertinent here: consolidation that would pare the insurance sector down to less than a handful of players is likely to chill the enthusiasm for venturing into a neighbor’s market or engaging in risky innovation. One need look no further than the airline industry for a cautionary tale.32
THE PROPOSED MEGAMERGERS ARE LIKELY TO HARM CONSUMERS
The AMA has evaluated the potential effects of the proposed megamergers on both: (1) the sale of health insurance products to employers and individuals (the sell side); and (2) the purchase of health care provider (including physician) services (the buy side).33 The AMA has concluded that on the sell side the mergers are likely to result in higher premium levels to health care consumers and/or a reduction in the quality of health insurance that can take the form of a reduction in the availability of providers, a reduction in consumer service, etc. On the buy side, the mergers could enable the merged entities to lower payment rates for physicians such that there would be a reduction in the quality or quantity of the services that physicians are able to offer patients. Likely Detrimental Effects for Consumers in the Health Insurance Marketplace Price Increases A growing body of peer-reviewed literature suggests that greater consolidation leads to price increases, as opposed to greater efficiency or lower health care costs. Two studies have examined the effects of past health insurance mergers on premiums. A study of the 1999 merger between Aetna and Prudential found that the increased market concentration was associated with higher premiums.34 Most recently, a second study examined the premium impact of the 2008 merger between UnitedHealth Group Inc. and Sierra Health Services. That merger led to a large increase in concentration in Nevada health insurance markets. The study concluded that in the wake of the merger,
32 Greaney, “The State of Competition in the Health Care Marketplace: The Patient Protection and Affordable Care Act’s Impact
on Competition,” Testimony before the House Committee on the Judiciary, September 22, 2015, at 10. 33 U.S. v. Aetna Inc., supra note 12, at ¶¶ 17-18; United States v. United Health Group Inc. No. 1:05CV02436 (D.D.C., Dec. 20,
2005) (complaint), available at www.usdoj.gov/atr/cases/f213800/213815.htm. 34 Leemore Dafny et al, “Paying a Premium on your Premium? Consolidation in the US health insurance industry,” American
Economic Review 2012; 102: 1161-1185.
46
The Honorable William Baer November 11, 2015 Page 12 premiums in Nevada markets increased by almost 14 percent relative to a control group. These findings suggest that the merging parties exploited their resulting market power, to the detriment of consumers. 35 Also, recent studies suggest premiums for employer sponsored fully insured plans are rising more quickly in areas where insurance market concentration is increasing.36 Consistent with the observation that the loss of competition accompanying health insurer mergers results in higher premiums is research finding that competition among insurers is associated with lower premiums.37 Research suggests that on the federal health insurance exchanges, the participation of one new carrier (i.e., UnitedHealth Group Inc.) would have reduced premiums by 5.4 percent, while the inclusion of all companies in the individual insurance markets could have lowered rates by 11.1 percent.38 Professor Dafny observes that there are a number of studies documenting lower insurance premiums in areas with more insurers, including on the state health insurance marketplaces, the large group market, and in Medicare Advantage.39
Medical Loss Ratio Does Not Protect Consumers
The health insurers claim that medical loss ratio (MLR) regulations will protect consumers from the anticompetitive merger consequences predicted by research. The MLR measures how much of the premium dollar goes to pay for medical claims and quality activities instead of administrative costs and marketing. Large group insurers must devote at least 85 percent of premium revenues-net of taxes and licensing fees to medical claims and quality improvement. (An 80 percent requirement applies to small group/individual plans). However, the MLR requirements do not apply to more than half of Americans under age 65 with health insurance coverage because the rules do not apply to privately-insured enrollees in self-insured plans. Also, as Professor Dafny has observed, for the regulations to constrain an exercise of market power “they must ‘bind:’ the statutory floors must be higher than we would otherwise see.”40 Thus, there may be substantial room for profitable merger-related price increases in the individual market in particular, notwithstanding the minimum MLR requirement. She further observes that because the MLR is calculated at the state and market level, it is conceivable that mergers can enable insurers to offset low MLRs in one geographic area or sub-segment with high MLR in another.41 In addition, the MLR does not address the level of the premium increase, only the percentage used for claims and quality activities. Finally, MLR regulation does not address non-price dimensions of health insurer competition such as product design, provider networks, and customer service. Therefore the MLR does not protect consumers from post-merger harm along “value” dimensions.
35 Jose R. Guardado, David W. Emmons, and Carol K. Kane, “The Price Effects of a Large Merger of Health Insurers: A Case
Study of UnitedHealth-Sierra” Health Management, Policy and Innovation, 2013; 1(3) 16-35. 36 Dafny, supra note 15, at 11. 37 Dafny et al., supra note 34. 38 “More Insurers, Lower Premiums? Evidence from Initial Pricing in the Health Insurance Marketplaces,” Kellogg Insight (July
7, 2014), http://insight.kellogg.northwestern.edu/article/more_insurers_lower_premiums. 39 Dafny, supra note 15, at 11. 40 Dafny, Id., at 14. 41 Id.
47
The Honorable William Baer November 11, 2015 Page 13 Plan Quality The mergers can be expected to adversely affect health insurance plan quality. Insurers are already creating very narrow and restricted networks that force patients to go out-of-network to access care. A merger would reduce pressures on plans to offer broader networks to compete for members and would create fewer networks that are simultaneously under no competitive pressure to respond to patients’ access needs. As a result, it is even more likely that patients will find themselves in inadequate networks and be forced to access out-of-network care at some point. Similarly, it is very likely that patients will find themselves at in-network hospitals where, given their restricted network plans, many of the hospitals’ physicians will not have been offered a contract by the insurer. While the relationship between insurer consolidation and plan quality requires additional research, one study in the Medicare Advantage market found that more robust competition was associated with greater availability of prescription drug benefits.42 As Professor Dafny observes, “the competitive mechanisms linking diminished competition to higher prices operate similarly with respect to lower quality.”43 Merger Efficiency Claims are Unsupported and Speculative Professor Dafny noted in her Senate testimony that claims of offsetting efficiencies cannot ameliorate the competitive harm from these mergers. “Efficiencies must be merger-specific and verifiable…and there is still the question of whether benefits will be passed through to consumers in light of that diminished competition.”44 Insurers have a dismal track record of passing any savings from an acquisition on to consumers, and there is no reason to believe that this transaction would be any different. Under these circumstances, we suggest that the DOJ review the merging insurers’ efficiency claims with skepticism similar to that expressed by the Ninth Circuit Court of Appeals in the merger case of St. Alphonsus Medical Center and Federal Trade Commission v. St. Luke’s, 778 F.3d 775 (9th Cir, 2015). (“The Supreme Court has never expressly approved an efficiencies defense to a section 7 claim…We remain skeptical about the efficiencies defense in general and about its scope in particular.”)45 Turning to the health insurers’ specific efficiency claims, “[t]here is no evidence that larger insurers are more likely to implement innovative payment and care management programs…[and] there is a countervailing force offsetting this heightened incentive to invest in…reform: more dominant insurers in a given insurance market are less concerned with ceding market share.”46 In fact, “concerted delivery system reform efforts have tended to emerge from other sources, such as provider systems…and non-national payers,” according to Professor Dafny, not commercial health insurers.47 In any event, the vague “innovative payment” and “care management” claims made by the health insurers in their Congressional testimony are undermined by the studies of consummated health insurance mergers discussed above, which show that the mergers actually resulted in harm to consumers in the form of higher, not lower, insurance premiums.
42 See R. Town and S. Liu, supra note 6. 43 Dafny, supra note 15, at 11. 44 Id. at 16. 45 St. Alphonsus Medical Center and Federal Trade Commission v. St. Luke’s, 778 F.3d 775, 789-790 (9th Cir, 2015) 46 Dafny, supra note 15, at 16. 47 Id.
48
The Honorable William Baer November 11, 2015 Page 14 Countervailing Power Is Not a Consumer Welfare Enhancing Efficiency Several scholars have observed that one of the motivations for the health insurer mergers is to respond to hospital consolidation by acquiring countervailing power to force hospital prices down to the benefit of consumers.48 There is, however, no economic evidence that the formation of bilateral hospital/health insurer monopolies—a battle between proverbial Sumo wrestlers—benefits consumers. Professor Greaney observes that such matches often end in a handshake and consumers get crushed.49 The better answer to hospital consolidation is to recognize that integrated care does not necessarily require hospital-led consolidation and that by encouraging entry into hospital markets, hospital markets can be made competitive. Fortunately, regulators can take steps to encourage new entry.50 Low-hanging fruit in this area would be removing barriers to health care market entry that the government itself has erected. These include strengthening and expanding program integrity exemptions for physicians participating in alternative payment and delivery models, more flexible antitrust enforcement policies to foster physician networks engaged in alternative payment models (APMs) and the elimination of state certificate of need (CON) laws and the ban placed by the ACA on physician-owned specialty hospitals (POH). This latter restriction is radically inconsistent with the general thrust of the ACA, which is to encourage competition, such as the creation of health insurance exchanges and the formation of new delivery systems.
The Health Insurer Monopsony Power Acquired Through the Mergers Would Likely Degrade the Quality and Reduce the Quantity of Physician Services
Just as the proposed mergers would enable the merged firms to raise premiums or reduce levels of service, they would also be likely to be able to lower payment rates for physicians to a degree that would reduce the quality or quantity of services that they offer to patients such that the mergers would violate section 7 of the Clayton Act.
The DOJ has successfully challenged two health insurer mergers (half of all cases brought against health insurer mergers) based in part on DOJ claims that the mergers would have anticompetitive effects in the purchase of physician services. These challenges occurred in the merger of Aetna and Prudential in Texas in 1999,51 and the merger of UnitedHealth Group Inc. and Pacific Care in Tucson, Arizona and in Boulder, Colorado in 2005.52 In a third merger matter occurring in 2010—Blue Cross Blue Shield of Michigan and Physicians Health Plan of Mid-Michigan—the health insurers abandoned their merger plans when the DOJ complained that
48 See Prof. Mark Pauly of the Wharton School at Health Care Management Professor Mark Pauly PhD Discusses Proposed
Health Care Insurance Company Mergers, available at: http://knowledge.wharton.upenn.edu/article/whats-driving-health-insurers-merger-mania/, and Prof. Thomas Greaney, “Examining Implications of Health Insurance Mergers,” available at: http://healthaffairs.org/blog/2015/07/16/examining-implications-of-health-insurance-mergers/.
49 Greaney, “Examining Implications of Health Insurance Mergers.” 50 Id. 51 U.S. v. Aetna Inc., supra note 12, at ¶¶ 17-18; see also U.S. v. Aetna, Inc., No. 3-99 CV 1398-H, at 5-6 (Aug. 3, 1999) (revised
competitive impact statement), available at http://www.usdoj.gov/atr/case/s/f2600/2648.pdf. 52 United States v. United Health Group Inc. No. 1:05CV02436 (D.D.C., Dec. 20, 2005) (complaint), available at:
www.usdoj.gov/atr/cases/f213800/213815.htm.
49
The Honorable William Baer November 11, 2015 Page 15 the merger “…would have given Blue Cross Michigan the ability to control physician payment rates in a manner that could harm the quality of healthcare delivered to consumers.”53 DOJ’s monopsony challenges properly reflect the Agency’s conclusions that it is a mistake to assume that a health insurer’s negotiating leverage acquired through merger is a good thing for consumers. On the contrary, consumers can expect higher insurance premiums.”54 Health insurer monopsonists typically are also monopolists.55 Facing little if any competition, they lack the incentive to pass along cost savings to consumers. Also, the demand for health insurance is inelastic—when the price is raised, the insurer’s total revenue increases, and when price falls so do total revenues.56 Consumers do best when there is a competitive market for purchasing physician services. This was the well-documented conclusion reached in the 2008 hearings before the Pennsylvania Insurance Department on the competition ramifications of the proposed merger between Highmark, Inc. and Independence Blue Cross. Based on an extensive record of nearly 50,000 pages of expert and other commentary,57 the Pennsylvania Insurance Department was prepared to find the proposed merger to be anticompetitive in large part because it would have granted the merged health insurer undue leverage over physicians and other health care providers. This leverage would be “to the detriment of the insurance buying public” and would result in “weaker provider networks for consumers who depend on these networks for access to quality healthcare.”58 The Pennsylvania Insurance Department further concluded:
Our nationally renowned economic expert, LECG, rejected the idea that using market leverage to reduce provider reimbursements below competitive levels will translate into lower premiums, calling this an “economic fallacy” and noting that the clear weight of economic opinion is that consumers do best when there is a competitive market for purchasing provider services. LECG also found this theory to be borne out by the experience in central Pennsylvania, where competition between Highmark and Capital Blue Cross has been good for providers and good for consumers.59
For example, compensation below competitive levels hinders physicians’ ability to invest in new equipment, technology, training, staff and other practice infrastructure that could improve the access to, and quality of, patient care. It may also force physicians to spend less time with patients to meet practice expenses. Mergers may also cause even tighter provider networks, reducing patient access to physicians and effectively curtailing the quantity of their services. When one or more health insurers dominate a market, physicians can be pressured not to engage in aggressive patient advocacy, a crucial safeguard of patient care. 53 Blue Cross Blue Shield of Michigan and Physicians Health Plan of Mid-Michigan Abandon Merger Plans | OPA | Department
of Justice, available at: http://www.justice.gov/opa/pr/blue-cross-blue-shield-michigan-and-physicians-health-plan-mid-michigan-abandon-merger-plans.
54 Dafny, supra note 15, at 9.55 Peter J. Hammer and William M. Sage, Monopsony as an Agency and Regulatory Problem in Health Care, 71 ANTITRUST. L.J. 949 (2004).
55 Peter J. Hammer and William M. Sage, Monopsony as an Agency and Regulatory Problem in Health Care, 71 ANTITRUST. L.J. 949 (2004).
56 Su Liu & Deborah Chollet, supra note 39. 57 See http://www.ins.state.pa.us/ins/lib/ins/whats_new/Excerpts_from_PA_Insurance_Dept_Expert_Reports.pdf for background
information, including excerpts from the experts. 58 See Statement of Pennsylvania Insurance Commissioner Joel Ario on Highmark and IBC Consolidation (January 22, 2009). 59 Id.
50
The Honorable William Baer November 11, 2015 Page 16 Verifying the threat to consumers, a consumer representative testified in the Senate Judiciary Committee hearing on the mergers that they could “force doctors and hospitals to go beyond trimming costs, to cut costs so far that it begins to degrade the care and service they provide below what consumers value and need.”60 Such reduction in service levels and quality of care causes immediate harm to consumers. In the long run, it is imperative to consider whether monopsony power will harm consumers by driving physicians from the market. Health insurer payments that are below competitive levels may reduce patient care and access by motivating physicians to retire early or seek opportunities outside of medicine that are more rewarding, financially or otherwise. According to a 2015 study released by the Association of American Medical Colleges, the U.S. will face a shortage of between 46,000-90,000 physicians by 2025. The study, which is the first comprehensive national analysis that takes into account both demographics and recent changes to care delivery and payment methods, projects shortages in both primary and specialty care.61 Recent projections by the Health Resources and Services Administration similarly suggest a significant shortage of primary care physicians in the United States.62 Moreover, according to a recent survey by Deloitte, six in 10 physicians said it was likely that many physicians would retire earlier than planned in the next one to three years, a perception that Deloitte stated is fairly uniform among all physicians, irrespective of age, gender, or medical specialty.63 According to the Deloitte survey, 57 percent of physicians also said that the practice of medicine was in jeopardy and nearly 75 percent of physicians thought that the “best and the brightest” may not consider a career in medicine. Finally, most physicians surveyed believed that physicians would retire or scale back practice hours, based on how the future of medicine is changing.64
Monopsony Anticompetitive Effects May be Especially Felt by Consumers and Physicians in The Market for Medicare Advantage
Mergers resulting in monopsony power within the MA market would likely be felt most acutely by physicians who specialize in providing services to the elderly. With limited capacity to expand their business to traditional Medicare, these physicians may be especially harmed by the exceptionally high degree of concentration in the MA market where the lack of competition enables insurers to depress fees paid to physicians for services under MA. DOJ Should Block the Mergers to Protect the Quality and Quantity of Physician Services Given that the proposed mergers would result in countless highly concentrated commercial and MA markets where the merged entities either possessed substantial market shares or could exercise buyer power through coordinated interaction, it is critical for antitrust enforcers to oppose the proposed mergers
60 Statement of George Slover, Senior Policy Counsel, Consumers Union, Hearing of the Senate Committee on the Judiciary
(September 22, 2015), available at: http://www.judiciary.senate.gov/meetings/examining-consolidation-in-the-health-insurance-industry-and-its-impact-on-consumers.
61 See IHS Inc., The Complexities of Physician Supply and Demand: Projections from 2013 to 2025. Prepared for the Association of American Medical Colleges. Washington, DC: Association of American Medical Colleges; 2015.
62 See health resources and services administration, projecting the supply and demand for primary care physicians through 2020 in brief (November 2013).
63 Deloitte 2013 Survey of U.S. Physicians: Physician perspectives about health care reform in the future of the medical profession.
64 Id.
51
The Honorable William Baer November 11, 2015 Page 17 so that physicians have adequate competitive alternatives. Unless successfully opposed, the merged entities would likely be able to lower payment rates for physicians to a degree that would reduce the quality or quantity of services that physicians offer to patients. REMEDIES: DIVESTITURES WOULD BE UNWORKABLE AND INADEQUATE TO PROTECT CONSUMERS Any remedy short of blocking the mergers would not adequately protect consumers. A divestiture would not protect against the loss of potential competition that occurs when two of the five largest health insurers are eliminated. Moreover, divesture could be highly disruptive to the marketplace and cause harm to consumers, especially in Medicare Advantage markets where the elderly would be faced with a new insurer. As a practical matter, the overwhelming number of markets adversely affected by the proposed mergers, along with the barriers to entry to health insurance most recently demonstrated by the failure of the federally subsidized co-op program, makes unlikely that the DOJ could find proposed buyers of assets that could supply health insurance at a cost and quality comparable to that of the merger parties in the huge number of affected markets. Moreover, any qualified purchaser able to contract with a cost competitive network of hospitals and physicians, if found, would likely already be a market participant, and a divestiture to such an existing market participant would not likely return the market to even pre-merger levels of competition. Also troublesome is the apparent absence of a viable divestiture remedy in a national market where five national insurers compete for employer contracts. There are no would-be purchasers with the size and scope of the existing five national insurers that could replace the lost national competition. Accordingly, the AMA respectfully urges DOJ to block the mergers in order to protect consumers from premium increases, lower plan quality, and a reduction in the quantity and quality of physician services. We thank the Antitrust Division for its vigilant merger enforcement and look forward to helping augment your analysis with data and insights gleaned from our studies of health insurance markets. Sincerely,
James L. Madara, MD
52
1
Markets where an Anthem-Cigna merger warrants antitrust scrutiny | Analysis of data from the 2015 update to Competition in Health Insurance
Markets where an Anthem-Cigna merger warrants antitrust scrutinyAnalysis of data from the 2015 update to “Competition in Health Insurance: A comprehensive study of U.S. markets”
Health Policy Group American Medical Association
This analysis provides the commercial market share and concentration (HHI) effects of a proposed merger between Anthem (WellPoint) and Cigna. Data used in this analysis are from the 2015 update to the American Medical Association’s “Competition in health insurance” study (i.e., 2013 HealthLeaders-InterStudy data). Using the 2010 Department of Justice (DOJ)/Federal Trade Commission (FTC) Horizontal Merger Guidelines, it presents the state and metropolitan statistical area (MSA) level markets where the merger would raise competitive concerns based on how the Guidelines classify markets. Under the DOJ/FTC merger guidelines:
• MSAs with HHI less than 1500 are unconcentrated; mergers are unlikely to raise competitive concerns.
• MSAs with HHI between 1500 and 2500 are moderately concentrated; mergers that increase the HHI by more than 100 points potentially raise significant competitive concerns and often warrant scrutiny.
• MSAs with an HHI of more than 2500 are highly concentrated; mergers that increase the HHI by 100 to 200 points potentially raise significant competitive concerns and often warrant scrutiny, and those that increase it by more than 200 points will be presumed likely to enhance market power.
The following set of tables report those markets’ pre- and post-merger HHIs and the change in HHIs resulting from the proposed merger. The results are presented for commercial, combined (HMO+PPO+POS) product markets, as well as for PPO and POS markets separately.1 For each product market, they are reported at the state-level and then by MSA.
Tables 1, 3, 5, 7, 9 and 10 list those states and MSAs where such a merger would be presumed likely to enhance market power according to the guidelines above (i.e., combination of a highly concentrated market with a significant increase in the HHI). Those are the markets that would be expected to be most adversely affected by the merger.
Tables 2, 4, 6, 8 and 11 list those states and MSAs where such a merger potentially raises significant competitive concerns and often warrants scrutiny (i.e., combination of moderately to highly concentrated market with a meaningful increase in the HHI).
Results for the combined (HMO+PPO+POS) product market The results of the analysis in Table 1 conclude that an Anthem-Cigna merger would be presumed likely to enhance market power in the commercial, combined (HMO+PPO+POS) markets in 10 of the 14 states (NH, IN, CT, ME, VA, GA, CO, MO, NV, KY) in which Anthem is licensed to provide commercial coverage.
1. The analysis did not suggest any increased anticompetitive effects in the HMO product market.
53
2
Markets where an Anthem-Cigna merger warrants antitrust scrutiny | Analysis of data from the 2015 update to Competition in Health Insurance
Also focusing on the commercial, combined (HMO+PPO+POS) markets, the results of the analysis in Table 2 conclude that an Anthem-Cigna merger potentially raises significant competitive concerns and often warrants scrutiny in the other four states where Anthem operates (OH, CA, NY, WI).
Although Table 1 and Table 2 show that the merger would cause important changes in the HHI (concentration), it should be noted that in the states of Kentucky and Wisconsin, Cigna’s pre-merger market shares were only 4 percent and 3 percent respectively. The significant increases in the HHI would be the result of Anthem’s high shares in those states.
Turning to the results by MSA, the results of the analysis in Table 3 conclude that an Anthem-Cigna merger would be presumed likely to enhance market power in the commercial, combined (HMO+PPO+POS) markets in MSAs located in 13 of the 14 states (CA, CO, CT, GA, IN, KY, ME, MO, NH, NV, NY, OH, VA) in which Anthem is licensed to provide commercial coverage.
Also focusing on the commercial, combined (HMO+PPO+POS) markets, the results of the analysis in Table 4 conclude that an Anthem-Cigna merger potentially raises significant competitive concerns and often warrants scrutiny in MSAs located in CA, CT, KY, MO, NH, NV, NY, OH, VA and WI.
Results for separate PPO and POS product markets Table 5 shows the three states (IN, CO, GA) in which the merger will be presumed likely to enhance market power in the PPO market, and Table 9 shows that in all 14 “Anthem states” (CA, CO, CT, GA, IN, KY, ME, MO, NV, NH, NY,
OH, VA, WI), the merger will be presumed likely to enhance market power in the POS market.
Table 6 shows that in one additional state (NV), the merger potentially raises significant competitive concerns and often warrants scrutiny in the PPO market.
Turning to the results by MSA, Table 7 shows the MSAs, which are located across nine states (CA, CO, IN, GA, ME, MO, NH, OH, VA), where the merger is presumed likely to enhance market power in the PPO market, and Table 10 shows that MSAs meeting those criteria in the POS market are located in all 14 “Anthem states” (CA, CO, CT, GA, IN, KY, ME, MO, NV, NH, NY, OH, VA, WI).
Table 8 shows one additional MSA (in NV) where the merger potentially raises significant competitive concerns and often warrants scrutiny in the PPO market, and Table 11 shows MSAs classified in that way—located in OH and WI—for the POS market.
It is uncertain, however, whether separate product markets would be considered as constituting separate antitrust markets (i.e., not clear they are substitutes for each other).
Finally, it should be noted that although all MSA-level results show that the merger would cause important changes in the HHI (concentration), in some MSAs Cigna’s pre-merger shares were small, particularly when the change in the HHI was not very large. For example, that would generally be the case in combined (HMO+PPO+POS) and PPO markets in California and Ohio MSAs. The significant increase in the HHI in these two states would be the result of Anthem’s high shares in those MSAs.
©2015 American Medical Association. All rights reserved. 15-0382:PDF:9/15:DF
54
3
Markets where an Anthem-Cigna merger warrants antitrust scrutiny | Analysis of data from the 2015 update to Competition in Health Insurance
Combined (HMO+PPO+POS) marketsTable 1. States where an Anthem-Cigna merger will be presumed likely to enhance
market power
State Total HHITotal HHI post-merger Change in HHI
New Hampshire 2769 4452 1682
Indiana 3385 4999 1614
Connecticut 2544 3855 1311
Maine 2921 4089 1169
Virginia 2545 3439 894
Georgia 2127 2976 848
Colorado 1893 2734 841
Missouri 2074 2576 502
Nevada 2459 2906 447
Kentucky 2992 3323 331
Table 2. States where an Anthem-Cigna merger potentially raises significant competitive
concerns and often warrants scrutiny
State Total HHITotal HHI post-merger Change in HHI
Ohio 2043 2354 311
California 2108 2399 291
New York 1712 1921 210
Wisconsin 1482 1592 109
Table 3. MSAs where an Anthem-Cigna merger will be presumed likely to enhance market
power, by state
MSA name Total HHITotal HHI post-merger Change in HHI
California
Santa Cruz-Watsonville, CA 2934 3530 596
Santa Ana-Anaheim-Irvine, CA 1986 2514 528
Santa Barbara-Santa Maria, CA 3371 3849 478
Salinas, CA 4446 4888 442
Oxnard-Thousand Oaks-Ventura, CA 2471 2838 367
Los Angeles-Long Beach-Glendale, CA 2256 2575 319
Bakersfield, CA 2664 2969 305
El Centro, CA 3125 3416 291
Modesto, CA 2453 2668 215
Colorado
Grand Junction, CO 2040 3371 1331
Fort Collins-Loveland, CO 2457 3711 1253
Greeley, CO 2055 3180 1125
55
4
Markets where an Anthem-Cigna merger warrants antitrust scrutiny | Analysis of data from the 2015 update to Competition in Health Insurance
MSA name Total HHITotal HHI post-merger Change in HHI
Pueblo, CO 1990 2939 949
Colorado Springs, CO 1725 2671 947
Boulder, CO 1999 2899 900
Denver-Aurora, CO 2000 2631 631
Connecticut
Hartford-West Hartford-East Hartford, CT 2426 3783 1357
New Haven-Milford, CT 3139 4440 1300
Waterbury, CT 3108 4403 1295
Bridgeport-Stamford-Norwalk, CT 2442 3723 1282
Danbury, CT 2355 3591 1236
Norwich-New London-Westerley, CT-RI 3121 3921 800
Georgia
Dalton, GA 3340 5924 2584
Columbus, GA-AL 2780 3998 1218
Valdosta, GA 3113 4291 1178
Savannah, GA 2389 3549 1160
Hinesville-Fort Stewart, GA 3543 4695 1152
Rome, GA 1982 3090 1107
Albany, GA 3142 4203 1061
Brunswick, GA 2935 3880 944
Warner Robins, GA 3701 4587 886
Atlanta-Sandy Springs-Marietta, GA 2032 2758 726
Athens-Clarke County, GA 2265 2946 681
Gainesville, GA 1889 2545 656
Macon, GA 2215 2720 505
Augusta-Richmond County, GA-SC 1996 2500 505
Indiana
Indianapolis, IN 3299 5716 2417
Lafayette, IN 2780 4762 1982
Terre Haute, IN 5436 7047 1611
Kokomo, IN 3764 5191 1427
Anderson, IN 4803 6073 1270
Gary, IN 3059 4274 1215
Evansville, IN-KY 3419 4621 1202
Fort Wayne, IN 3595 4762 1167
Michigan City-La Porte, IN 4064 5135 1071
Elkhart-Goshen, IN 4328 5161 833
Muncie, IN 3771 4299 528
South Bend-Mishawaka, IN-MI 2813 3295 482
Bloomington, IN 3748 4189 440
Kentucky
Bowling Green, KY 3986 4895 909
Owensboro, KY 4993 5589 596
Louisville, KY-IN 2726 3166 441
56
5
Markets where an Anthem-Cigna merger warrants antitrust scrutiny | Analysis of data from the 2015 update to Competition in Health Insurance
MSA name Total HHITotal HHI post-merger Change in HHI
Maine
Bangor, ME 2884 4427 1543
Lewiston-Auburn, ME 3234 4597 1362
Portland-South Portland, ME 2872 3870 998
Missouri
Joplin, MO 2117 2676 559
St. Louis, MO-IL 2571 3100 529
Jefferson City, MO 2779 3165 386
Springfield, MO 2281 2553 272
Kansas City, MO-KS 2307 2548 241
Columbia, MO 3405 3612 207
New Hampshire
Rochester-Dover, NH 2808 4354 1546
Manchester, NH 2683 4215 1531
Nashua, NH-MA 2384 3640 1256
Portsmouth, NH-ME 2733 3940 1207
Nevada
Carson City, NV 2092 2503 411
Las Vegas-Paradise, NV 3138 3491 352
New York
Suffolk County-Nassau County, NY 2928 3162 233
Ohio
Weirton-Steubenville, WV-OH 2458 2966 508
Cincinnati-Middletown, OH-KY-IN 2591 3027 435
Columbus, OH 2363 2716 353
Lima, OH 2320 2661 342
Dayton, OH 2786 3112 326
Sandusky, OH 2677 3002 324
Tennessee
Kingsport-Bristol, TN-VA 2345 3085 739
Chattanooga, TN-GA 2623 3157 533
Virginia
Richmond, VA 3514 5241 1727
Winchester, VA-WV 3663 4851 1188
Lynchburg, VA 4484 5436 952
Roanoke, VA 4358 5069 710
Virginia Beach-Norfolk-Newport News, VA-NC 3333 3977 644
Blacksburg-Christiansburg-Radford, VA 4902 5528 626
Danville, VA 7177 7724 548
Harrisonburg, VA 5473 5987 514
Charlottesville, VA 3212 3545 333
57
6
Markets where an Anthem-Cigna merger warrants antitrust scrutiny | Analysis of data from the 2015 update to Competition in Health Insurance
Table 4. MSAs where an Anthem-Cigna merger potentially raises significant competitive concerns and often warrants scrutiny, by state
MSA name Total HHITotal HHI post-merger Change in HHI
California
San Jose-Sunnyvale-Santa Clara, CA 2112 2453 341
San Diego-Carlsbad-San Marcos, CA 1622 1890 267
San Francisco-San Mateo-Redwood City, CA 2063 2305 242
Riverside-San Bernardino-Ontario, CA 2162 2375 213
Oakland-Fremont-Hayward, CA 2859 3031 172
Sacramento-Arden-Arcade-Roseville, CA 2466 2578 112
District of Columbia
Washington-Arlington-Alexandria, DC-VA-MD-WV 1760 2086 326
Massachusettes
Haverhill-Newburyport-Amesbury Town, MA-NH 1760 2107 347
Lawrence-Methuen-Salem, MA-NH 2023 2205 182
Springfield, MA-CT 1966 2106 140
Missouri
St. Joseph, MO-KS 3221 3359 138
Nevada
Reno-Sparks, NV 1913 2416 503
New York
New York-White Plains-Wayne, NY-NJ 1987 2319 332
Poughkeepsie-Newburgh-Middletown, NY 1781 2009 228
Ohio
Canton-Massillon, OH 1904 2143 239
Youngstown-Warren-Boardman, OH-PA 1978 2214 236
Akron, OH 2197 2425 227
Toledo, OH 2247 2449 201
Cleveland-Elyria-Mentor, OH 2658 2843 185
Mansfield, OH 2911 3034 123
Tennessee
Clarksville, TN-KY 2034 2413 379
Wisconsin
Racine, WI 3683 3848 165
Milwaukee-Waukesha-West Allis, WI 3548 3683 135
Janesville, WI 1487 1605 118
West Virginia
Huntington-Ashland, WV-KY-OH 1971 2257 286
Wheeling, WV-OH 1899 2153 254
58
7
Markets where an Anthem-Cigna merger warrants antitrust scrutiny | Analysis of data from the 2015 update to Competition in Health Insurance
PPO marketsTable 5. States where an Anthem-Cigna merger will be presumed likely to enhance
market power
State PPO HHIPPO HHI post-merger
Change in PPO HHI
Indiana 4771 6509 1737
Colorado 2810 3820 1010
Georgia 3214 3592 379
Table 6. States where an Anthem-Cigna merger potentially raises significant competitive
concerns and often warrants scrutiny
State PPO HHIPPO HHI post-merger
Change in PPO HHI
Nevada 1901 2450 549
Table 7. MSAs where an Anthem-Cigna merger will be presumed likely to enhance market
power, by state
MSA name PPO HHIPPO HHI post-merger
Change in PPO HHI
California
Santa Cruz-Watsonville, CA 4403 4975 572
El Centro, CA 3377 3724 347
Colorado
Greeley, CO 2834 4324 1491
Pueblo, CO 3531 4767 1235
Fort Collins-Loveland, CO 4030 5106 1076
Denver-Aurora, CO 2770 3657 887
Colorado Springs, CO 2720 3592 872
Grand Junction, CO 2518 3342 824
Boulder, CO 2867 3608 742
District of Columbia
Washington-Arlington-Alexandria, DC-VA-MD-WV 2535 2788 253
Georgia
Dalton, GA 3110 5668 2558
Valdosta, GA 2184 3892 1707
Hinesville-Fort Stewart, GA 2277 3127 850
Brunswick, GA 2423 3269 846
Albany, GA 2474 3231 757
Rome, GA 3646 4239 593
Warner Robins, GA 2601 3131 530
Savannah, GA 2221 2747 526
Athens-Clarke County, GA 2890 3398 508
59
8
Markets where an Anthem-Cigna merger warrants antitrust scrutiny | Analysis of data from the 2015 update to Competition in Health Insurance
MSA name PPO HHIPPO HHI post-merger
Change in PPO HHI
Macon, GA 2741 3153 411
Columbus, GA-AL 2222 2592 370
Atlanta-Sandy Springs-Marietta, GA 4059 4300 241
Augusta-Richmond County, GA-SC 2716 2921 205
Indiana
Indianapolis, IN 4188 7423 3234
Gary, IN 4721 5571 850
Elkhart-Goshen, IN 6013 6660 647
Terre Haute, IN 6949 7563 614
Evansville, IN-KY 4634 5127 493
Maine
Bangor, ME 3568 3943 375
Missouri
Jefferson City, MO 3148 3539 391
Joplin, MO 2476 2781 306
New Hampshire
Rochester-Dover, NH 3467 4052 585
Ohio
Lima, OH 3330 3583 253
Columbus, OH 2803 3053 250
Table 8. MSAs where an Anthem-Cigna merger potentially raises significant competitive
concerns and often warrants scrutiny, by state
MSA name PPO HHIPPO HHI post-merger
Change in PPO HHI
Nevada
Las Vegas-Paradise, NV 1864 2331 467
60
9
Markets where an Anthem-Cigna merger warrants antitrust scrutiny | Analysis of data from the 2015 update to Competition in Health Insurance
POS marketsTable 9. States where an Anthem-Cigna merger will be presumed likely to enhance
market power
State POS HHITotal POS HHI post-merger
Change in POS HHI
Maine 4200 7684 3483
New Hampshire 3595 6477 2882
Connecticut 2884 4858 1974
Indiana 2855 4337 1482
Virginia 2352 3715 1363
Georgia 2988 4244 1256
California 3037 4228 1191
Nevada 3857 4842 985
Kentucky 3363 4235 872
Colorado 4196 4875 680
Missouri 4153 4768 615
Ohio 4197 4712 515
New York 3994 4401 407
Wisconsin 5123 5332 208
Table 10. MSAs where an Anthem-Cigna merger will be presumed likely to enhance market
power, by state
MSA name POS HHITotal POS HHI post-merger
Change in POS HHI
California
Santa Barbara-Santa Maria, CA 3025 5236 2212
Salinas, CA 3599 5663 2064
Visalia-Porterville, CA 3478 5386 1907
Madera, CA 3655 5560 1904
Modesto, CA 3184 5065 1881
San Luis Obispo-Paso Robles, CA 3850 5651 1801
Napa, CA 3453 5241 1788
Merced, CA 3308 5077 1769
Fresno, CA 3410 5068 1658
Redding, CA 4004 5559 1555
Oxnard-Thousand Oaks-Ventura, CA 3034 4587 1553
Santa Cruz-Watsonville, CA 3062 4614 1552
Bakersfield, CA 3269 4753 1485
Santa Ana-Anaheim-Irvine, CA 3130 4527 1397
Stockton, CA 3360 4716 1356
Los Angeles-Long Beach-Glendale, CA 2669 3952 1283
Yuba City-Marysville, CA 4159 5353 1194
Sacramento-Arden-Arcade-Roseville, CA 3613 4705 1092
Chico, CA 4020 5098 1078
Vallejo-Fairfield, CA 3813 4755 942
61
10
Markets where an Anthem-Cigna merger warrants antitrust scrutiny | Analysis of data from the 2015 update to Competition in Health Insurance
MSA name POS HHITotal POS HHI post-merger
Change in POS HHI
Santa Rosa-Petaluma, CA 3892 4831 939
San Diego-Carlsbad-San Marcos, CA 3531 4455 924
Oakland-Fremont-Hayward, CA 3878 4715 837
San Francisco-San Mateo-Redwood City, CA 3970 4747 777
Riverside-San Bernardino-Ontario, CA 2391 3165 774
San Jose-Sunnyvale-Santa Clara, CA 3854 4535 681
Colorado
Grand Junction, CO 3875 4724 850
Colorado Springs, CO 3921 4741 819
Fort Collins-Loveland, CO 4111 4920 809
Pueblo, CO 4000 4807 806
Boulder, CO 4176 4888 711
Greeley, CO 4140 4842 701
Denver-Aurora, CO 4406 4938 531
Connecticut
Waterbury, CT 2953 5442 2489
New Haven-Milford, CT 2967 5454 2488
Hartford-West Hartford-East Hartford, CT 2866 4755 1888
Bridgeport-Stamford-Norwalk, CT 3201 4982 1780
Danbury, CT 3153 4831 1678
Norwich-New London-Westerley, CT-RI 3244 4326 1082
District of Columbia
Washington-Arlington-Alexandria, DC-VA-MD-WV 2944 3327 383
Georgia
Dalton, GA 5271 8764 3493
Columbus, GA-AL 3546 5296 1751
Rome, GA 2571 4093 1522
Savannah, GA 2916 4357 1441
Athens-Clarke County, GA 3554 4914 1360
Hinesville-Fort Stewart, GA 4193 5536 1343
Atlanta-Sandy Springs-Marietta, GA 2899 4086 1186
Warner Robins, GA 4331 5506 1175
Albany, GA 3900 5052 1152
Gainesville, GA 2664 3694 1030
Brunswick, GA 3815 4845 1030
Valdosta, GA 3777 4571 793
Augusta-Richmond County, GA-SC 3256 4010 755
Macon, GA 2615 3338 723
Indiana
Kokomo, IN 3296 6036 2740
Terre Haute, IN 3560 6142 2582
Anderson, IN 3328 5565 2237
Lafayette, IN 4053 6046 1993
Fort Wayne, IN 3261 5123 1862
Evansville, IN-KY 2984 4649 1665
Indianapolis, IN 3166 4821 1655
Michigan City-La Porte, IN 3377 4938 1561
62
11
Markets where an Anthem-Cigna merger warrants antitrust scrutiny | Analysis of data from the 2015 update to Competition in Health Insurance
MSA name POS HHITotal POS HHI post-merger
Change in POS HHI
Elkhart-Goshen, IN 3742 4971 1229
Gary, IN 3470 4640 1170
South Bend-Mishawaka, IN-MI 3669 4835 1166
Muncie, IN 2747 3453 706
Bloomington, IN 3121 3621 500
Kentucky
Bowling Green, KY 2937 4836 1898
Owensboro, KY 3573 4802 1229
Elizabethtown, KY 3140 4187 1046
Lexington-Fayette, KY 3359 4175 816
Louisville, KY-IN 3983 4658 675
Massachusettes
Haverhill-Newburyport-Amesbury Town, MA-NH 3220 4863 1643
Lawrence-Methuen-Salem, MA-NH 3256 4514 1258
Springfield, MA-CT 3046 4286 1240
Worcester, MA-CT 3339 4238 899
Lowell-Billerica-Chelmsford, MA-NH 3538 4337 799
Maine
Lewiston-Auburn, ME 4479 8454 3975
Bangor, ME 4089 7950 3861
Portland-South Portland, ME 4135 7204 3069
Minnesota
Duluth, MN-WI 4710 5067 357
Minneapolis-St. Paul-Bloomington, MN-WI 3845 4093 249
Missouri
St. Joseph, MO-KS 3648 4959 1311
Joplin, MO 4289 5097 808
Springfield, MO 4465 5018 553
Columbia, MO 5086 5532 446
Kansas City, MO-KS 4183 4618 435
St. Louis, MO-IL 4540 4955 415
Jefferson City, MO 5704 5993 289
New Hampshire
Rochester-Dover, NH 3562 6681 3119
Manchester, NH 3481 6066 2585
Portsmouth, NH-ME 3372 5939 2567
Nashua, NH-MA 3401 5799 2398
Nevada
Reno-Sparks, NV 3862 4757 896
Las Vegas-Paradise, NV 4125 4965 839
New York
Glens Falls, NY 2799 4210 1411
Albany-Schenectady-Troy, NY 3098 3985 887
Kingston, NY 4051 4792 742
Poughkeepsie-Newburgh-Middletown, NY 4147 4875 729
Suffolk County-Nassau County, NY 5418 5783 365
New York-White Plains-Wayne, NY-NJ 3792 4135 343
63
12
Markets where an Anthem-Cigna merger warrants antitrust scrutiny | Analysis of data from the 2015 update to Competition in Health Insurance
MSA name POS HHITotal POS HHI post-merger
Change in POS HHI
Ohio
Weirton-Steubenville, WV-OH 2668 4266 1598
Sandusky, OH 3340 4729 1389
Lima, OH 3647 4976 1330
Canton-Massillon, OH 3194 3996 802
Youngstown-Warren-Boardman, OH-PA 3811 4606 795
Cleveland-Elyria-Mentor, OH 3488 4199 711
Akron, OH 2670 3364 694
Toledo, OH 2875 3463 588
Cincinnati-Middletown, OH-KY-IN 4105 4628 524
Mansfield, OH 4869 5344 474
Dayton, OH 4828 5124 296
Columbus, OH 6039 6327 288
Tennessee
Chattanooga, TN-GA 3889 5367 1478
Clarksville, TN-KY 2652 3811 1159
Kingsport-Bristol, TN-VA 4993 6033 1041
Virginia
Winchester, VA-WV 3381 6088 2707
Richmond, VA 3177 5294 2117
Blacksburg-Christiansburg-Radford, VA 3600 5559 1959
Roanoke, VA 3364 5242 1878
Lynchburg, VA 2541 4301 1760
Danville, VA 4377 6011 1634
Harrisonburg, VA 3015 4342 1327
Virginia Beach-Norfolk-Newport News, VA-NC 2553 3828 1275
Charlottesville, VA 2269 2853 583
Wisconsin
Madison, WI 2318 3596 1278
Janesville, WI 2246 3048 802
La Crosse, WI-MN 3323 3971 648
West Virginia
Wheeling, WV-OH 2741 3551 810
Huntington-Ashland, WV-KY-OH 3513 4321 808
Table 11. MSAs where an Anthem-Cigna merger potentially raises significant competitive
concerns and often warrants scrutiny, by state
MSA name POS HHIPOS HHI post-merger
Change in POS HHI
Ohio
Springfield, OH 4877 5027 150
Wisconsin
Racine, WI 6766 6895 129
Milwaukee-Waukesha-West Allis, WI 6813 6923 110
64
The Trial
65
FOR IMMEDIATE RELEASE Thursday, July 21, 2016
JUSTICE NEWS
Department of Justice
Office of Public Affairs
Justice Department and State Attorneys General Sue to Block Anthem’sAcquisition of Cigna, Aetna’s Acquisition of Humana
Lawsuits Challenge Unprecedented Consolidation in the Health Insurance Industry
The U.S. Department of Justice and attorneys general from multiple states and the District of Columbia sued todayto block Anthem’s proposed acquisition of Cigna and Aetna’s proposed acquisition of Humana, alleging that thetransactions would increase concentration and harm competition across the country, reducing from five to three thenumber of large, national health insurers in the nation.
The department and state attorneys general filed these two merger challenges in the U.S. District Court for theDistrict of Columbia. The complaints allege that the two mergers – valued at $54 billion and $37 billion – wouldharm seniors, working families and individuals, employers and doctors and other healthcare providers by limitingprice competition, reducing benefits, decreasing incentives to provide innovative wellness programs and loweringthe quality of care.
“Competitive insurance markets are essential to providing Americans the affordable and high-quality healthcare theydeserve,” said Attorney General Loretta E. Lynch. “These mergers would restrict competition for health insuranceproducts sold in markets across the country and would give tremendous power over the nation’s health insuranceindustry to just three large companies. Our actions seek to preserve competition that keeps premiums down anddrives insurers to collaborate with doctors and hospitals to provide better healthcare for all Americans.”
“We all, including seniors, everyday workers and the previously uninsured and underinsured deserve affordablehealth insurance options,” said Principal Deputy Associate Attorney General Bill Baer. “Competition today drivesthese four successful firms to fight to give us affordable options. There is no reason to put that dynamic at risk andthat is why we are asking the court to stop these mergers and keep competition working for the benefit of theAmerican consumer.”
“The proposed mergers would eliminate two innovative competitors – Cigna and Humana – at a time whencompetition has been pressuring insurers to develop new models of care designed to keep Americans healthier, todeliver healthcare more efficiently and to control the costs of providing care,” said Deputy Assistant AttorneyGeneral Sonia Pfaffenroth of the Justice Department’s Antitrust Division. “The department will continue to work withour state colleagues to protect competition and innovation in this vitally important industry.”
Eleven states – California, Colorado, Connecticut, Georgia, Iowa, Maine, Maryland, New Hampshire, New York,Tennessee and Virginia – and the District of Columbia joined the department’s challenge of Anthem’s $54 billionacquisition of Cigna. Eight states –Delaware, Florida, Georgia, Iowa, Illinois, Ohio, Pennsylvania and Virginia – andthe District of Columbia joined the department’s challenge of Aetna’s $37 billion acquisition of Humana.
The suit against Anthem and Cigna alleges that their merger would substantially reduce competition for millions ofconsumers who receive commercial health insurance coverage from national employers throughout the United
Justice Department and State Attorneys General Sue to Block Anthem’s... https://www.justice.gov/opa/pr/justice-department-and-state-attorneys-ge...
1 of 2 4/27/17, 4:46 PM
66
16-849 Antitrust DivisionOffice of the Attorney GeneralTopic:
Antitrust Updated December 30, 2016
States; from large-group employers in at least 35 metropolitan areas, including New York, Los Angeles, SanFrancisco, Denver and Indianapolis; and from public exchanges created by the Affordable Care Act in St. Louis andDenver. The complaint also alleges that the elimination of Cigna threatens competition among commercial insurersfor the purchase of healthcare services from hospitals, physicians and other healthcare providers. The mergerwould eliminate substantial head-to-head competition in all these markets, and it would remove the independentcompetitive force of Cigna, which has been a leader in the industry’s transition to value-based care.
The lawsuit against Aetna and Humana alleges that their merger would substantially reduce Medicare Advantagecompetition in more than 350 counties in 21 states, affecting more than 1.5 million Medicare Advantage customersin those counties. Before seeking to acquire Humana, Aetna had pursued aggressive expansion in MedicareAdvantage. Aetna, the nation’s fourth-largest Medicare Advantage insurer by membership, has nearly doubled itsMedicare Advantage footprint over the past four years. Humana is the nation’s second-largest Medicare Advantageinsurer by membership. The lawsuit also alleges that Aetna’s purchase of Humana would substantially reducecompetition to sell commercial health insurance to individuals and families on the public exchanges in 17 counties inFlorida, Georgia and Missouri, affecting more than 700,000 people in those counties. The lawsuit alleges that bybuying Humana, Aetna would eliminate one of its strongest and most capable competitors in these markets.
Anthem, Inc. is headquartered in Indianapolis, Indiana. It is the nation’s second-largest health insurer and thelargest member of the Blue Cross and Blue Shield Association. It holds the Blue Cross license in 14 states andprovides health insurance to 39 million people. In 2015, Anthem reported over $79 billion in revenues.
Cigna Corp. is headquartered in Hartford, Connecticut. It is the nation’s fourth-largest health insurer. It operates inevery state and the District of Columbia and provides health insurance to 15 million people. In 2015, Cigna reported$38 billion in revenues.
Aetna Inc. is headquartered in Hartford, Connecticut. It is the nation’s third-largest health insurer. It operates inevery state and the District of Columbiaand provides health insurance to 23 million people. In 2015, Aetna reported$60 billion in revenues.
Humana Inc. is headquartered in Louisville, Kentucky. It is the nation’s fifth-largest health insurer, operates in everystate and the District of Columbia and provides health insurance to 14 million people. In 2015, Humana reported$54 billion in revenues.
Aetna-Humana Complaint
Anthem-Cigna Complaint
Justice Department and State Attorneys General Sue to Block Anthem’s... https://www.justice.gov/opa/pr/justice-department-and-state-attorneys-ge...
2 of 2 4/27/17, 4:46 PM
67
Case 1:16-cv-01493 Document 1 Filed 07/21/16 Page 1 of 43
UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLUMBIA
UNITED STATES OF AMERICA 450 5th Street, NW, Suite 4100 Washington, DC 20530 STATE OF CALIFORNIA 300 South Spring Street, Suite 1720 Los Angeles, CA 90013 STATE OF COLORADO 1300 Broadway, 7th Floor Denver, CO 80203 STATE OF CONNECTICUT 55 Elm Street, P.O. Box 120 Hartford, CT 06141-0120 DISTRICT OF COLUMBIA 441 4th Street, NW Washington, DC 20001 STATE OF GEORGIA 40 Capitol Square, SW Atlanta, GA 30334-1300 STATE OF IOWA 1305 East Walnut Street, 2nd Floor Des Moines, IA 50319 STATE OF MAINE 6 State House Station Augusta, ME 04333-0006
STATE OF MARYLAND 200 Saint Paul Place Baltimore, MD 21202 STATE OF NEW HAMPSHIRE 33 Capitol Street Concord, NH 03301
68
– 2 –
STATE OF NEW YORK 120 Broadway New York, NY 10271-0332 STATE OF TENNESSEE 500 Charlotte Avenue Nashville, TN 37202 and COMMONWEALTH OF VIRGINIA 202 North 9th Street Richmond, VA 23219
Plaintiffs, v. ANTHEM, INC. 120 Monument Circle Indianapolis, IN 46204 and CIGNA CORP. 900 Cottage Grove Road Bloomfield, CT 06002
Defendants.
COMPLAINT
The United States of America, acting under the direction of the Attorney General of the
United States, and the States of California, Colorado, Connecticut, Georgia, Iowa, Maine,
Maryland, New Hampshire, New York, and Tennessee, the Commonwealth of Virginia, and the
District of Columbia (“Plaintiff States”), acting by and through their respective Attorneys
General, bring this civil antitrust action to prevent Anthem, Inc. from acquiring Cigna Corp.
Case 1:16-cv-01493 Document 1 Filed 07/21/16 Page 2 of 43
69
– 3 –
I. INTRODUCTION
1. Anthem’s proposed $54 billion acquisition of Cigna would be the largest merger
in the history of the health-insurance industry. It would combine two of the few remaining
commercial health-insurance options for businesses and individuals in markets throughout the
country. And in doing so, it would substantially lessen competition, harming millions of
American consumers, as well as doctors and hospitals.
2. The U.S. healthcare system—including commercial health insurance—affects the
lives and pocketbooks of virtually every citizen. Each year, Americans visit the doctor or hospital
more than a billion times and spend more than $3 trillion on healthcare. Half of all Americans
obtain healthcare through their employers, which purchase plans from insurance companies such
as Anthem and Cigna. Millions more citizens purchase health insurance on public exchanges
established by the Affordable Care Act.
3. Competition among insurance companies like Anthem and Cigna ensures that
employers and individuals can purchase high-quality policies at affordable prices. Employers
seek competitive bids when selecting plans to offer their employees. Individuals choose among
competing insurers when purchasing policies on the public exchanges. And competition is
critical for doctors and hospitals who obtain access to most of their commercial health-insurance
patients by contracting with insurers to be “in-network” providers.
4. This competition is now at risk. Today, the industry is dominated by five large
insurers commonly referred to as “the big five.” In a scramble to become even bigger, four of the
big five now propose to merge: Anthem seeks to buy Cigna for $54 billion, and Aetna seeks to
acquire Humana for $37 billion. These mergers would reshape the industry, eliminating two
innovative competitors—Cigna and Humana—at a time when the industry is experimenting with
new ways to lower healthcare costs. Other insurers lack the scope and scale to fill this
Case 1:16-cv-01493 Document 1 Filed 07/21/16 Page 3 of 43
70
– 4 –
competitive void. As one Anthem executive vice president explained in 2015, this “very
consolidated” industry is “really down to a big five and then, it gets much more smaller in terms
of players that are available after that.” After the mergers, the big five would become the big
three, each of which would have almost twice the revenue of the next largest insurer.
5. Today, the United States and a number of states have filed lawsuits in this Court
to enjoin both mergers. This complaint seeks to block Anthem’s attempt to buy Cigna. If allowed
to proceed, this merger would enhance Anthem’s power to profit at the expense of both
consumers and the doctors and hospitals providing their medical care.
6. Anthem is the largest member of the Blue Cross and Blue Shield Association. It
competes in 14 states as the Blue licensee and partners with other Blue plans to compete
throughout the country. Anthem admits in business documents that its share is already “dominant
in most of [its] markets,” a position that gives it “a clear advantage and provides opportunities to
drive margin growth.” But Anthem has also earned a reputation in many markets for having poor
customer service, being slow to innovate, and being difficult to work with for doctors and
hospitals. The president of Anthem’s Indiana business conceded, “There are some customers,
some prospects who loathe us.”
7. Cigna increasingly competes head to head with Anthem by finding innovative
ways to lower its customers’ medical costs. Cigna offers sophisticated wellness programs that
improve the health of its members, provides highly-regarded customer service, and works closely
with doctors and hospitals to improve the quality and lower the cost of care. These efforts have
been well received by consumers and healthcare providers, pressuring Anthem to respond.
Without the merger, Cigna expects to double in size in the next seven to eight years.
Case 1:16-cv-01493 Document 1 Filed 07/21/16 Page 4 of 43
71
– 5 –
8. Anthem’s purchase of Cigna would eliminate it as a competitive threat and
substantially lessen competition in numerous markets around the country. The harm to
competition in any one of these markets is sufficient to enjoin the transaction.
(a) National accounts. Of the big five, only four insurers offer a nationwide commercial network sufficient to serve the country’s largest employers, known as “national accounts.” Anthem, working together with its fellow Blues, is one; Cigna is another. Anthem and Cigna view each other as close competitors for these accounts and have adopted strategies for winning national business from each other.
(b) Local commercial markets. Anthem and Cigna are often two of few remaining options for large-group employers in at least 35 metropolitan areas, including New York, Los Angeles, San Francisco, Atlanta, and Indianapolis. In some of these areas, Cigna has won most of its new accounts from Anthem, and Anthem has described Cigna as “aggressive” and “our number one competitor.”
(c) Individual exchanges. In at least two metropolitan areas—St. Louis and
Denver—Anthem and Cigna are key competitors selling policies to individuals and families on the public exchanges. Cigna has grown rapidly in these markets. For example, in the two years Cigna has participated on the exchange in St. Louis, it has captured nearly 25 percent of the market—with much of that growth coming at Anthem’s expense. Without the merger, Cigna plans to continue to expand on the exchanges.
(d) Purchase of healthcare services by commercial health insurers. Anthem’s high
market shares already give it significant bargaining leverage with doctors and hospitals. In the same 35 metropolitan areas referenced above, this merger would substantially increase Anthem’s ability to dictate the reimbursement rates it pays providers, threatening the availability and quality of medical care. The merger also would deprive both providers and consumers of Cigna’s innovative efforts to work cooperatively with providers and enter into “value-based” contracts that reward them for improving patient health and lowering cost.
9. If permitted to proceed, Anthem’s purchase of Cigna likely would lead to higher
prices and reduced benefits, and would deprive consumers and healthcare providers of the
innovation and collaboration necessary to improve care outcomes. Because this merger threatens
to reduce competition across the country, it violates Section 7 of the Clayton Act. To prevent this
unlawful harm, the Court should enjoin this merger.
Case 1:16-cv-01493 Document 1 Filed 07/21/16 Page 5 of 43
72
– 6 –
II. THE DEFENDANTS AND THE MERGER
10. Anthem competes in all 50 states and the District of Columbia either directly or
through the Blue Cross and Blue Shield Association, a joint venture of insurance companies that
partner to offer their members access to a nationwide network of healthcare providers. Anthem
controls the Blue license in all or part of 14 states, covering 39 percent of the U.S. population:
California, Colorado, Connecticut, Georgia, Indiana, Kentucky, Maine, most of Missouri,
Nevada, New Hampshire, parts of New York, Ohio, Virginia (except the DC suburbs), and
Wisconsin. In all these states but California and New York, Anthem has the exclusive right to bid
for new business under both the Blue Cross and Blue Shield brands. In 2015, Anthem had
approximately 39 million members nationwide and earned $78 billion in revenue.
11. Cigna also competes in all 50 states and the District of Columbia. In 2015, it had
approximately 13 million U.S. members and earned $38 billion in revenue. Cigna has earned a
reputation as an innovator in the industry by developing wellness programs to improve the health
of its members and by collaborating with healthcare providers to improve patient health and
lower the overall cost of medical care. Cigna has enjoyed compound revenue growth of
13 percent annually over the last six years.
12. In early 2014, Anthem’s leadership reflected on a decade of consolidation in the
health-insurance industry and determined that there was “perhaps a single significant transaction
remaining.” Soon after, Anthem began talks to acquire Cigna. The companies were well aware of
the competitive problems the deal would create: In October 2014, Cigna’s chief financial officer
warned the CEO to stop using words like “dominant” and “market share” when analyzing the
potential deal because they are “both sensitive words from a post deal review perspective.”
Anthem and Cigna also realized that the value of their combined company would be limited by
the Blue Cross and Blue Shield Association’s “best-efforts” rules, which cap the proportion of
Case 1:16-cv-01493 Document 1 Filed 07/21/16 Page 6 of 43
73
– 7 –
revenue that Anthem can earn from brands not affiliated with the Blue network, including Cigna.
In February 2015, Anthem’s board of directors called off the deal.
13. But just a few months later, Anthem’s interest in acquiring Cigna was renewed
when Humana began seeking a buyer. This sparked a bidding frenzy in the industry. In a two-
month period, Anthem made several bids for Cigna; Cigna made two bids for Humana;
UnitedHealthcare made bids for Aetna and Cigna; and Aetna made a bid for Humana, which after
only weeks of negotiation resulted in an agreement on July 2, 2015. Just a few weeks later, on
July 23, 2015, Anthem agreed to acquire Cigna for $54 billion.
14. Anthem’s acquisition of Cigna was contentious from the start. In mid-June 2015,
Cigna’s board of directors rejected an offer from Anthem in a letter pointing to “a number of
major issues,” including complications relating to Anthem’s membership in the Blue Cross and
Blue Shield Association. The insurers also fought publicly about which CEO would lead the
combined company. In the months since the agreement was signed, Anthem and Cigna have
continued to quarrel over how they should integrate their two companies.
15. Anthem has also been unable to explain how the combined company would
address problems created by Anthem’s membership in the Blue Cross and Blue Shield
Association. For example, Anthem calls other Blue plans “comrades in arms” and works closely
with them to win national accounts from Cigna and other insurers. But after this merger, Anthem
would also own Cigna. Anthem would thus be competing with—and against—its fellow “Blues
brethren” for the same national accounts. Anthem’s CEO testified that he did not know how the
company would resolve this conflict of interest.
Case 1:16-cv-01493 Document 1 Filed 07/21/16 Page 7 of 43
74
– 8 –
III. BACKGROUND ON COMMERCIAL HEALTH INSURANCE
16. Anthem and Cigna compete vigorously in the sale of both “large group” and
“individual” commercial health insurance. Group insurance sold to employers with more than 50
employees (or in four states, more than 100 employees) is called “large group” insurance. Within
large groups, the industry recognizes a subset of the largest employers with employees in more
than one state called “national accounts.” Most large employers buy self-insured plans (also
known as administrative-services-only or “ASO” contracts), under which the employer retains
most of the risk of its employees’ healthcare costs and pays the insurer an administrative fee for
access to the insurer’s network of doctors and hospitals and for processing medical claims. For
employers of any size, health-insurance costs are a significant expense, and even large employers
are increasingly shifting more of the costs of healthcare to their employees. Anthem and Cigna
also sell “individual” insurance, which individuals and their families most commonly purchase
on the public exchanges.
17. To sell plans to employers and individuals, commercial health insurers compete
on price, customer service, care management, wellness programs, and reputation. Insurers also
compete on the breadth of their network of healthcare providers, including doctors and hospitals,
as most people seek medical care close to where they live or work.
18. Traditionally, insurance companies reimburse providers on a “fee-for-service”
basis whereby providers receive compensation for all, or almost all, services provided. But
insurers are increasingly experimenting with—and competing with each other to create—
contractual arrangements that reward doctors and hospitals for better health outcomes and lower
total costs. Instead of reimbursing providers based solely on the quantity of services they
perform, this value-focused movement gives providers incentives to improve their patients’
overall health and perform fewer, but more effective, services. Industry participants call these
Case 1:16-cv-01493 Document 1 Filed 07/21/16 Page 8 of 43
75
– 9 –
arrangements “provider collaborations” or “value-based arrangements,” and refer to this shift in
approach as the “volume-to-value” movement. Competition is a key ingredient to the volume-to-
value movement’s continued success, and Cigna has been particularly innovative in advancing
these provider collaborations.
IV. THIS MERGER LIKELY WOULD SUBSTANTIALLY LESSEN COMPETITION FOR THE SALE OF HEALTH INSURANCE TO NATIONAL ACCOUNTS
19. Anthem and Cigna vigorously compete against each other to sell commercial
health insurance to national accounts. The proposed merger would eliminate that competition and
leave national accounts with only three meaningful options.
A. The sale of health insurance to national accounts is a relevant product market.
20. The typical starting point for merger analysis is defining the relevant market.
Courts define relevant product markets to help determine which customers are most likely to be
affected by the merger. The sale of commercial health insurance to national accounts is one such
relevant product market and line of commerce under Section 7 of the Clayton Act.
21. National accounts are distinct customers with unique characteristics. They
typically require a provider network covering multiple states; undergo a lengthier, more
resource-intensive purchasing process involving requests for proposals; are more likely to hire a
large consulting firm to aid them in evaluating and selecting an insurer or insurers; and are more
likely to want flexible and customized benefit designs. Anthem and Cigna have dedicated
business units focused on selling and marketing to national accounts, and each insurer is able to
charge those accounts different prices and offer different plan benefits than they do for other
types of accounts.
22. The sale of commercial health insurance to national accounts satisfies the well-
accepted “hypothetical monopolist” test set forth in the U.S. Department of Justice and Federal
Case 1:16-cv-01493 Document 1 Filed 07/21/16 Page 9 of 43
76
– 10 –
Trade Commission 2010 Horizontal Merger Guidelines. Under the Guidelines, relevant markets
may be defined as a group of customers that could be profitably targeted for price increases. A
hypothetical monopolist of commercial health insurance sold to national accounts likely would
impose a small but significant and non-transitory price increase because an insufficient number
of national accounts would stop purchasing commercial health insurance to make that price
increase unprofitable. Because health insurance is a significant employment benefit, and national
accounts offer it to recruit and retain highly qualified employees, very few national accounts will
stop buying health insurance for their employees in the event of a small but significant price
increase. Nor are a sufficient number of national accounts likely to build their own provider
networks by contracting directly with doctors and hospitals or attempt to process all of their
employees’ healthcare claims themselves. And arbitrage (the reselling of a product from one
customer to another) is impossible, so national employers could not avoid a price increase by
buying health insurance from other employers.
B. This merger would harm national accounts in two relevant geographic markets.
23. The proposed merger would harm national accounts in (1) the parts of the 14
states where Anthem sells under a Blue license; and (2) the United States generally.
(1) The 14 Anthem states are a relevant geographic market.
24. Anthem and Cigna compete directly for national accounts headquartered in the
Anthem states, and national accounts headquartered in those states have similar options for
health insurance. Therefore, it is appropriate to consider these 14 states together as a single
relevant geographic market and section of the country under Section 7 of the Clayton Act.
25. This geographic market satisfies the hypothetical monopolist test. National
accounts headquartered in the Anthem states do not have reasonable substitutes to purchasing
Case 1:16-cv-01493 Document 1 Filed 07/21/16 Page 10 of 43
77
– 11 –
commercial health insurance from insurers doing business in these states. National accounts
would not close their headquarters and move them to different states in response to a small but
significant and non-transitory price increase.
(2) The United States is a relevant geographic market.
26. It is also appropriate to consider the United States as a single relevant geographic
market and section of the country under Section 7 of the Clayton Act. National accounts
headquartered throughout the United States have similar options for health insurance. And, in
addition to competing in the 14 Anthem states, Anthem and Cigna compete for national accounts
headquartered throughout the rest of the country. Cigna has a nationwide provider network and
competes throughout the United States, and Anthem competes for national accounts
headquartered in the 36 states in which it does not have a Blue license in at least two ways.
27. First, Anthem bids directly for national accounts headquartered outside its 14
states when other Blue plans “cede” that right to Anthem. The Association’s rules generally
permit only one Blue plan to bid on an account—the plan holding the license in the territory
where the national account is headquartered. For example, only BlueCross BlueShield of
Tennessee can submit a bid for a national account based in Tennessee. But Blue plans can cede
that right to each other on an account-by-account basis. Anthem has received hundreds of cedes
from its fellow Blue plans.
28. Second, even when Anthem is not ceded an account, it competes indirectly as part
of the bid submitted by the local Blue plan. For example, when BlueCross BlueShield of
Tennessee bids for a national account based in Nashville, that account evaluates the strength of
the Blues’ provider network in other states where it has employees, including the 14 states that
Anthem’s network covers. And Anthem profits when the Tennessee Blue wins the account
because Anthem receives “BlueCard fees” when any of that account’s employees obtain medical
Case 1:16-cv-01493 Document 1 Filed 07/21/16 Page 11 of 43
78
– 12 –
care in Anthem’s territories. Because almost 40 percent of the U.S. population lives in the 14
Anthem states, Anthem earns significant BlueCard revenue—$450 million in 2014 alone, much
of it from national accounts.
29. This geographic market satisfies the hypothetical monopolist test, as national
accounts headquartered in the United States do not have reasonable substitutes to purchasing
commercial health insurance from insurers doing business in this country. National accounts
would not close their offices and move their companies to different countries in response to a
small but significant and non-transitory increase in the price of commercial health insurance.
C. This merger is presumptively unlawful in both the 14 Anthem states and across the entire United States.
30. The Supreme Court has held that mergers that significantly increase concentration
in already concentrated markets are presumptively anticompetitive and therefore presumptively
unlawful. To measure market concentration, courts often use the Herfindahl–Hirschman Index
(“HHI”) as described in the Merger Guidelines. HHIs range from 0 in markets with no
concentration to 10,000 in markets where one firm has a 100 percent market share. According to
the Guidelines, mergers that increase the HHI by more than 200 and result in an HHI above
2,500 in any market are presumed to be anticompetitive.
31. For national accounts headquartered in the 14 Anthem states, Anthem and Cigna
have a combined market share of at least 40 percent. For national accounts in the United States
as a whole, Anthem (together with the other Blues) and Cigna have a combined market share of
at least 30 percent. In these markets, the merger is presumptively unlawful under Supreme Court
precedent and the Merger Guidelines.
32. These measures of market concentration understate the competitive harm likely to
result from the proposed merger, in part, because they include so-called “slice” insurers—local
Case 1:16-cv-01493 Document 1 Filed 07/21/16 Page 12 of 43
79
– 13 –
insurers that compete for only a portion of a national account’s business. Such “slice” insurers
cannot compete to fully replace Anthem, Cigna, Aetna, or UnitedHealthcare nationwide. Among
national accounts in the 14 Anthem states seeking to buy a nationwide plan from one of these
four insurers, Anthem and Cigna would have a combined market share of at least 50 percent.
Among national accounts across the country seeking a nationwide plan from one of these four
insurers, Anthem (together with the other Blues) and Cigna would similarly have a combined
market share of at least 50 percent.
D. This merger likely would harm national accounts in the Anthem states and throughout the country.
33. In the 14 Anthem states, the proposed merger would combine Anthem and Cigna
and thus eliminate Cigna as a competitor for national accounts. Anthem and Cigna have
frequently been the two finalists when these national accounts seek competitive bids for
commercial health insurance, and those accounts have been able to use the competition between
Anthem and Cigna to obtain lower prices and better terms. This merger would end that
competition.
34. For example, in a 2013 bid, Anthem feared that Cigna would aggressively market
the benefits of its clinical programs, and Anthem ended up lowering its fees to the customer to
ward off a competitive bid. In another bid that year, Cigna won what its executives called a
“dogfight with Anthem” by offering better overall value to the customer. In 2014, Anthem
targeted a longtime Cigna customer as a “good opportunity to continue to pick off Cigna
accounts.” Anthem made a competitive offer and won the account.
35. Anthem has introduced strategies specifically designed to win national accounts
from Cigna and Aetna, another national rival. For example, Anthem has offered flexible renewal
pricing, which allows its sales teams to adjust pricing for accounts in which “Aetna or Cigna is
Case 1:16-cv-01493 Document 1 Filed 07/21/16 Page 13 of 43
80
– 14 –
an incumbent for at least one-third of the [account]”; trend guarantees, which cap the rate of
increase of medical costs for national customers “where Aetna or Cigna is the alternate carrier
and/or the account is significantly increasing [its] clinical offering”; and a “bounty” program that
compensated Anthem sales agents who won new accounts from Cigna or Aetna. These and other
initiatives reflect Anthem’s view that Cigna and Aetna “should not exist.”
36. In the 36 non-Anthem states, the proposed merger would also substantially harm
competition in at least three ways. First, as explained above, Anthem often competes directly
with Cigna for national accounts that other Blue plans have ceded to Anthem. That competition
would be lost. Second, after the merger, Cigna would not compete as hard against other Blue
plans for national accounts because Cigna (through its owner, Anthem) would likely receive
significant BlueCard fees if a Blue plan won the account. Third, Anthem would have a reduced
incentive to compete aggressively with the Cigna brand because the Blue Cross and Blue Shield
Association’s best-efforts rules would limit Cigna’s growth relative to Anthem’s. Anthem has
already conceded that it would violate one of the best-efforts rules if it acquires Cigna’s
substantial commercial membership, meaning Anthem may have to limit Cigna’s
competitiveness throughout the country.
37. In both the Anthem states and in the United States as a whole, the merger also
would enhance coordination among insurers competing for national accounts. For example, after
the merger, Anthem, the biggest of the Blue plans, would also own Cigna—one of the Blues’
most formidable competitors—making coordination among the Blue plans and Cigna
significantly more likely.
Case 1:16-cv-01493 Document 1 Filed 07/21/16 Page 14 of 43
81
– 15 –
V. THIS MERGER LIKELY WOULD SUBSTANTIALLY LESSEN COMPETITION FOR THE SALE OF HEALTH INSURANCE TO LARGE-GROUP EMPLOYERS
38. In local markets throughout the country, head-to-head competition between
Anthem and Cigna has created substantial benefits for large-group employers. In many of these
markets, Anthem and Cigna are two of very few competitive options. The proposed merger
would eliminate the valuable benefits of this competition and leave large groups with even fewer
options.
A. The sale of health insurance to large groups is a relevant product market.
39. The sale of commercial health insurance to large groups (employers with more
than 50 employees or, in four states, more than 100 employees) is a relevant product market and
line of commerce under Section 7 of the Clayton Act. Large-group employers are distinct
customers, and insurers that sell to them do not need to follow various regulatory requirements
applicable to small groups, including limitations on the factors that can be used in determining
rates and other licensing and rate-filing requirements. Anthem, Cigna, and other insurers have
dedicated business units focused on selling and marketing to large groups, charge those accounts
different prices, and offer them different plan benefits than they do for other types of accounts.
40. Large-group employers are a relevant market for assessing the competitive effects
of this merger because an insufficient number of large groups would stop buying commercial
health insurance to make a small but significant and non-transitory price increase unprofitable.
Nor are large groups likely to build their own provider networks and administer their health plans
themselves. And, as with national accounts, large-group employers cannot avoid a price increase
by purchasing commercial health insurance from other employers.
Case 1:16-cv-01493 Document 1 Filed 07/21/16 Page 15 of 43
82
– 16 –
B. This merger would harm large groups in 35 relevant geographic markets.
41. The proposed merger would harm large-group employers in at least the 35
metropolitan areas listed on the map below. More than 65 million people live in these areas. Each
area is a relevant geographic market and section of the country under Section 7 of the Clayton
Act.
42. Patients typically seek medical care close to where they live or work, so they
strongly prefer health plans offering a network of doctors and hospitals in those same areas.
Thus, when purchasing commercial health insurance, large-group employers want insurers to
provide access to healthcare provider networks in the areas where their employees are located. In
each of the 35 metropolitan areas listed above, large groups do not view insurance companies
that lack a meaningful provider network in that area as reasonable substitutes for those that offer
such a network.
Case 1:16-cv-01493 Document 1 Filed 07/21/16 Page 16 of 43
83
– 17 –
43. Each of these markets satisfies the hypothetical monopolist test. In each area,
large groups are unlikely to move their offices to a different area in response to a small but
significant and non-transitory increase in the price of commercial health insurance.
C. This merger is presumptively unlawful in most of the relevant geographic markets.
44. Anthem already has a large share in many of these local markets, which would
increase further if it acquired Cigna. Even when treating each Blue plan as a separate competitor
and including all other insurers in these markets, the proposed merger is presumptively unlawful
under Supreme Court precedent and the Merger Guidelines in at least 20 of the relevant markets.
But that understates the merger’s effect on concentration for two reasons. First, the Blue plans
effectively compete as a single entity; with very few exceptions, only one Blue plan at a time
competes for an employer’s business. When accounting for this market reality, the merger is
presumptively unlawful in nearly all of the 35 markets listed above. Second, some insurers
included in these market-share calculations are not close competitors to Anthem and Cigna. For
example, in California, Kaiser’s share is significant but its integrated business model and its
“closed network” of providers is very different from Anthem’s and Cigna’s. One Cigna executive
in California testified that he did not believe Cigna had “ever lost an ASO customer to Kaiser.”
D. This merger likely would harm large-group employers by eliminating competition between Anthem and Cigna.
45. For some large groups in local markets, Anthem and Cigna are the only two
competitive options. For many others, Anthem and Cigna are two of very few competitive
options. In each of the 35 relevant markets, Anthem and Cigna are close competitors. In each
market, Anthem has a substantial market share and competes using its well-known Blue brand
and low provider reimbursement rates. Cigna is able in some of these markets to compete with
Anthem on the basis of reimbursement rates. But even where its reimbursement rates are not as
Case 1:16-cv-01493 Document 1 Filed 07/21/16 Page 17 of 43
84
– 18 –
attractive, Cigna competes vigorously with Anthem for large groups by offering exceptional
customer service, innovative wellness programs that lower its members’ utilization of healthcare,
and provider-collaboration programs with hospitals and doctors. By contrast, many large-group
employers believe that Anthem provides poor customer service and is far less innovative. Soon
after the merger was announced, two prospective customers complained to Cigna: “We hate
Anthem and you guys are about to become them.”
46. In company documents, Anthem has frequently viewed Cigna as a close
competitor in these 35 markets:
• In 2015, Anthem’s Georgia sales force described Cigna as “aggressive” and “ourtoughest competition in a number of situations.”
• In 2014, an Anthem sales executive wrote, “Cigna continues to present a verystrong clinical/care management story, coupled with a great deal of financialflexibility. They remain our number one competitor in the 1,000+ arena.”
• In a 2015 strategy document for its New Hampshire business, Anthem statedthat it “remains the dominant carrier in New Hampshire, with among the highesttotal market shares [of any region] in the company.” Despite that dominance,one of its points of strategic focus for the large-group business was to “focus onCigna groups.”
• A 2014 presentation to investors noted that in Indiana, Anthem held “a 42% to12% [market-share] advantage over our closest competitor (FYI—Cigna).”
47. Cigna has similar views of Anthem in these same markets:
• In 2015, a Cigna executive referring to Maine, New Hampshire, and Connecticutwrote, “we have Anthem in 3 of the New England states. Over the past 4 years40% of our new business growth has come from these Anthem plans. Thosecompanies primarily chose Cigna, to move away from the Anthem servicemodel, to reduce plan spend and to become more engaged consumers.”
• In 2015, a Cigna executive in California estimated that “60% of our 1/1/16regional pre sale opportunities are coming from Anthem.”
Case 1:16-cv-01493 Document 1 Filed 07/21/16 Page 18 of 43
85
– 19 –
48. Cigna has been particularly effective in using its innovative wellness programs to
compete with Anthem. For example, in September 2015, an Anthem sales account executive
noted that Cigna was offering a large municipal account in New Hampshire up to $70,000 in
wellness dollars, compared to Anthem’s $6,000. In response, his boss replied, “What? That’s
absurd. What are their current admin rates?” Around that same time, Anthem learned that Cigna
was competing hard for a bid in California by selling its care management and wellness
programs. An Anthem executive complained to the broker handling the bid, asking: “Does [the
client] realize we are going to own Cigna in about a year anyways?”
49. Competition between Anthem and Cigna has also spurred innovation and led both
companies to develop new products for large-group employers. For example, Cigna has
expanded its popular “level funded” product. This product allows smaller large-group employers
to pay fixed monthly installments with a chance to get money back at the end of year if claims
costs fall below the anticipated level. A survey of brokers conducted by Anthem confirmed that
“Cigna is the strongest competitor in this space” with “the most robust alternative funding
options.” Anthem further noted that, in California, Cigna was “[d]ominating the down-market
ASO product sales, taking 31 clients from Anthem.” To respond to Cigna, Anthem introduced its
own similar product, which it made a strategic priority in California. In 2015, as Anthem rolled
out several enhancements to that product, Cigna recognized that Anthem had “created a product
that is a much greater threat.”
50. Anthem and Cigna also compete to offer customers value-based programs and
provider collaborations. An Anthem executive explained that “since we tend to have the best
overall discount position in the market…our competitors have a strong incentive to be more
aggressive and flexible with their [value-based] programs than Anthem.” Indeed, Cigna has been
Case 1:16-cv-01493 Document 1 Filed 07/21/16 Page 19 of 43
86
– 20 –
particularly focused on investing time and resources in value-based arrangements as a way to
gain share against Anthem and other larger competitors. Cigna’s internal plans show that absent
the merger it would continue to aggressively develop its provider collaborations. The proposed
merger, however, would eliminate Cigna as a competitor against Anthem and significantly
reduce the incentives of the combined Anthem–Cigna to develop these innovative and beneficial
programs.
VI. THIS MERGER LIKELY WOULD SUBSTANTIALLY LESSEN COMPETITION INTHE SALE OF HEALTH INSURANCE ON THE PUBLIC EXCHANGES
51. Anthem and Cigna compete head to head in the sale of individual health insurance
on the public exchanges. Anthem’s CEO has testified that the company is “committed to
expanding our presence in the exchange marketplace.” Likewise, Cigna’s CEO has testified that
the company is “committed to the public exchanges” and is expanding into at least three new
states next year. Anthem and Cigna are close competitors on the exchange in local areas in
Colorado and Missouri. The proposed merger would eliminate that competition and the
important benefits it offers for individuals and families seeking affordable health insurance.
A. The sale of health insurance on the public exchanges is a relevant product market.
52. The sale of commercial health insurance on the public exchanges is a relevant
product market and line of commerce under Section 7 of the Clayton Act. The majority of
consumers who purchase individual health-insurance plans purchase them through the public
exchanges. Through these exchanges, consumers can learn about their coverage options,
compare health plans, and enroll in one. Financial assistance in the form of tax credits and
cost-sharing reductions is available for many individuals and families who purchase through the
public exchanges.
Case 1:16-cv-01493 Document 1 Filed 07/21/16 Page 20 of 43
87
– 21 –
53. Anthem, Cigna, and other insurers recognize individuals purchasing health
insurance on the public exchanges as a separate group of customers. These customers have
distinct characteristics, and insurers may offer them different provider networks and different
sets of benefits than other customers. Insurers consider different factors when setting prices for
the public exchanges, both because most consumers receive financial assistance and because
insurers selling on public exchanges incur additional fees and costs, such as user fees and the
cost of technology required to connect with the exchange platform.
54. The sale of health insurance on the public exchanges satisfies the hypothetical
monopolist test because consumers who use the exchanges have no reasonable substitutes that
they could turn to in response to a small but significant and non-transitory increase in price.
Individuals below certain income thresholds are eligible for tax credits and cost-sharing
reductions, but only if they purchase their health insurance through a public exchange.
Approximately 85 percent of consumers who purchase health insurance on the public exchanges
receive some financial assistance. And purchasing healthcare directly from doctors and hospitals
is prohibitively expensive for individuals and their families.
B. This merger would harm individuals and families in 22 relevant geographic markets.
55. Individuals may only enroll in exchange plans that have been approved for sale in
their county. Therefore, competition in each county is limited to the insurers that have been
approved to operate in that county, and individuals cannot practicably switch to a plan offered in
another county. Likewise, the amount of any financial assistance is calculated based on the plans
available to a consumer in their county. Each of the following counties is a relevant geographic
market and section of the country under Section 7 of the Clayton Act:
Case 1:16-cv-01493 Document 1 Filed 07/21/16 Page 21 of 43
88
– 22 –
(a) Colorado: Adams, Arapahoe, Boulder, Broomfield, Denver, Douglas, Eagle, Jefferson, La Plata, Lake, Montezuma, and Summit counties; and
(b) Missouri: Franklin, Jefferson, Lincoln, Saint Charles, Saint Francois, Saint Louis, Saint Louis City, Sainte Genevieve, Warren, and Washington counties.
C. This merger is presumptively unlawful in each of the relevant geographic markets.
(1) Colorado
56. Anthem and Cigna are the second- and third-largest insurers on the Colorado
public exchange. Combined, they insure almost 55,000 lives—more than one-third of all
enrollees on the exchange.
57. In 12 counties in Colorado, in which more than 95,000 people rely on the public
exchange for health insurance, the proposed merger is presumptively unlawful under Supreme
Court precedent and the Merger Guidelines. Notably, current market concentration levels
understate the competitive harm likely to result from the proposed merger because both Humana
and UnitedHealthcare—the fourth- and fifth-largest insurers in the Denver area—have
announced that they will not offer individual health-insurance plans in Colorado in 2017, leaving
Kaiser as Anthem and Cigna’s only significant competitor.
(2) Missouri
58. In the counties surrounding St. Louis, Cigna and Anthem are the second- and
third-largest insurers on the public exchange. Combined, they insure over 81,000 lives on the
Missouri public exchange—over 25 percent of all enrollees on the exchange.
59. In 10 counties in Missouri, in which more than 112,000 people rely on the public
exchanges for health insurance, the proposed merger is presumptively unlawful. As in Colorado,
current market concentration levels understate the competitive harm likely to result from the
proposed merger because UnitedHealthcare—the fourth-largest insurer on the exchange in the St.
Case 1:16-cv-01493 Document 1 Filed 07/21/16 Page 22 of 43
89
– 23 –
Louis area—has announced that it will withdraw from the Missouri public exchange next year,
leaving Aetna as Anthem and Cigna’s only significant competitor.
D. This merger would harm individuals and families who buy health insurance on the public exchanges.
60. Anthem and Cigna compete head to head to sell insurance to individuals and
families who use public exchanges. Anthem competes on public exchanges in all 14 states where
it controls the Blue license. Cigna has begun expanding its sale of individual insurance by
focusing first on certain markets, including the relevant counties. More than 200,000 people buy
their health insurance on the public exchanges in these 22 counties. These consumers have
benefited from Cigna’s efforts to compete with Anthem; consumers in other markets would
similarly benefit as Cigna follows through on its plans to aggressively expand in the next few
years. The proposed merger harms these individuals and families who depend on competition to
keep the price of their health insurance affordable.
61. As with other types of commercial health insurance, Cigna competes effectively
for enrollment from individuals and families through its innovative products and customer
service, helping to offset Anthem’s bargaining leverage with providers. For example, Cigna’s
approach in Colorado has been to “leverage the strength of its provider relationships” to “drive
superior products & manage risk.” In 2016, Cigna introduced two new provider networks in the
Denver area that built on its relationships with doctors and hospitals to provide prices
competitive with Anthem’s. As a result, Cigna’s market share increased substantially.
62. In Missouri, Anthem planned to “dominate the [exchange] marketplace for a long
time” by creating “a competitive advantage around network, pricing, marketing, and
distribution.” But since entering the Missouri public exchange in 2015, Cigna has been an
Case 1:16-cv-01493 Document 1 Filed 07/21/16 Page 23 of 43
90
– 24 –
important competitive constraint on Anthem’s dominance. Cigna considers its success in St.
Louis a “success recipe” for future growth in other public-exchange markets across the country.
63. Anthem and Cigna are likely to be even stronger competitors on the public
exchanges in the future. Absent the merger, both companies would continue to compete on the
public exchanges in Colorado and Missouri, as well as to grow their business on the public
exchanges in other states. The proposed merger would eliminate that competition, to the
detriment of individuals and their families that rely on health insurance purchased on the public
exchanges. It likely would also lead to increases in the amount of financial assistance offered
through the public exchanges, harming taxpayers as well.
VII. THIS MERGER LIKELY WOULD SUBSTANTIALLY LESSEN COMPETITIONFOR THE PURCHASE OF HEALTHCARE SERVICES
64. Anthem and Cigna, like other commercial health insurers, compete to sign up
doctors, hospitals, and other healthcare providers for their networks. Competition in this market
is the mirror image of competition in the markets discussed above. Insurers compete by offering
healthcare providers access to greater numbers of patients, more generous reimbursement terms,
better service, and more innovative collaborations. The proposed merger will eliminate this
competition between Anthem and Cigna and likely lead to lower reimbursement rates, less access
to medical care, reduced quality, and fewer value-based provider collaborations.
A. The purchase of healthcare services by commercial health insurers is a relevant product market.
65. The purchase of healthcare services by commercial health insurers is a relevant
product market and line of commerce under Section 7 of the Clayton Act. Because healthcare
providers in each relevant market face similar competitive conditions when selling services to
Case 1:16-cv-01493 Document 1 Filed 07/21/16 Page 24 of 43
91
– 25 –
commercial insurers, it is appropriate to aggregate these services into a single relevant product
market for analytical convenience.
66. Anthem, Cigna, and other insurers view the purchase of healthcare services for
commercial patients as a distinct line of business. They have separate business units for
negotiating such purchases, employ staff dedicated to those negotiations, and develop provider-
specific reimbursement strategies.
67. This market satisfies the hypothetical monopsonist test (a “monopsonist” is a
buyer that controls the purchases in a given market), the buyer-side counterpart to the
hypothetical monopolist test. For doctors, hospitals, and other healthcare providers, there are no
reasonable substitutes for the sale of their services to commercial health insurers. In response to a
reduction in reimbursement rates from those insurers, few providers would be able to
compensate for the loss of revenue by selling more services to government programs such as
Medicare Advantage, Medicare, or Medicaid. Those government programs generally reimburse
providers at far lower rates than do commercial health insurers, and it is difficult for providers to
greatly increase the number of their Medicare Advantage, Medicare, or Medicaid patients
because the total number of enrollees in those programs is relatively fixed. Most people also
cannot afford to pay for many healthcare services directly, making direct sales to patients a poor
substitute for sales to commercial health insurers. In response to a small but significant and non-
transitory reduction in reimbursement rates, an insufficient number of providers would start
selling their services to other purchasers to make that rate reduction unprofitable.
Case 1:16-cv-01493 Document 1 Filed 07/21/16 Page 25 of 43
92
– 26 –
B. The relevant geographic markets for identifying harm to competition for the purchase of healthcare services are the same 35 markets in which large groups would be harmed.
68. The purchase of healthcare services by commercial health insurers in each of the
35 metropolitan areas identified in the map in paragraph 41 above satisfies the hypothetical
monopsonist test and constitutes a relevant geographic market and section of the country under
Section 7 of the Clayton Act. The markets for the purchase of these services are local because in
the vast majority of cases patients seek care from doctors and hospitals in the same area where
they live and work. In response to lower reimbursement rates by local insurers, very few
healthcare providers would move their practice or facilities to a different metropolitan area.
C. This merger is presumptively unlawful in most of the relevant geographic markets.
69. The proposed merger would substantially increase concentration for the purchase
of healthcare services by commercial health insurers in each of the relevant markets. In at least
25 of these markets, the merger is presumptively unlawful under Supreme Court precedent and
the Merger Guidelines.
D. This merger would harm doctors, hospitals, and their patients by eliminating competition between Anthem and Cigna.
70. Anthem already has substantial bargaining leverage when negotiating with
doctors and hospitals because it represents a large share of their commercial patients and
revenue. As one Anthem executive put it: “[T]he more patients doctors and hospitals see from
[an insurance] carrier, the more leverage that carrier has to negotiate the best arrangements in the
market.” Noting that in California more than half of consumers “have an Anthem logo on their
ID card,” the executive added: “I hope this data helps support the argument about the leverage
we have in the market.”
Case 1:16-cv-01493 Document 1 Filed 07/21/16 Page 26 of 43
93
– 27 –
71. The proposed merger would enhance Anthem’s leverage—both over physician
practices that receive “take-it-or-leave-it” terms (without any negotiation) and over hospitals and
physician groups that individually negotiate their contracts and rates with Anthem. As a result of
the merger, Anthem likely would reduce the rates that both types of providers earn by providing
medical care to their patients.
72. This reduction in reimbursement rates likely would lead to a reduction in
consumers’ access to medical care. For example, lower reimbursement rates likely would cause
some physician practices to limit their hours of operation or reduce their staff. It may become
more difficult to recruit new physicians to many of these markets. Other more experienced
doctors may decide to retire early. This would exacerbate the shortage of certain doctors—such
as those providing primary care—that plagues many of these markets.
73. As Anthem has recognized, these rate reductions would not result from any
additional efficiencies or potentially procompetitive volume discounts. Rather, as noted by
Anthem’s head of provider contracting, the rate reductions from this merger would be perceived
by many providers as “an incremental discount with no corresponding incremental value (no new
members).”
74. The merger also likely would slow down the much-needed transition to value-
based contracting. Historically, with its larger market share and lower reimbursement rates,
Anthem has had fewer incentives to collaborate with providers. In many markets, it has
acknowledged that it has lagged behind its competition—particularly Cigna, which it identified
as “our closest competitor” for value-based contracts—and that providers view it as being “slow
to respond, cumbersome, and not nimble.” The merger would make that situation worse,
eliminating Cigna and further reducing Anthem’s incentives to enter into value-based contracts.
Case 1:16-cv-01493 Document 1 Filed 07/21/16 Page 27 of 43
94
– 28 –
75. The merger would also jeopardize Cigna’s existing provider collaborations.
Anthem plans to lower reimbursement rates by applying its generally lower rates to the Cigna
membership it acquires, which would threaten Cigna’s value-based contracts with doctors and
hospitals. As Cigna’s executive in charge of provider contracting testified, “if you’re going to
have mostly a discount-based discussion with the hospital, you’re not going to have [] provider
collaboration coming out of that discussion.” Even Anthem recognizes this tension. One of its
top executives alerted Anthem’s CEO that the company may “have two, conflicting strategies—
collaborate in new models on the one hand, and ‘drop the hammer’ on the other.”
VIII. ABSENCE OF COUNTERVAILING FACTORS
76. Entry of new commercial health insurers or expansion of existing commercial
health insurers is unlikely to prevent or remedy the proposed merger’s likely anticompetitive
effects.
77. The proposed merger would be unlikely to generate verifiable, merger-specific
efficiencies sufficient to reverse or outweigh the anticompetitive effects that are likely to occur.
To the extent the merging parties anticipate cutting the reimbursement rates paid to doctors and
hospitals for their services as a result of the merger, these reductions stem from a reduction in
competition and may not be treated as efficiencies.
IX. THE DEFENDANTS HAVE NOT PROPOSED A REMEDY THATWOULD FIX THE MERGER’S ANTICOMPETITIVE EFFECTS
78. Restoring competition is the key to any effective antitrust remedy. The only
acceptable remedy for an anticompetitive merger is one that completely resolves the competitive
problems created by the merger. Proposed remedies including divestitures must give the buyer
both the means and the incentive to effectively compete. Defendants bear the burden of showing
Case 1:16-cv-01493 Document 1 Filed 07/21/16 Page 28 of 43
95
– 29 –
that any remedy they propose meets these standards. The Defendants have not proposed any
remedy that would negate the anticompetitive effects of this merger.
X. VIOLATION ALLEGED
79. The United States brings this action, and this Court has subject-matter jurisdiction
over this action, under Section 15 of the Clayton Act, 15 U.S.C. § 25, to prevent and restrain the
Defendants from violating Section 7 of the Clayton Act, 15 U.S.C. § 18.
80. The Plaintiff States bring this action under Section 16 of the Clayton Act,
15 U.S.C. § 26, to prevent and restrain the Defendants from violating Section 7 of the Clayton
Act, 15 U.S.C. § 18. The Plaintiff States, by and through their respective Attorneys General,
bring this action as parens patriae on behalf of and to protect the health and welfare of their
citizens and the general economy of each of their states.
81. The Defendants are engaged in, and their activities substantially affect, interstate
commerce. Anthem and Cigna sell commercial health insurance to national accounts with a
substantial number of employees located in several different states, and that insurance covers
enrollees when they travel across state lines. Anthem and Cigna also purchase healthcare services
in several different states, as well as healthcare products and services (such as pharmaceuticals)
in interstate commerce.
82. This Court has personal jurisdiction over each Defendant under Section 12 of the
Clayton Act, 15 U.S.C. § 22. Anthem and Cigna both transact business in this district.
83. Venue is proper under Section 12 of the Clayton Act, 15 U.S.C. § 22, and under
28 U.S.C. §§ 1391(b) and (c).
Case 1:16-cv-01493 Document 1 Filed 07/21/16 Page 29 of 43
96
– 30 –
84. The effect of the proposed merger, if approved, likely would be to lessen
competition substantially, and to tend to create monopoly, in interstate trade and commerce in
each of the relevant markets, in violation of Section 7 of the Clayton Act, 15 U.S.C. § 18.
85. Among other things, the transaction would likely have the following effects:
(a) eliminating significant present and future head-to-head competition between
Anthem and Cigna in the relevant markets;
(b) reducing competition generally in the relevant markets;
(c) causing prices to rise for customers in the relevant markets;
(d) causing reimbursements to drop for healthcare providers in the relevant
markets;
(e) causing a reduction in quality in the relevant markets; and
(f) reducing competition over innovation and new product development.
XI. REQUEST FOR RELIEF
86. Plaintiffs request:
(a) that Anthem’s proposed acquisition of Cigna be adjudged to violate Section 7
of the Clayton Act, 15 U.S.C. § 18;
(b) that the Defendants be permanently enjoined and restrained from carrying out
the planned acquisition or any other transaction that would combine the two
companies;
(c) that Plaintiffs be awarded their costs of this action, including attorneys’ fees to
Plaintiff States; and
(d) that Plaintiffs be awarded such other relief as the Court may deem just and
proper.
Case 1:16-cv-01493 Document 1 Filed 07/21/16 Page 30 of 43
97
Dated: July 21, 2016
Respectfully submitted,
FOR PLAINTIFF UNITED STATES OF AMERICA:
SONIA K. PFAFFENROTH (D.C. Bar #467946)Deputy Assistant Attorney General
PATRICIA A. BRINK Director of Civil Enforcement
ERIC MAHR (D.C. Bar #459350) Director of Litigation
PETER J. MUCCHETTI (D.C. Bar #463202) Chief, Litigation I
RYAN M. KANTOR Assistant Chief, Litigation I
SCOTT I. FITZGERALD JESUS M. ALVARADO-RIVERA BRYSON L. BACHMAN (D.C. Bar #988125) SHOBITHA BHAT DANDO CELLINI AARON COMENETZ (D.C. Bar #479572) ALVIN H. CHU BARRY L. CREECH (D.C. Bar #421070) JENNIFER HANE HENRY J. HAUSER JON B. JACOBS (D.C. Bar #412249) KATHLEEN KIERNAN (D.C. Bar #1003748) LAUREN G.S. RIKER NATALIE ROSENFELT DEBORAH A. ROY (D.C. Bar #452573) PETER SCHWINGLER ADAM T. SEVERT DAVID L. SNYDER JULIE A. TENNEY
U.S. Department of Justice, Antitrust Division Litigation I Section 450 Fifth Street, NW, Suite 4100 Washington, DC 20530 Phone: (202) 353-3863 Facsimile: (202) 307-5802 E-mail: scott.fitzgeraldgusdoj.gov
Attorneys for the United States
Case 1:16-cv-01493 Document 1 Filed 07/21/16 Page 31 of 43
98
FOR PLAINTIFF STATE OF CALIFORNIA:
KAMALA D. HARRIS Attorney General
KATHLEEN E. FOOTE Senior Assistant Attorney General
NATALIE S. MANZO Supervising Deputy Attorney General
PAULA LAUREN GIBSON PATRICIA L. NAGLER Deputy Attorneys General
Case 1:16-cv-01493 Document 1 Filed 07/21/16 Page 32 of 43
PAULA LAUREN GIBSON Deputy Attorney General California State Bar No. 100780 300 South Spring Street, Suite 1702 Los Angeles, California 90013 Phone:213-897-0014 Facsimile: 213-897-2801 E-mail: paula.gibson@doj.ca.gov
99
FOR PLAINTIFF STATE OF COLORADO:
CYNTHIA H. COFFMAN Attorney General
___________________________ DEVIN LAIHO Senior Assistant Attorney General Colorado Department of Law Consumer Protection Section Ralph L. Carr Colorado Judicial Center 1300 Broadway, 7th Floor Denver, Colorado 80203 Phone: 720-508-6219 Facsimile: 720-508-6040 E-mail: devin.laiho@coag.gov
Case 1:16-cv-01493 Document 1 Filed 07/21/16 Page 33 of 43
100
FOR PLAINTIFF STATE OF CONNECTICUT
GEORGE JEPSEN Attorned General
MICHAEL E. COLE Chief, Antitrust and Government Program Fraud Department RACHEL O. DAVIS Assistant Attorney General CHRISTOPHER M. HADDAD Assistant Attorney General 55 Elm Street, P.O. Box 120 Hartford, CT 06141-0120 Tel: (860) 808-5040 Fax: (860) 808-5033 Rachel. Davis@ct. gov
Case 1:16-cv-01493 Document 1 Filed 07/21/16 Page 34 of 43
101
Case 1:16-cv-01493 Document 1 Filed 07/21/16 Page 35 of 43
FOR PLAINTIFF DISTRICT OF COLUMBIA:
KARL A. RACINE Attorney General for the District of Columbia
ELIZABETH SARAH GERE (D.C. Bar #186585) Deputy Attorney General Public Interest Division
CATHERINE A. JACKSON (D.C. Bar # 1005415) Assistant Attorney General 441 Fourth Street, N.W., Suite 630-South Washington, DC 20001 Phone: (202) 442-9864 Facsimile: (202) 741-0655 Email: catherine.jackson@dc.gov
102
Case 1:16-cv-01493 Document 1 Filed 07/21/16 Page 36 of 43
FOR PLAINTIFF STATE OF GEORGIA:
SAMUEL S. OLENS
Attorney General
DANIEL WALSH Georgia Bar No. 735040 Senior Assistant Attorney General Office of the Attorney General 40 Capitol Square, SW Atlanta, Georgia 30334-1300 Phone:404-657-2204 Facsimile: 404-656-0677 E-mail: dwalsh@law.ga.gov
103
Case 1:16-cv-01493 Document 1 Filed 07/21/16 Page 37 of 43
FOR PLAINTIFF STA TE OF IOWA
THOMAS J. MILLER Attorney General
LAYNE M LINDEBAK
Assistant Attorney General
Iowa Department of Justice Special Litigation Division 1305 East Walnut Street, 2nd Floor Des Moines, Iowa 50319 Ph: 515-281-7054 Fax: 515-281-4902 Layne.Lindebak@iowa.gov
104
Case 1:16-cv-01493 Document 1 Filed 07/21/16 Page 38 of 43
FOR PLAINTIFF STATE OF MAINE
JANETT. MILLS Attorney General
CHRISTINA M. MOYLAN Assistant Attorney General Office of Maine Attorney General Consumer Protection Division 6 State House Station Augusta, ME 04333-0006 Ph: 207-626-8800 Fax:207-624-7730 christina.moylan@maine.gov
105
Case 1:16-cv-01493 Document 1 Filed 07/21/16 Page 39 of 43
FOR PLAINTIFF STATE OF MARYLAND:
BRIAN E. FROSH Attorney General
ELLEN S. COOPER Assistant Attorney General Chief, Antitrust Division 200 Saint Paul Place Baltimore, Maryland 21202 Phone:410-576-6470 Facsimile: 410-576-7830 E-mail: ecooper@oag.state.md.us
106
FOR PLAINTIFF STATE OF NEW HAMPSHIRE:
JOSEPH A. FOSTER
Attorney General
ANN RICE Deputy Attorney GeneralNew Hampshire Department of Justice33 Capitol StreetConcord, New Hampshire 03301Phone: 603-271-1202Facsimile: 603 27 I-2110E-mail: ann.rice@doj.nh.gov
Case 1:16-cv-01493 Document 1 Filed 07/21/16 Page 40 of 43
107
Case 1:16-cv-01493 Document 1 Filed 07/21/16 Page 41 of 43
FOR PLAINTIFF STA TE OF NEW YORK:
ERIC T. SCHNEIDERMAN Attorney General
MANISHA M. SHETH Executive Deputy Attorney General Division of Economic Justice
ELINOR R. HOFFMANN Deputy Chief, Antitrust Bureau
INA C. RODRIGUEZ Assistant Attorney General Antitrust Bureau Office of the New York State Attorney General 120 Broadway New York, New York 10271-0332 Telephone: (212) 416-8288 Facsimile: (212) 416-6015 E-mail: irina.rodriguez@ag.ny.gov
108
FOR PLAINTIFF STATE OF TENNESSEE:
HERBERT H. SLATERY IIIAttorney General and Reporter
CYNTHIA KINSERDeputy Attorney General
IVICTOR DOMEN, JJ. Senior CounselERIN MERRICKAssistant Attorney GeneralTennessee Attorney General's Office500 Charlotte AvenueNashville, Tennessee 37202Phone: 615-253-3327Facsimile: 61 5 -532-69 5lE-mail :Vic,Domen@ag.tn. sov
Cynthia. Kinser@ae.tn. govErin.Merrick@ag.tn. gov
Case 1:16-cv-01493 Document 1 Filed 07/21/16 Page 42 of 43
109
Case 1:16-cv-01493 Document 1 Filed 07/21/16 Page 43 of 43
FOR PLAINTIFF COMMONWEALTH OF VIRGINIA:
MARK R. HERRING Attorney General
CYNTHIA E. HUDSON Chief Deputy Attorney General
RHODES B. RITENOUR Deputy Attorney General Civil Litigation Division
RICHARD S. SCHWEIKER, JR. Senior Assistant Attorney General and Chief Consumer Protection Section SARAH EXENHAM ALLEN Senior Assistant Attorney General and Unit Manager Antitrust Unit Consumer Protection Section Virginia State Bar No. 33217 Phone: 804-786-6557 Facsimile: 804-786-0122E-Mail: SOAllen@oag.state.va.us
TYLE R T. HENRY Assistant Attorney General Antitrust Unit Consumer Protection Section Virginia State Bar No. 87621 202 North 9th Street Richmond, Virginia 232 19 Phone: 804-692-0485 Facsimile: 804-786-0122 E-mail: THenry@oag.state.va.us
110
July 21, 2016 10:25 AM Eastern Daylight Time
INDIANAPOLIS--(BUSINESS WIRE)--Today’s action by the Department of Justice (DOJ) is an unfortunate and misguidedstep backwards for access to affordable healthcare for America. Access to health insurance saves lives, improves healthand reduces the cost of care for all Americans. The DOJ’s action is based on a flawed analysis and misunderstanding ofthe dynamic, competitive and highly regulated healthcare landscape and is inconsistent with the way that the DOJ hasreviewed past healthcare transactions. Anthem has an unwavering commitment to enhancing access to affordablehealthcare and the benefits and efficiencies from its merger with Cigna is one way that Anthem will continue its mission ofimproving consumer choice, quality and affordability. Anthem is fully committed to challenging the DOJ’s decision in courtbut will remain receptive to any efforts to reach a settlement with the DOJ that will allow us to complete the transaction anddeliver its benefits at a critical time when American consumers are seeking high quality healthcare services with greatervalue at less cost.
About Anthem, Inc.
Anthem (NYSE: ANTM) is working to transform health care with trusted and caring solutions. Our health plan companiesdeliver quality products and services that give their members access to the care they need. With over 72 million peopleserved by its affiliated companies, including more than 39 million enrolled in its family of health plans, Anthem is one of thenation’s leading health benefits companies. For more information about Anthem’s family of companies, please visitwww.antheminc.com/companies.
IMPORTANT INFORMATION FOR INVESTORS AND SHAREHOLDERS
NO OFFER OR SOLICITATION
This communication does not constitute an offer to sell or a solicitation of an offer to sell or a solicitation of an offer to buyany securities or a solicitation of any vote or approval, nor shall there be any sale of securities in any jurisdiction in whichsuch offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any suchjurisdiction. No offering of securities shall be made except by means of a prospectus meeting the requirements ofSection 10 of the Securities Act of 1933, as amended, and otherwise in accordance with applicable law.
ADDITIONAL INFORMATION AND WHERE TO FIND IT
In connection with the proposed transaction between Anthem, Inc. (“Anthem”) and Cigna Corporation (“Cigna”), Anthemhas filed with the U.S. Securities and Exchange Commission (the “SEC”) a registration statement on Form S-4, includingAmendment No. 1 thereto, containing a joint proxy statement of Anthem and Cigna that also constitutes a prospectus ofAnthem. The registration statement was declared effective by the SEC on October 26, 2015. This communication is not asubstitute for the registration statement, definitive joint proxy statement/prospectus or any other document that Anthem
Anthem Statement Regarding Action by the Department of Justice
Anthem Statement Regarding Action by the Department of Justice | Busi... http://www.businesswire.com/news/home/20160721005853/en/
1 of 2 2/16/2017 2:53 PM
111
and/or Cigna have filed or may file with the SEC in connection with the proposed transaction.
INVESTORS AND SECURITY HOLDERS OF ANTHEM AND CIGNA ARE URGED TO READ THE DEFINITIVE JOINTPROXY STATEMENT/PROSPECTUS AND OTHER DOCUMENTS FILED WITH THE SEC CAREFULLY IN THEIRENTIRETY AS THEY CONTAIN OR WILL CONTAIN IMPORTANT INFORMATION ABOUT THE PROPOSEDTRANSACTION. Investors and security holders may obtain free copies of the registration statement containing thedefinitive joint proxy statement/prospectus and other documents filed with the SEC by Anthem or Cigna through the website maintained by the SEC at http://www.sec.gov. Copies of the documents filed with the SEC by Anthem are availablefree of charge on Anthem’s internet website at http://www.antheminc.com or by contacting Anthem’s Investor RelationsDepartment at (317) 488-6390. Copies of the documents filed with the SEC by Cigna are available free of charge onCigna’s internet website at http://www.cigna.com or by contacting Cigna’s Investor Relations Department at(215) 761-4198.
Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995
This document, and oral statements made with respect to information contained in this communication, contain certainforward-looking information about Anthem, Inc. (“Anthem”), Cigna Corporation (“Cigna”) and the combined businesses ofAnthem and Cigna that is intended to be covered by the safe harbor for “forward-looking statements” provided by thePrivate Securities Litigation Reform Act of 1995. Forward-looking statements are statements that are not generallyhistorical facts. Words such as “expect(s),” “feel(s),” “believe(s),” “will,” “may,” “anticipate(s),” “intend,” “estimate,” “project”and similar expressions (including the negative thereof) are intended to identify forward-looking statements, whichgenerally are not historical in nature. Such statements are subject to certain known and unknown risks and uncertainties,many of which are difficult to predict and generally beyond Anthem’s and Cigna’s control, that could cause actual resultsand other future events to differ materially from those expressed in, or implied or projected by, the forward-lookinginformation and statements. These risks and uncertainties include: those discussed and identified in Anthem’s and Cigna’spublic filings with the U.S. Securities and Exchange Commission (the “SEC”). Important factors that could cause actualresults and other future events to differ materially from the forward-looking statements made in this communication are setforth in other reports or documents that Anthem and/or Cigna may file from time to time with the SEC, and include, but arenot limited to: (i) the ultimate outcome of the proposed transaction, including the ability to achieve the synergies and valuecreation contemplated by the proposed transaction, (ii) the ultimate outcome and results of integrating the operations ofAnthem and Cigna, (iii) disruption from the merger making it more difficult to maintain businesses and operationalrelationships, (iv) the risk that unexpected costs will be incurred in connection with the proposed transaction, (v) the timingto consummate the proposed transaction and (vi) the possibility that the proposed transaction does not close, including,but not limited to, due to the failure to satisfy the closing conditions, including the receipt of required regulatory approvals.All forward-looking statements attributable to Anthem, Cigna or any person acting on behalf of Anthem and/or Cigna areexpressly qualified in their entirety by this cautionary statement. Readers are cautioned not to place undue reliance onthese forward-looking statements that speak only as of the date hereof. Except to the extent otherwise required by federalsecurities law, neither Anthem nor Cigna undertake any obligation to republish revised forward-looking statements toreflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events or the receipt ofnew information. Readers are also urged to carefully review and consider the various disclosures in Anthem’s andCigna’s SEC reports.
ContactsAnthem, Inc.
Investor Relations
Douglas Simpson, 317-488-6181
or
Media
Jill Becher, 414-234-1573
Anthem Statement Regarding Action by the Department of Justice | Busi... http://www.businesswire.com/news/home/20160721005853/en/
2 of 2 2/16/2017 2:53 PM
112
EX-99.1 2 ex99-1.htm EXHIBIT 99.1
Contact: Matt Asensio860-226-2599Matthew.Asensio@Cigna.com
Cigna Comments on DOJ Position Regarding Proposed Transaction with AnthemBloomfield, Conn. – July 21, 2016 – Cigna Corporation (NYSE: CI) today issued the following response to the decision by theU.S. Department of Justice (DOJ) to challenge its proposed merger with Anthem, Inc. (NYSE: ANTM).
"Today, the Department of Justice announced that it will challenge our proposed merger with Anthem. Given the nature of theconcerns raised by the DOJ and the overall status of the regulatory process, which under the terms of the merger agreement was ledby Anthem, Cigna is currently evaluating its options consistent with its obligations under the agreement.
In light of the DOJ's decision, we do not believe the transaction will close in 2016 and the earliest it could close is 2017, if at all.
Since announcing the transaction, Cigna has remained focused on delivering value to our clients and customers, building on ourtrack record of strong financial results and growing our businesses in the U.S. and abroad. Cigna has remained strong bycontinuing to invest in innovative solutions to advance the goals of better health, affordability and personalized experience for ourclients and customers and continuing to advance innovative approaches to care management, including expansion in collaborativevalue-based care arrangements with health care professionals across the care delivery spectrum, and designing effective health,wellness and engagement programs for our customers."
# # # #
About Cigna
Cigna Corporation (NYSE: CI) is a global health service company dedicated to helping people improve their health, well-being andsense of security. All products and services are provided exclusively by or through operating subsidiaries of Cigna Corporation,including Connecticut General Life Insurance Company, Cigna Health and Life Insurance Company, Life Insurance Company ofNorth America and Cigna Life Insurance Company of New York. Such products and services include an integrated suite of healthservices, such as medical, dental, behavioral health, pharmacy, vision, supplemental benefits, and other related products includinggroup life, accident and disability insurance. Cigna maintains sales capability in 30 countries and jurisdictions, and has more than90 million customer relationships throughout the world. To learn more about Cigna®, including links to follow us on Facebook orTwitter, visit www.cigna.com.
IMPORTANT INFORMATION FOR INVESTORS AND SHAREHOLDERS
NO OFFER OR SOLICITATION
This communication is neither an offer to buy, nor a solicitation of an offer to sell, subscribe for or buy any securities or thesolicitation of any vote or approval in any jurisdiction pursuant to or in connection with the proposed transactions or otherwise, norshall there be any sale, issuance or transfer of securities in any jurisdiction in contravention of applicable law. No offer of securitiesshall be made except by means of a prospectus meeting the requirements of Section 10 of the Securities Act of 1933, as amended,and otherwise in accordance with applicable law.
https://www.sec.gov/Archives/edgar/data/701221/000095015916000647...
1 of 3 2/16/2017 3:26 PM
113
ADDITIONAL INFORMATION AND WHERE TO FIND IT
In connection with the proposed transaction, Anthem has filed with the U.S. Securities and Exchange Commission (the "SEC") aregistration statement on Form S-4, including Amendment No. 1 thereto, containing a preliminary joint proxy statement of Anthemand Cigna that also constitutes a preliminary prospectus of Anthem. The registration statement was declared effective by the SECon October 26, 2015. Each of Anthem and Cigna commenced mailing a definitive joint proxy statement/prospectus to itsshareholders on or about October 28, 2015. This communication is not a substitute for the registration statement, definitive jointproxy statement/prospectus or any other document that Anthem and/or Cigna have filed or may file with the SEC in connectionwith the proposed transaction. SECURITY HOLDERS ARE URGED TO READ ALL RELEVANT DOCUMENTS FILED ORTHAT WILL BE FILED WITH THE SEC, INCLUDING THE REGISTRATION STATEMENT ON FORM S-4 AND THEDEFINITIVE JOINT PROXY STATEMENT/PROSPECTUS, CAREFULLY BECAUSE THEY CONTAIN OR WILL CONTAINIMPORTANT INFORMATION. The registration statement, the definitive joint proxy statement/prospectus and other relevantmaterials and any other documents filed or furnished by Cigna or Anthem with the SEC may be obtained free of charge at theSEC's web site at www.sec.gov. In addition, security holders may obtain free copies of the registration statement and the definitivejoint proxy statement/prospectus from Cigna by going to its investor relations page on its corporate web site at www.cigna.com orby contacting Cigna's investor relations department at 215-761-4198 and from Anthem by going to its investor relations page on itscorporate web site at www.antheminc.com or by contacting Anthem's investor relations department at 317-488-6181.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This communication, and oral statements made with respect to information contained in this communication, may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements arebased on Cigna's current expectations and projections about future trends, events and uncertainties. These statements are nothistorical facts. Forward-looking statements may include, among others, statements regarding the proposed merger between Cignaand Anthem; our beliefs relating to value creation as a result of a potential combination with Anthem; the expected timetable forcompleting the transaction; benefits and synergies of the transaction; future opportunities for the combined company; and any otherstatements regarding Cigna's and Anthem's future beliefs, expectations, plans, intentions, financial condition or performance. Youmay identify forward-looking statements by the use of words such as "believe", "expect", "plan", "intend", "anticipate", "estimate","predict", "potential", "may", "should", "will" or other words or expressions of similar meaning, although not all forward-lookingstatements contain such terms.
Forward-looking statements are subject to risks and uncertainties, both known and unknown, that could cause actual results todiffer materially from those expressed or implied in forward-looking statements. Such risks and uncertainties include, but are notlimited to the timing and likelihood of completion of the proposed merger, including the timing, receipt and terms and conditions ofany required governmental and regulatory approvals for the proposed merger that could reduce anticipated benefits or cause theparties to abandon the transaction; the possibility that the expected synergies and value creation from the proposed merger will notbe realized or will not be realized within the expected time period; the risk that the businesses of Cigna and Anthem will not beintegrated successfully; disruption from the proposed merger making it more difficult to maintain business and operationalrelationships; the risk that unexpected costs will be incurred; the possibility that the proposed merger does not close, including dueto the failure to satisfy the closing conditions; the risk that financing for the proposed merger may not be available on favorableterms; our ability to achieve our financial, strategic and operational plans or initiatives; our ability to predict and manage medicalcosts and price effectively and develop and maintain good relationships with physicians, hospitals and other health care providers;our ability to identify potential strategic acquisitions or transactions and realize the expected benefits of such transactions; thesubstantial level of government regulation over our business and the potential effects of new laws or regulations, or changes inexisting laws or regulations; the outcome of litigation, regulatory audits, investigations and actions and/or guaranty fundassessments; uncertainties surrounding participation in government-sponsored programs such as Medicare; the effectiveness andsecurity of our information technology and other business systems; and unfavorable industry, economic or political conditions, aswell as more specific risks and uncertainties. Such other risks and uncertainties are discussed in our most recent report on Form10-K and subsequent reports on Forms 10-Q and 8-K available on the Investor Relations section of www.cigna.com or bycontacting Cigna's investor relations department at 215-761-4198 as well as on Anthem's most recent report on Form 10-K andsubsequent reports on Forms 10-Q and 8-K available on the Investor Relations section of www.antheminc.com or by contactingAnthem's investor relations department at 317-488-6181. You should not place undue reliance on forward-looking statements,which speak only as of the date they are made, are not guarantees of future performance or results, and are subject to risks,uncertainties and assumptions that are difficult to predict or quantify. Cigna undertakes no obligation to update or revise anyforward-looking statement, whether as a result of new information, future events or otherwise, except as may be required by law.
https://www.sec.gov/Archives/edgar/data/701221/000095015916000647...
2 of 3 2/16/2017 3:26 PM
114
8-K 1 d331024d8k.htm 8-K
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): January 19, 2017 (January 18, 2017)
ANTHEM, INC. (Exact name of registrant as specified in its charter)
Indiana 001-16751 35-2145715(State or other jurisdiction
of incorporation)(CommissionFile Number)
(IRS EmployerIdentification No.)
120 Monument Circle Indianapolis, IN 46204
(Address of principal executive offices) (Zip Code)
Registrant’s telephone number, including area code: (317) 488-6000
N/A (Former name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
☐ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
☐ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
☐ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
☐ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Page 1 of 28-K
4/27/2017https://www.sec.gov/Archives/edgar/data/1156039/000119312517012769/d...
115
Section 8—Other Events
Item 8.01—Other Events.
On January 18, 2017, in accordance with the terms of the Agreement and Plan of Merger (the “Merger Agreement”) dated as of July 23, 2015, among Anthem, Inc. (the “Company”), Anthem Merger Sub Corp. and Cigna Corporation (“Cigna”), the Company delivered written notice to Cigna that Anthem has elected to extend the “Termination Date” (as defined in the Merger Agreement) through and including April 30, 2017.
Anthem’s election to extend the Termination Date is based on its determination that additional time will be needed to consummate the merger contemplated by the Merger Agreement, regardless of the outcome of the District Court’s proceeding in United States, et al. v. Anthem, Inc. and Cigna Corp.
The foregoing description of the Merger Agreement is subject to, and is qualified in its entirety by, the full text of the Merger Agreement, which was filed as Exhibit 2.1 to the Current Report filed by Anthem on July 27, 2015, and which is incorporated herein by reference.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
Dated: January 19, 2017
ANTHEM, INC.
By: /s/ Kathleen S. KieferName: Kathleen S. KieferTitle: Corporate Secretary
Page 2 of 28-K
4/27/2017https://www.sec.gov/Archives/edgar/data/1156039/000119312517012769/d...
116
UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLUMBIA
____________________________________ )
UNITED STATES OF AMERICA, et al., ) )
Plaintiffs, ) )
v. ) Civil Action No. 16-1493 (ABJ) )
ANTHEM, INC., et al., ) )
Defendants. ) ____________________________________)
ORDER
Anthem and Cigna, the nation’s second and third largest medical health insurance carriers,
have agreed to merge. They propose to create the single largest seller of medical healthcare
coverage to large commercial accounts, in a market in which there are only four national carriers
still standing. The United States Department of Justice, eleven states, and the District of Columbia
have sued to stop the merger, and they have carried their burden to demonstrate that the proposed
combination is likely to have a substantial effect on competition in what is already a highly
concentrated market. Therefore, the Court will not permit the merger to go forward.
Judgment will be entered in favor of the plaintiffs on their first claim, and the merger will
be enjoined due to its likely impact on the market for the sale of health insurance to “national
accounts” – customers with more than 5000 employees, usually spread over at least two states –
within the fourteen states where Anthem operates as the Blue Cross Blue Shield licensee. So the
Court does not need to go on to decide the question of whether the combination will also affect
competition in the sale to national accounts within the larger geographic market consisting of the
entire United States. The Court also does not need to rule on the allegations in plaintiffs’ second
Case 1:16-cv-01493-ABJ Document 498 Filed 02/08/17 Page 1 of 12
117
2
claim that the merger will harm competition downstream in a different product market: the sale
of health insurance to “large group” employers of more than 100 employees in thirty-five separate
local regions within the Anthem states. But the evidence has shown that the proposed acquisition
will have an anticompetitive effect on the sale of health insurance to large groups in at least one of
those markets: Richmond, Virginia. Finally, given the ruling against the merger, the Court need
not reach the allegations in the complaint that the merger will also harm competition upstream in
the market for the purchase of healthcare services from hospitals and physicians in the same 35
locations.
What follows is a summary of the Court’s opinion and its order in the case. The Court
finds first that the market for the sale of health insurance to national accounts is a properly drawn
product market for purposes of the antitrust laws, and that the fourteen states in which Anthem
enjoys the exclusive right to compete under the Blue Cross Blue Shield banner comprise a relevant
geographic market for that product.
The evidence demonstrated that large national employers have a unique set of
characteristics and needs that drive their purchasing processes and decisions, and that the industry
as a whole recognizes national accounts as a distinct market. Witness after witness agreed that
there are only four national carriers offering the broad medical provider networks and account
management capabilities needed to serve a typical national account. Notably, both Anthem and
Cigna have established business units devoted to national accounts, and these separate profit and
loss centers each have their own executives, sales teams, and customer service personnel. While
various brokers and insurance carriers may draw differing lines to define the boundaries of a
“national account,” the government’s use of 5000 employees as the threshold is consistent with
how both Anthem and Cigna identify the accounts within their own companies. Moreover, when
Case 1:16-cv-01493-ABJ Document 498 Filed 02/08/17 Page 2 of 12
118
3
measured against the appropriate legal standard, the government’s definition was sufficient to
include reasonable substitutes and to fairly capture the competitive significance of other products.
The geographic market also passes the legal test since the Blue Cross Blue Shield
Association rules have a significant impact on the commercial conditions governing the sale of
medical coverage to national accounts, and Anthem’s exclusive territory is where the acquisition
will have a direct and immediate effect on competition.
Next, the Court finds that plaintiffs have established that the high level of concentration in
this market that would result from the merger is presumptively unlawful under the U.S.
Department of Justice and Federal Trade Commission Horizontal Merger Guidelines, which courts
regularly consult for guidance in these cases. 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.
Within the national accounts market, health benefits coverage is a differentiated product,
which means that individually customized policies are sold to customers one at a time – in this
case, through a bid solicitation process. National account customers evaluate responses to their
requests for proposals based upon a number of factors, including the amount of the fees charged
by each carrier for claims administration services; the quality and breadth of the carrier’s medical
provider network; the extent of the discounts the carrier has negotiated with those providers;
whether the carrier is willing to guarantee that the customer’s medical costs will not increase by
more than a particular percentage; and other features of interest to any particular customer. The
expert testimony as well as the firms’ internal documents reflect that while Anthem tends to enjoy
Case 1:16-cv-01493-ABJ Document 498 Filed 02/08/17 Page 3 of 12
119
4
superior discounts, the two companies are competing head-to-head with respect to many of the
other aspects of their offerings, all of which can factor into the employer’s total cost per employee
for medical benefits.
The defense came forward with evidence to rebut the presumption, shifting the burden back
to the government, but the Court concludes based on the entire record that plaintiffs have carried
their burden to show that the effect of the acquisition may be to substantially lessen competition
in violation of Section 7 of the Clayton Antitrust Act. Defendants insist that customers face an
array of alternatives, and that there are many new entrants poised to shake up the market. But
entering the commercial health insurance market is not such an easy proposition. And while third
party administrators and new insurance ventures being launched by strong local healthcare systems
may be attractive to smaller or more localized customers, it became quite clear from the evidence
that the larger a company gets, and the more geographically dispersed its employees become, the
fewer solutions are available to meet its network and administrative needs. Thus, 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.
While defense economists theorized that large customers are free to “slice” their insurance
business and contract with multiple carriers to cover different geographic regions and employee
preferences, the record shows that there are substantial costs and administrative burdens associated
with fragmentation, so employers do not elect to do it very often. The national accounts that do
slice tend to use no more than two companies, usually chosen from among the big four national
carriers and possibly a particularly strong regional option, such as Kaiser, the uniquely popular
health maintenance organization in California. Anthem and its experts made much of the advent
Case 1:16-cv-01493-ABJ Document 498 Filed 02/08/17 Page 4 of 12
120
5
of private exchanges – sets of prepackaged plans that afford customers the opportunity to offer
their employees a choice of several options – but those have proved to be largely just another
vehicle for delivering the major national carriers’ products to the market. The defense repeatedly
drew attention to the existence of third party administrators, provider-sponsored plans, and other
specialty firms that have recently begun to populate the insurance marketplace. But to the extent
these so-called new entrants and competitors are owned by, teamed with, rent networks from, or
funnel business to the big four national carriers, they do not alter the competitive landscape, and
in fact, they represent multiple additional arenas where the constriction of competition will be felt.
Anthem has taken the lead in defending the transaction, and it contends that any
anticompetitive effects will be outweighed by the efficiencies it will generate. It points, in part, to
substantial general and administrative (“G&A”) cost savings that have been projected to be
achieved through the combination of the two companies. And the centerpiece of its defense is its
contention that Anthem and Cigna national account customers will save a combined total of over
$2 billion in medical expenditures because Cigna members will be able to access the more
favorable discounts that Anthem has negotiated with its provider network, Anthem members will
have the benefit of any lower rates that Cigna has obtained, and those costs are paid directly by
the employers. In short, Anthem maintains that the overriding benefit of the merger is that the
new company will be able to deliver Cigna’s highly regarded value-based products at the lower
Anthem price.
But the claimed medical cost savings are not cognizable efficiencies since they are not
merger-specific, they are not verifiable, and it is questionable whether they are “efficiencies” at
all. And the projected G&A efficiencies suffer from significant verification problems as well.
Case 1:16-cv-01493-ABJ Document 498 Filed 02/08/17 Page 5 of 12
121
6
The law is clear that a defendant must both substantiate any claimed efficiencies and
demonstrate that they are “merger-specific,” which means that it must show that the savings cannot
be accomplished by either company alone in the absence of the proposed merger. But here,
Anthem and Cigna have already obtained the provider discounts alone. The medical network
savings are not merger-specific because they are based upon the application of existing discounts
to an existing patient population that the companies have already delivered to the providers; the
calculations do not depend upon the expectation that the volume of patients will increase by virtue
of the merger.
Furthermore, it is plain that the companies do not have to merge for customers to be able
to access Anthem’s lower provider rates: any customers that value the discounts above other
aspects of the contractual arrangement can choose Anthem as their carrier today. As the Anthem
executives responsible for the integration agreed, one of the most likely mechanisms to be
employed to achieve the savings – the “rebranding” of Cigna customers as Blue customers – is no
different from Anthem’s ongoing marketing of its products on a daily basis. Also, there is nothing
stopping Anthem from improving its wellness programs, or any other offerings that Cigna now
does better, on its own.
It is also questionable whether Anthem’s ability to drive a hard bargain with providers by
virtue of its size can be characterized as an “efficiency” at all. The Guidelines define an efficiency
as something that would enable the combined firm to achieve lower costs for a given quantity and
quality of product. Here, the combined firm will not be selling healthcare. Its “product” in the
national accounts market – as Anthem has emphasized since the first day of the trial – is “ASO”
or “administrative services only” contracts, which include claims administration, claims
adjudication, and access to a network of health providers. So there is no evidence that the claimed
Case 1:16-cv-01493-ABJ Document 498 Filed 02/08/17 Page 6 of 12
122
7
network savings will arise because the cost of what the merged firm produces, and what it sells in
the relevant market, will go down.
Anthem characterizes this scenario as a supply-side efficiency resulting from the merger,
but it has not shown that there is anything about the mere combination of the carriers’ two pools
of patients that will enable doctors or hospitals to treat patients more expeditiously or at a lower
cost. Since the medical cost savings will not be accomplished by streamlining the two firms’
operations, creating a better product that neither carrier can offer alone, or even by enabling the
providers to operate more efficiently, they do not represent any “efficiency” that will be introduced
into the marketplace.
Anthem is asking the Court to go beyond what any court has done before: to bless this
merger because customers may end up paying less to healthcare providers for the services that the
providers deliver even though the same customers are also likely to end up paying more for what
the defendants sell: the ASO contracts that are the sole product offered in the market at issue in
this merger. It asks the Court to do this because it is the insurers that negotiate the in-network
provider discounts, access to those rates is part of what the customers are buying when they buy
health insurance, and medical costs account for the overwhelming portion of any customer’s total
healthcare expenditure. In short, Anthem is encouraging the Court to ignore the risks posed by the
proposed constriction in the health insurance industry in the relevant market on the grounds that
consumers might benefit from the large size of the new company in other ways at the end of the
day. But this is not a cognizable defense to an antitrust case; the antitrust laws are designed to
protect competition, and the claimed efficiencies do not arise out of, or facilitate, competition.
Moreover, Anthem’s own documents reveal that the firm has considered a number of ways to
Case 1:16-cv-01493-ABJ Document 498 Filed 02/08/17 Page 7 of 12
123
8
capture the network savings for itself and not pass them through to the customers as it insisted in
court that it would.
Anthem argues that even if expanding access to provider discounts does not technically
qualify as an antitrust efficiency that can offset anticompetitive effects on a dollar-for-dollar basis,
it is a factor to be taken into consideration in assessing the overall impact of a merger in a market
where it is universally acknowledged that growing costs must be controlled. In short, the Court
should decide that the pressure the merger would place on providers would be beneficial to
consumers in general. But the record created for this case did not begin to provide the information
needed to reveal whether all providers, no matter their size, location, or financial structure, are
operating at comfortable margins well above their costs, as Anthem’s expert suggested, or whether
Anthem’s use of its market power to strong-arm providers would reduce the quality or availability
of healthcare as the plaintiffs alleged. And the trial did not produce the sort of record that would
enable the Court to make – nor should it make – complex policy decisions about the overall
allocation of healthcare dollars in the United States.
More important, Anthem has not been able to demonstrate that its plan is achievable or that
it will benefit consumers as advertised. One of the other key strategies Anthem intends to employ
to generate the claimed savings is to unilaterally invoke provisions in provider contracts that
require physicians or facilities to extend Anthem’s discounted fee schedule to Anthem’s affiliates.
But even the Anthem executives have expressed doubts that the providers will take this lying down,
and they have acknowledged that they have no plan in hand for whether they will proceed by
rebranding on the customer side, by renegotiating contracts on the provider side, or by enforcing
these affiliate clauses in any particular situation.
Case 1:16-cv-01493-ABJ Document 498 Filed 02/08/17 Page 8 of 12
124
9
There was also considerable testimony that an enforced reduction in fees paid to providers
through rebranding or contractual mechanisms could erode the relationships between insurers and
providers. It would also reduce the collaboration that industry participants agree is an essential
aspect of the growing trend to move from a pure fee-for-service based system to a more value-
based model as a means of both lowering the cost and improving the outcome of the delivery of
healthcare in this country. And here, the Court cannot fail to point out that it is bound to consider
all of the evidence in the record in connection with the question of whether the merger will benefit
competition, and in this case, that includes the doubt sown into the record by Cigna itself.
This brings us to the elephant in the courtroom. In this case, the Department of Justice is
not the only party raising questions about Anthem’s characterization of the outcome of the merger:
one of the two merging parties is also actively warning against it. Cigna officials provided
compelling testimony undermining the projections of future savings, and the disagreement runs so
deep that Cigna cross-examined the defendants’ own expert and refused to sign Anthem’s Findings
of Fact and Conclusions of Law on the grounds that they “reflect Anthem’s perspective” and that
some of the findings “are inconsistent with the testimony of Cigna witnesses.” Anthem urges the
Court to look away, and it attempts to minimize the merging parties’ differences as a “side issue,” a
mere “rift between the CEOs.” But the Court cannot properly ignore the remarkable circumstances
that have unfolded both before and during the trial.
The documentary record and the testimony reflect that the pre-merger integration planning
that is necessary to capture any hoped-for synergies is stalled and incomplete. Much of the work
has not proceeded past the initial stage of identifying goals and targets to actually specifying the
steps to be taken jointly to implement them. Moreover, the relationship between the companies is
marked by a fundamental difference of opinion over the effect the Anthem strategy to impose
Case 1:16-cv-01493-ABJ Document 498 Filed 02/08/17 Page 9 of 12
125
10
lower rates on providers and move members away from Cigna’s network will have on the
collaborative model of care that is central to the Cigna brand. Both Cigna witnesses and providers
have testified that effective collaboration requires more of the physicians and hospitals, and they
expect to be paid for it, and the engagement with members to improve behaviors that can affect
wellness requires an investment of resources on the part of the insurer. All of this raises serious
questions about when, how, and whether the medical savings can be achieved, whether the G&A
savings can be verified, and whether there is any basis in the record to believe in the rosy vision
being put forward by Anthem of a new national carrier that delivers the Cigna product at the
Anthem price.
In sum, the theme of Anthem’s defense is that its greater ability to command discounts
from providers will save customers money at the end of the day. At the same time, Cigna says
that its collaboration with providers will save customers money at the end of the day. Plaintiffs
take the position that customers should continue to have a choice between these options, and the
Court agrees.
While Anthem has also moved to incorporate quality and cost savings incentives into its
provider contracts, Cigna has sought to differentiate itself with its approach towards reducing costs
by increasing health. Its message is that better information and clinical management on the
provider side, along with encouraging behaviors that support health on the patient side, can reduce
a patient’s need to be hospitalized or undergo expensive medical procedures at all, and that this
decrease in utilization will reduce the total medical cost per employee over time. For this reason,
some customers prefer Cigna notwithstanding its discount disadvantage, and there was some
testimony from medical personnel that the approach is working. Eliminating this competition from
the marketplace would diminish the opportunity for the firms’ ideas to be tested and refined, when
Case 1:16-cv-01493-ABJ Document 498 Filed 02/08/17 Page 10 of 12
126
11
this is just the sort of innovation the antitrust rules are supposed to foster. Considering all of these
circumstances, and for all of the reasons set forth in greater detail in the Memorandum Opinion
docketed separately, the Court is persuaded that the merger should not take place.
Upon consideration of the applicable law, the evidence presented at trial, the argument of
the parties, and the entire record before the Court, the Court concludes that the effect of the
proposed merger of Anthem, Inc. and Cigna Corp. may be “substantially to lessen competition” in
violation of section 7 of the Clayton Act, 15 U.S.C. § 18. Specifically, the proposed merger is
likely to lessen competition substantially in the market for the sale of commercial health insurance
to national account customers in the fourteen Anthem territories and in the market for the sale of
commercial health insurance to large group customers in the Richmond, Virginia market.
It is therefore
ORDERED that the merger of Anthem Inc. and Cigna Corp., as reflected in their merger
agreement dated July 23, 2015, is ENJOINED.
The Memorandum Opinion accompanying this Order contains references to materials that
were discussed in open court but remain sealed at the request of one of the parties or third parties
providing information. For this reason, the full opinion is being docketed under seal at this time.
In drafting the opinion, the Court has endeavored to avoid the disclosure of the substance of any
business sensitive material, and it is the Court’s strong preference to place the entire opinion on
the public record as soon as possible. Therefore, it is
FURTHER ORDERED that each party shall file notice with the Court by close of
business February 9, 2017 of whether it has any objection to the Court unsealing the Memorandum
Case 1:16-cv-01493-ABJ Document 498 Filed 02/08/17 Page 11 of 12
127
12
Opinion docketed on this date in its entirety and if so, specifying what portions it believes should
remain under seal and why.
AMY BERMAN JACKSON
United States District Judge DATE: February 8, 2017
Case 1:16-cv-01493-ABJ Document 498 Filed 02/08/17 Page 12 of 12
128
IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLUMBIA
UNITED STATES OF AMERICA, et al.,
Plaintiffs,
v.
ANTHEM, INC. and CIGNA CORP.,
Defendants.
Case No. 1:16-cv-01493-ABJ
NOTICE OF APPEAL
Notice is hereby given that Anthem, Inc. appeals to the United States Court of Appeals
for the District of Columbia Circuit from this Court’s Order dated February 8, 2017, enjoining
the proposed merger of Anthem, Inc. and Cigna Corporation.
Dated: February 9, 2017 Respectfully submitted,
/s/ Christopher M. Curran Christopher M. Curran (D.C. Bar No. 408561)
J. Mark Gidley (D.C. Bar No. 417280) George L. Paul (D.C. Bar No. 440957) Noah Brumfield (D.C. Bar No. 488967) Matthew S. Leddicotte (D.C. Bar. No. 487612)
701 Thirteenth Street, NW Washington, DC 20005 Tel: +1 202 626 3600 Fax: +1 202 639 9355 ccurran@whitecase.commgidley@whitecase.com gpaul@whitecase.com nbrumfield@whitecase.com mleddicotte@whitecase.com
Robert A. Milne, pro hac vice Jack E. Pace III, pro hac vice
Case 1:16-cv-01493-ABJ Document 503 Filed 02/09/17 Page 1 of 3
129
The Appeal
130
February 09, 2017 06:00 AM Eastern Standard Time
INDIANAPOLIS--(BUSINESS WIRE)--Anthem, Inc. (NYSE: ANTM) today commented on the decision by the U.S. DistrictCourt for the District of Columbia granting the Department of Justice’s request to block Anthem’s proposed acquisition ofCigna Corporation (NYSE: CI). The company promptly intends to file a notice of appeal and request an expedited hearingof its appeal to reverse the Court’s decision so that Anthem may move forward with the merger, which was approved byover 99% of the votes cast by the shareholders of both companies.
“Anthem is significantly disappointed by the decision as combining Anthem and Cigna would positively impact the healthand well-being of millions of Americans - saving them more than $2 billion in medical costs annually,” said Joseph R.Swedish, Chairman, President and Chief Executive Officer, Anthem. “Anthem has been a leader in providing individualswith access to high quality, affordable healthcare. Our decision to acquire Cigna is grounded in our commitment to thisgoal and to leading our industry during this period of dynamic change. If not overturned, the consequences of the decisionare far-reaching and will hurt American consumers by limiting their access to high quality affordable care, slowing theindustry’s shift to value based care and improved outcomes for patients, and restricting innovation which is critical tomeeting the evolving needs of healthcare consumers. Moving forward, Anthem will continue to work aggressively tocomplete the transaction while remaining focused on serving as America’s valued health partner, delivering superior healthcare services to our approximately 40 million members with greater value at less cost.”
About Anthem, Inc.
Anthem is working to transform health care with trusted and caring solutions. Our health plan companies deliver qualityproducts and services that give their members access to the care they need. With over 73 million people served by itsaffiliated companies, including approximately 40 million within its family of health plans, Anthem is one of the nation’sleading health benefits companies. For more information about Anthem’s family of companies, please visitwww.antheminc.com/companies.
IMPORTANT INFORMATION FOR INVESTORS AND SHAREHOLDERS
NO OFFER OR SOLICITATION
This communication does not constitute an offer to sell or a solicitation of an offer to sell or a solicitation of an offer to buyany securities or a solicitation of any vote or approval, nor shall there be any sale of securities in any jurisdiction in whichsuch offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any suchjurisdiction. No offering of securities shall be made except by means of a prospectus meeting the requirements ofSection 10 of the Securities Act of 1933, as amended, and otherwise in accordance with applicable law.
Anthem Responds to U.S. District Court’s Decision on Acquisition ofCigna
Anthem Responds to U.S. District Court’s Decision on Acquisition of Ci... http://www.businesswire.com/news/home/20170209005573/en/
1 of 3 2/16/2017 2:31 PM
131
ADDITIONAL INFORMATION AND WHERE TO FIND IT
In connection with the proposed transaction between Anthem, Inc. (“Anthem”) and Cigna Corporation (“Cigna”), Anthemhas filed with the U.S. Securities and Exchange Commission (the “SEC”) a registration statement on Form S-4, includingAmendment No. 1 thereto, containing a joint proxy statement of Anthem and Cigna that also constitutes a prospectus ofAnthem. The registration statement was declared effective by the SEC on October 26, 2015. This communication is not asubstitute for the registration statement, definitive joint proxy statement/prospectus or any other document that Anthemand/or Cigna have filed or may file with the SEC in connection with the proposed transaction.
INVESTORS AND SECURITY HOLDERS OF ANTHEM AND CIGNA ARE URGED TO READ THE DEFINITIVE JOINTPROXY STATEMENT/PROSPECTUS AND OTHER DOCUMENTS FILED WITH THE SEC CAREFULLY IN THEIRENTIRETY AS THEY CONTAIN OR WILL CONTAIN IMPORTANT INFORMATION ABOUT THE PROPOSEDTRANSACTION. Investors and security holders may obtain free copies of the registration statement containing thedefinitive joint proxy statement/prospectus and other documents filed with the SEC by Anthem or Cigna through the website maintained by the SEC at http://www.sec.gov. Copies of the documents filed with the SEC by Anthem are availablefree of charge on Anthem’s internet website at http://www.antheminc.com or by contacting Anthem’s Investor RelationsDepartment at (317) 488-6390. Copies of the documents filed with the SEC by Cigna are available free of charge onCigna’s internet website at http://www.cigna.com or by contacting Cigna’s Investor Relations Department at(215) 761-4198.
Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995
This document, and oral statements made with respect to information contained in this communication, contain certainforward-looking information about Anthem, Inc. (“Anthem”), Cigna Corporation (“Cigna”) and the combined businesses ofAnthem and Cigna that is intended to be covered by the safe harbor for “forward-looking statements” provided by thePrivate Securities Litigation Reform Act of 1995. Forward-looking statements are statements that are not generallyhistorical facts. Words such as “expect(s),” “feel(s),” “believe(s),” “will,” “may,” “anticipate(s),” “intend,” “estimate,” “project”and similar expressions (including the negative thereof) are intended to identify forward-looking statements, whichgenerally are not historical in nature. Such statements are subject to certain known and unknown risks and uncertainties,many of which are difficult to predict and generally beyond Anthem’s and Cigna’s control, that could cause actual resultsand other future events to differ materially from those expressed in, or implied or projected by, the forward-lookinginformation and statements. These risks and uncertainties include those discussed and identified in Anthem’s and Cigna’spublic filings with the SEC. Important factors that could cause actual results and other future events to differ materiallyfrom the forward-looking statements made in this communication are set forth in other reports or documents that Anthemand/or Cigna may file from time to time with the SEC, and include, but are not limited to: (i) the ultimate outcome of theproposed transaction, including the ability to achieve the synergies and value creation contemplated by the proposedtransaction, (ii) the ultimate outcome and results of integrating the operations of Anthem and Cigna, (iii) disruption from themerger making it more difficult to maintain businesses and operational relationships, (iv) the risk that unexpected costs willbe incurred in connection with the proposed transaction, (v) the timing to consummate the proposed transaction and(vi) the possibility that the proposed transaction does not close, including, but not limited to, due to the failure to satisfy theclosing conditions, including the receipt of all required regulatory approvals. All forward-looking statements attributable toAnthem, Cigna or any person acting on behalf of Anthem and/or Cigna are expressly qualified in their entirety by thiscautionary statement. Readers are cautioned not to place undue reliance on these forward-looking statements that speakonly as of the date hereof. Except to the extent otherwise required by federal securities law, neither Anthemnor Cigna undertake any obligation to republish revised forward-looking statements to reflect events or circumstances afterthe date hereof or to reflect the occurrence of unanticipated events or the receipt of new information. Readers are alsourged to carefully review and consider the various disclosures in Anthem’s and Cigna’s SEC reports.
ContactsAnthem, Inc.
Investor Relations
Doug Simpson, 317-488-6181
Douglas.simpson@anthem.com
or
Anthem Responds to U.S. District Court’s Decision on Acquisition of Ci... http://www.businesswire.com/news/home/20170209005573/en/
2 of 3 2/16/2017 2:31 PM
132
UNITED STATES COURT OF APPEALS FOR THE DISTRICT OF COLUMBIA CIRCUIT
UNITED STATES OF AMERICA, et al.,
Plaintiffs-Appellees,
v.
ANTHEM, INC.,
Defendant-Appellant.
Appeal No. 17-5024
District Ct. No. 1:16-cv-01493-ABJ
District Judge: Hon. Amy Berman Jackson
EMERGENCY MOTION OF APPELLANT
ANTHEM, INC. FOR EXPEDITED CONSIDERATION OF APPEAL (PUBLIC COPY – SEALED MATERIAL DELETED)
Under Circuit Rule 27(f), Anthem, Inc. (“Anthem”) respectfully moves this
Court to expedite this appeal, which arises from an Order by the District Court
permanently enjoining Anthem from merging with Cigna Corporation (“Cigna”).
That Order, a final judgment under 28 U.S.C. § 1291, was issued by the District
Court under section 7 of the Clayton Act, 15 U.S.C. § 18, on February 8, 2017.
Anthem requests that the briefing of this appeal be expedited to enable this
Court to issue a decision on the merits by April 30, 2017, the “Termination Date”
under the Merger Agreement. Anthem and its counsel appreciate that this is an
extraordinary request and are willing to make substantial sacrifices to minimize the
inconvenience to the Appellees and the Court. Anthem therefore is submitting its
merits brief with this Motion (even though the District Court’s Order was issued
USCA Case #17-5024 Document #1660924 Filed: 02/13/2017 Page 1 of 13
133
- 2 -
less than five days ago). Anthem proposes that the opposition merits brief be filed
by March 6, 2017, and the reply brief by March 10. If necessary, Anthem will
forgo oral argument.
The United States has stated that it intends to oppose expedition (and will
consult with the other Appellees). In order to provide sufficient notice for
Appellees to prepare their brief if expedition is granted, Anthem respectfully
requests expedited consideration of this Motion.
BACKGROUND
This case concerns the largest merger in the history of the healthcare
industry. On July 23, 2015, Anthem and Cigna entered into an Agreement and
Plan of Merger (the “Merger Agreement”) to create a combined company designed
to transform healthcare for consumers by enhancing healthcare access, quality, and
affordability (the “Merger”). Under the Merger Agreement, Anthem agreed to pay
consideration of approximately $54 billion, providing Cigna’s shareholders with a
premium of 38.4%, or $13.4 billion.
The Merger Agreement had an initial “Termination Date” of
January 31, 2017. Anthem has exercised its unilateral right to extend the
“Termination Date” through April 30, 2017, the latest date to which it may
unilaterally extend. District Court Order at 14 (
Material Under Seal DeletedUSCA Case #17-5024 Document #1660924 Filed: 02/13/2017 Page 2 of 13
134
- 3 -
). Anthem has asked Cigna to
agree to extend the “Termination Date” further, but Cigna has not agreed to do so.
The Antitrust Division of the United States Department of Justice
investigated the Merger for approximately a year. Then, on July 21, 2016, the
Antitrust Division, joined by State Attorneys General from 11 states and the
District of Columbia, commenced this action in the District Court, seeking a
permanent injunction under section 7 of the Clayton Act.
The District Court expedited proceedings to allow the Merger to be
consummated by April 30, 2017. United States v. Anthem No. 1:16-cv-01493,
ECF Nos. 68 (Aug. 12, 2016), 74 (Aug. 15, 2016), 91 (Aug. 31, 2016). See 15
U.S.C. § 25 (providing that, in actions seeking injunctions under the Clayton Act,
the district court “shall proceed, as soon as may be, to the hearing and
determination of the case”). Extensive discovery and other pretrial proceedings
were conducted in a compressed timeframe. A bench trial was held from
November 21, 2016, until January 4, 2017. On February 8, 2017, the District
Court issued its Order (accompanied by a Memorandum Opinion) permanently
enjoining the Merger.
In enjoining the Merger, the District Court rejected Anthem’s principal
defense that the Merger would enable employers (and their employees) to save
$2.4 billion annually in medical expenses through the synergistic combination of
Material Under Seal DeletedUSCA Case #17-5024 Document #1660924 Filed: 02/13/2017 Page 3 of 13
135
- 4 -
Anthem’s and Cigna’s medical provider networks and discounts. The District
Court embraced a theory not advocated by any party: that the discounts were not
part of the product being sold by the health insurers and, therefore, the medical
cost savings were not cognizable as efficiencies.
Op. at 127
see also id. at 102
On Thursday, February 9, 2017, the day after the Order was issued, Anthem
filed a notice of appeal. On Friday, February 10, 2017, the appeal was docketed in
this Court and Anthem conferred with the Antitrust Division about expediting the
appeal. The Antitrust Division stated that it opposes expedition. On Monday,
February 13, 2017, Anthem filed this Motion and its opening appeal brief.
ARGUMENT
This Court may expedite review of an appeal when delay will cause
irreparable injury and the decision under review is subject to substantial challenge.
D.C. Cir. Handbook, § VIII.B. This Court also may expedite cases in which
members of the public generally, or other persons not before the Court, have an
Material Under Seal DeletedUSCA Case #17-5024 Document #1660924 Filed: 02/13/2017 Page 4 of 13
136
- 5 -
unusual interest in prompt disposition. D.C. Cir. Handbook, § VIII.B. Each of
these bases applies here.
I. Anthem Will Suffer Irreparable Harm Without Expedited Review
Expedited appeals are warranted when a delay would cause irreparable
injury and the prompt disposition of the case is compelling. See Handbook of
Prac. & Internal Proc.: U.S. Ct. App. D.C. Circ. 33-34 (2017); 28 U.S.C.A. § 1657;
D.C. Cir. Rule 2. Thus, expedition is appropriate in cases where deadlines would
otherwise render the challenged action moot or otherwise prejudice the parties.
See Mahoney v. Babbitt, 113 F.3d 219, 220 (D.C. Cir. 1997).
A delay here will cause irreparable injury for three reasons. First, absent the
expedition, the Merger could terminate before any resolution of this appeal, due to
circumstances beyond Anthem’s control. Termination would destroy the
enormous value of the transformative Merger to Anthem and consumers, and
eliminate billions of dollars in deal premium to Cigna’s shareholders. The loss of a
unique and transformative $54 billion transaction constitutes irreparable harm. See
True N. Commc’ns v. Publicis S.A., 711 A.2d 34, 44-45 (Del. Ch. 1997)
(describing the loss of a “unique acquisition opportunity” as “a loss that cannot be
quantified” and “the essence of irreparable harm”); see also Oracle Corp. v.
Peoplesoft, Inc., 2003 Del. Ch. LEXIS 223, at *14 (Del. Ch. Nov. 10, 2003)
(“Oracle’s loss of the unique opportunity to make an acceptable bid to
USCA Case #17-5024 Document #1660924 Filed: 02/13/2017 Page 5 of 13
137
- 6 -
PeopleSoft’s stockholders constitutes irreparable injury.”); Hollinger Int’l v. Black,
844 A.2d 1022, 1090 (Del. Ch. 2004) (“Losses of strategic opportunities are often
found to pose a threat of irreparable injury.”). Recognizing that merger cases face
unusual exigencies, this Court has previously granted expedited appeals in such
cases. See, e.g., F.T.C. v. H.J. Heinz, 246 F.3d 708, 712-13 (D.C. Cir. 2001);
United States v. Baker Hughes, Inc., 908 F.2d 981, 982 (D.C. Cir. 1990).
Second, delay would otherwise prejudice Anthem. The “Termination Date”
under the Merger Agreement has been extended to April 30, 2017. (The
“Termination Date” is the date after which a merger party may terminate the
Merger Agreement subject to certain conditions.) Anthem disputes that Cigna has
a right to terminate at all, but Cigna disagrees. Having the appeal decided in time
to close by April 30, 2017, will avoid risk and litigation on that subject. Moreover,
expedition is necessary in any case because the length of a normal appeal will also
place a closing at risk. The Merger Agreement was signed on July 23, 2015, and
the companies have spent more than eighteen months awaiting its fate. Alternative
strategies and initiatives have been sidelined or mothballed. Hundreds of millions
of dollars of financing fees have been incurred just to extend to April 30, 2017.
Indeed, Anthem’s financing commitments expire on that date, and, while any delay
past such date will impose additional financing costs on Anthem, it has no
guarantee that it can obtain replacement financing after April 30, 2017. An
USCA Case #17-5024 Document #1660924 Filed: 02/13/2017 Page 6 of 13
138
- 7 -
expedited decision on appeal, within the period contemplated by the April 30, 2017
“Termination Date,” would permit the merger to proceed and makes it much more
likely that Anthem will be able to obtain new financing.
Of course, even with expedition and a ruling that allowed the Merger to
proceed, there is no guarantee that the Merger would be consummated. Anthem
still requires certain state insurance regulatory clearances. Nonetheless, Anthem
believes that a favorable ruling by this Court prior to the “Termination Date” of
April 30, 2017, will allow the clearances to be obtained and the Merger to close.
Third, absent expedition, Anthem could be denied its appeal rights. The loss
of an ability to appeal an adverse ruling is irreparable harm. See Ctr. for Int’l
Envtl. Law v. Office of the U.S. Trade Rep., 240 F. Supp. 2d 21, 23 (D.D.C. 2003)
(“This strong showing of irreparable harm — de facto deprivation of the basic right
to appeal — further strengthens defendant’s argument for a stay pending appeal.”);
In re Adelphia Commc’ns Corp., 361 B.R. 337, 347-48 (S.D.N.Y. 2007) (finding
irreparable harm requirement to issue stay pending appeal satisfied because the
“loss of appellate rights is a quintessential form of prejudice” and denial of stay
“risks mooting any appeal of significant claims of error”).
II. The Order Is Subject To Substantial Challenge
The substantial grounds for challenging the District Court’s injunction are
set forth in Anthem’s appeal brief, which is also being filed today. In short, the
USCA Case #17-5024 Document #1660924 Filed: 02/13/2017 Page 7 of 13
139
- 8 -
District Court made serious errors of law, fact, and logic by enjoining the Merger
based on a standard that ignored the relevant consideration of consumer welfare in
assessing the efficiencies promised by the Merger. The District Court’s rejection
of the consumer-welfare standard was contrary to this Court’s decision in the
leading case of United States v. Baker Hughes that, in merger cases under section 7
of the Clayton Act, the district court must determine “whether the challenged
acquisition is likely to hurt consumers.” 908 F.2d 981, 990-91 & n.12 (D.C. Cir.
1990) (quotation marks and citation omitted). The District Court’s errors threaten
to unnecessarily deprive employers and employees of billions of dollars in medical
cost savings annually.
While Anthem believes that the District Court made various other errors in
its ruling, Anthem has chosen to focus its merits brief on the medical cost savings
to facilitate expedited consideration of this appeal.
III. An Expedited Appeal Is In The Public Interest
Consideration of this matter on an expedited briefing schedule is in the
public interest because the Merger holds the prospect of substantial benefits for
members of the public.
First, Anthem believes the Merger would benefit the public by creating $2.4
billion in medical cost savings annually, the vast majority of which would be
passed through to consumers. And the Merger would provide healthcare access to
USCA Case #17-5024 Document #1660924 Filed: 02/13/2017 Page 8 of 13
140
- 9 -
a significant number of uninsured individuals by expanding the merged company
into new Affordable Care Act exchanges in nine states, where neither Anthem nor
Cigna currently offers individual coverages on-exchange.
Second, the Merger would provide Cigna’s shareholders with a premium of
38.4%, or $13.4 billion.
Third, the public has a strong interest in the proper application of the
antitrust laws to promote lower prices and consumer welfare. Mergers are
frequently litigated in district courts, but “meaningful appellate review on the
merits” is rare. F.T.C v. Staples, Inc., Civ. Action No. 15-2115 (EGS), 2016 WL
2899222, at *2 n.3 (D.D.C. May 17, 2016) (lamenting that “the lack of meaningful
appellate review on the merits is an unfortunate reality of antitrust statutes”);
accord F.T.C. v. Sysco Corp., 113 F. Supp. 3d 1, 15 (D.D.C. 2015) (“Sysco and
USF have announced that they will not proceed with the merger if the [trial] court
grants the requested injunction”); F.T.C. v. CCC Holdings Inc., 605 F. Supp. 2d
26, 31 (D.D.C. 2009) (observing that the merging parties will abandon the merger
and not seek appellate review). This case presents the opportunity for appellate
review of the important issue of the consumer-welfare standard in merger law,
particularly here where the largest merger in the history of the healthcare
industry — impacting millions of Americans — is at stake.
USCA Case #17-5024 Document #1660924 Filed: 02/13/2017 Page 9 of 13
141
- 10 -
Fourth, the Appellees will not be seriously harmed by an expedited appeal
as they will have sufficient time to prepare their opposition brief and have no
protectable interests in avoiding appellate review of such an important decision.
CONCLUSION
Anthem respectfully requests that this Court rules on this Motion on an
expedited basis and enter an expedited briefing schedule for this matter as
described herein.
Dated: February 13, 2017 Respectfully submitted,
/s/ Christopher M. Curran Christopher M. Curran (D.C. Bar No. 408561)
J. Mark Gidley (D.C. Bar No. 417280)
701 Thirteenth Street, NW Washington, DC 20005 Tel: +1 202 626 3600 Fax: +1 202 639 9355 ccurran@whitecase.com mgidley@whitecase.com Counsel for Defendant-Appellant Anthem, Inc.
USCA Case #17-5024 Document #1660924 Filed: 02/13/2017 Page 10 of 13
142
- 11 -
ADDENDUM
Certificate of Parties and Disclosure Statement
In accordance with Rule 27(a)(4) of the Circuit Rules of the United States
Court of Appeal for the District of Columbia Circuit, Anthem certifies as follows:
A. Parties
Appellant Anthem, Inc. is a health-benefits company based in Indianapolis,
Indiana. It has no parent companies, and there are no publicly-held companies that
presently hold a 10% or greater interest in Anthem, Inc.
Defendants in the District Court were Anthem, Inc. (Anthem) and Cigna
Corporation (Cigna). Anthem is the only Appellant in this Court.
Plaintiffs in the District Court and Appellees in this Court are the United
States of America, the State of California, the State of Colorado, the State of
Connecticut, the District of Columbia, the State of Georgia, the State of Iowa, the
State of Maine, the State of Maryland, the State of New Hampshire, the State of
New York, the State of Tennessee, and the Commonwealth of Virginia.
USCA Case #17-5024 Document #1660924 Filed: 02/13/2017 Page 11 of 13
143
- 12 -
CERTIFICATE OF COMPLIANCE
Pursuant to Rule 27(d)(2) of the Federal Rules of Appellate Procedure, the
undersigned hereby certifies that:
1. This document complies with the word limit of Fed. R. App. P. 27(d)(2)
because this document contains 2,053 words.
2. This document complies with the typeface requirements of Fed. R. App. P.
32(a)(5) and the type-style requirements of Fed. R. App. P. 32(a)(6) because this
document has been prepared in a proportionally spaced typeface using Microsoft
Word 2010 in Times New Roman font, size 14.
/s/ Christopher M. Curran Christopher M. Curran
USCA Case #17-5024 Document #1660924 Filed: 02/13/2017 Page 12 of 13
144
- 13 -
CERTIFICATE OF SERVICE
I hereby certify that on February 13, 2017, I caused to be served an
electronic copy of the foregoing Emergency Motion of Appellant Anthem, Inc. for
Expedited Consideration of Appeal via the CM/ECF system, under Circuit Rule
25(f), upon all counsel of record.
/s/ Christopher M. Curran Christopher M. Curran
USCA Case #17-5024 Document #1660924 Filed: 02/13/2017 Page 13 of 13
145
Cigna Terminates Merger Agreement with Anthem
BLOOMFIELD, Conn., 14 February, 2017 - Cigna Corporation (NYSE: CI) today announced it hasexercised its right to terminate the proposed merger agreement with Anthem, Inc. following the orderon February 8, 2017 from the U.S. District Court for the District of Columbia enjoining the transaction.In light of the Court’s ruling, Cigna believes that the transaction cannot and will not achieve regulatoryapproval and that terminating the agreement is in the best interest of Cigna’s shareholders.
To effect this termination, Cigna has filed suit against Anthem in the Delaware Court of Chancery. Thesuit seeks declaratory judgment that Cigna has lawfully terminated the merger agreement and thatAnthem is not permitted to extend the termination date. The complaint seeks payment by Anthem ofthe $1.85 billion reverse termination fee contemplated in the merger agreement, as well as additionaldamages in an amount exceeding $13 billion. These additional damages include the amount of premiumthat Cigna shareholders did not realize as a result of the failed merger process. This action is necessaryto enforce and preserve Cigna’s rights and protect the interests of its shareholders. The companybelieves strongly in the merits of its case and hopes that this matter is rapidly resolved.
The decision to terminate the transaction and seek damages follows the District Court’s findings that themerger would decrease competition and lessen choice in the “national accounts” market, in part becausethe members of the Blue Cross Blue Shield network work together to win national business, and that thecompetitive harm could not be offset by claimed efficiencies.
Cigna is disappointed in the outcome of this process. Cigna believed from the outset that the mergerof the two companies had the potential to expand choice, improve affordability and quality and furtheraccelerate value-based care. Anthem contracted for and assumed full responsibility to lead the federaland state regulatory approval process, as well as the litigation strategy, under the merger agreement.Cigna fulfilled all of its contractual obligations and fully cooperated with Anthem throughout the approvalprocess.
Future Growth
Cigna will continue to invest in innovative solutions and programs to engage and support customers intheir health and life journeys and partner with health care professionals on leading value-based careprograms. The company will continue to expand its proven footprint and capabilities across the globe forIndividual and Employer customers. Cigna’s approach of focusing on health care services over sick carefinancing has never been more critical.
Cigna’s 2017 growth outlook for adjusted income from operations of 12%-18% will be further aided bythe company’s significant capital available for deployment.
Cigna is also announcing that its Board of Directors has expanded the company’s share repurchaseauthority to an aggregate amount of $3.7 billion. Management has determined that it is prudent to capthe amount of the repurchase to $250 million per quarter until there is more clarity with respect to thelitigation with Anthem. This amount is equivalent to the amount which would have been permitted if themerger agreement were still in effect.
The company looks forward to discussing its strategic growth plan, as well as its plans for future capitaldeployment, during an Investor Day to be held on March 29, 2017 in New York City.
About Cigna
146
Cigna Corporation (NYSE: CI) is a global health service company dedicated to helping people improvetheir health, well-being and sense of security. All products and services are provided exclusively byor through operating subsidiaries of Cigna Corporation, including Connecticut General Life InsuranceCompany, Cigna Health and Life Insurance Company, Life Insurance Company of North America andCigna Life Insurance Company of New York. Such products and services include an integrated suite ofhealth services, such as medical, dental, behavioral health, pharmacy, vision, supplemental benefits,and other related products including group life, accident and disability insurance. Cigna maintainssales capability in 30 countries and jurisdictions, and has more than 90 million customer relationships
throughout the world. To learn more about Cigna®, including links to follow us on Facebook or Twitter,visit www.cigna.com.
Note regarding share repurchases. The timing and actual number of shares repurchased will dependon a variety of factors, including price, general business and market conditions, and alternate uses ofcapital. The share repurchase program may be effected through open market purchases or privatelynegotiated transactions in compliance with Rule 10b-18 under the Securities Exchange Act of 1934, asamended, including through Rule 10b5-1 trading plans. The program may be suspended or discontinuedat any time.
Note regarding Non-GAAP Measures. Adjusted income (loss) from operations is defined asshareholders' net income (loss) excluding the following after-tax adjustments: net realized investmentresults, net amortization of other acquired intangible assets and special items. Net amortization ofother acquired intangible assets in 2015 included the one-time benefit of an acquisition in which the fairvalue of acquired net assets exceeded the purchase price. Adjusted income (loss) from operations isa measure of profitability used by Cigna's management because it presents the underlying results ofoperations of Cigna's businesses and permits analysis of trends in underlying revenue, expenses andshareholders' net income. This consolidated measure is not determined in accordance with accountingprinciples generally accepted in the United States (GAAP) and should not be viewed as a substitutefor the most directly comparable GAAP measure, shareholders' net income. Management is not ableto provide a reconciliation to shareholders' net income (loss) on a forward-looking basis because weare unable to predict, without unreasonable effort, certain components thereof including (i) future netrealized investment results and (ii) future special items. These items are inherently uncertain and dependon various factors, many of which are beyond our control. As such, any associated estimate and itsimpact on shareholders' net income could vary materially. The Company believes it is reasonably likelythat a guaranty fund assessment related to Penn Treaty Network America Insurance Company andits subsidiary American Network Insurance Company will be finalized in 2017. Due to uncertaintiessurrounding this matter, the Company's share of this guaranty fund assessment is uncertain, but basedon current information, is estimated to be approximately $85 million after tax. The Company expects totreat this guaranty fund assessment as a special item.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
147
This press release and oral statements made with respect to information contained in this press releasemay contain forward looking information within the meaning of the Private Securities Litigation ReformAct of 1995. Forward looking statements may include statements regarding the merger agreement andthe transactions and litigation related thereto, future financial or operating performance, including ourability to deliver personalized and innovative value based solutions for our customers and clients; futuregrowth, business strategy, or strategic or operational initiatives; economic, regulatory or competitiveenvironments, particularly with respect to the pace and extent of change in these areas; financing orcapital deployment plans and amounts available for future deployment; our prospects for growth in thecoming years; and other statements regarding our future beliefs, expectations, plans intentions, financialcondition or performance. You may identify forward-looking statements by the use of words such as“believe,” “expect,” “plan,” “intend,” “anticipate,” “estimate,” “predict,” “potential,” “may,” “should,” “will” orother words or expressions of similar meaning, although not all forward-looking statements contain suchterms.
Forward-looking statements are subject to risks and uncertainties, both known and unknown, that couldcause actual results to differ materially from those expressed or implied in forward-looking statements.Such risks and uncertainties include, but are not limited to: ongoing litigation with respect to the ruling,including Anthem’s appeal of the ruling; potential adverse reactions or changes to business or employeerelationships, including those resulting from the announcement of the ruling; uncertainty as to litigationwith respect to the termination of the merger agreement, the reverse termination fee, declaratoryjudgments with respect to the foregoing and/or contract and non-contract damages for claims filedagainst Anthem; the risk that a government entity or court of competent jurisdiction, in any litigation,arbitration or other forum, finds in any binding or non-binding decision that Cigna has not complied, in fullor in part, with its obligations under the merger agreement or that Cigna is liable for any breach, willfulor otherwise, of the merger agreement; uncertainty as to whether and, if so, when Anthem will pay thereverse termination fee; uncertainty as to litigation with respect to any suit initiated by Anthem againstCigna, including for damages with respect to the transactions contemplated in the merger agreement;competitive responses to the ruling; the inability to retain key personnel; our ability to achieve ourfinancial, strategic and operational plans or initiatives; our ability to predict and manage medical costsand price effectively and develop and maintain good relationships with physicians, hospitals and otherhealth care providers; the impact of modifications to our operations and processes, including those inour disability business; our ability to identify potential strategic acquisitions or transactions and realizethe expected benefits of such transactions; the substantial level of government regulation over ourbusiness and the potential effects of new laws or regulations, or changes in existing laws or regulations;the outcome of litigation, regulatory audits, including the CMS review and sanctions, investigationsand actions and/or guaranty fund assessments; uncertainties surrounding participation in government-sponsored programs such as Medicare; the effectiveness and security of our information technologyand other business systems; and unfavorable industry, economic or political conditions, including foreigncurrency movements; any changes in general economic and/or industry specific conditions, as well asmore specific risks and uncertainties discussed in our most recent report on Form 10-K and subsequentreports on Forms 10-Q and 8-K available on the Investor Relations section of www.cigna.com. Youshould not place undue reliance on forward-looking statements, which speak only as of the date theyare made, are not guarantees of future performance or results, and are subject to risks, uncertaintiesand assumptions that are difficult to predict or quantify. Cigna undertakes no obligation to update orrevise any forward-looking statement, whether as a result of new information, future events or otherwise,except as may be required by law.
148
February 15, 2017 06:00 AM Eastern Standard Time
INDIANAPOLIS--(BUSINESS WIRE)--Anthem, Inc. (NYSE:ANTM) today announced that it has filed a lawsuit in the Delaware Court of Chancery seeking a temporary restraining order to enjoin Cigna from terminating, and taking any action contrary to the terms of, the Merger Agreement, specific performance compelling Cigna to comply with the Merger Agreement and damages.
On January 18, 2017, Anthem extended its Merger Agreement with Cigna through April 30, 2017. In addition to the fact that Anthem extended the termination date in the Merger Agreement, Cigna does not have a right to terminate the Merger Agreement at all because it has failed to perform fully its obligations in a manner that has proximately caused or resulted in the failure of the merger to have been consummated.
Anthem believes that there is still sufficient time and a viable path forward potentially to complete the transaction that will save millions of Americans more than $2 billion in annual medical costs and deliver significant value to shareholders. In addition to filing this lawsuit, Anthem is pursuing an
Anthem Files Suit Against Cigna Seeking a Temporary Restraining Order to Enjoin Cigna from Terminating the Merger Agreement, Specific Performance Compelling Cigna to Comply with the Merger Agreement and Damages
Anthem Action is in Response to Cigna’s Wrongful Purported Termination and Lawsuit and Ongoing Campaign to Sabotage the Merger and Deflect Attention from its Repeated Willful Breaches of the Merger Agreement Anthem Reaffirms Commitment to Value-Creating Merger
Page 1 of 9Anthem Files Suit Against Cigna Seeking a Temporary Restraining Order t...
4/27/2017http://www.businesswire.com/news/home/20170215005488/en/Anthem-Fil...
149
expedited appeal of the District Court’s decision and is committed to completing this value-creating merger either through a successful appeal or through settlement with the new leadership at the Department of Justice.
Cigna’s lawsuit and purported termination is the next step in Cigna’s campaign to sabotage the merger and to try to deflect attention from its repeated willful breaches of the Merger Agreement in support of such effort.
Cigna’s obvious efforts to sabotage the merger have been recognized by both the District Court and the national media. As the District Court noted, it could not ignore the “elephant in the courtroom,” and the fact that Cigna was “actively warning against” the merger and that “Cigna officials provided compelling testimony undermining” Anthem’s defense. In addition, the District Court noted that it could not overlook “the doubt sown into the record by Cigna itself.”
Anthem’s interests in consummating the merger, and Cigna’s interest in avoiding it, are demonstrated by Anthem’s intense efforts to obtain regulatory clearance and Cigna’s matching efforts to sabotage that goal, as outlined below:
Page 2 of 9Anthem Files Suit Against Cigna Seeking a Temporary Restraining Order t...
4/27/2017http://www.businesswire.com/news/home/20170215005488/en/Anthem-Fil...
150
Integration Efforts
Anthem Cigna
Anthem retains a team of 165 professionals
at McKinsey & Company to integrate the
companies.
Cigna refuses to allow meetings with its
senior management team, a necessary step
to integration. Cigna also consistently delays
producing data, preventing completion of an
integration plan.
Anthem and McKinsey work to implement a
key component of integration known as
“Value Capture,” which was the process by
which the synergies and efficiencies for the
newly formed company would be identified
and realized, the centerpiece defense for the
Merger.
Cigna refuses to engage in the “Value
Capture” work to identify synergies and
efficiencies after March 2016 due to alleged
“deal uncertainty.” By July, Cigna refuses to
participate in any integration work at all,
severely damaging the centerpiece defense
for the Merger.
Advocacy Efforts To Discourage DOJ Challenge
Anthem Cigna
Anthem prepares and submits 22
substantive “white papers” to the DOJ
defending the Merger.
After January 2016, Cigna refuses to provide
any substantive assistance to Anthem’s
white paper efforts, and refuses to sign
several of them.
Anthem contacts nearly 200 customers and
brokers, explaining the substantial benefits
of the Merger and encouraging them to
contact the DOJ in support of the Merger.
Anthem obtains 60 customer declarations in
support of the Merger plus 10 statements of
support from customers and brokers.
Cigna fails to obtain any meaningful
customer support, providing only two
declarations. Cigna also prevents Anthem
from seeking support from Cigna’s
customers.
The DOJ expresses concern about the
Merger’s effect in certain geographic areas,
so Anthem identifies buyers with serious
interest in acquiring Cigna assets to
remediate the concern and allow the Merger
to clear.
Cigna blocks remediation by refusing to sign
customary non-disclosure agreements or
provide the potential buyers with information
to conduct necessary due diligence of the
assets.
Page 4 of 9Anthem Files Suit Against Cigna Seeking a Temporary Restraining Order t...
4/27/2017http://www.businesswire.com/news/home/20170215005488/en/Anthem-Fil...
151
Mediation Efforts
Anthem Cigna
The Court and Special Master suggest
mediation numerous times. Anthem agrees
to mediation and repeatedly asks Cigna to
also agree to participate in mediation with
the DOJ.
Cigna refuses to agree to mediation.
Pre-Trial Efforts
Anthem Cigna
After the DOJ commences litigation, Anthem
issues a press release stating that it “is fully
committed to challenging the DOJ’s decision
in court,” as required under the Agreement.
Cigna refuses to join Anthem’s press release
and instead issues its own press release
stating that it is “evaluating its options” and
questioning whether the transaction “could
close . . . at all.”
Anthem files its answer on July 26, 2016,
five days after DOJ filed the complaint, and
asks Cigna to file an answer to help expedite
discovery.
Cigna rejects Anthem’s request, and then
does not file its answer for nearly two
months.
Anthem takes the lead on over 100
depositions, prepares all of the substantive
pleadings and briefs defending the Merger,
and arranges the submission of non-party
witness declarations and 10 expert reports in
support of the Merger.
Cigna refuses to provide any comments or
suggestions on draft litigation materials, fails
to offer comments on the DOJ’s expert
reports, and fails to ask any questions in all
but 3 of the over 100 depositions in the
case, and those questions were not
supportive of the Merger.
Anthem asserts the common interest
privilege to protect sensitive Merger-related
documents from discovery.
Cigna sends letters to Anthem
manufacturing a false record of breach, and
then helps the DOJ obtain those letters and
communications during discovery, including
by disavowing the Merger parties’ common
interest privilege.
Anthem prepares a pre-trial brief outlining
facts and law in support of Merger and
requests Cigna’s input.
Cigna refuses to comment on the pre-trial
brief, refuses to sign the brief and refuses to
offer any support for the Merger.
Page 5 of 9Anthem Files Suit Against Cigna Seeking a Temporary Restraining Order t...
4/27/2017http://www.businesswire.com/news/home/20170215005488/en/Anthem-Fil...
152
Trial Efforts
Anthem Cigna
Anthem presents an opening statement for
the two phases of trial.
Cigna asks for permission to object to
Anthem’s questions, which the District Court
finds “completely extraordinary.”
Anthem conducts direct examinations of 15
witnesses and cross-examines 21 DOJ
witnesses.
Cigna does not cross a single DOJ witness
objecting to the Merger, but remarkably
crosses Anthem’s witnesses supporting the
Merger.
Anthem spends an average of sixteen to
twenty hours preparing each of its
witnesses.
Cigna grants Anthem only one hour to help
prepare key witnesses, including Cigna’s
CEO, who Anthem is putting on at trial.
Anthem presents substantial testimonial and
documentary evidence at trial to support the
key defense that the Merger would create
efficiencies that would generate significant
medical cost savings, the vast majority of
which ultimately would be passed along to
consumers.
Cigna’s CEO provides testimony attacking
the ability of the combined companies to
achieve medical cost savings.
Anthem requests Cigna’s input on its
proposed findings of fact and conclusions of
law.
Cigna not only refuses to comment on the
proposed findings of fact and conclusions of
law, but also refuses to sign these key
documents, in effect opposing the factual
and legal basis for the Merger.
Post-Trial Efforts
Anthem Cigna
Anthem exercises its right to extend the
Termination Date to April 30, 2017 to allow
sufficient time to obtain the necessary
governmental approvals to consummate the
Merger through potential settlement or
appeal.
Cigna refuses to acknowledge the extension
and ignores Anthem’s requests for
assurances that Cigna will help secure
regulatory approval through potential
settlement and appeal.
Page 6 of 9Anthem Files Suit Against Cigna Seeking a Temporary Restraining Order t...
4/27/2017http://www.businesswire.com/news/home/20170215005488/en/Anthem-Fil...
153
Appeal Efforts
Anthem Cigna
Anthem files a notice of appeal, a motion to
expedite and an appeal brief.
Cigna refuses to agree to appeal the
decision as required under the Merger
Agreement.
Cigna severely damages the opportunity to
obtain expedited appellate review by
wrongfully purporting to terminate the
Merger Agreement before the DOJ’s
opposition to Anthem’s motion to expedite
the appeal is due.
About Anthem, Inc.
Anthem is working to transform health care with trusted and caring solutions. Our health plan companies deliver quality products and services that give their members access to the care they need. With over 73 million people served by its affiliated companies, including approximately 40 million within its family of health plans, Anthem is one of the nation’s leading health benefits companies. For more information about Anthem’s family of companies, please visit www.antheminc.com/companies.
IMPORTANT INFORMATION FOR INVESTORS AND SHAREHOLDERS
NO OFFER OR SOLICITATION
This communication does not constitute an offer to sell or a solicitation of an offer to sell or a solicitation of an offer to buy any securities or a solicitation of any vote or approval, nor shall there be any sale of securities in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such jurisdiction. No offering of securities shall be made except by means of a prospectus meeting the requirements of Section 10 of the Securities Act of 1933, as amended, and otherwise in accordance with applicable law.
ADDITIONAL INFORMATION AND WHERE TO FIND IT
In connection with the proposed transaction between Anthem, Inc. (“Anthem”) and Cigna Corporation (“Cigna”), Anthem has filed with the U.S. Securities and Exchange Commission (the “SEC”) a registration statement on Form S-4, including Amendment No. 1 thereto, containing a joint proxy statement of Anthem and Cigna that also constitutes a prospectus of Anthem. The registration statement was declared effective by the SEC on October 26, 2015. This communication is not a substitute for the registration statement, definitive joint proxy statement/prospectus or any other document that Anthem and/or Cigna have filed or may file with the SEC in connection with the proposed transaction.
Page 7 of 9Anthem Files Suit Against Cigna Seeking a Temporary Restraining Order t...
4/27/2017http://www.businesswire.com/news/home/20170215005488/en/Anthem-Fil...
154
INVESTORS AND SECURITY HOLDERS OF ANTHEM AND CIGNA ARE URGED TO READ THE DEFINITIVE JOINT PROXY STATEMENT/PROSPECTUS AND OTHER DOCUMENTS FILED WITH THE SEC CAREFULLY IN THEIR ENTIRETY AS THEY CONTAIN OR WILL CONTAIN IMPORTANT INFORMATION ABOUT THE PROPOSED TRANSACTION. Investors and security holders may obtain free copies of the registration statement containing the definitive joint proxy statement/prospectus and other documents filed with the SEC by Anthem or Cigna through the web site maintained by the SEC at http://www.sec.gov. Copies of the documents filed with the SEC by Anthem are available free of charge on Anthem’s internet website at http://www.antheminc.com or by contacting Anthem’s Investor Relations Department at (317) 488-6390. Copies of the documents filed with the SEC by Cigna are available free of charge on Cigna’s internet website at http://www.cigna.com or by contacting Cigna’s Investor Relations Department at (215) 761-4198.
Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995
This document, and oral statements made with respect to information contained in this communication, contain certain forward-looking information about Anthem, Inc. (“Anthem”), Cigna Corporation (“Cigna”) and the combined businesses of Anthem and Cigna that is intended to be covered by the safe harbor for “forward-looking statements” provided by the Private Securities Litigation Reform Act of 1995. Forward-looking statements are statements that are not generally historical facts. Words such as “expect(s),” “feel(s),” “believe(s),” “will,” “may,” “anticipate(s),” “intend,” “estimate,” “project” and similar expressions (including the negative thereof) are intended to identify forward-looking statements, which generally are not historical in nature. Such statements are subject to certain known and unknown risks and uncertainties, many of which are difficult to predict and generally beyond Anthem’s and Cigna’s control, that could cause actual results and other future events to differ materially from those expressed in, or implied or projected by, the forward-looking information and statements. These risks and uncertainties include those discussed and identified in Anthem’s and Cigna’s public filings with the SEC. Important factors that could cause actual results and other future events to differ materially from the forward-looking statements made in this communication are set forth in other reports or documents that Anthem and/or Cigna may file from time to time with the SEC, and include, but are not limited to: (i) the ultimate outcome of the proposed transaction, including the ability to achieve the synergies and value creation contemplated by the proposed transaction, (ii) the ultimate outcome and results of integrating the operations of Anthem and Cigna, (iii) disruption from the merger making it more difficult to maintain businesses and operational relationships, (iv) the risk that unexpected costs will be incurred in connection with the proposed transaction, (v) the timing to consummate the proposed transaction and (vi) the possibility that the proposed transaction does not close, including, but not limited to, due to the failure to satisfy the closing conditions, including the receipt of all required regulatory approvals. All forward-looking statements attributable to Anthem, Cigna or any person acting on behalf of Anthem and/or Cigna are expressly qualified in their entirety by this cautionary statement. Readers are cautioned not to place undue reliance on these forward-looking statements that speak only as of the date hereof. Except to the extent otherwise required by federal securities law, neither Anthem nor Cigna undertake any obligation to republish revised forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events or the receipt of new information. Readers are also urged to carefully review and consider the various disclosures in Anthem’s and Cigna’s SEC reports.
Contacts
Page 8 of 9Anthem Files Suit Against Cigna Seeking a Temporary Restraining Order t...
4/27/2017http://www.businesswire.com/news/home/20170215005488/en/Anthem-Fil...
155
Anthem, Inc.Investor RelationsDouglas Simpson, 317-488-6181orMediaJill Becher, 262-523-4764
Page 9 of 9Anthem Files Suit Against Cigna Seeking a Temporary Restraining Order t...
4/27/2017http://www.businesswire.com/news/home/20170215005488/en/Anthem-Fil...
156
IN THE COURT OF CHANCERY OF THE STATE OF DELA WARE
ANTHEM, INC.,
Plaintiff,
v.
CIGNA CORPORATION,
Defendant.
) ) ) ) ) ) ) ) )
C.A. No. 2017-0114-JTL
ORDER GRANTING MOTION FOR TEMPORARY RESTRAINING ORDER
Effective immediately, pending further order of this court, defendant Cigna
Corporation is subject to a temporary restraining order and is enjoined from
terminating the Agreement and Plan of Merger dated as of July 23, 2015, among
Anthem, Inc., Anthem Merger Sub Corp., and Cigna Corporation.
17
157
ORAL ARGUMENT NOT YET SCHEDULED
IN THE UNITED STATES COURT OF APPEALS FOR THE DISTRICT OF COLUMBIA CIRCUIT
UNITED STATES OF AMERICA, ET AL.,
Plaintiffs-Appellees,
v.
ANTHEM, INC.,
Defendant-Appellant,
and
CIGNA CORP.,
Defendant-Appellee.
No. 17-5024 PUBLIC COPY—SEALED MATERIAL DELETED
RESPONSE OF THE UNITED STATES AND PLAINTIFF STATES IN OPPOSITION TO DEFENDANT-APPELLANT’S MOTION TO EXPEDITE
Anthem, Inc. has filed an emergency motion asking this Court to expedite
consideration of this appeal from the district court’s order enjoining Anthem’s
merger with Cigna Corp.
In the last 24 hours, however, Cigna has filed a lawsuit against Anthem,
seeking to “confirm that the merger agreement [between Anthem and Cigna] has
been lawfully terminated.” Cigna 8-K at 1 (Feb. 14, 2017) (attached as Exhibit A).
According to Cigna, “there is no feasible path to ever completing the merger, let
alone by April 30, 2017, and therefore it would be in the best interests of our
USCA Case #17-5024 Document #1661433 Filed: 02/15/2017 Page 1 of 25
158
2
clients, customers and shareholders to move forward with a sovereign growth
strategy.” Id. at 1. Anthem disagrees and announced earlier this morning that it
has filed a counter-suit against Cigna.1
These developments gut Anthem’s arguments for expedited review, all of
which are based on harms that would purportedly befall Anthem, Cigna, and the
public if this Court did not review the district court’s decision enjoining the
Anthem-Cigna merger before the merger agreement’s closing deadline—which
Anthem argues is April 30, and Cigna believes has already passed. See id. at 2.
Anthem argues that expedited review is necessary because Cigna would likely
terminate the agreement if the merger is not closed by that date. But since Cigna
has already terminated the agreement, expedited review—and perhaps any
appellate review—would be futile. Moreover, even putting these developments
aside, expedited review would still not prevent Anthem’s asserted injuries because
the merger cannot close until approved by state insurance regulators, which by
Anthem’s own representation below would take at least 120 days from the
conclusion of this litigation. If this appeal nevertheless goes forward, the public
interest strongly weighs in favor of a careful and thorough review of “the largest
1 See http://ir.antheminc.com/phoenix.zhtml?c=130104&p=irol-newsArticle&ID=2246154.
USCA Case #17-5024 Document #1661433 Filed: 02/15/2017 Page 2 of 25
159
3
merger in the history of the healthcare industry.” Mot. 2. For these and additional
reasons detailed below, Anthem’s motion should be denied.
BACKGROUND
At the outset of the litigation, Anthem represented to the district court that,
“Anthem’s ability to close its acquisition of Cigna depends upon this action
concluding (without an injunction) before the end of 2016.” Anthem’s
Explanation of Its Positions as to Timing 3 (Dist. Ct. Dkt. No. 28).2 Anthem
explained that it had to secure approval of its acquisition of Cigna from insurance
regulators in 26 states before it could close the merger, and Anthem stated “that it
will need at least 120 days to secure the remaining approvals by State insurance
regulators.” Id.
2 Citations to “Dist. Ct. Dkt. No.” reference the docket entries in United States v. Anthem, Inc., No. 1:16-cv-1493 (D.D.C.).
MATERIAL UNDER SEAL DELETEDUSCA Case #17-5024 Document #1661433 Filed: 02/15/2017 Page 3 of 25
160
MATERIAL UNDER SEAL DELETED
Following extensive post-trial briefing, the court
entered its final decision enjoining the merger on February 8, 2017. Joint
Appendix (JA) 208. In its order, which was accompanied by a 140-page opinion,
the district court concluded that "the proposed merger is likely to lessen
competition substantially in the market for the sale of commercial health insurance
to national account customers in the fourteen Anthem territories and in the market
for the sale of commercial health insurance to large group customers in the
Richmond, Virginia market," "in violation of section 7 of the Clayton Act, 15
U.S.C. § 18." Id. 3
4
USCA Case #17-5024 Document #1661433 Filed: 02/15/2017 Page 4 of 25
161
5
Anthem has appealed from the district court’s decision. It now asks this
Court to expedite briefing, argument, and consideration of this case.
Yesterday, Cigna notified the Securities Exchange Commission that it has
terminated its merger agreement with Anthem. Ex. A at 2. Cigna also filed suit
against Anthem in the Delaware Court of Chancery, seeking declaratory judgment
to confirm the agreement was lawfully terminated, to collect a break-up fee, and to
seek additional damages. Id.
Just this morning, Anthem announced that it has filed counter-suit against
Cigna regarding Cigna’s termination of the agreement. It claims that Cigna has not
terminated the agreement and cannot do so at all.4
LEGAL STANDARD
Absent the existence of certain statutorily enumerated circumstances—none
of which is present here—a court will not expedite consideration of a matter unless
“good cause” is shown. 28 U.S.C. § 1657(a). In this Circuit, motions to expedite
are “very rarely” granted. D.C. Circuit Handbook of Practice and Internal
Procedures 33 (2017). To establish the requisite good cause,
[t]he movant must demonstrate that the delay will cause irreparable injury and that the decision under review is subject to substantial challenge. The Court also may expedite cases in which the public generally, or in which persons not before the Court, have an unusual
4 See http://ir.antheminc.com/phoenix.zhtml?c=130104&p=irol-newsArticle&ID=2246154.
USCA Case #17-5024 Document #1661433 Filed: 02/15/2017 Page 5 of 25
162
6
interest in prompt disposition. The reasons must be strongly compelling. [Id.]
ARGUMENT
Anthem argues that (1) absent expedited briefing, argument, and
consideration, Anthem will suffer irreparable harm, (2) the district court’s order is
subject to substantial challenge, and (3) the public interest supports expedited
review. Anthem is wrong on all counts.
A. Anthem Has Not Demonstrated It Will Suffer Irreparable Harm Absent Expedited Consideration.
1. Expedited Review Would Be Futile. Anthem asserts that absent
expedition, the merger could terminate, Cigna and Anthem might become
embroiled in litigation over termination, and this appeal would be rendered
practically moot. Mot. 5-7. But all of this has already come to pass. Cigna has
terminated the merger agreement, and litigation over the termination has
commenced. See Ex. A at 2. Whether the consummation of the proposed merger
would violate the Clayton Act, as the district court concluded, is beside the point if
there is no merger. Expedited review will do nothing to change these facts and
thus will do nothing to prevent the harm that Anthem has identified in its motion.
Even before this latest and dispositive development, however, expedited
review was futile because it would not have prevented Anthem’s asserted injuries.
If Anthem got everything it wanted and the Court were to issue a decision
USCA Case #17-5024 Document #1661433 Filed: 02/15/2017 Page 6 of 25
163
7
favorable to Anthem before April 30, 2017, there would remain a major obstacle
preventing the merger from closing: “Anthem still requires certain state insurance
regulatory clearances” before it can close. Mot. 7. As Anthem explained to the
district court, state regulatory review is currently on hold pending the final
resolution of this litigation. Anthem’s Explanation of Its Positions as to Timing 2-
3 (Dist. Ct. Dkt. No. 28). By Anthem’s own estimation, then, renewal of state
regulatory review is likely to continue only following a final judgment on the
merits—but that is something that even a decision from this Court in favor of
Anthem will not provide.
At best, Anthem is looking at a remand to the district court for further
proceedings because the district court has not resolved all the claims that the
government asserted below. The court held that the proposed merger should be
enjoined because it “is likely to lessen competition substantially in the market for
the sale of commercial health insurance to national account customers in the
fourteen Anthem territories and in the market for the sale of commercial health
insurance to large group customers in the Richmond, Virginia market.” JA208.
MATERIAL UNDER SEAL DELETEDUSCA Case #17-5024 Document #1661433 Filed: 02/15/2017 Page 7 of 25
164
8
Therefore, even
if Anthem succeeds in this appeal, “there should be a remand for further
proceedings to permit the trial court to make the missing findings” as to the
government’s other theories for relief. Pullman-Standard v. Swint, 456 U.S. 273,
291 (1982); see, e.g., Corrigan v. D.C., 841 F.3d 1022, 1039 (D.C. Cir. 2016);
United States v. TDC Mgmt. Corp., 827 F.3d 1127, 1132 (D.C. Cir. 2016).
Then, after remand, assuming the district court entered judgment in favor of
Anthem (and there were no appeals or Anthem won all appeals), Anthem would
still need to obtain state regulatory clearances before closing. Anthem baldly
declares that “a favorable ruling by this Court prior to . . . April 30, 2017, will
allow the clearances to be obtained and the Merger to close.” Mot. 7. But Anthem
provides no support for this declaration, which is flatly contradicted by Anthem’s
representations in the district court.
Before the district court, Anthem represented that, “[a]s a practical matter,
. . . Anthem’s ability to close its acquisition of Cigna depends upon this action
concluding (without an injunction) before the end of 2016” because “Anthem
MATERIAL UNDER SEAL DELETEDUSCA Case #17-5024 Document #1661433 Filed: 02/15/2017 Page 8 of 25
165
9
expects that it will need at least 120 days to secure the remaining approvals by
State insurance regulators.” Anthem’s Explanation of Its Positions as to Timing 3
(Dist. Ct. Dkt. No. 28). And Anthem backed this up with six sworn declarations
by expert counsel assisting Anthem in securing approvals from the state insurance
regulatory bodies. Decl. of Jared R. Danilson (Dist. Ct. Dkt. No. 28-1) (generally);
Decl. of Kathleen D. Monnes (Dist. Ct. Dkt. No. 28-3) (Connecticut); Decl. of Joel
A. Glover (Dist. Ct. Dkt. No. 28-6) (Colorado); Decl. of Julie March Pomerantz
(Dist. Ct. Dkt. No. 28-8) (Georgia); Decl. of Steven J. Lauwers (Dist. Ct. Dkt.
No. 28-10) (New Hampshire); Decl. of Richard B. Walsh Jr. (Dist. Ct. Dkt.
No. 28-12) (Missouri).
Declarant Danilson, for example, explained that the 120-day timeline was
“driven largely by statutory requirements for public hearings” in the states for
which review is currently suspended. Danilson Decl. ¶ 5; id. ¶ 8 (“Some state
regulations also require public hearings preceded by notice periods.”). “In these
public hearing states, . . . the timeline from [the Form A filing] to public hearing
and decision is typically 60 to 120 days in a non-politicized environment.” Id.
¶ 15. Thus, Danilson explained, “the state insurance regulators must re-start their
review no later than January 1, 2017 so that Anthem can obtain the remaining
approvals by the April 30, 2017 deadline.” Id. ¶ 6. As Anthem explained to the
district court, state regulatory review is currently on hold pending the final
USCA Case #17-5024 Document #1661433 Filed: 02/15/2017 Page 9 of 25
166
10
resolution of this litigation. Anthem’s Explanation of Its Positions as to Timing 2-
3 (Dist. Ct. Dkt. No. 28). And although Anthem has purported to “make every
effort to urge the states to continue their review in parallel with the federal lawsuit,
. . . this effort is extremely unlikely to succeed where a state has already expressly
suspended consideration pending litigation as Connecticut, Colorado, Georgia, and
New Hampshire have done here.” Decl. of Jared R. Danilson ¶ 7 (Dist. Ct. Dkt.
No. 28-1).
Having suspended regulatory review in light of the government’s lawsuit,
the states are highly unlikely to restart that review now, after the district court has
enjoined the transaction and Cigna has terminated the merger agreement. We are
already well past the point that Anthem’s own declarant represented was the “no
later than” date for renewal of state regulatory reviews, and Anthem is further than
ever from securing those approvals. Accordingly, expedited review will do
nothing to prevent Anthem’s alleged harms.
2. Anthem’s Asserted Injuries Are Not Irreparable. The injuries that
Anthem identifies also are not irreparable. They are all caused by the agreed-upon
closing deadline in the Anthem-Cigna merger agreement.5 If the parties had
5 Anthem’s representation about the significance of that closing deadline in its motion to this Court is inconsistent with Anthem’s statement in this morning’s press release, which contends that Cigna cannot terminate the agreement, at all. See http://ir.antheminc.com/phoenix.zhtml?c=130104&p=irol-newsArticle&ID=2246154.
USCA Case #17-5024 Document #1661433 Filed: 02/15/2017 Page 10 of 25
167
11
wished to extend the closing deadline for the agreement, they certainly could
have.6 As this Court recognized in FTC v. H.J. Heinz Co., 246 F.3d 708 (D.C. Cir.
2001), “[i]f the merger makes economic sense now,” it should likewise “do so
later.” Id. at 726. Any harm arising from the failure to close the merger is
therefore not a function of the pace of appellate review; it is instead a result of the
parties’ actions under their merger agreement.
Harm resulting from the operation of “a freely negotiated contractual
arrangement” is not irreparable because it is “self-inflicted.” Fish v. Kobach, 840
F.3d 710, 753 (10th Cir. 2016) (discussing Salt Lake Tribune Publ’g Co. v. AT&T
Corp., 320 F.3d 1081, 1106 (10th Cir. 2003), and Davis v. Mineta, 302 F.3d 1104,
1116 (10th Cir. 2002), abrogated on other grounds as explained in Diné Citizens
Against Ruining Our Env’t v. Jewell, 839 F.3d 1276, 1281-82 (10th Cir. 2016)).
This rule is widely recognized.7 Indeed, a contrary rule would allow parties to
6 See, e.g., Aetna 8-K at 2 (June 24, 2016) (parties to Aetna-Humana merger agreement “elected to extend the ‘End Date’ (as defined in the Merger Agreement) from June 30, 2016 to December 31, 2016”); Aetna 8-K at 2 (Dec. 22, 2016) (parties to Aetna-Humana merger agreement “each agreed, in order to extend the ‘End Date’ . . . to waive until . . . February 15, 2017 its right to terminate the Merger Agreement due to a failure of the Mergers to have been completed on or before December 31, 2016”). 7 See, e.g., Livonia Props. Holdings, LLC v. 12840-12976 Farmington Rd. Holdings, LLC, 399 F. App’x 97, 104 (6th Cir. 2010); Second City Music, Inc. v. Chicago, 333 F.3d 846, 850 (7th Cir. 2003); Caplan v. Fellheimer Eichen Braverman & Kaskey, 68 F.3d 828, 839 (3d Cir. 1995); Hirschfeld v. Bd. of Elections in City of N.Y., 984 F.2d 35, 40 (2d Cir. 1993); San Francisco Real
USCA Case #17-5024 Document #1661433 Filed: 02/15/2017 Page 11 of 25
168
12
force preliminary relief or expedited review in every case by virtue of a voluntarily
adopted deadline.
In Davis, for example, the Tenth Circuit applied a similar analysis to
conclude that certain state defendants would not be irreparably harmed by a
preliminary injunction against a highway project that had received insufficient
environmental review. 302 F.3d at 1109-10. The state defendants had argued
against the injunction by pointing to “costs that will be incurred . . . based on the
delays experienced and anticipated by this litigation.” Id. at 1116. The court
rejected that harm as “self-inflicted.” Id. The state defendants had “‘jumped the
gun’” when they “enter[ed] into contractual obligations that anticipated a pro
forma result” in the environmental-review process. Id. They would not be heard
to complain that the process took longer than they expected because “the state
defendants are largely responsible for their own harm.” Id. Likewise, Anthem
assumed the risk that the merger would not be approved by the contractual
deadline—and the consequences of that assumption are of its own making.
Estate Inv’rs v. Real Estate Inv. Trust of Am., 692 F.2d 814, 818 (1st Cir. 1982); Lee v. Christian Coal. of Am., Inc., 160 F. Supp. 2d 14, 33 (D.D.C. 2001). Cf. Grocery Mfrs. Ass’n v. EPA, 693 F.3d 169, 177 (D.C. Cir. 2012) (where petitioners take action made available by challenged regulation “voluntarily, any injury they incur as a result is a ‘self-inflicted harm’ not fairly traceable to the challenged government conduct”).
USCA Case #17-5024 Document #1661433 Filed: 02/15/2017 Page 12 of 25
169
13
B. The District Court’s Order Is Not Subject To Substantial Challenge.
Anthem challenges the district court’s finding that the alleged efficiencies of
the merger (supposed medical cost savings) do not outweigh the anticompetitive
effects of the merger. See Mot. 7-8; . No court has ever held that
efficiencies justified an otherwise anti-competitive merger. Cf. Saint Alphonsus
Med. Ctr.-Nampa Inc. v. St. Luke’s Health Sys., Ltd., 778 F.3d 775, 789 (9th Cir.
2015) (“none of the reported appellate decisions have actually held that a § 7
defendant has rebutted a prima facie case with an efficiencies defense”). And the
district court had good reason to reject that defense here.
8 See U.S. Dep’t of Justice & Fed. Trade Comm’n, Horizontal Merger Guidelines § 4 (2010) (explaining that “merger-specific efficiencies” are “only those efficiencies likely to be accomplished with the proposed merger and unlikely to be accomplished in the absence of either the proposed merger or another means having comparable anticompetitive effects”).
MATERIAL UNDER SEAL DELETEDUSCA Case #17-5024 Document #1661433 Filed: 02/15/2017 Page 13 of 25
170
14
To prevail on appeal, therefore, Anthem would
need to demonstrate that these findings were “clearly erroneous,” Fed. R. Civ. P.
52(a)(6)—something Anthem is simply unable to do. Even Cigna agrees. See
Ex. A at 1 (“Judge Jackson’s decision to block the merger was based on numerous
factual determinations—and does not decide certain of the government’s
arguments—all of which make a swift and successful appeal highly unlikely.”).
Thus, Anthem does not raise a substantial challenge to the district court’s order.
C. Expedited Review Is Not In The Public Interest.
Anthem separately argues that expedited review is warranted because the
merger is in the public interest. Mot. 8-10. But Anthem conflates public interest
in expedited review with the supposed public interest in approval of the merger. It
does not offer a single reason why the public has any interest in expedited
consideration of the case, nor could it, for the public interest weighs against
rushing this case through the appellate process.9
As Anthem observes, “[t]his case concerns the largest merger in the history
of the healthcare industry.” Mot. 2. Both the merger and this lawsuit have
received substantial attention throughout the healthcare industry and in the press.
9 Anthem touts the public benefit that the merger affords to Cigna’s shareholders as a reason to expedite review. See Mot. 9. Cigna, of course, has terminated the merger agreement and sued Anthem to confirm the legality of that termination. Cigna’s board, which represents Cigna’s shareholders, thus has a contrary view of the merger’s benefits for those shareholders.
MATERIAL UNDER SEAL DELETEDUSCA Case #17-5024 Document #1661433 Filed: 02/15/2017 Page 14 of 25
171
15
The district court’s days-old injunction order has already attracted the attention of
organizations in the healthcare industry who have indicated an interest in
participating in the appeal as amici. The public interest, therefore, supports a
review schedule that accommodates the widespread interest in this litigation.
Anthem’s proposed schedule does not. It sets a break-neck pace for briefing,
leaves no room for amici filings, suggests that the Court forgo oral argument
(Mot. 2), and does not allow for the careful deliberation that a case of this
magnitude and complexity demands. Anthem’s proposed schedule is antithetical
to the public interest and should be rejected. The Court should enter an order
setting forth the usual schedule for merits briefing, subject to the modification
requested below (at 16-17).
The Court should also schedule the case for oral argument because this is not
the type of case for which argument “is not needed.” Cir. R. 34(j)(1). Anthem’s
appeal asks the Court to decide, among other things, whether so-called medical
cost savings in the form of lower reimbursement rates forced on providers through
the proposed merger of Anthem and Cigna can justify an otherwise anticompetitive
merger. See Br. 2. Were the Court to reach that question (and the government
believes it should not), the answer could affect all healthcare-industry merger
litigation in the District going forward—and a case of that potential significance
demands oral argument. Moreover, Anthem asks the Court to reverse the district
USCA Case #17-5024 Document #1661433 Filed: 02/15/2017 Page 15 of 25
172
16
court’s order in full and “rule for Anthem, permitting the proposed merger of
Anthem and Cigna to proceed.” Id. at 57. Before entertaining a request for such
sweeping relief against a merger challenge brought by the United States, eleven
states, and the District of Columbia, the Court should allow the government to
present oral argument.
* * *
Whether or not this Court grants Anthem’s motion to expedite, the
government requests at least 45 days from this Court’s entry of a Scheduling Order
to file its merits brief.10 This is longer than the usual 30-day period allocated for
an appellee brief—but in the usual case, there is substantially more time following
the decision on review before the appellant notices an appeal, before the record is
filed, and before the appellant files its opening brief. Anthem’s filing of its
opening brief five days after the district court entered its order has severely
truncated the period of time that parties usually have to review the record prior to
the commencement of briefing (40 days from the date that the record is filed). See
Fed. R. App. P. 31(a)(1).
10 The government continues to assess developments in the dispute and litigation between Anthem and Cigna over the merger agreement and whether those developments warrant a stay of briefing in this Court or dismissal of this appeal as moot.
USCA Case #17-5024 Document #1661433 Filed: 02/15/2017 Page 16 of 25
173
17
The government requests 45 days because that is the amount of the time it
will need to review the massive trial record, which includes 4,500-plus pages of
trial testimony, over 100 deposition transcripts, and more than 1,400 exhibits. That
period of time is also necessary to allow the United States and twelve different
state attorneys general to endeavor to file a joint brief, coordinate their approach,
and secure the appropriate approvals for the final brief. This is less time than the
appellees were given in the FTC v. H.J. Heinz case that Anthem cites (Mot. 6) as
being decided on an expedited basis. See Per Curiam Order, FTC v. H.J. Heinz,
No. 00-5362 (Nov. 9, 2000) (appellees’ brief due 50 days after scheduling order
and 72 days after the decision under review). The government also requests that
the Court’s schedule build in time for the filing of amici briefs.
USCA Case #17-5024 Document #1661433 Filed: 02/15/2017 Page 17 of 25
174
CONCLUSION
For the foregoing reasons, the Court should deny Anthem's motion in full.
Separately, the government request at least 45 days from the date of the Scheduling
Order, to file their brief.
Dated: February 15, 2017
SCOTT I. FITZGERALD Attorney U.S. Department of Justice Antitrust Division
Respectfully submitted,
/s/ Scott A. Westrich
KRISTEN C. LIMARZI JAMES J. FREDRICKS SCOTT A. WESTRICH MARY HELEN WIMBERLY
Attorneys U.S. Department of Justice Antitrust Division 950 Pennsylvania Ave. , NW Room 3224 Washington, DC 20530-0001 (202) 532-4398 scott. westrich@usdoj.gov
Counsel for the United States
PAULA LAUREN GIBSON California Deputy Attorney General
300 S. Spring Street, Suite 1720 Los Angeles, CA 90013 (213) 897 0014 paula. gibson@doj.ca. gov
RACHEL 0. DA VIS Connecticut Assistant Attorney General
55 Elm Street, P.O. Box 120 Hartford, CT 06141-0120 (860) 808-5040 rachel. davis@ct.gov
Counsel on behalf of Plaintiff-States
18
USCA Case #17-5024 Document #1661433 Filed: 02/15/2017 Page 18 of 25
175
CERTIFICATE OF COMPLIANCE
I certify that the foregoing complies with the type-volume limitation of Fed.
R. App. P. 27(d)(2)(A) because it contains 3,907 words, excluding the portions
exempted by Fed. R. App. P. 32(f).
/s/ Scott A. Westrich Scott A. Westrich
USCA Case #17-5024 Document #1661433 Filed: 02/15/2017 Page 19 of 25
176
CERTIFICATE OF SERVICE
I certify that on February 15, 2017, I caused the public, redacted version of
the foregoing to be filed through this Court’s appellate CM/ECF filer system,
which will serve a notice of electronic filing on all registered counsel.
In addition, I caused two paper copies of the sealed, unredacted version of
the foregoing and two paper copies of the public, redacted version to be served by
hand delivery on:
Christopher M. Curran White & Case LLP 701 13th Street, NW (202) 626-3600 ccurran@whitecase.com Counsel for Anthem, Inc. Charles F. Rule Paul, Weiss, Rifkind, Wharton & Garrison LLP 2001 K Street, NW Washington, DC 20006 (202) 223 7300 rrule@paulweiss.com Counsel for Cigna Corp.
/s/ Scott A. Westrich Scott A. Westrich
USCA Case #17-5024 Document #1661433 Filed: 02/15/2017 Page 20 of 25
177
Exhibit A
USCA Case #17-5024 Document #1661433 Filed: 02/15/2017 Page 21 of 25
178
EX-99.2 3 ex99-2 htm EXHIBIT 99.2
Exhibit 99.2
Q & AFebruary 14, 2017
1. What did the District Court decide?
On February 8, 2017, the U.S. District Court for the District of Columbia issued an order enjoining the proposed merger between Cigna Corporation and Anthem, Inc. Judge Jackson's decision to block the merger was based on numerous factual determinations, including:
National Accounts: Judge Jackson found that the merger would result in a level of market concentration that would be presumptively unlawful in the market for national accounts in the 14 states where Anthem is the Blue Cross Blue Shield licensee. She also concluded that the merger would result in higher prices for the ASO insurance that Anthem and Cigna sell and that it would have other anticompetitive effects, including eliminating the two firms' vigorous competition against each other for national accounts and diminishing the prospects for innovation in the market.
Blue Cross Blue Shield Association: Judge Jackson found that the entities organized under the Blue Cross Blue Shield Association, including Anthem "work together to win national business" and that Anthem's intention to "rebrand" Cigna customers as Blue customers – to ensure that Anthem did not violate restrictive rules imposed by the Blues association – could adversely impact competition. The Court additionally found that the rules of the Blue Cross Blue Shield Association give rise to "an inherent conflict of interest" vis-a-vis the transaction.
Efficiencies: The district court rejected Anthem's principal defense: that the anticompetitive effects of the transaction would be outweighed by efficiencies that would benefit consumers. Judge Jackson noted in her opinion that Anthem had "not pointed the Court to a single litigated case in which the merging parties were successful in overcoming the government's case by presenting evidence of efficiencies."
Judge Jackson did not reach the government's other principal theories against the merger - including that the merger would unlawfully harm competition in 35 local markets and unlawfully harm providers.
2. Why did Cigna not join Anthem to pursue an appeal of the district court's decision to enjoin the merger?
There are a number of reasons that Cigna did not join in Anthem's appeal:
Anthem has repeatedly and willfully breached the merger agreement in a manner that: (1) makes it highly unlikely that regulatory approval for the transaction will be obtained and (2) has harmed and will continue to harm Cigna's interest and those of its shareholders.
Judge Jackson's decision to block the merger was based on numerous factual determinations – and does not decide certain of the government's arguments – all of which make a swift and successful appeal highly unlikely. It's also worth noting that we are not aware of a recent example where the D.C. Circuit Court of Appeals has overturned an antitrust injunction against a merger.
Because Judge Jackson enjoined the merger on the basis of the national account market, we do not believe that a credible remediation plan (i.e., divestiture package that would address the national account market issue) is possible. As Joe Swedish, Anthem's CEO reportedly stated at a Credit Suisse investor conference on November 8, 2016, an adverse ruling as to the national accounts phase of the trial would mean "game over – end of story…"
In light of the foregoing, Cigna has determined that there is no feasible path to ever completing the merger, let alone by April 30, 2017, and therefore it would be in the best interests of our clients, customers and shareholders to move forward with a sovereign growth strategy.
Page 1 of 4
2/14/2017https://www.sec.gov/Archives/edgar/data/701221/000095015917000051/ex99-2.htm
USCA Case #17-5024 Document #1661433 Filed: 02/15/2017 Page 22 of 25
179
1
3. Why is termination in the best interests of Cigna shareholders? Couldn't an extension of the agreement lead to a better outcome?
Anthem has not complied with the merger agreement. As described above, there is no feasible path to ever completing the merger, as a result, extending the merger agreement is not only futile but it also exposes Cigna to additional harm from Anthem's breaches.
4. How did Anthem breach the merger agreement and what are the "additional damages" for which Cigna is suing Anthem?
Cigna entered into the deal in order to create a combined company that would expand choice, improve affordability and quality, and further accelerate value-based care. Not only was this good for the combined entity and the consumer, it was the only viable path to regulatory approval. However, Anthem abandoned this agreed-upon plan and instead pursued a unilateral strategy that heavily favored the Blue Cross Blue Shield Association, members and rules over the transaction and its obligations under the merger agreement. As a result, the path for regulatory approval of the transaction was fatally compromised and Cigna and its shareholders were harmed.
In pursuing this course, Anthem willfully violated a number of provisions in the Merger Agreement, including (but not limited to) its obligation to use its reasonable best efforts to secure regulatory approval for the transaction and its obligation to refrain from misappropriating Cigna's confidential information.
Under the merger agreement, Cigna is entitled to recover damages in excess of the reverse termination fee that the company and its shareholders have suffered as a result of Anthem's willful breaches. The additional damages, exceeding $13 billion, include the lost premium value to Cigna's stockholders caused by Anthem's willful breaches of the merger agreement.
5. Why is a lawsuit necessary to terminate the merger agreement? Why couldn't Cigna and Anthem agree on the next steps without a lawsuit?
There are fundamental disagreements between Cigna and Anthem with respect to the Merger Agreement that require a legal determination.
Anthem has sought to extend the termination date to April 30 – and to do so would require that it is fully compliant with the agreement. As outlined in our complaint, we do not believe that Anthem has complied with the Merger Agreement and, therefore, has no right to extend the merger agreement.
Conversely, Anthem does not believe that Cigna has the right to terminate the Merger Agreement at any time, including on or after April 30. We vigorously disagree with Anthem's position.
We reached out to Anthem to discuss our options and to try to resolve these issues without litigation, but were unsuccessful. As a result, we initiated legal action to: (1) confirm that the merger agreement has been lawfully terminated; (2) collect our break-up fee; and (3) seek additional damages exceeding $13 billion that we believe we are owed as a result of Anthem's numerous breaches under the agreement.
We believe strongly in the merits of our case and hope that this matter is rapidly resolved.
Page 2 of 4
2/14/2017https://www.sec.gov/Archives/edgar/data/701221/000095015917000051/ex99-2.htm
USCA Case #17-5024 Document #1661433 Filed: 02/15/2017 Page 23 of 25
180
2
6. Did any of Cigna's actions put any of the break-up fee at risk?
Cigna has maintained full compliance with the merger agreement and has fully cooperated with Anthem throughout the process. While Anthem led the regulatory approval process, Cigna committed its full support – which included work by hundreds of associates and hundreds of millions of dollars in expenditures. Anthem itself has publicly acknowledged on multiple occasions that Cigna has been a helpful and cooperative partner. At a May 2016 investor conference, for example, Anthem's General Counsel, Thomas Zielinski, stated that working with Cigna on the transaction "had been a very collaborative process and maybe more so than other transactions I have been involved with." Mr. Swedish further declared that "the teams are working very, very well together" and that "we have been very collaborative." Mr. Swedish also testified in open court that the parties had "work[ed] very well together," describing the cooperation as "inspirational."
The only contractual basis on which Anthem can seek to avoid paying the reverse termination fee after a termination is if the failure to obtain regulatory approval is caused by Cigna's "Willful Breach."
Showing "Willful Breach" is a high bar to meet. Anthem can seek to deprive Cigna of the reverse break fee only if it can show that Cigna committed a "material breach" with "actual knowledge" that its actions would constitute a material breach of the Merger Agreement.
Even if Anthem can meet that high standard, it also needs to show that the breach caused the deal not to be approved.
Anthem has no grounds for establishing a "Willful Breach" by Cigna. Cigna has satisfied all of its contractual obligations and is entitled to the entirety of the $1.85 reverse termination fee in accordance with the Merger Agreement, as well as the other damages discussed above.
7. Are you subject to any restrictions related to the merger agreement while the litigation is pending?
We are not subject to any restrictions that would materially impede us from achieving our strategic priorities.
Cigna has a clear path forward to create value in the market place and we will continue to lead the healthcare industry in consumer engagement and in providing support to our customers through their diverse life and health stages.
Additionally, due to our focused value creation strategy and well performing businesses, we have amassed a significant amount of capital available for deployment and leverage capacity for future growth, innovation, and customer value creation.
3
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
Statements in this document regarding the merger agreement and the transactions and litigation related thereto, future growth, business strategy, strategic or operational initiatives, and any other statements about the Company's future expectations, beliefs, goals, plans or prospects constitute forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. You may identify forward-looking statements by the use of words
Page 3 of 4
2/14/2017https://www.sec.gov/Archives/edgar/data/701221/000095015917000051/ex99-2.htm
USCA Case #17-5024 Document #1661433 Filed: 02/15/2017 Page 24 of 25
181
such as "believe," "expect," "plan," "intend," "anticipate," "estimate," "predict," "potential," "may," "should," "will" or other words or expressions of similar meaning, although not all forward-looking statements contain such terms.
There are a number of important factors that could cause actual results or events to differ materially from those indicated by such forward looking statements, including: ongoing litigation with respect to the ruling, including Anthem's appeal of the ruling; litigation with respect to the merger agreement; potential adverse reactions or changes to business or employee relationships, including those resulting from the announcement of the ruling or the result of the ongoing litigation; competitive responses to the ruling or the ongoing litigation; uncertainty as to litigation with respect to the termination of the merger agreement, the reverse termination fee, declaratory judgments with respect to the foregoing and/or contract and non-contract damages for claims filed against Anthem; the risk that a government entity or court of competent jurisdiction, in any litigation, arbitration or other forum, finds in any binding or non-binding decision that Cigna has not complied, in full or in part, with its obligations under the merger agreement or that Cigna is liable for any breach, willful or otherwise, of the merger agreement; uncertainty as to whether and, if so, when Anthem will pay the reverse termination fee; uncertainty as to litigation with respect to any suit initiated by Anthem against Cigna, including for damages with respect to the transactions contemplated in the merger agreement; competitive responses to the ruling; the inability to retain key personnel; our ability to achieve our financial, strategic and operational plans or initiatives; our ability to predict and manage medical costs and price effectively and develop and maintain good relationships with physicians, hospitals and other health care providers; the impact of modifications to our operations and processes, including those in our disability business; our ability to identify potential strategic acquisitions or transactions and realize the expected benefits of such transactions; the substantial level of government regulation over our business and the potential effects of new laws or regulations, or changes in existing laws or regulations; the outcome of litigation, regulatory audits, including the CMS review and sanctions, investigations and actions and/or guaranty fund assessments; uncertainties surrounding participation in government-sponsored programs such as Medicare; the effectiveness and security of our information technology and other business systems; and unfavorable industry, economic or political conditions, including foreign currency movements; any changes in general economic and/or industry specific conditions, as well as more specific risks and uncertainties. Such other risks and uncertainties are discussed in our most recent report on Form 10-K and subsequent reports on Forms 10-Q and 8-K available on the Investor Relations section of www.cigna.com You should not place undue reliance on forward-looking statements, which speak only as of the date they are made, are not guarantees of future performance or results, and are subject to risks, uncertainties and assumptions that are difficult to predict or quantify. Cigna undertakes no obligation to update or revise any forward-looking statement, whether as a result of new information, future events or otherwise, except as may be required by law.
4
Page 4 of 4
2/14/2017https://www.sec.gov/Archives/edgar/data/701221/000095015917000051/ex99-2.htm
USCA Case #17-5024 Document #1661433 Filed: 02/15/2017 Page 25 of 25
182
UNITED STATES COURT OF APPEALS FOR THE DISTRICT OF COLUMBIA CIRCUIT
UNITED STATES OF AMERICA, et al.,
Plaintiffs-Appellees,
v.
ANTHEM, INC.,
Defendant-Appellant.
Appeal No. 17-5024
District Ct. No. 1:16-cv-01493-ABJ
District Judge: Hon. Amy Berman Jackson
APPELLANT ANTHEM, INC.’S
REPLY IN FURTHER SUPPORT OF ITS EMERGENCY MOTION FOR EXPEDITED CONSIDERATION OF APPEAL
Yesterday, the Delaware Court of Chancery (“Delaware Court”) issued a
temporary restraining order enjoining Cigna from terminating the Merger
Agreement, thereby preserving the largest merger in the history of the healthcare
industry that is poised to create $2.4 billion in medical cost savings annually. See
Exh. A hereto (Order and Transcript). In doing so, the Delaware Court found that
(i) Anthem has a colorable claim that Cigna cannot terminate, (ii) consummation of
the Merger is still possible, and (iii) Anthem would be irreparably injured by
termination. Tr. 37-48. The Delaware Court advised Cigna and Anthem to
proceed with a preliminary injunction hearing the week of April 10, 2017, where
the court will address whether or not Cigna can terminate the Merger Agreement
USCA Case #17-5024 Document #1661602 Filed: 02/16/2017 Page 1 of 11
183
- 2 -
after April 30, 2017. Tr. 48. Contrary to Appellees’ assertion to this Court, then,
Cigna’s purported termination did not “gut” Anthem’s arguments for expedition.
Rather, the developments in the Delaware Court only confirm that expedition by
this Court is warranted.
ARGUMENT
Appellees do not dispute that expedited review is warranted where delay will
cause irreparable injury, the decision under review is subject to substantial
challenge, and the public has an interest in prompt disposition. Opp’n at 5-6. Each
of those factors are satisfied here.
I. ANTHEM WILL SUFFER IRREPARABLE HARM WITHOUT EXPEDITED REVIEW
Appellees’ lead argument is that Anthem will not suffer irreparable harm
from delay because Cigna had purported to terminate the Merger Agreement.
Opp’n at 6 (calling Cigna’s step a “dispositive development”). But, yesterday, the
Delaware Court enjoined Cigna from terminating the Merger Agreement. And the
irreparable harm the Delaware Court found Anthem faced from Cigna’s purported
termination is the same irreparable harm Anthem faces if it is denied expedited
review by this Court: the loss of a transformative $54 billion Merger and appeal
rights. Mot. 5-7; Tr. 46 (“[c]learly, the loss of the transaction” and loss of
“opportunity to pursue appeal” are irreparable harm).
USCA Case #17-5024 Document #1661602 Filed: 02/16/2017 Page 2 of 11
184
- 3 -
Appellees also incorrectly argue lack of irreparable harm because expedited
review is futile. Appellees rely upon declarations Anthem submitted to the District
Court in August 2016, at the outset of this action, estimating the timeframe needed
for state regulatory approvals at that point. Opp’n at 8-10. Appellees neglect to
mention that the District Court questioned those estimates at that time, in setting
the trial schedule: “I think establishing a schedule based on the assumption that we
have to accord the state regulators 120 days to decide after I’ve already approved
the deal, if I approve the deal, that seems excessive, especially since we could be
filing position papers and factual information with the state regulators in the
interim.” United States v. Anthem, No. 1:16-cv-01493, ECF No. 71 (Aug. 21,
2016) at 22:4-9. In the six months since then, Anthem has indeed pushed forward
with the state regulators wherever possible and has substantially advanced its
position in several states, such that Anthem does not expect to need anything near
120 days for completion. See Exh. B hereto (Danilson Decl.). Appellees must
appreciate as much because at no time between January 1, 2017 (120 days prior to
April 30), and the District Court’s decision on February 8 did they move for a
directed verdict or otherwise raise this supposed mootness to the District Court.
Moreover, estimating the speed of state regulatory proceedings is
demonstrably an uncertain exercise. As Anthem acknowledged in its Motion
(at 7), Anthem may not be able to secure all the state regulatory clearances by
USCA Case #17-5024 Document #1661602 Filed: 02/16/2017 Page 3 of 11
185
- 4 -
April 30. There is, however, a path forward after April 30 if certain state
regulatory approvals are still outstanding because Anthem believes that Cigna
cannot terminate even after April 30, 2017, in light of its breaches of the Merger
Agreement.1 The Delaware Court will determine whether Cigna can terminate
after April 30, 2017, during the week of April 10. Nonetheless, even with
additional time after April 30 for closing, expedition is necessary because a lengthy
delay will prejudice the ability to pursue regulatory approvals and impact the
Parties’ alternative strategies and initiatives for a longer period of time. See, e.g.,
Danilson Decl. ¶ 3.
II. THE ORDER IS SUBJECT TO SUBSTANTIAL CHALLENGE
Appellees make no serious effort to address Anthem’s substantive arguments
which show that the District Court’s decision is subject to substantial challenge.
First, Appellees do not even mention the District Court’s rejection of 50
years of antitrust law that establishes the consumer welfare standard as the
touchstone of antitrust analysis. The Supreme Court has recognized that antitrust
laws are a “consumer welfare prescription.” NCAA v. Bd. of Regents, 468 U.S. 85,
107 (1984); see also Atl. Richfield, Co. v. USA Petr. Co., 495 U.S. 328, 340 (1990)
1 Appellees wrongly claim that Anthem’s Motion is inconsistent with Anthem’s February 15, 2016 press release about its lawsuit against Cigna which alleges that Cigna cannot terminate the Merger Agreement at all. Opp’n at 10 n.5. In fact, Anthem’s Motion could not have been more clear in making that point: “Anthem disputes that Cigna has a right to terminate at all, but Cigna disagrees.” Mot. at 6.
USCA Case #17-5024 Document #1661602 Filed: 02/16/2017 Page 4 of 11
186
- 5 -
(“[L]ow prices benefit consumers regardless of how those prices are set.”);
Weyerhaeuser Co. v. Ross-Simmons Hardwood Lumber Co., 549 U.S. 312, 319
(2007) (“[D]epriving consumers of the benefits of lower prices . . . does not
constitute sound antitrust policy.”). In the face of this controlling precedent, the
District Court tossed aside $2.4 billion in medical cost savings for American
consumers because it concluded that an antitrust court should not consider benefits
to consumers. See SA102. This was an error of law that is reviewed de novo by
this Court, not by a clearly erroneous standard as Appellees suggest (Opp’n at 13-
14). United States v. Baker Hughes, Inc., 908 F.2d 981, 983 (D.C. Cir. 1990).
Moreover, that “[e]ven Cigna agrees” is hardly noteworthy in light of the District
Court’s finding that “the elephant in courtroom” was that both the Appellees and
Cigna were “raising questions about Anthem’s characterization of the outcome of
the merger” and that Cigna was “actively warning against it.” JA206.
Second, although the Opposition cites to the Antitrust Division’s own
definition of “merger-specific efficiencies” — “merger-specific efficiencies are
only those efficiencies likely to be accomplished with the proposed merger and
unlikely to be accomplished in the absence of . . . the proposed merger . . .” (U.S.
Dep’t of Justice & Fed. Trade Comm’n, Horizontal Merger Guidelines § 4 (2010))
— the Opposition ignores the District Court’s application of the incorrect legal
standard. The District Court’s Opinion changed the examination of efficiencies
USCA Case #17-5024 Document #1661602 Filed: 02/16/2017 Page 5 of 11
187
- 6 -
from whether they are “unlikely” absent the merger to whether they are impossible
absent the merger. See SA103. And this change ignored the “unlikely” standard
applied by courts in this Circuit. See FTC v. Cardinal Health, 12 F. Supp. 2d 34,
62 (D.D.C. 1998) (“The Guidelines also contend that the efficiencies must be
‘merger specific,’ in other words ‘likely to be accomplished with the proposed
merger and unlikely to be accomplished in the absence of either the proposed
merger or another means having comparable anti-competitive effects.’”) (quoting
1997 HMG § 4); see also FTC v. Staples, 970 F. Supp. 1066, 1089 (D.D.C. 1997)
(finding that defendants need not perform “the nearly impossible task of rebutting
a possibility with a certainty,” and must merely provide a “prediction backed by
sound business judgment” to weigh when plaintiffs’ asserted harms are
speculative). This, too, is legal error subject to de novo review.
Appellees mistakenly suggest that this action has a long tail left, stating that
Anthem “at best” is “looking at a remand to the District Court.” Opp’n at 7. In
fact, Anthem demonstrates in its merits brief that the appropriate crediting of the
medical cost savings would offset all of the claimed anticompetitive effects of the
Merger (and that Appellees have otherwise failed to carry their burden). Thus, a
ruling in Anthem’s favor on this appeal may end this action without any need for
remand. See League of Women Voters of the United States v. Newby, 838 F.3d 1,
6-7 (D.C. Cir. 2016) (finding “no reason to remand to the district court” where
USCA Case #17-5024 Document #1661602 Filed: 02/16/2017 Page 6 of 11
188
- 7 -
“this court has a full record, both in the district court and on appeal” and where
“the parties amply and ably briefed and litigated” the issues). Furthermore, if a
remand really would be necessary, then expedition is all the more necessary to
speed this action to its ultimate conclusion.
III. EXPEDITED APPEAL IS IN THE PUBLIC INTEREST
Finally, Appellees incorrectly assert that an expedited appeal is not in the
public interest because it would prevent members of the healthcare industry from
weighing in on a case of “potential significance” and would “not allow for the
careful deliberation that a case of this magnitude and complexity demands.”
Opp’n at 15.
First, the appeal of a decision that impacts a $54 billion transformative
Merger should not be jeopardized to accommodate unidentified third parties with
no prior involvement in this case who did not themselves object to Anthem’s
Motion. Appellees do not, and cannot, offer any reason that such additional input
is suddenly critical on appeal. Nor do Appellees assert that these submissions
cannot be provided on an expedited schedule.
Second, Appellees’ argument that the “the magnitude and complexity” of the
case demands a longer period for appellate review contradicts their argument that
the District Court’s decision is not subject to substantial challenge, because the
issues here are straightforward and amenable to resolution without much
USCA Case #17-5024 Document #1661602 Filed: 02/16/2017 Page 7 of 11
189
- 8 -
consideration. See Opp’n at 13 (arguing that Anthem is unable to show that the
District Court’s decision is “clearly erroneous”). In any event, Appellees offer no
support for their argument that expedited review will impact this Court’s ability to
carefully deliberate this case, which is more than capable of deciding appeals on an
expedited basis.
Third, Appellees’ argument that “no court has ever held that efficiencies
justified an otherwise anti-competitive merger” (Opp’n at 13) does not support
potentially mooting an appeal in this case, where Anthem presented efficiencies
that, unlike other cases, overwhelm the purported anticompetitive impact.
Moreover, the relative paucity of the judicial treatment of the efficiencies defense
— together with the District Court’s profound skepticism of the efficiencies
defense — only underscores the need for authoritative appellate guidance.
Fourth, Appellees conspicuously fail to consider that, if Anthem’s claimed
efficiencies are valid, consumers will be deprived of those efficiencies if this
merger dies on the vine. Opp’n at 14-15. Expedition will help ensure that
consumers will not be so deprived.
* * *
Lastly, giving Appellees three weeks to submit their brief is sufficient and
reasonable given Anthem took five days after the District Court Opinion to submit
its appeal brief. Appellees are fully conversant with the facts and law having just
USCA Case #17-5024 Document #1661602 Filed: 02/16/2017 Page 8 of 11
190
- 9 -
tried and briefed them in the District Court. Appellees strain credulity in
suggesting that they need more time than normal — “at least 45 days” — to
respond to the brief that Anthem was able to submit in five days. Opp’n at 16.
CONCLUSION
For these reasons and the reasons set forth above and in its Motion, Anthem
respectfully requests that this Court enter an expedited briefing schedule for this
matter as described in the Motion.
Dated: February 16, 2017 Respectfully submitted,
/s/ Christopher M. Curran Christopher M. Curran (D.C. Bar No. 408561)
J. Mark Gidley (D.C. Bar No. 417280)
701 Thirteenth Street, NW Washington, DC 20005 Tel: +1 202 626 3600 Fax: +1 202 639 9355 ccurran@whitecase.com mgidley@whitecase.com Counsel for Defendant-Appellant Anthem, Inc.
USCA Case #17-5024 Document #1661602 Filed: 02/16/2017 Page 9 of 11
191
- 10 -
CERTIFICATE OF COMPLIANCE
Pursuant to Rule 27(d)(2) of the Federal Rules of Appellate Procedure, the
undersigned hereby certifies that:
1. This document complies with the word limit of Fed. R. App. P. 27(d)(2)
because this document contains 1852 words.
2. This document complies with the typeface requirements of Fed. R. App. P.
32(a)(5) and the type-style requirements of Fed. R. App. P. 32(a)(6) because this
document has been prepared in a proportionally spaced typeface using Microsoft
Word 2010 in Times New Roman font, size 14.
/s/ Matthew S. Leddicotte Matthew S. Leddicotte
USCA Case #17-5024 Document #1661602 Filed: 02/16/2017 Page 10 of 11
192
- 11 -
CERTIFICATE OF SERVICE
I hereby certify that on February 16, 2017, I caused to be served an
electronic copy of the foregoing Anthem, Inc.’s Reply in Further Support of its
Emergency Motion for Expedited Consideration of Appeal via the CM/ECF
system, under Circuit Rule 25(f), upon all counsel of record.
/s/ Christopher M. Curran Christopher M. Curran
USCA Case #17-5024 Document #1661602 Filed: 02/16/2017 Page 11 of 11
193
United States Court of AppealsFOR THE DISTRICT OF COLUMBIA CIRCUIT
____________
No. 17-5024 September Term, 2016
1:16-cv-01493-ABJ
Filed On: February 17, 2017
United States of America, et al.,
Appellees
v.
Anthem, Inc.,
Appellant
Cigna Corporation,
Appellee
BEFORE: Rogers, Kavanaugh, and Millett, Circuit Judges
O R D E R
Upon consideration of the emergency motion to expedite, the response thereto,the reply, and appellant’s brief, it is
ORDERED that the emergency motion to expedite be granted. It is
FURTHER ORDERED that the following briefing schedule will apply:
Briefs for Amici Curiaesupporting Appellant February 24, 2017
Briefs for Appellees(up to two briefs, one for governmentalentities and one for Cigna Corp.) March 13, 2017
Briefs for Amici Curiaesupporting Appellees March 17, 2017
Reply Brief for Appellant March 20, 2017
USCA Case #17-5024 Document #1662008 Filed: 02/17/2017 Page 1 of 2
194
United States Court of AppealsFOR THE DISTRICT OF COLUMBIA CIRCUIT
____________
No. 17-5024 September Term, 2016
It is FURTHER ORDERED that oral argument be scheduled before this panel onFriday, March 24, 2017, commencing at 9:30 a.m.
In view of the expedited nature of the appeal, no requests for extensions of timewill be considered and standard word limitations will apply. Appellees are urged tocoordinate the preparation of their briefs in an effort to limit any duplication.
To enhance the clarity of their briefs, the parties are urged to limit the use ofabbreviations, including acronyms. While acronyms may be used for entities andstatutes with widely recognized initials, briefs should not contain acronyms that are notwidely known. See D.C. Circuit Handbook of Practice and Internal Procedures 41(2017); Notice Regarding Use of Acronyms (D.C. Cir. Jan. 26, 2010).
The parties are directed to hand-deliver the paper copies of their submissions tothe court by 12:00 noon on the date due.
A separate order will be issued regarding the allocation of time for argument.
Per Curiam
Page 2
USCA Case #17-5024 Document #1662008 Filed: 02/17/2017 Page 2 of 2
195
United States Court of AppealsFOR THE DISTRICT OF COLUMBIA CIRCUIT
Argued March 24, 2017 Decided April 28, 2017
No. 17-5024
UNITED STATES OF AMERICA, ET AL.,APPELLEES
v.
ANTHEM, INC.,APPELLANT
CIGNA CORPORATION,APPELLANT
Consolidated with 17-5028
Appeals from the United States District Courtfor the District of Columbia
(No. 1:16-cv-01493)
Christopher M. Curran argued the cause for appellantAnthem, Inc. With him on the briefs was J. Mark Gidley. Noah
A. Brumfield, Matthew S. Leddicotte, and George L. Paul
entered appearances.
Charles F. Rule was on the brief for appellant CignaCorporation. Craig A. Benson entered an appearance.
USCA Case #17-5024 Document #1673054 Filed: 04/28/2017 Page 1 of 66
196
2
Paul T. Denis and Steven G. Bradbury were on the brief foramici curiae Antitrust Economists and Business Professors insupport of appellant.
Scott A. Westrich, Attorney, U.S. Department of Justice,argued the cause for appellees. With him on the brief wereKristen C. Limarzi, James J. Fredricks, Mary Helen Wimberly,and Daniel E. Haar, Attorneys, Rachel O. Davis, AssistantAttorney General, Office of the Attorney General for the Stateof Connecticut, and Paula Lauren Gibson, Deputy AttorneyGeneral, Office of the Attorney General for the State ofCalifornia. Loren L. AliKhan, Deputy Solicitor General, Officeof the Attorney General for the District of Columbia, Sarah O.
Allen and Tyler T. Henry, Assistant Attorneys General, Officeof the Attorney General for the Commonwealth of Virginia,Ellen S. Cooper, Assistant Attorney General, Office of theAttorney General for the State of Maryland, Victor J. Domen Jr.,Senior Counsel, Cynthia E. Kinser, Deputy Attorney General,and Erin Merrick, Assistant Attorney General, Office of theAttorney General for the State of Tennessee, Jennifer L. Foley,Assistant Attorney General, Office of the Attorney General forthe State of New Hampshire, Devin Laiho, Senior AssistantAttorney General, Office of the Attorney General for the Stateof Colorado, Layne M. Lindebak, Assistant Attorney General,Office of the Attorney General for the State of Iowa, Christina
M. Moylan, Assistant Attorney General, Office of the AttorneyGeneral for the State of Maine, Irina C. Rodriguez, AssistantAttorney General, Office of the Attorney General for the Stateof New York, and Daniel S. Walsh, Assistant Attorney General,Office of the Attorney General for the State of Georgia, enteredappearances.
David A. Balto was on the brief for amici curiae AmericanAntitrust Institute, et al. in support of plaintiffs-appellees.
USCA Case #17-5024 Document #1673054 Filed: 04/28/2017 Page 2 of 66
197
3
Edith M. Kallas, Joe R. Whatley, Jr., and Henry C. Quillen
were on the brief for amici curiae The American MedicalAssociation and The Medical Society of the District ofColumbia in support of appellees.
Douglas C. Ross, David A. Maas, and Melinda Reid Hatton
were on the brief for amicus curiae American HospitalAssociation in support of appellees.
Richard P. Rouco was on the brief for amici curiae
Professors in support of appellees.
Before: ROGERS, KAVANAUGH and MILLETT, Circuit
Judges.
Opinion for the Court filed by Circuit Judge ROGERS.
Concurring opinion filed by Circuit Judge MILLETT.
Dissenting opinion filed by Circuit Judge KAVANAUGH.
ROGERS, Circuit Judge: This expedited appeal arises fromthe government’s successful challenge to “the largest proposedmerger in the history of the health insurance industry, betweentwo of the four national carriers,” Anthem, Inc. and CignaCorporation. Appellees Br. 1. In July 2015, Anthem, which islicensed to operate under the Blue Cross Blue Shield brand infourteen states, reached an agreement to merge with Cigna, withwhich Anthem competes largely in those fourteen states. TheU.S. Department of Justice, along with eleven States and theDistrict of Columbia (together, the “government”), filed suit topermanently enjoin the merger on the ground it was likely tosubstantially lessen competition in at least two markets inviolation of Section 7 of the Clayton Act. Following a benchtrial, the district court enjoined the merger, rejecting the factual
USCA Case #17-5024 Document #1673054 Filed: 04/28/2017 Page 3 of 66
198
4
basis of the centerpiece of Anthem’s defense, and focus of itscurrent appeal, that the merger’s anticompetitive effects wouldbe outweighed by its efficiencies because the merger wouldyield a superior Cigna product at Anthem’s lower rates. Thedistrict court found that Anthem had failed to demonstrate thatits plan is achievable and that the merger will benefit consumersas claimed in the market for the sale of medical health insuranceto national accounts in the fourteen Anthem states, as well as tolarge group employers in Richmond, Virginia.
Anthem and Cigna (hereinafter, Anthem) challenge thedistrict court’s decision and order permanently enjoining themerger on the principal ground that the court improperlydeclined to consider the claimed billions of dollars in medicalsavings. See Appellant Br. 10. Specifically, Anthem maintains1
the district court improperly rejected a consumer welfarestandard — what it calls “the benchmark of modern antitrustlaw,” id. — and generally abdicated its responsibility to balancelikely benefits against any potential harm. According toAnthem, the merger’s efficiencies would benefit customersdirectly by reducing the costs of customer medical claimsthrough lower provider rates, without harm to the providers. The government has not challenged Anthem’s reliance on an
Cigna has become a reluctant supporter of the merger,1
stating in its appellate brief that “[i]n accordance with the mergeragreement, Cigna has appealed and defers to Anthem.” Cigna Br. 3. Indeed, the district court noted the “elephant in the courtroom,” for attrial Cigna executives dismissed various of Anthem’s claims ofsavings, cross-examined the merging parties’ expert witness, andrefused to sign Anthem’s proposed findings of fact and conclusions oflaw. United States v. Anthem, Inc., No. CV 16-1493 (ABJ), 2017 WL685563, at *4 (D.D.C. Feb. 21, 2017). Anthem suggested this is a“‘side issue,’ a mere ‘rift between CEOs.’” Id. That their relationshipmay have deteriorated has little to do with the anticompetitive effectsof the proposed merger.
USCA Case #17-5024 Document #1673054 Filed: 04/28/2017 Page 4 of 66
199
5
efficiencies defense per se. Rather, it points out that Anthemneither disputes that the merger would be anticompetitive but forthe claimed medical cost savings, nor challenges the districtcourt’s findings on the relevant market definition, ease of entry,the effect of sophisticated buyers, or innovation. Instead,Anthem’s appeal focuses principally on factual disputesconcerning the claimed medical cost savings, which thegovernment maintains were not verified, not specific to themerger, and not even real efficiencies.
For the following reasons, we hold that the district court didnot abuse its discretion in enjoining the merger based onAnthem’s failure to show the kind of extraordinary efficienciesnecessary to offset the conceded anticompetitive effect of themerger in the fourteen Anthem states: the loss of Cigna, aninnovative competitor in a highly concentrated market. Additionally, we hold that the district court did not abuse itsdiscretion in enjoining the merger based on its separate andindependent determination that the merger would have asubstantial anticompetitive effect in the Richmond, Virginialarge group employer market. Accordingly, we affirm theissuance of the permanent injunction on alternative andindependent grounds.
I.
Under Section 7 of the Clayton Act, a merger between twocompanies may not proceed if “in any line of commerce or inany activity affecting commerce in any section of the country,the effect of such [merger] may be substantially to lessencompetition.” 15 U.S.C. § 18.
A burden-shifting analysis applies to consider the merger’seffect on competition. United States v. Baker Hughes Inc., 908F.2d 981, 982 (D.C. Cir. 1990). First, the plaintiff must
USCA Case #17-5024 Document #1673054 Filed: 04/28/2017 Page 5 of 66
200
6
establish a presumption of anticompetitive effect by showingthat the “transaction will lead to undue concentration in themarket for a particular product in a particular geographic area.” Id. The most common way to make this showing is through aformula called the Herfindahl-Hirschman Index (“HHI”), whichcompares a market’s concentration before and after the proposedmerger. See id. at 983 n.3. By squaring the market sharepercentage of each market participant and adding them together,a market’s HHI can range from >0 to 10,000 (i.e., a puremonopoly, or 100²). Dept. of Justice & Fed. Trade Comm’n,Horizontal Merger Guidelines § 5.3 & n.9 (Aug. 19, 2010) (the“Guidelines”). Under the Guidelines, a market will beconsidered highly concentrated if it has an HHI above 2500, andif the merger increases HHI by more than 200 points and resultsin a highly concentrated market, it “will be presumed to belikely to enhance market power.” Id. § 5.3. Although, as theJustice Department acknowledges, the court is not bound by,and owes no particular deference to, the Guidelines, this courtconsiders them a helpful tool, in view of the many years ofthoughtful analysis they represent, for analyzing proposedmergers. See Baker Hughes, 908 F.2d at 985–86.
The burden shifts, once the prima facie case is made, to thedefendant to rebut the presumption. Id. at 982. To do so, itmust provide sufficient evidence that the prima facie case“inaccurately predicts the relevant transaction’s probable effecton future competition,” or it must sufficiently discredit theevidence underlying the initial presumption. Id. at 991. “Themore compelling the prima facie case, the more evidence thedefendant must present to rebut it successfully,” but because theburden of persuasion ultimately lies with the plaintiff, theburden to rebut must not be “unduly onerous.” Id.
Upon rebuttal by the defendant, “the burden of producingadditional evidence of anticompetitive effect shifts to the
USCA Case #17-5024 Document #1673054 Filed: 04/28/2017 Page 6 of 66
201
7
[plaintiff], and merges with the ultimate burden of persuasion,which remains with the [plaintiff] at all times.” Id. at 983.
II.
Anthem is the second-largest seller of medical healthinsurance to large companies in the United States, and it servesapproximately 38.6 million medical members. It is a member ofthe Blue Cross Blue Shield Association, a group of thirty-sixhealth insurance companies licensed to do business under theBlue Cross and/or Blue Shield brands. Anthem holds anexclusive license to the Blue brands in all or part of fourteenstates (the “Anthem states”), and it may also compete forbusiness outside those states if it receives permission from theBlue licensee in the relevant area. Anthem also owns non-Bluesubsidiaries through which it may operate both in and outside ofthe Anthem states, subject to Anthem’s “Best Efforts”obligations in its licensing agreement with the Blue CrossAssociation. Under these “Best Efforts” provisions, at least80% of Anthem’s revenue within the Anthem states must comefrom Blue-branded products, as must at least 66.67% of itsrevenue nationwide. Failure to comply could result intermination of Anthem’s license, which would trigger a $2.9billion fee to the Association.
Cigna, the third-largest seller of health insurance to largecompanies in the United States, serves approximately 13 millionmedical members nationwide and in more than 30 countries, inaddition to offering other specialty products such as dental andvision insurance. Unlike Anthem, which has historically beenable to leverage its size to negotiate steep discounts fromproviders, Cigna’s provider discounts have generally not beenas good, so Cigna has developed a different and innovativevalue proposition in order to compete for customers. Under itsmore collaborative arrangements with providers, and through the
USCA Case #17-5024 Document #1673054 Filed: 04/28/2017 Page 7 of 66
202
8
integrated, customized wellness programs it offers itscustomers’ employees, Cigna’s focus is on reducing employees’utilization of expensive medical procedures and promotingwellness through behavioral supports and lifestyle changes. This offers customers a different means of lowering health carecosts than the traditional model relying heavily on providerdiscounts.
On July 23, 2015, Anthem reached an agreement to mergewith Cigna. The merger would leave Anthem as the survivingcompany, with a controlling share of the merged company’sstock and a majority of seats on the merged company’s board ofdirectors. Within the Anthem states, Cigna customers would bepermitted to remain with Cigna, at least for the time being, butAnthem and Cigna would otherwise no longer compete with oneanother in those states. Outside the Anthem states, Cigna’sexisting business would allow Anthem a bigger foothold tocompete, subject to Anthem’s “Best Efforts” obligations. Themerger agreement extends until April 30, 2017.
On July 21, 2016, the United States, along with California,Colorado, Connecticut, Georgia, Iowa, Maine, Maryland, NewHampshire, New York, Tennessee, Virginia, and the District ofColumbia, sued to enjoin the merger. Relying on Section 7 ofthe Clayton Act, 15 U.S.C. § 18, plaintiffs alleged that themerger would substantially lessen competition in the market forthe sale of health insurance to national accounts in both theAnthem states and the United States as a whole, as well as in themarket for the sale of health insurance to large group employersin 35 local markets. Plaintiffs also alleged that the mergerwould substantially lessen competition for the purchase ofservices from healthcare providers in the 35 local markets bygiving the combined company anticompetitive buying power.
USCA Case #17-5024 Document #1673054 Filed: 04/28/2017 Page 8 of 66
203
9
Following a six-week bench trial, the district courtpermanently enjoined the merger on the basis of its likelysubstantial anticompetitive effect in the market for the sale ofhealth insurance to national accounts in the Anthem states, aswell as in the market for the sale of health insurance to largegroup employers in Richmond, Virginia. United States v.
Anthem, Inc., No. CV 16-1493 (ABJ), 2017 WL 685563, at *68(D.D.C. Feb. 21, 2017). It first defined the relevant nationalaccounts market, accepting the government’s proposeddefinition of “national account” as an employer purchasinghealth insurance for more than 5,000 employees across morethan one state. It also found that the market properly includedboth fully insured and “administrative services only” (“ASO”)plans. Under a fully-insured plan, the employer pays for claimsadjudication, access to the insurer’s provider network (includingwhatever discounted rates the insurer has negotiated), andcoverage of the employees’ medical costs. Under an ASO plan,the employer pays for claims adjudication and network access,but the employer self-insures and thus takes on the risk of itsemployees’ medical costs. Finally, the district court found thatthe relevant geographic market for national accounts was thefourteen Anthem states, because that is where Anthem andCigna currently compete most prominently, given thegeographical restrictions imposed on Anthem under its BlueCross license.
With the national accounts market so defined, the districtcourt then found a presumption of anticompetitive effect basedon the combined company’s market share. It determined thatthe merger would increase HHI by 537 to 3000, while theGuidelines threshold is an increase of 200 to 2500, resulting ina highly concentrated market. Guidelines § 10. It also notedthat under any variation performed by plaintiffs’ expert theresulting numbers were still well over the presumptiveGuidelines limits: considering only national accounts where 5%
USCA Case #17-5024 Document #1673054 Filed: 04/28/2017 Page 9 of 66
204
10
of employees reside in another state, HHI would increase 641 to3124; considering only ASO customers with 5% out-of-stateemployees, HHI would increase 880 to 3675; and considering allASO national accounts, HHI would increase 771 to 3663. Anthem objected that these calculations overstated Anthem’smarket share by including all Blue customers even if they werenot Anthem’s, but the district court found that this wasappropriate. Anthem’s own internal calculations include thesecustomers, and a key part of Anthem’s value proposition tocustomers is that they can access all non-Anthem Blue networksnationwide.
Next, the district court found that Anthem had providedsufficient evidence to rebut the government’s prima facie case. It relied on evidence that Anthem’s primary competitor fornational accounts is United Healthcare, not Cigna; that nationalaccounts tend to be sophisticated, well-informed customers andthus better able to thwart an attempted price increase; that newentrants to the market will constrain pricing; and that thecombined company would have incentives to innovate in itscollaborative care arrangements with healthcare providers.
Finally, the district court found that the merger’s overalleffect in the Anthem states would be anticompetitive byreducing the number of national health insurance carriers fromfour to three. It rejected Anthem’s efficiencies defense, whichposited the combined company would realize $2.4 billion inmedical cost savings through its ability to (1) “rebrand” Cignacustomers as Anthem in order for them to access Anthem’sexisting lower rates; (2) exercise an affiliate clause in some ofits provider agreements to allow Cigna customers access toAnthem rates; and (3) renegotiate lower rates with providers. First, it found that the claimed savings were not merger-specificbecause they were based on the application of rates that eithercompany was already able to attain, and thus presumably each
USCA Case #17-5024 Document #1673054 Filed: 04/28/2017 Page 10 of 66
205
11
company could attain the other’s superior rates on its own. Italso found that for Cigna customers that would be rebranded toAnthem, any related savings would not be merger-specificbecause Cigna customers could simply purchase the Anthemproduct today. It rejected the notion that the merger wasnecessary to allow Anthem customers access to Cigna’s popularproduct offerings because Anthem had failed to show that itcould not develop and offer these products on its own. Second,the district court found that the claimed savings also failedbecause they were not sufficiently verifiable. It found thatAnthem’s plan to exercise the affiliate clause in its providercontracts was unlikely to work as Anthem suggested. That is,exercise of the affiliate clause would likely give rise to providerresistance because the providers were unlikely to accept lowerrates and provide more services without getting anything inreturn. The district court also found, as a matter of fact, thatattempts to achieve the claimed savings through renegotiation ofprovider contracts would run into similar problems. It foundthat any savings would take time to be realized, and thatAnthem’s expert failed to account for utilization, i.e., theamount of medical services that would be consumed by a givencustomer. In sum, it found the claimed savings wereaspirational inasmuch as every proffered strategy eitherfloundered in the face of business reality or was achievablewithout the merger, or both. The district court also expresseddoubt as to whether the type of efficiencies claimed by Anthem,which merely redistribute wealth from providers to Anthem andits customers rather than creating new value, are evencognizable under Section 7.
Additionally, with regard to the Richmond market for largegroup employers, the district court found a presumption ofanticompetitive effect based on the fact that Anthem and Cignawere the city’s first- and second-largest competitors, with acombined market share of between 64% and 78%. It found that
USCA Case #17-5024 Document #1673054 Filed: 04/28/2017 Page 11 of 66
206
12
Anthem rebutted the presumption by challenging thegovernment’s calculations, pointing to additional competitorsoutside the Richmond area and claiming that Anthem customersin the Federal Employee Program skewed its Richmond marketshare. Overall, however, the district court credited the testimonyof the government’s expert that even accepting all of Anthem’sclaimed efficiencies, the merger would still have a netanticompetitive effect. Because Anthem had not shown that theremaining competition (or potential market entrants) couldlikely constrain a price increase by the combined company, itfound that the merger should be enjoined on that additional basisas well.
III.
Our review of the district court’s decision whether to issuea permanent injunction under the Clayton Act is limited todetermining whether there was an abuse of discretion. United
States v. Borden Co., 347 U.S. 514, 518 (1954); see FTC v. H.J.
Heinz Co., 246 F.3d 708, 713 (D.C. Cir. 2001) (“Heinz”). Thedistrict court’s conclusions of law are reviewed de novo, and itsfindings of fact must be affirmed unless clearly erroneous. Heinz, 246 F.3d at 713. If a finding of fact rests on an erroneouslegal premise, then the court “must examine the decision in lightof the legal principles [it] believe[s] proper and sound.” Id.
(quoting Ambach v. Bell, 686 F.2d 974, 979 (D.C. Cir. 1982)).
A.
It is undisputed that the government met its burden todemonstrate a highly concentrated post-merger market, whichwould be reduced from four to just three competing companies. Anthem also does not dispute the definition of the nationalaccounts market, nor that such a market will be even morehighly concentrated post-merger. Anthem’s appeal insteadhinges on the district court’s treatment of its efficiencies
USCA Case #17-5024 Document #1673054 Filed: 04/28/2017 Page 12 of 66
207
13
defense. The premise of its defense was explained by its expert,Mark Israel, Ph.D. According to Anthem, Dr. Israel quantifiedthe medical cost savings that the combined company couldachieve post-merger using a “best of best” methodology, basedon the economic theory that the combined company, with itsgreater volume, would be able to obtain discount rates that areno worse than either of the companies could achieve separately. Using claims data from Anthem and Cigna, he calculated thatthe merger would generate $2.4 billion in medical cost savingsthrough improved discount rates, 98% of which he predictedwould be passed through to customers, the large nationalemployers with which Anthem and Cigna contract. Of the $2.4billion in claimed savings, Dr. Israel projected that $1.517billion would result from Cigna customers accessing Anthem’slower rates, while $874.6 million would result from Anthemcustomers accessing Cigna’s lower rates; when viewed in termsof self-insured versus fully-insured customers, the former wouldpurportedly see $1.772 billion of the claimed $2.4 billion, whilethe latter would see $619.8 million. Using merger simulationmodels, he balanced these projected savings against potentialanticompetitive effects from the loss of the rivalry between thetwo companies and found the savings easily outweighed anypotential harm. See Appellant Br. 5–6. But, as Anthem tends toignore, the government offered its own evidence and experts tochallenge these conclusions, as we discuss below.
Despite, however, widespread acceptance of the potentialbenefit of efficiencies as an economic matter, see, e.g.,Guidelines § 10, it is not at all clear that they offer a viable legaldefense to illegality under Section 7. In FTC v. Procter &
Gamble Co., 386 U.S. 568 (1967), the Supreme Court enjoineda merger without any consideration of evidence that thecombined company could purchase advertising at a lower rate. It held that “[p]ossible economies cannot be used as a defense toillegality. Congress was aware that some mergers which lessen
USCA Case #17-5024 Document #1673054 Filed: 04/28/2017 Page 13 of 66
208
14
competition may also result in economies but it struck thebalance in favor of protecting competition.” Id. at 580. In hisconcurrence, Justice Harlan criticized this attempt to “brush thequestion aside,” and he “accept[ed] the idea that economiescould be used to defend a merger.” Id. at 597, 603 (Harlan, J.,concurring). No matter that Justice Harlan’s view may be themore accepted today, the Supreme Court held otherwise, id. at580, and no party points to any subsequent step back by theCourt.
Nor does our dissenting colleague, despite his wishfulassertion that Procter & Gamble can be disregarded by thiscourt because it preceded the “modern approach” adopted incases like United States v. General Dynamics Corp., 415 U.S.486 (1974), and Continental T. V., Inc. v. GTE Sylvania Inc.,433 U.S. 36 (1977). See Dis. Op. 9–11, 14–15. The SupremeCourt made no mention of Procter & Gamble in General
Dynamics, 415 U.S. 486, and it cannot be read to have implicitlyoverruled the earlier decision because it did not involveefficiencies. See id. at 494–504; see also 4A PHILLIP E. AREEDA
& HERBERT HOVENKAMP, ANTITRUST LAW ¶ 976c2, at 115(2016) (“AREEDA & HOVENKAMP”) (distinguishing between anefficiencies defense and General Dynamics’ “competitivesignificance” defense). And whatever significance Continental
T. V. may have in the area of vertical restraints on trade, 433U.S. at 54–59, it did not do the yeoman’s work that the dissentapparently ascribes to it here, for it did not involve efficiencies,mergers, or Section 7 of the Clayton Act. Even stranger is thedissent’s suggestion that our decision in Baker Hughes, 908 F.2dat 986, blessed an efficiencies defense, see Dis. Op. 10–11,because Baker Hughes did not concern efficiencies and, likeHeinz, 246 F.3d at 720, it could not overrule Supreme Courtprecedent. Nor has this court even hinted, as the dissentproclaims, that General Dynamics overruled Procter &
Gamble’s efficiencies holding. See Baker Hughes, 908 F.2d at
USCA Case #17-5024 Document #1673054 Filed: 04/28/2017 Page 14 of 66
209
15
988 (citing Procter & Gamble favorably); Heinz, 246 F.3d at720 & n.18 (interpreting Procter & Gamble’s efficienciesholding). Put differently, our dissenting colleague applies thelaw as he wishes it were, not as it currently is. Even if “theSupreme Court has not decided a case assessing the lawfulnessof a horizontal merger under Section 7 of the Clayton Act” since1975, Dis. Op. 10, it still is not a lower court’s role to ignore on-point precedent so as to adhere to what might someday becomeSupreme Court precedent.
Despite the clear holding of Procter & Gamble, 386 U.S. at580, two circuit courts, and our own, have subsequentlyrecognized the use of efficiencies evidence in rebutting a primafacie case. Heinz, 246 F.3d at 720 (citing, inter alia, FTC v.
Tenet Health Care Corp., 186 F.3d 1045 (8th Cir. 1999); FTC
v. Univ. Health, Inc., 938 F.2d 1206 (11th Cir. 1991)); see also
ProMedica Health Sys., Inc. v. FTC, 749 F.3d 559, 571 (6th Cir.2014). The Eighth Circuit, in holding that the government hadproduced insufficient evidence of a well-defined market,acknowledged that the district court may have properly rejectedthe efficiencies defense, while observing evidence of enhancedefficiencies should be considered in the context of thecompetitive effects of the merger. Tenet Health Care Corp.,186 F.3d at 1053–55. The Eleventh Circuit similarly concludedthat whether an acquisition would yield significant efficienciesin the relevant market is “an important consideration inpredicting whether the acquisition would substantially lessencompetition,” University Health, Inc., 938 F.2d at 1222, whilenoting both that “[i]t is unnecessary . . . to define the parametersof this defense now,” and that “it may further the goals ofantitrust law to limit the availability of an efficiency defense,”id. at 1222 n.30. Other circuits have remained skeptical andsimply assumed efficiencies can rebut a prima facie case, beforefinding that the merging parties had not clearly shown themerger would enhance rather than hinder competition. See, e.g.,
USCA Case #17-5024 Document #1673054 Filed: 04/28/2017 Page 15 of 66
210
16
FTC v. Penn State Hershey Med. Ctr., 838 F.3d 327, 348 (3dCir. 2016); Saint Alphonsus Med. Ctr.–Nampa, Inc. v. St. Luke’s
Health Sys., Ltd., 778 F.3d 775, 790 (9th Cir. 2015). These veryrecent decisions put to rest the dissent’s notion that “no moderncourt” recognizes the continued viability of Procter & Gamble,see Penn State Hershey Med. Ctr., 838 F.3d at 348; Saint
Alphonsus Med. Ctr., 778 F.3d at 789, while even a cursoryreading of the court’s opinion today puts to rest any suggestionthat it “espouses the old . . . position that efficiencies might bereason to condemn a merger.” Dis. Op. 15 (emphasis added)(quoting ERNEST GELLHORN ET AL., ANTITRUST LAW AND
ECONOMICS IN A NUTSHELL 463 (5th ed. 2004)).
“Of course, once it is determinated that a merger would
substantially lessen competition, expected economies, howevergreat, will not insulate the merger from a [S]ection 7 challenge.” Univ. Health, 938 F.2d at 1222 n.29. Notably, ProfessorsAreeda and Hovenkamp have observed that “Congress may nothave wanted anything to do with an efficiencies defense assertedby a firm that was already large or low cost within the marketand to whom the efficiencies would give an even greateradvantage over rivals.” AREEDA & HOVENKAMP, supra, ¶ 950f,at 42; id. ¶ 970c, at 31. As our subsequent analysis shows, thiscourt, like our sister circuits, can simply assume the availabilityof an efficiencies defense to Section 7 illegality because Anthemfails to show that the district court clearly erred in rejectingAnthem’s efficiencies defense.
This court was satisfied in Heinz, in view of the trendamong lower courts and secondary authority, that the SupremeCourt can be understood only to have rejected “possible”efficiencies, while efficiencies that are verifiable can becredited. 246 F.3d at 720 & n.18 (discussing 4 PHILLIP AREEDA
& DONALD TURNER, ANTITRUST LAW ¶ 941b, at 154 (1980)). The issue in Heinz was whether under Section 13(b) of the
USCA Case #17-5024 Document #1673054 Filed: 04/28/2017 Page 16 of 66
211
17
Federal Trade Commission Act, 15 U.S.C. § 53(b), preliminaryinjunctive relief would be in the public interest. 246 F.3d at727. The court held that the district court “failed to make thekind of factual findings required to render that defensesufficiently concrete to rebut the government’s prima facieshowing,” id. at 725, and, upon weighing the equities, remandedfor entry of a preliminary injunction. Id. at 726–27. The courtexpressly stated however: “It is important to emphasize theposture of this case. We do not decide whether . . . thedefendants’ claimed efficiencies will carry the day.” Id. at 727. These are not the issues in Anthem’s appeal from the grant of apermanent injunction. See LaShawn A. v. Barry, 87 F.3d 1389,1393 (D.C. Cir. 1996) (en banc).
Consequently, the circuit precedent that binds us allowedthat evidence of efficiencies could rebut a prima facie showing,Heinz, 246 F.3d at 720–22, which is not invariably the same asan ultimate defense to Section 7 illegality. Cf. generally Saint
Alphonsus Med. Ctr., 778 F.3d at 789–90 (and authorities citedtherein). In this expedited appeal, prudence counsels that thecourt should leave for another day whether efficiencies can be an ultimate defense to Section 7 illegality. We will proceed onthe assumption that efficiencies as presented by Anthem couldbe such a defense under a totality of the circumstances approach,see Baker Hughes, 908 F.2d at 984–85 (citing General
Dynamics, 415 U.S. at 498), because Anthem has failed to showthe district court clearly erred in rejecting Anthem’s purportedmedical cost savings as an offsetting efficiency. Guidelines§ 10; cf. Heinz, 246 F.3d at 720–22. Additionally, because thedistrict court could permissibly conclude that the efficienciesdefense failed, because the amount of cost saving that is bothmerger-specific and verifiable would be insufficient to offset thelikely harm to competition, this court has no occasion to decidewhether the type of redistributional savings claimed here arecognizable at all under Section 7. It bears noting, though, that
USCA Case #17-5024 Document #1673054 Filed: 04/28/2017 Page 17 of 66
212
18
all of those other issues pose potentially substantial additionalobstacles to this merger.
One further preliminary analytical point. Amici supportingAnthem invite the court to disregard the merger-specificity andverifiability requirements on the ground they place anasymmetric burden on merging parties that could doombeneficial mergers. See Br. for Antitrust Economists andBusiness Professors as Amicus Curiae in Support of Appellantand Reversal (“Amici Economists”) at 5–7. Anthem itself hasnot adopted this argument. See Burwell v. Hobby Lobby Stores,
Inc., 134 S. Ct. 2751, 2776 (2014); Eldred v. Reno, 239 F.3d372, 378 (D.C. Cir. 2001). We note, however, that AmiciEconomists misapprehend the nature of Anthem’s claimedefficiencies as “direct price reductions,” id. at 6–7, rather thanas potential price reductions subject to a number ofuncertainties. For customers to realize any price reduction,Anthem would first have to succeed in reducing providers’ rates,and to that extent the purported reductions would not be a directeffect of the merger. By contrast, the merger wouldimmediately give rise to upward pricing pressure by eliminatinga competitor, see, e.g., Tr. 960:12–18, and Anthem couldunilaterally raise its prices in response. Further, AmiciEconomists ignore that fully-insured customers, and potentiallyself-insured customers depending on the terms of their contractswith Anthem, will not see any savings until Anthem takes asecond action, renegotiating the customers’ contracts to passthrough the savings. This illustrates the reason for theverifiability requirement: Perhaps Anthem is certain to takethose actions, and there will be no impediments to the savings’realization, but that showing is still necessary for a court toconclude that the merger’s direct effect (upward pricingpressure) is likely to be offset by an indirect effect (potentialdownward pricing pressure). See Guidelines § 10. As formerger-specificity, Amici Economists point to no logical flaw
USCA Case #17-5024 Document #1673054 Filed: 04/28/2017 Page 18 of 66
213
19
in the policy that consumers should not bear the loss of acompetitor if the offsetting benefit could be achieved without amerger. See Heinz, 246 F.3d at 722.
B.
Any claimed efficiency must be shown to be merger-specific, meaning that it “cannot be achieved by either companyalone because, if [it] can, the merger’s asserted benefits can beachieved without the concomitant loss of a competitor.” Heinz,246 F.3d at 722. The Guidelines frame the issue slightlydifferently: an efficiency is said to be merger-specific if it is“likely to be accomplished with the proposed merger andunlikely to be accomplished in the absence of either theproposed merger or another means having comparableanticompetitive effects.” Guidelines § 10. Anthem faults thedistrict court for considering whether the efficiencies “could” beachieved absent the merger, without regard to likelihood,Appellant Br. 24, even though in Heinz, 246 F.3d at 722, thiscourt spoke repeatedly in terms of possibility (“can” or “could”).
Heinz, 246 F.3d at 721–22, cited the Guidelines withapproval in describing the standard for merger-specificity. Boththe current and then-current Guidelines refer to “practical”alternatives to achieving the efficiency short of merger,alternatives that are more than “merely theoretical.” Guidelines§ 10 (2010); Guidelines § 4 (1997). Similarly, in Heinz, 246F.3d at 722, the court considered whether it was practical for thecompany to obtain better baby food recipes by investing moremoney in product development, or whether that would cost moremoney than the merger itself. The real question is whether thealternatives to merger are practical and more than merelytheoretical, see id.; Guidelines § 10. Even assuming there is anydifference between the two standards, it would not affect theoutcome here on this factual record. Viewed under eitherarticulation, certain of Anthem’s claimed efficiencies fall away.
USCA Case #17-5024 Document #1673054 Filed: 04/28/2017 Page 19 of 66
214
20
The crux of Anthem’s argument regarding merger-specificity is the theory that the combined company will allowAnthem to create a “new product” that is “unavailable on themarket today”: a product that features both “Cigna’s customer-facing programs” and Anthem’s “generally lower . . . rates.” Appellant Br. 26. One way Anthem maintains the merger willresult in this new product is through rebranding. According toAnthem, “rebranding means [the combined company] retain[s]the Cigna product but brand[s] it under the Anthem name withAnthem’s negotiated provider rates.” Appellant Br. 34. Therecord, however, refutes rather than substantiates Anthem’sproposed rebranding approach. In fact, the record evidenceAnthem cites for its rebranding plan is the testimony of AnthemSenior Vice President Dennis Matheis. But in that testimony,Matheis confirmed that, at least “[i]n the short term,” rebrandingwould simply involve Anthem “offer[ing] Cigna customersAnthem products,” in a manner that is “no different” thanAnthem “selling new business in the market.” Tr. 1599:20–25. In other words, when a Cigna customer rebrands, the immediateeffect is that the customer gives up a Cigna contract and Cignaproduct in favor of an Anthem contract and Anthem product. Indeed, it is only “[o]ver the long haul,” Matheis testified, thatAnthem could actualize its “vision . . . [to] combine Cignafeatures . . . with Anthem features,” Tr. 1606:17–21, and thenrebranding might result in a former Cigna customer obtainingsome semblance of the former Cigna product at the new Anthemrate. But rebranding in the immediate aftermath of the mergerwould involve a Cigna customer switching to the extant Anthemproduct, and that is not a merger-specific outcome; that is justmore successful marketing of the existing Anthem product. AndAnthem expressly “does not contend that . . . a customer simplyswitching from a Cigna product to an existing Anthem product[]results in merger-specific efficiencies.” Appellant Reply Br. 21.
USCA Case #17-5024 Document #1673054 Filed: 04/28/2017 Page 20 of 66
215
21
Instead, Anthem claims only that rebranding over the longhaul, once it has successfully rolled out an improved, Cigna-likeproduct, will result in a merger-specific benefit, and maintainsthat the district court clearly erred in finding Anthem couldsimply develop and offer an improved product on its own. Justas in Heinz, 246 F.3d at 722, the evidence offered by Anthem iswoefully insufficient to show that it cannot develop bettercustomer-facing programs. Anthem points to testimony fromtwo witnesses that Anthem has failed to replicate Cigna’sproducts, for reasons unknown. In particular, Anthem’sPresident of Specialty Business Pam Kehaly testified that Cignaoffers a “packaged integrated wellness approach where [Anthemoffers] disparate pieces that employers kind of have to piecetogether on their own.” Kehaly Depo. Tr. 87:12–15 (Apr. 28,2016). According to Kehaly, Anthem has been trying to solvethe problem for “probably a decade” but for whatever reason itjust has “not been able to crack this nut.” Id. at 88:3–13. Shedid not indicate how intensive the effort has been, how manyhours were devoted to it, or how much money Anthem hasallocated toward it. Anthem’s Regional Vice President of SalesBrian Fetherston also testified that Cigna has “done a reallygood job of building wellness programs” and that Anthem hastried but failed to catch up. Fetherston Depo. Tr. 170:14–19(May 6, 2016). The district court could properly find that failurelikely results more from Anthem’s own no-frills culture orflawed marketing strategies than from any inherent difficultiesin pulling together an integrated wellness program. Forinstance, Fetherston testified that Cigna is “significantly betterat marketing” its wellness program, while by contrast Anthem“just [was not] actively promoting” its own, and indeed, Anthemrecently decided to “dial back some of [its] disease managementprograms,” which Fetherston believed was a mistake. Id.
169:1–170:6, 323:1–23. To the extent Anthem has failed todevote the resources needed to improve its product, it is in noposition to claim that consumers will benefit from it swallowing
USCA Case #17-5024 Document #1673054 Filed: 04/28/2017 Page 21 of 66
216
22
up Cigna’s superior product.
Put differently, rebranding does not create a merger-specificbenefit in either the short- or long-term. Perhaps Anthem couldcreate some brief, interim benefit in the mid-term by integratingCigna’s product faster than it could develop a comparableproduct of its own. Guidelines § 10 n.13 (“If a merger affectsnot whether but only when an efficiency would be achieved,only the timing advantage is a merger-specific efficiency.”). But Anthem made no sufficient factual showing in the districtcourt on this point. It has offered no evidence to show how longit would take, once the necessary resources were allocated, todevelop an improved product. Nor has it shown how long itwould take to roll out a hybrid Anthem-Cigna product. At oralargument, Anthem claimed that it could do so in six months, butat trial, Anthem’s Senior Vice President Matheis allowed that itmight not be able to do so within two-and-a-half years.
To the extent Anthem also maintains that none of Dr.Israel’s claimed savings are dependent on rebranding, it ignoresthe reality of his economic model. Without one of itsmechanisms to get current Cigna customers access to Anthemrates, none of the $1.517 billion in claimed Cigna savings couldbe realized. Although Dr. Israel may have been agnostic as towhich mechanism is used to achieve those savings, heacknowledged that rebranding would achieve a portion of them:“If there was rebranding as a way to get the discounts . . . thatwould just be another way to get them faster.” Tr. 2108:9–11. Given that rebranding is the linchpin of Anthem’s post-mergerstrategy, because it is the only option that helps Anthem complywith its “Best Efforts” obligations, the inability to creditrebranding savings seriously undermines Anthem’s efficienciesdefense.
USCA Case #17-5024 Document #1673054 Filed: 04/28/2017 Page 22 of 66
217
23
The district court further found that none of the medicalcost savings are merger-specific because they are based on anapplication of rates that each of the companies has alreadyachieved on its own. Anthem, quite reasonably, challenges thisfinding with regard to Cigna’s rates on the ground that “there isno dispute that [Cigna] has generally secured less favorableprovider rates than Anthem for years and has been unable toclose that gap despite its best efforts.” Appellant Br. 27. Therecord shows that, by its own account, Cigna has been unable tomatch Anthem’s volume-based discounts and instead has had tocompete on quality and innovation. Even the government’sexpert, Dr. David Dranove, agreed that a true Cigna product atAnthem rates would not be achievable absent the merger. Thatthe district court clearly erred in finding that the application ofAnthem rates to customers that choose to remain with Cigna isnot merger-specific, however, is immaterial to the districtcourt’s ultimate conclusion that the merger would be unlawfulbecause these claimed efficiencies are not sufficiently verifiable.
C.
Under the Guidelines, projected efficiencies will not becredited “if they are vague, speculative, or otherwise cannot beverified by reasonable means.” Guidelines § 10. Anthemmaintains that the district court clearly erred because the $2.4billion in projected post-merger savings was verified by twoindependent sources (Dr. Israel and an integration planning teamfrom McKinsey & Company, which had access to eachcompany’s internal files). In Anthem’s view, the district courtalso erred as a matter of law by imposing a “virtuallyinsurmountable burden” of persuasion, Appellant Br. 38, whenall that is required is to show “probabilities, not certainties,”Baker Hughes, 908 F.2d at 984.
As discussed, Anthem plans to achieve the claimed savingsthrough a combination of three mechanisms: rebranding,
USCA Case #17-5024 Document #1673054 Filed: 04/28/2017 Page 23 of 66
218
24
renegotiating provider contracts, and exercising Anthem’saffiliate clause. The district court found that practical businessrealities would undermine the execution of that plan, makingachievement of the savings speculative, and thereforeunverifiable. With regard to the affiliate clause, the districtcourt focused on evidence of the potential for providerdiscontent if the lower Anthem rates are forced on providers thatmust expend extra effort and resources to deliver the Cignaproduct, without any corresponding increase in value forproviders. This evidence included testimony by both Anthemand Cigna witnesses as well as documents from Anthem andCigna that acknowledged the likely “abrasi[on].” E.g., Pls.’ Ex.89. The record indicates that physician contracts can beterminated by either party with only 90 days’ notice, so theaffiliate clause would accomplish little if the contract isterminated or renegotiated soon after the clause is exercised. Hospital contracts tend to involve three-year commitments, sothe affiliate clause may bind them to offer lower rates for alonger period. Still, when those hospital contracts expire, largedelivery systems with greater leverage “could push back hard”in renegotiation. Pls.’ Ex. 717. In either event, it is probable, asCigna CEO David Cordani testified, that some providers willeventually “react [by] renegotiating . . . and putting upwardpressure on rates, which has been a market force to date.” Tr.443:17–23. That “very few” Anthem providers havepreemptively sought to renegotiate proves little, see Tr.1686:15–25, because the feared abrasion would not occur untilAnthem invokes the affiliate clause, assuming it ever does so.
This raises another practical difficulty with the affiliateclause: although it is theoretically useful to Anthem, in realityit is unlikely to be widely exercised because it works counter toAnthem’s contractual obligations. Under the “Best Efforts”clause in Anthem’s licensing agreement with the Blue CrossBlue Shield Association, 80% of Anthem’s revenue within the
USCA Case #17-5024 Document #1673054 Filed: 04/28/2017 Page 24 of 66
219
25
Anthem states must be Blue-branded, as must 66.67% of itsrevenue nationwide. The merger would immediately throwAnthem out of compliance and so Anthem intends to rebrand a“lion’s share” of current Cigna customers in order to count thatrevenue as Blue-branded. Tr. 1600:17–21 (Anthem Sr. VPMatheis). By contrast, widespread exercise of the affiliateclause would remove any incentive for Cigna customers toconvert to Anthem because those customers would then bereceiving the Cigna product at Anthem prices, Dr. Israel’smuch-touted “best of both worlds” scenario. Anthem fails toaddress this reality when it maintains that 80% of the savings toCigna customers could be achieved rapidly using the affiliateclause. See Appellant Br. 40. Because doing so would workcontrary to Anthem’s own contractual obligations, its witnessesconceded that it will instead rely heavily on rebranding, which,as discussed, gives rise to no merger-specific benefits.
As for renegotiation, the short answer is that if Anthemcannot persuade providers to extend lower rates to Cigna underits affiliate clauses — where it has apparent contractual recourseto do so — then it is speculative that Anthem could get them toagree to do the same thing through negotiations absentcompulsion. Anthem assumes, as did Dr. Israel’s model, that inall instances renegotiation would result in providers acceptingthe lower Anthem rates. That assumption appears questionablein the case of a provider that has just terminated a contractbecause Anthem mandated, through an affiliate clause, theacceptance of those very rates. Instead, Cigna’s CEO Cordanipredicted such renegotiation would put upward pressure on theAnthem rate, and to the extent Anthem were to adopt a take-it-or-leave-it approach, the provider could simply choose to walkaway. See Br. for Amici Am. Med. Ass’n. & Med. Soc’y of D.C. (“AMA Br.”) 11–12. This is especially true for largehospital networks with significant bargaining power.
USCA Case #17-5024 Document #1673054 Filed: 04/28/2017 Page 25 of 66
220
26
To the extent that some medical savings would be achievedfor Cigna customers at the bargaining table due to the combinedcompany’s volume, the district court expressed concern overhow long such savings would take to be realized. Anthem’sCEO Swedish testified that capturing medical savings requiresa “long gestation period,” in part because existing hospitalcontracts span three to five years and would not be subject torenegotiation “for a considerable period of time.” Tr.337:21–338:16. He also rejected the idea that Anthem wouldsimply “drop[] the hammer” on providers by insisting onmaximum discounts across-the-board because Anthem insteadrelies upon “customized relationship-driven contract[s]” thatseek to optimize performance on a case-by-case basis, ratherthan focusing solely on discounts. Tr. 294:20–295:11. Anthem’s expert agreed that renegotiations in the ordinarycourse of business will take place over time. The longer it takesfor an efficiency to materialize, the more speculative it can be,see Guidelines § 10 & n.15, so the district court was on solidground to give less weight to the claimed renegotiation savings.
In sum, although renegotiation will lead to a decrease inCigna’s rates, the assumption that it will in every instance leadto the Anthem rate is farfetched. See Tenet Health Care Corp.,186 F.3d at 1054. Indeed, as the district court observed, “theDepartment of Justice is not the only party raising questionsabout Anthem’s characterization of the outcome of the merger”because Cigna itself had “provided compelling testimonyundermining the projections of future savings.” Anthem, Inc.,2017 WL 685563, at *4; see also Pls.’ Ex. 722.
Whatever mechanism is employed to achieve the savings,the district court had “reason to question . . . whether the qualityof the Cigna offering will in fact degrade” as a result of themerger, Anthem, 2017 WL 685563, at *61, which furtherundermines the purported efficiency claims. Guidelines § 10.
USCA Case #17-5024 Document #1673054 Filed: 04/28/2017 Page 26 of 66
221
27
For those that choose to stay with Cigna post-merger — andthus would access lower rates through renegotiation or exerciseof the affiliate clause — the abrasion problem arises becauseproviders would be asked to continue offering the high-touch,collaborative Cigna service, with its added behavioral, wellness,and lifestyle programs, for less money. See AMA Br. 10–11. It was perfectly reasonable for the district court to find that someproviders, even if they are willing to accept less money, willsimply respond by offering customers less in the way of Cignahigh-touch service. Furthermore, according to Cigna’s CEOCordani, the value of the Cigna offering will be diminishedbecause Anthem’s rebranding strategy will siphon businessaway from Cigna, leaving behind an atrophied Cigna customerbase that is less attractive to providers. This will in turndiminish Cigna’s capacity for further innovation with itscollaborative model. And for Cigna customers that agree tomigrate to Anthem (or are pushed into doing so because thecompany refuses to extend their expiring Cigna contracts),provider abrasion again rears its head, this time with providersbeing asked to offer Anthem customers better, and moreresource-intensive, collaborative service for the same rates theyhave historically received. Anthem does not respondmeaningfully to these concerns, simply labeling them“speculation.” Appellant Reply Br. 10. In light of the numerousAnthem witnesses who acknowledged the abrasion problem, thedistrict court did not err in finding it “dubious” that Anthemwould be able to offer a true Cigna-like product, or that legacyCigna would be able to maintain the quality of its own product. Anthem, 2017 WL 685563, at *59, *61.
The fact is, it is widely accepted that customers value theexisting Cigna product, and that Cigna is a leading innovator incollaborative patient care. That threat to innovation isanticompetitive in its own right. Cf. United States v. Cont’l Can
Co., 378 U.S. 441, 465 (1964). And the problem is neither
USCA Case #17-5024 Document #1673054 Filed: 04/28/2017 Page 27 of 66
222
28
answered by Anthem’s evidence nor offset by its purportedefficiency of offering a degraded Cigna product at a lower rate.
In addition to claimed savings to current Cigna customers, Dr. Israel also projected that $874.6 million in savings would berealized if Anthem’s customers were able to access superiorrates that Cigna has already negotiated. In focusing almostentirely on the other side of the ledger, Anthem offers littlereason to think that the district court clearly erred in rejectingthe claimed savings to existing Anthem customers. See
Appellant Br. 41–42. To the extent Anthem argues on appealthat Anthem customers could access Cigna’s superior ratesthrough rebranding or exercise of an affiliate clause, the onlywitness it cites was actually discussing the affiliate clause inAnthem’s contracts that would apply to Cigna’s customers. Andeven assuming that Cigna’s contracts contain an affiliate clause,Blue Cross Association rules would prohibit Anthem fromexercising it. Further, rebranding Anthem customers to Cignawould only exacerbate Anthem’s “Best Efforts” problem, whichindicates why Anthem Senior VP Matheis testified that Anthemwould rebrand a lion’s share of Cigna customers to Anthem, notthe other way around. Renegotiation would be the only viableoption for realizing the projected savings to Anthem customers.
Moreover, Anthem has not explained why these projectedsavings would even exist. The record is clear that Anthem,unlike Cigna, has already achieved whatever economies of scaleare available. According to Anthem’s expert Dr. Robert Willig,in the 35 local markets identified in the government’s complaint,the data did not show that Anthem’s size correlated with itsprovider discounts. To the contrary, Dr. Willig testified thatAnthem is “already past the threshold of having enough size todo what it needs to do in terms of offering volume to providers.” Tr. 2231:9–12. Similarly, Anthem’s CEO Joseph Swedishdenied that Anthem would seek to negotiate even greater
USCA Case #17-5024 Document #1673054 Filed: 04/28/2017 Page 28 of 66
223
29
volume-based discounts after the merger because post-mergerAnthem would “certainly not [pay] less than what [it is] nowpaying as Anthem.” Tr. 294:10–19. The evidence indicatesthat where Cigna has better discounts than Anthem, that is aresult of factors other than volume, and the district courtreasonably questioned whether those atypical discounts wouldremain available post-merger. In the absence of an additionalvolume-based discount, then, Anthem makes no effort to showhow its current customers would see lower prices as a result ofthe merger, and certainly not to the tune of $874.6 million. Consequently, the district court did not clearly err in rejectingthese alleged medical cost savings as unverifiable.
Next, the claimed medical cost savings only improveconsumer welfare to the extent that they are actually passedthrough to consumers, rather than simply bolstering Anthem’sprofit margin. See Univ. Health, Inc., 938 F.2d at 1223. Afterall, the merger potentially harms consumers by creating upwardpricing pressure due to the loss of a competitor, and so onlyefficiencies that create an equivalent downward pricing pressurecan be viewed as “sufficient to reverse the merger’s potential toharm consumers . . . , e.g., by preventing price increases.” Guidelines § 10; see also AREEDA & HOVENKAMP, supra,¶ 971a, at 48 (“[A] sufficient amount of any efficiencies [must]be passed on that the post-merger price is no higher than the pre-merger price.”). Dr. Israel testified that absent monopsony (i.e.,the exercise of market power to gain subcompetitive prices fromproviders), any cost savings will create downward pricingpressure, and while this is unobjectionable, the amount passedthrough to consumers indicates the strength of that pressure. See
Br. of Professors as Amici Curiae in Support of Appellee and forAffirmance 7–8 (“Amici Professors”). The district court rightlycast doubt on Dr. Israel’s estimated pass-through rate of 98%,which was unsupported by the evidence and treated self-insuredand fully-insured customers identically.
USCA Case #17-5024 Document #1673054 Filed: 04/28/2017 Page 29 of 66
224
30
Because ASO customers pay their employees’ medical costsdirectly, any reduction in medical rates would result in savingsthat automatically pass through to the customer, absent somecorresponding ASO price increase by Anthem. This wouldimprove the quality of one aspect of the ASO product (i.e.,access to more deeply discounted network rates), and it couldthus be procompetitive even if it did not immediately result inan ASO price decrease. See Guidelines § 10. Dr. Israel’sanalysis rested on the assumption that rather than raising ASOprices to capture the medical cost savings, Anthem wouldattempt to increase its market share by providing a muchsuperior product at only a slightly higher price, therebymaximizing its profits through increased sales. The districtcourt highlighted internal Anthem documents that discussedways to keep those savings for itself, in particular whereAnthem listed seven alternatives with 100% pass-through toASO customers considered last. Contrary to Dr. Israel’sassumption, then, Anthem apparently concluded that total pass-through was not the profit-maximizing, “optimal solution tocapture the most value from [the] deal,” and that it couldactually lose business if customers initially saw savings thatwere not sustained over the long term. Pls.’ Ex. 727. AmiciProfessors offer another reason why Anthem might have cometo this conclusion: in highly concentrated markets, already-largeinsurers are less constrained by competition and thus tend to findit more profitable to capture medical savings and increasepremiums. Amici Professors Br. 6–9; see also AREEDA &HOVENKAMP, supra, ¶ 971f, at 56 (in highly concentratedmarkets “there is less competition present to ensure that thebenefit of efficiencies will flow to consumers”). Thatcorroborates rather than remediates anticompetitive concerns.
USCA Case #17-5024 Document #1673054 Filed: 04/28/2017 Page 30 of 66
225
31
As for fully insured customers, which comprise $619.8million of the projected savings, the estimated pass-through iseven less likely given that the savings would automatically inureto Anthem’s benefit absent some corresponding price decreaseto its customers. Dr. Israel recognized this dynamic at trial, andyet his model takes no account of it, applying a pass-throughrate of 98% to both ASO and fully insured accounts. The recordindicates that ASO customers, which pay medical costs directlyto providers, are keenly attuned to fee transparency, but it isunclear fully-insured customers are afforded the sametransparency. That is, if Anthem negotiates provider rates andpays providers directly, how would a customer be aware thatAnthem had achieved medical savings, in order to be able toseek a pass-through in the form of a lower negotiated price? Further, when would fully-insured customers realize thatrenegotiated price, given that their existing contracts would notpass though any savings? See Tr. 2107:17–21 (Dr. Israel:ordinary-course renegotiation of employers’ contracts “will takeplace over time”). Neither Anthem nor Dr. Israel answers (oraddresses) these problems.
Finally, the district court did not clearly err when itcriticized Anthem’s failure to account in its projected savingsfor utilization, which is a signature aspect of the Cigna product. Dr. Israel’s model was based on discounts that either companywas able to achieve on its own multiplied by the total claimsvalue, but as Anthem’s CEO Swedish testified, “We don’t livein a discount world any longer.” Tr. 295:11. Cigna’s CEOCordani agreed: “If you’re looking [only at] a discountcalculation, if [Anthem] has a 2 percent lower discount for theemergency room service, you would assume that that’s asavings,” unless Cigna’s wellness program helps the patientavoid that emergency room visit altogether. Tr. 443:10–16. Anthem maintains that Dr. Israel and the McKinsey & Co. teamdid account for utilization, because Dr. Israel testified that lower
USCA Case #17-5024 Document #1673054 Filed: 04/28/2017 Page 31 of 66
226
32
utilization would result in a lower total claims value, a value thatfactored into both his and the McKinsey & Co. models. But thisignores that on cross-examination, Dr. Israel conceded that hedid not control for the different risks and features of eachcompany’s population at a particular provider, which would benecessary to compare utilization, and so his model did notaccount for whether one company’s utilization was better thanthe other’s. And although Anthem nevertheless maintains thatno evidence shows accounting for utilization would materiallyreduce the claimed savings, Dr. Dranove testified that any erroror incorrect assumption would have a significant effect on theoverall projected savings. See Tr. 2327:15–2329:11. Thus, theproblem is less that the failure to account for utilization wouldnecessarily reduce the projected savings, and more that itundermined the district court’s confidence in the reliability andfactual credibility of those savings calculations.
Both sets of projections suffered from additional, basicanalytic flaws. For instance, Dr. Israel did not agree with thedistrict court’s national accounts market definition (employerswith 5,000+ employees), so his savings projection was based onthe broader market definition that he believed appropriate (large-group employers with either 50+ or 100+ employees). In otherwords, Dr. Israel’s claimed $2.4 billion in savings is unmooredfrom the actual market at issue, and there is no indication ofwhat portion is properly derived from the national accountsmarket. Similarly, the McKinsey & Co. analysts based some oftheir savings on a comparison of Cigna and Anthem rates whereonly one of the companies had negotiated a discount with thatparticular provider. This apples-to-oranges comparison of in-network versus out-of-network rates overstated the true disparitybetween the companies’ existing discounts and thus necessarilyinflated McKinsey & Co.’s projected savings. Even Dr. Israelacknowledged as much: his model only compared in-networkrates because he concluded that “that’s what the economics tells
USCA Case #17-5024 Document #1673054 Filed: 04/28/2017 Page 32 of 66
227
33
you you need to do to get the answer right.” Tr. 1855:2–22. This could help to explain why Dr. Israel’s otherwise similarmethodology resulted in a projection that was almost a billion
dollars less than McKinsey & Co.’s.
The savings projected by McKinsey & Co. and Dr. Israel —uncritically relied on by the dissent, e.g., Dis. Op. 4–8, 18 —were without a doubt enormous. The problem is, thoseprojections fall to pieces in a stiff breeze. If merging companiescould defeat a Clayton Act challenge merely by offering experttestimony of fantastical cost savings, Section 7 would be deadletter.
D.
Having considered the totality of circumstances, see Baker
Hughes, 908 F.2d at 984, we hold that the district courtreasonably determined Anthem failed to show the kind of“extraordinary efficiencies” that would be needed to constrainlikely price increases in this highly concentrated market, and tomitigate the threatened loss of innovation. Cf. Heinz, 246 F.3dat 720. Given the record evidence, Anthem’s objection that thedistrict court “abdicated its responsibility” to balance themerger’s likely benefits against its potential harm, Appellant Br.46, rings hollow. Anthem seems to insist upon a dollar-for-dollar comparison after discounting whatever claimedefficiencies were properly rejected, in responding that “so longas at least one-third of the $2.4 billion of savings are likely to beachieved, the merger is procompetitive.” Appellant Reply Br.10. This would apparently require the court to calculate, forinstance, a more realistic pass-through rate than the rejected98% figure, or to estimate what percentage of the claimed $2.4billion was attributable to customers with fewer than 5,000employees and thus outside of the relevant market. Anthem haspointed to no relevant expert economic evidence on which tobase such an imprecise calculation, and Anthem, not the district
USCA Case #17-5024 Document #1673054 Filed: 04/28/2017 Page 33 of 66
228
34
court, has the burden of showing what portion of the claimedefficiencies will result from the merger itself. Even assuming itwere possible on this record, see University Health, 938 F.2d at1223, “[e]conomies cannot be premised solely on dollar figures,lest accounting controversies dominate § 7 proceedings,”Procter & Gamble, 386 U.S. at 604 (Harlan, J., concurring). Because “the state of the science does not permit such refinedshowings,” commentators have recommended simply giving thegovernment the benefit of the doubt in a close case. See
AREEDA & HOVENKAMP, supra, ¶ 971f, at 56. In any event, thisis not a close case.
The dissent’s critique of the court’s opinion is not wellfounded. Its fundamental flaw is the failure to engage with thefacts shown in the record as they pertain to merger-specificityand verifiability. Repeated references to unspecified evidence, see, e.g., Dis. Op. 3, 12, 14, 17, on which the dissent basessweeping conclusions, speak volumes. Rather than engage withthe record, much less adhere to our standard for reviewingfindings of fact by the district court, the dissent offers a series ofbald conclusions and mischaracterizes the court’s opinion. Forinstance, the dissent repeatedly claims that the court “does notfully accept the fact . . . that providers rates would actually belower,” Dis. Op. 17; id. at 15, when in fact the court accepts thatrates would be lower for some existing Cigna (but not Anthem)customers post-merger. Those who rebrand with Anthem,however, will see no merger-specific savings, Op. 20–21, andthe few that Anthem fails to rebrand will see far fewer savingsthan Anthem claims, due in large part to provider abrasion andbig hospital systems that will stand their ground in renegotiation,Op. 24–27. The dissent baldly asserts that the efficiencies “aremerger-specific by definition,” Dis. Op. 6–7, without addressingthe paucity of evidence that Anthem would be unable to developa Cigna-like product without merging. So too, it baldly assertsthat the savings were “sufficiently verified,” while admitting
USCA Case #17-5024 Document #1673054 Filed: 04/28/2017 Page 34 of 66
229
35
that it is not clear “just how much the employers would benefitfrom this merger.” Id. at 7 (emphasis omitted). In other words,Anthem estimated an astronomical amount of savings, so evenif that amount were wildly overstated, the dissent expects thecourt to trust that, as an unknown fraction of a large number, theresult “would be large.” Id.
To the extent the dissent notes any of the major factualproblems with Anthem’s depiction of the merger, it brushesthem aside. It dismisses as “highly speculative” the providerabrasion problem that was conceded by both Anthem and Cigna
witnesses, Dis. Op. 17, a problem that undermines Anthem’splans for realizing the savings through the affiliate clause andrenegotiation. It characterizes record evidence that squarelycontradicts Anthem’s pass-through estimates — Anthem’s owninternal PowerPoint presentation — as “secret Anthem plans todramatically raise [its] fees,” id., which is precisely what theevidence reflects. It attacks straw men like supposed reliance on“friction between the Anthem and Cigna CEOs,” id., when thecourt does not so rely, noting indeed the limited probative valueof that evidence. Op. 4 n.1. It fails entirely to address Anthem’s“Best Efforts” obligations, which make it likely that Anthemwill rely predominantly on rebranding, a strategy that gives riseto no merger-specific benefit. Op. 24–25. The “Best Efforts”clause also creates a verifiability problem with regard toAnthem’s other savings strategies, for instance undercuttingAnthem’s assertion that 80% of the savings to Cigna customers“could be achieved simply [and rapidly] by invoking the affiliateclause.” Appellant Br. 40. Again, pulling at any one loosethread quickly unravels Anthem’s narrative, but the dissent issimply unwilling to do so.
Ultimately, the dissent concludes that “[o]n this record,there is little basis to doubt that the cost savings for employersas a result of the merger would be large,” without evincing any
USCA Case #17-5024 Document #1673054 Filed: 04/28/2017 Page 35 of 66
230
36
real awareness of the record beyond the testimony of Anthem’sexpert and consultants. See Dis. Op. 7. To wit, the dissentsuggests that Anthem’s savings estimates went unrebutted attrial, Dis. Op. 6, when the record shows Dr. Dranove not onlyoffered his own estimate of $100 million to $500 million butexplained why those savings were unlikely to be realized,essentially for the reasons discussed in this opinion. See, e.g.,Tr. 3802:25–3803:11. Similarly, it recognizes no distinctionbetween savings to existing Cigna customers (some of which thegovernment concedes will materialize) and savings to existingAnthem customers (the existence of which even Anthem cannotexplain in light of the testimony of both its CEO and expert, see
supra Part III.C). Likewise, in concluding that the quality ofthe Cigna product (its wellness programs and the high-touchservice that providers offer in support of the programs) will notdegrade post-merger, the dissent does not go so far as to saythere is no evidence to support the district court’s contraryfinding, Anthem, 2017 WL 685563, at *59, *61; rather, it assertsit does not consider this evidence “persuasive” or “convincing.” Dis. Op. 18. Such de novo analysis throughout the dissentbetrays no meaningful effort to engage with the district court’sfactual findings, which are subject only to review for clear error.
Furthermore, the dissent’s assumption that the prices paidby consumers (regardless of the quality of the resulting product)are the sole focus of antitrust law is flawed. “The principalobjective of antitrust policy is to maximize consumer welfare by
encouraging firms to behave competitively.” Kirtsaeng v. John
Wiley & Sons, Inc., 133 S. Ct. 1351, 1363 (2013) (emphasisadded) (quoting 1 P. AREEDA & H. HOVENKAMP, ANTITRUST
LAW ¶ 100, at 4 (2006)). This single-minded focus on priceignores that in highly concentrated markets like this one, lowerprices, if they occur at all, may be transitory. Owing to thelower level of competition in highly concentrated markets, whenpresented with lower supply input prices, companies have a
USCA Case #17-5024 Document #1673054 Filed: 04/28/2017 Page 36 of 66
231
37
greater ability to retain for themselves the input savings ratherthan pass them on to consumers. The Clayton Act, as theSupreme Court “ha[s] observed many times, [is] a prophylacticmeasure, intended primarily to arrest apprehended consequencesof intercorporate relationships before those relationships couldwork their evil.” Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc.,429 U.S. 477, 485 (1977) (internal quotation marks and citationomitted). The ability of a firm to obtain lower prices for inputsfor its product (here, provider services) should, especially inlight of the prophylactic nature of the Clayton Act, be viewedskeptically when high market concentrations may have thefuture effect of permitting capture of those savings. The dissentuncritically accepts Dr. Israel’s rosy testimony to the effect thatASO savings “will be passed through to employers,” Dis. Op.15, but fails to address contrary Anthem documents and thehistorical tendencies of large companies in highly concentratedmarkets to capture savings. E.g., AREEDA & HOVENKAMP,supra, ¶ 971f, at 56. The dissent also ignores the district court’snumerous and not clearly erroneous findings, as previouslydiscussed, that total or nearly total pass-through is unlikely. See,
e.g., Anthem, 2017 WL 685563, at *4, *62. Even if ASOsavings would pass through in the short term, that does not“practically guarantee[]” that Anthem would not then raise itsprices correspondingly. But see Dis. Op. 16.
Additionally, the dissent fails to recognize that lower pricesmay arise due to, or ultimately lead to, a decrease in productquality. Everyone would agree that rock-bottom provider ratesseem beneficial to consumers, but when those rock-bottomprices lead to inferior medical services, any benefit to theconsumers’ wallets is diminished by the harm to their health. Asthe Guidelines state, if merging firms “would withdraw aproduct that a significant number of customers strongly preferto those products that would remain available, this can constitutea harm to customers over and above any effects on the price or
USCA Case #17-5024 Document #1673054 Filed: 04/28/2017 Page 37 of 66
232
38
quality of any given product.” Guidelines § 6.4; see also id.
§ 10 (“[P]urported efficiency claims based on lower prices canbe undermined if they rest on reductions in product quality orvariety that customers value.”). And a decrease in productquality is not merely speculative here — every dollar of medicalcost savings realized by consumers will come at the expense ofproviders. It thus is quite plausible that paid less, the medicalproviders will provide less. These inconvenient facts do not jibewith the dissent’s superficial, thirty-thousand-foot view of thiscase, and it is thus unsurprising that they are addressed inpassing, if at all.
IV.
Anthem fares no better in its challenge to the district court’sindependent and alternative determination that the mergershould be enjoined on the basis of its anticompetitive effect inthe Richmond, Virginia market for the sale of health insuranceto “large group” employers with more than fifty employees. There, the government’s prima facie case was even stronger thanin the market for national accounts in the fourteen Anthemstates. Depending on how market share was calculated (i.e.,including all Blue customers as Anthem or not, including fullyinsured customers or just ASO), the companies’ combinedmarket share ranged from 64% to 78%. Even under thecalculation most favorable to Anthem (ASO-only, disregardingnon-Anthem Blue customers), the merger would raise anoverwhelming presumption of anticompetitive effect: HHIwould rise 1511 to a post-merger total of 4350, where theGuidelines presumption threshold is an increase of 200 to a post-merger total of 2500. As the President of Anthem Virginiaacknowledged, Anthem has the biggest share of the large groupemployer market across all of Virginia, and in Richmond, Cignais its strongest competitor.
USCA Case #17-5024 Document #1673054 Filed: 04/28/2017 Page 38 of 66
233
39
Anthem principally challenges the district court’s relianceon a chart prepared by Dr. Dranove, the government’s expertwitness, showing the merger would have an anticompetitiveeffect in Richmond even crediting all of Dr. Israel’s claimedefficiencies. The chart included an asterisk next to theRichmond entry signifying that “no amount of cost savingscould offset employer harm due to decreased competition.” Pls.’ Ex. 760. On cross examination, Dr. Dranove was askedwhether that meant even a savings of $10 billion or $20 billionwould not offset the merger’s harm, and he acknowledged thathe could not recall the foundation for his statement. Given thisinability to address that extreme hypothetical, Anthem maintainsthat the district court should not have relied on the statement oreven on the chart as a whole.
The record shows that the district court did not rely on the“asterisk” statement and explained at trial that it would not do sobecause it was unnecessary to finding a substantialanticompetitive effect. As to the broader question whether Dr.Dranove’s inability to explain the asterisk meant that the districtcourt should have disregarded his chart (and related testimony)altogether, the district court did not abuse its discretion. See
Heller v. District of Columbia, 801 F.3d 264, 272 (D.C. Cir.2015). Leaving the asterisk statement aside, Anthem raises noreal objection to the substance of the chart, only urging that Dr.Dranove’s inability to explain the asterisk was so damaging thatit called into doubt the reliability of his overall analysis. Thedistrict court, which heard extensive testimony from Dr.Dranove about the anticompetitive effects revealed by hiseconomic models and relied on it heavily throughout its opinion,clearly concluded otherwise. The district court had“considerable leeway” to do so in determining that all otheraspects of the chart and his testimony were reliable. Kumho Tire
Co. v. Carmichael, 526 U.S. 137, 152 (1999); cf. Snyder v.
Louisiana, 552 U.S. 472, 477 (2008).
USCA Case #17-5024 Document #1673054 Filed: 04/28/2017 Page 39 of 66
234
40
Anthem’s remaining challenges amount to an ineffectual
attack on the district court’s weighing of rebuttal evidence. Itincorrectly states that the district court relied solely on Dr.Dranove’s chart to find anticompetitive harm while ignoringevidence of “enormous” medical savings, Appellant Br. 53,when in fact Dr. Dranove testified that his chart credited 100%of Anthem’s claimed savings and still found a netanticompetitive effect. Anthem posits that there would still befive or more competitive insurers in Richmond post-merger, buteven assuming that is true (one of the two witnesses it citesidentified only four, including the combined company), the mereexistence of competitors may not be sufficient to constrain alarger Anthem that would control 64% to 78% of the market. See Guidelines § 5. Indeed, one of those competitors, Optima,was said to have struggled in the Richmond market, and Anthemshows no clear error in the district court’s finding that Optima“does not appear able to compete on the same field as themerged company.” Anthem, 2017 WL 685563, at *68. Nordoes Anthem show clear error in the finding that othercompanies do not appear interested in entering the Richmondmarket, or that even if they did, their entry would be insufficientto constrain the combined company. The evidence cited byAnthem shows only that other companies may intend to enterRichmond (Innovation), or may have the ability to enterRichmond (Piedmont, VCU), or may have a marginal orembryonic presence in Richmond (Kaiser, Bon Secours), notthat entry by these companies would offset the merger’santicompetitive potential.
Tellingly, our dissenting colleague offers a single mentionof the district court’s Richmond holding (in a parenthetical, noless), which itself is a sufficient basis for enjoining the merger.Any suggestion that the claimed savings would make the mergerprocompetitive in Richmond ignores the record evidence,
USCA Case #17-5024 Document #1673054 Filed: 04/28/2017 Page 40 of 66
235
41
namely that even crediting all of the claimed savings, the mergerof Richmond’s two biggest large-group insurers would give thecombined company such a vast market share that the overalleffect of the merger would still be anticompetitive. As Dr.Dranove testified at trial, his analysis “still predicts a priceincrease” in the Richmond market “even [after] crediting everypenny of th[e] efficiencies” estimated by Dr. Israel. That is,even ignoring Anthem’s failure to show that the savings weremerger-specific and sufficiently verifiable, see supra PartIII.B–C, the proposed merger would cause an already highlyconcentrated market to become overwhelmingly so, withAnthem controlling as much as 78% of the market and two orthree other companies fighting to maintain relevance. Althoughthe dissent recognizes this appeal raises “fact-intensivequestion[s],” Dis. Op. 13, it has persistently failed to engagewith the facts.
In conclusion, the district court did not clearly err in itsfactual findings that the merger would have anticompetitiveeffects in the Richmond market, and importantly, Anthem doesnot allege any error of law with respect to that determination.Thus, the district court did not abuse its discretion in enjoiningthe merger on the basis of the merger’s anticompetitive effectsin the Richmond market. And, as previously noted, this holdingprovides an independent basis for the injunction, even absent afinding of anticompetitive harm in the fourteen-state nationalaccounts market.
Accordingly, we affirm the issuance of the permanentinjunction on alternative and independent grounds.
USCA Case #17-5024 Document #1673054 Filed: 04/28/2017 Page 41 of 66
236
Circuit Judge
Sturm und Drang
United States v. Anthem
see also
USCA Case #17-5024 Document #1673054 Filed: 04/28/2017 Page 42 of 66
237
See
See
preventing
Comparewith e.g. Anthem
USCA Case #17-5024 Document #1673054 Filed: 04/28/2017 Page 43 of 66
238
see also
Anthem
id. id.
USCA Case #17-5024 Document #1673054 Filed: 04/28/2017 Page 44 of 66
239
e.g.
Anthem
future savingsId
See
See also Rebel Oil Co. v. Atlantic Richfield Co.
interalia National Gerimedical Hosp. & Gerontology Ctr. v. Blue Cross of Kansas City
USCA Case #17-5024 Document #1673054 Filed: 04/28/2017 Page 45 of 66
240
IdSee United States v. Socony-
Vacuum Oil Co.
depressing
supra
Id.
See also Knevelbaard Dairies v. Kraft Foods, Inc.
USCA Case #17-5024 Document #1673054 Filed: 04/28/2017 Page 46 of 66
241
id.
United States v. Baker Hughes
evidentiary burden-shiftingrebut prima facie
standing alone
See Federal Trade Comm’n v. University Health, Inc.
would
supra
USCA Case #17-5024 Document #1673054 Filed: 04/28/2017 Page 47 of 66
242
KAVANAUGH, Circuit Judge, dissenting: This important antitrust case involves a multi-billion dollar merger between two health insurers, Anthem and Cigna. As relevant to this case, those two insurers sell insurance services to large national businesses. There are four national insurers in that market: Anthem, Cigna, United, and Aetna. Anthem and United are the two major insurers in this market, whereas Cigna is a fairly small player. In the 14 States where Anthem and Cigna sell insurance services to large national businesses, Anthem has a 41% share of the market, and Cigna has a 6% share.
The U.S. Government sued under Section 7 of the Clayton Act to block the Anthem-Cigna merger. See 15 U.S.C. §§ 18, 25. The Government alleged that the merger would unlawfully lessen competition in the market for insurance services sold to large national businesses. The District Court agreed with the Government and enjoined the merger. The majority opinion affirms. I respectfully dissent.
At the outset, it is important to stress that this is an unusual horizontal merger case because of the nature of this particular slice of the insurance industry. To properly analyze this case,it is essential to understand precisely how these markets work.
There are three main players: (i) large employers, (ii) insurers, and (iii) healthcare providers, namely hospitals and doctors. Under the standard contracts that apply in this particular segment of the insurance industry, the employers do not pay premiums to the insurers. And the insurers do not pay the hospitals and doctors for healthcare services provided to the employers’ employees. Instead, the employers pay insurers a fee for obtaining access to the insurers’ provider network.Insurers in turn contract with healthcare providers – hospitals and doctors – to develop that provider network. In thatupstream market, the insurers negotiate rates in advance with the hospitals and doctors.
USCA Case #17-5024 Document #1673054 Filed: 04/28/2017 Page 48 of 66
243
2
As a result, when the employers’ employees need healthcare, the employers pay those negotiated rates to the healthcare providers. Importantly, therefore, employers in this market areself-insured. They pay the insurers a fee simply to obtain access to the provider networks arranged by the insurers, as well as for certain administrative services performed by the insurers.
To summarize in simple terms: The employers pay the insurers a fee, and the insurers then act as the employers’ purchasing agents for healthcare services. In that upstream market, the insurers negotiate in advance with hospitals and doctors over the rates that will be charged to employers for their employees’ health care. When insurers negotiate lower provider rates, employers save money on health care.
Here, two insurers (Anthem and Cigna) want to merge. The majority opinion sees this as a classic horizontal merger case where the high concentration of this market and the merged insurer’s high market share would mean increased prices for the employer-customers. But that understandingmisses what I believe is the critical feature of this case. Here, these insurance companies act as purchasing agents on behalf of their employer-customers in the upstream market where the insurers negotiate provider rates for the employer-customers. When the insurers negotiate lower provider rates, those savingsgo directly to the employer-customers. The merged Anthem-Cigna would be a more powerful purchasing agent than Anthem and Cigna operating independently. The merged Anthem-Cigna would therefore be able to negotiate lowerprovider rates on behalf of its employer-customers. Those lower provider rates would mean cost savings that would be passed through directly to the employer-customers. To be sure, the merged company may charge its employer-customers an increased fee for obtaining those savings. But the record
USCA Case #17-5024 Document #1673054 Filed: 04/28/2017 Page 49 of 66
244
3
overwhelmingly demonstrates that the cost savings to employers would far exceed any increased fees paid by employers.
In short, the record decisively demonstrates that this merger would be beneficial to the employer-customers who obtain insurance services from Anthem and Cigna. That is the core of my respectful disagreement with the majority opinion.(As I will explain in Part I-C below, if there is a problem with this merger, the problem lies in the merger’s effects on hospitals and doctors in the upstream market, not in the merger’s effects on employers in the downstream market.)
In Part I of this dissent, I will outline my approach to this case. In Part II, I will briefly summarize some of my concerns about the majority opinion and the concurrence.
I
A
The Government contends that this merger between Anthem and Cigna would cause undue market concentration in the market for the sale of insurance services to large employers,and would increase the merged company’s market share to an anti-competitive level. The Government argues that, as a result, the merged Anthem-Cigna would be able to use its market power to raise the fees it charges to large employers forthose insurance services. How much? The evidence in the record suggests that large employers would pay Anthem-Cignaincreased fees of about $48 million annually by one estimate,up to $220 million annually by another estimate, and up to $930 million annually by yet another estimate.
USCA Case #17-5024 Document #1673054 Filed: 04/28/2017 Page 50 of 66
245
4
But that is not the end of the antitrust analysis under the law governing horizontal mergers. The case law of the Supreme Court and this Court, as well as the Government’s own Merger Guidelines, establish that we must consider the efficiencies and consumer benefits of a merger together with its anti-competitive effects. See United States v. General Dynamics Corp., 415 U.S. 486, 498-500 (1974); FTC v. H.J. Heinz Co., 246 F.3d 708, 720 (D.C. Cir. 2001); United States v. Baker Hughes Inc., 908 F.2d 981, 990-91 (D.C. Cir. 1990);U.S. Department of Justice & Federal Trade Commission, Horizontal Merger Guidelines § 10, at 29-31 (2010).
Here, as I will explain, the analysis of the overall effects of this merger shows that the merger would not substantially lessen competition in the market for the sale of insurance services to large employers. The record demonstrates that those large employers would save an amount ranging from $1.7to $3.3 billion annually due to reduced rates charged by healthcare providers. For large employers, therefore, the savings from the merger would far exceed the increased fees they would pay to Anthem-Cigna as a result of the merger.
To begin with, the record evidence overwhelmingly demonstrates that the merged Anthem-Cigna, with its additional market strength and negotiating power in the upstream market, would be able to negotiate lower provider rates from hospitals and doctors for healthcare services.Indeed, the Government itself agrees that this merger wouldallow Anthem-Cigna to obtain lower provider rates. Linger on that point for a moment: The Government concedes that Anthem-Cigna would be able to negotiate lower provider rates that employers would pay for their employees’ health care. On top of that, in light of the “affiliate clause” in many of Anthem’s existing contracts, the merger would allow at least some of the businesses that currently purchase insurance
USCA Case #17-5024 Document #1673054 Filed: 04/28/2017 Page 51 of 66
246
5
services from Cigna to obtain lower rates that Anthem has previously negotiated with providers.
How much would provider rates be reduced? Anthem-Cigna’s integration planning team, working in consultation with McKinsey, an independent consulting firm, calculated $2.6 to $3.3 billion in projected annual savings for Anthem-Cigna’s employer-customers as a result of the merger. Anthem-Cigna’s expert, Dr. Israel, worked independently of the integration team, but he came to a similar conclusion. He determined that the merger would yield $2.4 billion in annual medical cost savings.
The record evidence also overwhelmingly demonstrates that the medical cost savings from the lower provider rates negotiated by Anthem-Cigna would be largely if not entirely passed through to the large employers that contract with Anthem-Cigna. The savings are passed through to employers because, under the contractual arrangements that apply in that market, the employers pay healthcare providers for the healthcare services provided to employees. So if the price of healthcare services is lower, the employers would directly benefit because the employers would then pay those lowerprices.
The Government critiques those estimates in part by noting that the estimates include cost savings that will accrue to the fully insured employers. It is true that a slice of this large employer market is fully insured, not self-insured. For those large employers, there would not necessarily be automatic pass-through. Even taking the fully insured employers out ofthe equation, however, the annual savings to self-insured employers would still be at least $1.7 billion annually.
USCA Case #17-5024 Document #1673054 Filed: 04/28/2017 Page 52 of 66
247
6
By contrast, the Government’s expert, Dr. Dranove, never did a merger simulation that calculated the amount of the savings that would result from the lower provider rates and be passed through to employers. Even though the Government admitted that the merger would lead to a reduction in provider reimbursement rates, Dr. Dranove built an assumption into all of his models that there would be zero medical cost savings. See Trial Tr. 1159, 1867. So we are left with Anthem-Cigna’s evidence showing $1.7 to $3.3 billion annually in passed-through savings for employers.1
Under the law, those efficiencies and consumer benefits identified by Anthem-Cigna must be both merger-specific and verified. See U.S. Department of Justice & Federal Trade Commission, Horizontal Merger Guidelines § 10, at 30. Both requirements are satisfied here.
The efficiencies and consumer benefits in this case are merger-specific by definition. As even the Government
1 To be sure, if a price decrease were accompanied by a substantial reduction in quality, that fact would raise a separate concern about this merger. But here, the record does not contain sufficient evidence, beyond some speculation and guesswork by the Government, that the merger would cause an actual decrease in the quality of medical service provided to employers by hospitals and doctors, or in the quality of customer service provided to employers by insurers.
Relatedly, the Government suggests that the current Cigna employer-customers, once switched over to Anthem after the merger, would utilize healthcare services more often. The Government argues that the higher utilization would cancel out some of the cost savings that the employer-customers would otherwise achieve. That suggestion is likewise highly speculative and does not square with the record, which shows that current Anthem employer-customers have lower utilization rates than the current Cigna employer-customers. See J.A. 480.
USCA Case #17-5024 Document #1673054 Filed: 04/28/2017 Page 53 of 66
248
7
admits, Anthem-Cigna’s enhanced bargaining power would come from the merger. And that enhanced bargaining power is a large part of what would enable Anthem-Cigna to negotiate the lower provider rates that in turn would lead to cost savings for employers. So, too, Anthem’s ability to rely on its existing contracts to offer lower rates to Cigna customers is a direct result of the merger. There is little if any evidence to support the made-up notion that Anthem and Cigna could obtain lower provider rates even absent the merger. The claimed savings are merger-specific.
Moreover, the efficiencies and benefits were sufficiently verified (i) by Anthem-Cigna’s expert witness Dr. Israel, (ii) by the merger integration planning team, working with McKinsey, the independent consulting firm, and (iii) by various healthcare providers who testified at trial. To be verified, the efficiencies and consumer benefits must be “more than mere speculation and promises about post-merger behavior.” Heinz, 246 F.3d at 721. But they need not be certain. They merely must be probable. See Baker Hughes,908 F.2d at 984 (“Section 7 involves probabilities, not certainties or possibilities.”). Here, that bar is cleared because there is no doubt that the merger would reduce provider rates (as the Government concedes) and no doubt that the savings from those lower provider rates would be largely passed through to employers (as the contracts and basic structure of this self-insured market require). To be sure, one can debate just how much the employers would benefit from this merger. But Anthem-Cigna’s expert and integration planning team calculated savings of $1.7 to $3.3 billion annually. On this record, there is little basis to doubt that the cost savings for employers as a result of the merger would be large – and far larger than the increased fees charged by insurers to employers as a result of the merger.
USCA Case #17-5024 Document #1673054 Filed: 04/28/2017 Page 54 of 66
249
8
In short, the record overwhelmingly establishes that the merger would generate significant medical cost savings for employers in all of the geographic markets at issue here –overall, approximately $1.7 to $3.3 billion annually – and employers would therefore spend significantly less on healthcare costs. (As noted, the increased fees for employers, on the other hand, would amount to $48 to $930 million.) And because the employers would spend less on health care for employees, they would have more to spend on employees’ salaries, thereby benefitting their employees. Some of the ultimate beneficiaries of this merger would be the rank-and-file workers who are employed by the businesses that obtain insurance services from Anthem and Cigna.
I of course recognize that the District Court’s factual findings are reviewed only for clear error. But we are not a rubber stamp. And here, the record convincingly demonstrates that this merger would significantly reduce healthcare costs for the large employers that purchase insurance services from Anthem and Cigna. That is true across the 14 states in which Anthem and Cigna both operate, including Virginia (and the Richmond market). The District Court clearly erred, therefore, in concluding that the merger would substantially lessen competition in the market in which insurance services are sold to large employers.
B
In a separate discussion, however, the District Court also relied on 1960s Supreme Court cases and suggested that antitrust law may not allow consideration of the efficiencies and consumer benefits in the first place. If that were true, this would be an easy case for the Government given the
USCA Case #17-5024 Document #1673054 Filed: 04/28/2017 Page 55 of 66
250
9
concentration of the market and the market share of the merged company. But that description of the law is not correct.
In landmark decisions in the 1970s – including United States v. General Dynamics Corp., 415 U.S. 486 (1974), and Continental T. V., Inc. v. GTE Sylvania Inc., 433 U.S. 36 (1977)– the Supreme Court indicated that modern antitrust analysisfocuses on the effects on the consumers of the product or service, not the effects on competitors. In the horizontal merger context, the Supreme Court in the 1970s thereforeshifted away from the strict anti-merger approach that the Court had employed in the 1960s in cases such as Brown Shoe Co. v. United States, 370 U.S. 294 (1962), and United States v. Philadelphia National Bank, 374 U.S. 321 (1963).
As this Court has previously noted, in “the mid-1960s, the Supreme Court construed section 7 to prohibit virtually any horizontal merger or acquisition,” but the Supreme Court subsequently “cut” those precedents “back sharply,” beginning with its 1974 decision in General Dynamics. Baker Hughes,908 F.2d at 989-90. In General Dynamics, the Supreme Court made clear that the merger analysis must take account not just of market concentration and market shares, but also of the “structure, history and probable future” of the market. 415 U.S. at 498 (quoting Brown Shoe, 370 U.S. at 322 n.38); see also E.THOMAS SULLIVAN & JEFFREY L. HARRISON, UNDERSTANDING ANTITRUST AND ITS ECONOMIC IMPLICATIONS 369 (6th ed. 2014) (“General Dynamics signaled a major shift in § 7interpretation.”); Note, Horizontal Mergers After United States v. General Dynamics Corp., 92 HARV. L. REV. 491, 499, 502(1978) (The General Dynamics case “signaled a new judicial approach to section 7 cases. . . . By endorsing an inquiry into such factors – the structure, history and probable future of the relevant market – General Dynamics brought antitrust analysis back into line with current economic thought.”) (internal
USCA Case #17-5024 Document #1673054 Filed: 04/28/2017 Page 56 of 66
251
10
quotation marks omitted); cf. ROBERT H. BORK, THE ANTITRUST PARADOX 210 (1978) (“It would be overhasty to say that the Brown Shoe opinion is the worst antitrust essay ever written. . . . Still, all things considered, Brown Shoe has considerable claim to the title.”).
Applying that broader analysis, the General DynamicsCourt rejected the Government’s assertion in that case that a proposed merger between two leading coal producers would violate Section 7 of the Clayton Act. In subsequent cases, the Supreme Court has adhered to General Dynamics. See, e.g.,United States v. Marine Bancorporation, Inc., 418 U.S. 602,631 (1974); United States v. Citizens & Southern NationalBank, 422 U.S. 86, 120 (1975). Notably, since 1975, the Supreme Court has not decided a case assessing the lawfulness of a horizontal merger under Section 7 of the Clayton Act. So General Dynamics remains the last relevant word from the Supreme Court.
This Court has already concluded that we are bound by General Dynamics, not by the earlier 1960s Supreme Court cases. In Baker Hughes, we explained that “General Dynamicsbegan a line of decisions differing markedly in emphasis from the Court’s antitrust cases of the 1960s. Instead of accepting a firm’s market share as virtually conclusive proof of its market power, the Court carefully analyzed defendants’ rebuttal evidence.” Baker Hughes, 908 F.2d at 990.2 In Baker Hughes,we thus cited General Dynamics for the proposition that the Section 7 analysis is “comprehensive” and focuses on a “variety of factors,” including “efficiencies.” Id. at 984, 986.As Baker Hughes recognized, and as this Court reaffirmed in its later decision in Heinz, modern merger analysis must
2 Baker Hughes was authored by Judge Clarence Thomas and joined by Judge Ruth Bader Ginsburg and Judge David Sentelle.
USCA Case #17-5024 Document #1673054 Filed: 04/28/2017 Page 57 of 66
252
11
consider the efficiencies and consumer benefits of the merger. See Baker Hughes, 908 F.2d at 984-86; Heinz, 246 F.3d at 720(“[E]fficiencies can enhance the merged firm’s ability and incentive to compete, which may result in lower prices, improved quality, or new products.”) (internal quotation marks omitted). Importantly, even the Government’s own Merger Guidelines now recognize that the merger analysis must consider the efficiencies and consumer benefits of the merger. See U.S. Department of Justice & Federal Trade Commission, Horizontal Merger Guidelines § 10, at 29-31; see also Baker Hughes, 908 F.2d at 985-86 (“It is not surprising” that “the Department of Justice’s own Merger Guidelines contain a detailed discussion of non-entry factors that can overcome a presumption of illegality established by market share statistics.” Those “factors include . . . efficiencies.”).
We are bound by the modern approach taken by the Supreme Court and by this Court. See generally BRYAN A.GARNER ET AL., THE LAW OF JUDICIAL PRECEDENT 31 (2016)(“[W]hen the Supreme Court overturns the standard that it had previously used to resolve a particular class of cases,” federal courts “must apply the new standard and reach the result dictated under that new standard.” The “results reached under the old standard” are no longer “binding precedent.”). Under the modern approach reflected in cases such as General Dynamics, Baker Hughes, and Heinz, the fact that a merger such as this one would produce heightened market concentration and increased market shares (and thereby potentially harm other insurers that are competitors of Anthem and Cigna) is not the end of the legal analysis. Under current antitrust law, we must take account of the efficiencies and consumer benefits that would result from this merger. Anysuggestion to the contrary is not the law.
USCA Case #17-5024 Document #1673054 Filed: 04/28/2017 Page 58 of 66
253
12
C
That said, on my view of the case, the Government could still ultimately block this merger based on the merger’s effects on hospitals and doctors in the upstream provider market. Attrial, the Government asserted an alternative ground for blocking the merger: The Government claimed that the merger between Anthem and Cigna would give Anthem-Cigna monopsony power in the upstream market where Anthem-Cigna negotiates provider rates with hospitals and doctors. The District Court did not decide that separate claim. I would remand for the District Court to decide it in the first instance.
Monopsony power describes a scenario in which Anthem-Cigna would be able to wield its enhanced negotiating power to unlawfully push healthcare providers to accept rates that arebelow competitive levels. That may be an antitrust problem in and of itself. Moreover, the exercise of monopsony power to temporarily reduce consumer prices does not qualify as an efficiency that can justify an otherwise anti-competitive merger. The consumer welfare implications (and consequently, the antitrust law implications) of monopsony power and ordinary bargaining power are very different. Although both monopsony and bargaining power result in lower input prices, ordinary bargaining power usually results in lower prices for consumers, whereas monopsony power usually does not, at least over the long term. See 4A PHILLIP E. AREEDA & HERBERT HOVENKAMP, ANTITRUST LAW ¶ 980, at 108 (3d ed. 2009); HERBERT HOVENKAMP, FEDERAL ANTITRUST POLICY § 1.2b, at 15 (4th ed. 2011). Therefore, the exercise of bargaining power by Anthem-Cigna is pro-competitive because it usually results in lower prices for Anthem-Cigna’s employer-customers. By contrast, the exercise of monopsony power by Anthem-Cigna may be anti-competitive because it may result in higher prices for Anthem-
USCA Case #17-5024 Document #1673054 Filed: 04/28/2017 Page 59 of 66
254
13
Cigna’s employer-customers. Cf. U.S. Department of Justice & Federal Trade Commission, Horizontal Merger Guidelines§ 10, at 30 (“Cognizable efficiencies . . . do not arise from anticompetitive reductions in output or service.”).
Notably, even Anthem-Cigna concedes that the merger would be unlawful if the merger would give Anthem-Cigna monopsony power in the upstream market. See Tr. of Oral Arg. at 85 (Defense Counsel: “If it was an exercise of market power on the buy-side, monopsony, we are not claiming that it’s acognizable efficiency. We’re accepting the rule in the merger guidelines that if it really is the exercise of market power, which means a constraint in output, bringing the price away from the competitive level, yes, we’re not claiming that that’s a cognizable efficiency.”).
To be clear, if Anthem-Cigna would obtain lower provider rates merely because of its enhanced ability to negotiate lower prices with providers, that alone would not necessarily be an antitrust problem. But if Anthem-Cigna would obtain provider rates that are below competitive levels because of its exercise of unlawful monopsony power against providers, that could be a problem, and perhaps a fatal one for this merger. In other words, if the lower provider rates from this merger turn out to be the fruit of a poisonous tree – namely, the fruit of Anthem-Cigna’s exercise of unlawful monopsony power against hospitals and doctors in the upstream market – then the merger may be unlawful. See U.S. Department of Justice & Federal Trade Commission, Horizontal Merger Guidelines § 10, at 30.
As a result, the legality of the merger should turn on the answer to the following fact-intensive question: Would Anthem-Cigna obtain lower provider rates from hospitals and doctors because of its exercise of unlawful monopsony power in the upstream market where it negotiates rates with healthcare
USCA Case #17-5024 Document #1673054 Filed: 04/28/2017 Page 60 of 66
255
14
providers? Given the way it resolved the case, the District Court never reached that critical question. Therefore, I would remand for the District Court to expeditiously decide that question in the first instance.
II
The majority opinion portrays this as an easy case for blocking the merger. If the law and the facts were as described by the majority opinion, I would agree with it. But in my view,the law and the facts are not as described by the majority opinion. Indeed, the majority opinion outflanks even the Government’s position on the law and the facts.
First, the Government accepts as a given that a defendant in a Section 7 case may rely on a merger’s efficiencies to show that a merger would not be anti-competitive despite the increased market concentration and market shares that would result from the merger. But the majority opinion – echoing the District Court – does not accept that legal principle as a given. On the contrary, the majority opinion casts doubt on this Court’s opinions in Baker Hughes and Heinz, and on whether Section 7 analysis allows a court to take account of a merger’s efficiencies as a defense in a merger case. The majority opinion says that the Supreme Court’s 1967 decision in FTC v. Procter & Gamble Co., 386 U.S. 568 (1967), is the essentialprecedent on this question. For the majority opinion, we are apparently stuck in 1967. The antitrust clock has stopped. No General Dynamics. No Continental T. V. v. GTE Sylvania. No Baker Hughes. No Heinz. No updated Merger Guidelines.3
To reiterate, not even the Government makes that far-reaching argument. For good reason. As one hornbook aptly puts it, the
3 The concurrence goes so far as to say that even if “prices will go down,” that “proves nothing by itself.” Concurring Op. at 1.
USCA Case #17-5024 Document #1673054 Filed: 04/28/2017 Page 61 of 66
256
15
“truly important point is that no modern observer, and no modern court, espouses the old FTC v. Procter & Gamble Co.(1967) position that efficiencies might be reason to condemn a merger.” ERNEST GELLHORN, WILLIAM E. KOVACIC &STEPHEN CALKINS, ANTITRUST LAW AND ECONOMICS IN A NUTSHELL 463 (5th ed. 2004); see also Baker Hughes, 908 F.2d at 985 (“Indeed, that a variety of factors other than ease of entry can rebut a prima facie case has become hornbook law. . . .[O]ther factors include industry structure, weakness of data underlying prima facie case, elasticity of industry demand,inter-industry cross-elasticities of demand and supply, product differentiation, and efficiency.”) (emphasis added).
Fortunately, the majority opinion in the end does notactually hold that there is no efficiencies defense available in Section 7 cases. The majority opinion merely suggests as muchin dicta – perhaps portending a return to 1960s antitrust law in some future merger case. For purposes of this case, however, the majority opinion simply says that even assuming such adefense exists under the law, the defense would not be satisfied here. The majority opinion’s lack of a square holding on the role of efficiencies in merger cases is some measure of good news because it means that future district courts and future panels of this Court still must follow General Dynamics, Baker Hughes, and Heinz, not the ahistorical drive-by dicta in today’s majority opinion.
Second, on the facts, the majority opinion never fullyaccepts the two key facts in this case: First, provider rates will be lower; and second, the savings from those lower rates will be passed through to employers. The first fact is conceded by the Government, and the second fact is undeniable given the nature of this market and the contractual relationships between employers and insurers.
USCA Case #17-5024 Document #1673054 Filed: 04/28/2017 Page 62 of 66
257
16
As mentioned above, the key difference between this horizontal merger and some horizontal mergers is that the increased savings obtained by the merged company in the upstream supply market in this case would be passed through directly to consumers. That one fact makes this merger unusual. In the ordinary case of a merger where the merged firm would have market power, it can be difficult for the merged firm to demonstrate that a substantial portion of the efficiencies resulting from the merger would actually be passed through to consumers instead of being retained by the merging companies. See, e.g., FTC v. Staples, Inc., 970 F. Supp. 1066, 1090 (D.D.C. 1997) (“Staples and Office Depot have a proven track record of achieving cost savings through efficiencies, and then passing those savings to customers in the form of lower prices. However, in this case the defendants have projected a pass through rate of two-thirds of the savings while the evidence shows that, historically, Staples has passed through only 15-17%.”); see also U.S. Department of Justice & Federal Trade Commission, Horizontal Merger Guidelines § 10, at 31 (“The greater the potential adverse competitive effect of a merger, the greater must be the cognizable efficiencies, and the more they must be passed through to customers.”). However, in this case, a high pass-through rate is practically guaranteed because, under the contractual arrangements that apply in the relevant market, the employers pay healthcare providers for the healthcare services provided to employees. So if the price of healthcare services is lower, the employers directly benefit because Anthem-Cigna’s employer-customers pay those lower prices.
The only real factual question concerning the effects of the merger on large employers should be whether the savings to employers from lower provider rates would exceed the increased fees employers would pay to Anthem-Cigna for the insurance services. As I have explained, the record evidence
USCA Case #17-5024 Document #1673054 Filed: 04/28/2017 Page 63 of 66
258
17
overwhelmingly indicates that the savings to employers from lower provider rates would greatly exceed the increased fees they would pay to Anthem-Cigna for the insurance services.
But the majority opinion does not conduct that key inquiry.That is because the majority opinion does not fully accept the fact, undisputed by the parties, that provider rates would actually be lower as a result of this merger. And the majorityopinion likewise does not accept that any possible cost savings would actually be passed through. So for the majority opinion,there are no cognizable efficiencies to consider in the first place and no need to assess whether the cost savings for employers are greater than the increased fees paid by employers.
The majority opinion offers up a smorgasbord of reasons to think that provider rates would not be lower or would notreally be passed through, ranging from provider “abrasion,” to secret Anthem plans to dramatically raise the fees it charges employers, to Anthem’s supposed inability to force or negotiate with providers to obtain Anthem rates for Cigna customers, to friction between the Anthem and Cigna CEOs.All of that seems at best highly speculative. The plural of anecdote is not data. Of course, lots of bad things could happenafter the merger. But the courts have to assess what is likely.See Baker Hughes, 908 F.2d at 984 (“Section 7 involves probabilities, not certainties or possibilities.”). The majority opinion seems to be accepting the worst-case possibility rather than determining what is likely. And the overwhelming evidence of what is likely is that provider rates would go down, that the savings would be passed through to employers, and that the savings to employers would greatly exceed any increase in fees paid by employers.
To the extent the majority opinion acknowledges even obliquely that prices possibly could go down after the merger,
USCA Case #17-5024 Document #1673054 Filed: 04/28/2017 Page 64 of 66
259
18
the majority opinion retorts that quality will also go down after the merger. But quality of what? As noted earlier, there is no persuasive evidence that the quality of medical care provided by hospitals and doctors would decrease. Nor is there any convincing evidence that the quality of services provided to employers by insurers would meaningfully decrease. Not to mention, does any supposed decrease in quality really rise to the level of $1.7 to $3.3 billion annually? The record discloses no meaningful effort to quantify or calculate the supposed decrease in quality.
The majority opinion also says that Cigna provides programs that help reduce utilization and that those could be jettisoned after the merger. But there is no good reason to think that those programs would be jettisoned rather than adopted by the merged company. Moreover, this speculation does not account for the fact that Anthem already has lower utilization rates than Cigna. So is it not likely that Cigna customers would utilize health care more after the merger than they do now.
* * *
The analysis of a merger’s effects necessarily entails a predictive judgment. Courts are often ill-equipped to render those predictive judgments in cases of this sort. But here, we have a far clearer picture of what will unfold than we often do. We know that Anthem-Cigna would be able to negotiate lower provider rates; indeed, even the Government admits as much.And we know that those savings will be largely passed throughto employers because that is the way the market and contracts are structured. After all, the whole point of the provider rates negotiated by insurers is to establish the prices that theemployers will pay. If the prices are lower, the employers will pay less. And we know, furthermore, that any cost savings to
USCA Case #17-5024 Document #1673054 Filed: 04/28/2017 Page 65 of 66
260
19
employers likely would greatly exceed any increase in fees paid by employers.
On this record, this horizontal merger therefore would not substantially lessen competition in the market for the sale of insurance services to large employers. The District Court clearly erred in concluding otherwise, and I disagree with the majority opinion’s affirmance of the District Court’s judgment.
The problem for this merger, if there is one, is in its effects in the upstream market – namely, in its effects on hospitals and doctors as a result of Anthem-Cigna’s enhanced negotiating power. Therefore, my approach to this case would requireDistrict Court resolution of one remaining question: Would Anthem-Cigna obtain lower provider rates from hospitals and doctors because of its exercise of unlawful monopsony power in the upstream market where it negotiates rates with providers? If yes, then Anthem-Cigna concedes that the merger is unlawful and should be enjoined. If no, then the merger is lawful and should be able to go forward. I wouldvacate the District Court’s judgment and remand for the District Court to expeditiously resolve that fact-intensive question in the first instance.
I respectfully dissent.
USCA Case #17-5024 Document #1673054 Filed: 04/28/2017 Page 66 of 66
261
Breach of Contract Action
262
IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
CIGNA CORPORATION,
Plaintiff,
v.
ANTHEM, INC. and ANTHEM MERGER SUB CORP.,
Defendants.
))))))))))
C.A. No. 2017-____-___
VERIFIED COMPLAINT
Introduction
1. This is a case arising under a merger agreement between two leading
health insurance companies, plaintiff Cigna Corporation and defendant Anthem,
Inc., pursuant to which Anthem intended to acquire its innovative competitor
Cigna. The parties knew from the outset that this combination of large competitors
would draw regulatory scrutiny, and Cigna only entered into the contract upon
Anthem’s loud assurances that regulatory approval could be readily obtained
without jeopardizing either party’s business. Anthem bargained for the contractual
responsibility to lead the regulatory process, and the merger agreement obligated
Anthem to pay Cigna a $1.85 billion reverse termination fee if regulators failed to
clear the transaction. The $1.85 billion fee is guaranteed if the transaction is
blocked on regulatory grounds: that was the bargained-for minimum payment due
Cigna if Anthem could not deliver on its obligation to secure regulatory approval.
PUBLIC VERSION FILED:February 17, 2017
0109 JTL
263
-2-
The merger agreement also permits Cigna to recover additional amounts in the
event Anthem otherwise breaches its contractual obligations.
2. The transaction has now failed to receive regulatory approval. The
U.S. Department of Justice and eleven states sued to block the deal, citing its
anticompetitive effects, and a federal district judge permanently enjoined the
merger in a 140-page post-trial opinion finding that the “proposed combination is
likely to have a substantial effect on competition in what is already a highly
concentrated market.” After more than eighteen months of limbo, the deal is dead.
This is precisely the scenario anticipated by the reverse termination fee provision
of the merger agreement. Anthem is therefore obligated to pay Cigna $1.85
billion.
3. What Cigna did not anticipate is that Anthem would put its own
interests ahead of its contractual obligations and act with the intent to harm Cigna’s
business. This conduct constitutes a willful breach that gives rise to damages
beyond the guaranteed $1.85 billion termination fee. The evidence of such breach
is overwhelming.
4. When the parties signed the merger agreement, they discussed and
conveyed to the market a clear vision for the combined company: it would bring
together the complementary strengths of both Cigna and Anthem to create a
leading healthcare company that would expand the choices available to consumers
264
-3-
and deliver greater value. Cigna has been an innovative company, pioneering,
among other things, “value-based” care arrangements, in which providers are paid
not just for seeing more patients and performing more procedures, but also for
improving outcomes—a goal that benefits both Cigna’s members and the
employers who fund their health coverage. As Anthem’s CEO, Joseph Swedish,
testified to Congress shortly after the deal was announced, Cigna’s “distinctive
strengths” have yielded “results [that] speak for themselves.”
5. Anthem, by contrast, is a traditional health insurer. As the largest
member of the Blue Cross Blue Shield Association (the “Blues”), an association of
insurance companies that hold exclusive licenses to use the venerable Blue Cross
and Blue Shield brands, Anthem negotiates large discounts off the reimbursements
it pays to healthcare providers and uses those lower rates to attract business.
6. Combining Cigna’s innovation with Anthem’s lower rates would
create a company offering the best products in the market at competitive prices.
The combination would be an important step in generating value for the nation’s
healthcare system, leveraging the power of the companies’ complementary
platforms to drive the transformation toward value-based care. This model was
key not only to the success of the combined company, but also to convincing
regulators to approve the merger of two of the nation’s four largest health insurers.
265
-4-
7. Also of critical importance to achieving regulatory approval was
resolving the unique issues posed by Anthem’s Blues membership. The Blues
work together in various ways to gain a competitive advantage over non-Blue
insurers, imposing restrictive rules on the association’s members to ensure that
they actively promote the “Blue” brand. This coordination creates significant
antitrust risk in its own right—Anthem and the other Blues are already subject to a
federal antitrust class action—and a merger that expanded the Blues’ market power
would only exacerbate these concerns. Anthem’s obligation to lead the regulatory
process required it to develop a plan for resolving these impediments to the
transaction. Anthem told both Cigna and the market that it could do so, with Mr.
Swedish publicly declaring that the Blues issues were “fully vetted” and that
Anthem had “resoundingly concluded” that they could be overcome.
8. But Anthem’s incentive to remain loyal to the Blues was strong, as it
faced a penalty of nearly $3 billion if the other Blues determined that it was no
longer in compliance with the association’s rules. Tellingly, Mr. Swedish admitted
to the DOJ in testimony, contrary to his earlier public statements, that he did not
know how his company could square its loyalty to the Blues with the Cigna deal.
After the merger was signed, Anthem developed no plan for resolving the Blues
issues. Instead, Anthem pursued a strategy that favored the interests of the Blues
(itself included) at the expense of complying with its contractual obligation to
266
-5-
facilitate the consummation of the Cigna merger. Among other things, Anthem
unveiled what it called a “bias to Blue” strategy: rather than promoting consumer
choice and fostering the Cigna brand as a competitor to the Blues, Anthem would
seek to herd Cigna customers under the Blue umbrella. This was a recipe for
regulatory failure. The DOJ seized on Anthem’s bias-to-Blue strategy as powerful
evidence of the anticompetitive effects of the proposed merger.
9. As Anthem failed to implement any strategy that could have obtained
regulatory approval, completing the Cigna merger became secondary to Anthem’s
goal of leveraging the pendency of the merger agreement to benefit itself and the
other Blues while undermining Cigna as a competitor—breaches that were willful
in every sense. Thus, although the merger agreement assigned Anthem
responsibility to manage the antitrust approval process, Anthem did next to nothing
to engage with the DOJ or anticipate its inevitable objections. Cigna repeatedly
urged Anthem to develop such a strategy, identifying key areas—including the
need to devise a coherent plan for divestitures—that were plainly necessary to earn
regulatory approval. But Anthem ignored Cigna’s input, proceeding down a
unilateral path with no realistic prospect of getting the deal approved, and which
collapsed when the DOJ began to raise some of the very issues that Cigna had
flagged.
267
-6-
10. Throughout the eighteen-month pendency of the merger agreement,
Anthem also consistently acted to diminish Cigna’s competitive threat and
strengthen its ever-expanding Blues network. Among other examples of Anthem
acting intentionally to harm Cigna, Anthem misappropriated Cigna’s confidential
information; touted to the market that it would copy innovative components of
Cigna’s business if the deal did not close; unilaterally and in violation of the
merger agreement contacted Cigna’s customers; and used discovery as a pretense
to harass Cigna’s customers. Anthem also adopted a “secret” integration team
designed to cut Cigna out of merger planning and to ensure that the post-merger
company, if there ever was one, would faithfully execute the “bias to Blue”
strategy. Anthem further sought to damage Cigna’s standing in the market by
eliciting false and disparaging testimony about Cigna at trial, then used these
misstatements in the marketplace to try to win business away from Cigna. This
conduct undermined the deal, as Anthem’s false testimony necessarily clashed with
the truthful testimony of Cigna’s witnesses and the documentary record, while
making it impossible for Cigna to stand behind Anthem’s misleading and
damaging positions.
11. Anthem’s failures culminated in the district court’s opinion enjoining
the transaction. That opinion makes clear that, instead of relying on a sound legal
strategy supported by the facts, Anthem “ask[ed] the Court to go beyond what any
268
-7-
court ha[d] done before”; offered economic theories that to
what Anthem executives themselves testified; and was undercut time and time
again by Anthem’s own business records
The district court also seized on Anthem’s conduct designed to favor
the Blues, finding that its plan to “rebrand” Cigna customers—which Anthem
made the centerpiece of its defense—did not improve the competitive impact of the
transaction at all. As the court concluded, Anthem was unable to “demonstrate that
its plan [was] achievable or that it [would] benefit consumers as advertised.”
12. With the merger enjoined and the January 31, 2017 termination date
of the merger agreement now passed, Anthem’s destructive conduct must come to
an end. Anthem has no right to extend the termination date because it is in
material breach of its contractual obligations. Any extension, which cannot go past
April 30 under the merger agreement, would also be futile: the federal injunction
against the deal would alone take months or more to appeal, with no viable
prospect of success, and additional proceedings would likely then be needed in the
district court to clear the transaction. Numerous other regulatory hurdles remain
on the state and international levels, which Anthem has admitted would alone take
at least four months even after a favorable federal ruling. Yet Anthem has
informed Cigna that it wants to extend the termination date to pursue an appeal and
269
-8-
has stated in a court filing that it “disputes that Cigna has a right to terminate at
all”—ever—even after the purportedly extended termination date.
13. Cigna therefore needs this Court’s intervention. The merger
agreement should be declared terminated and Anthem should be ordered to pay the
$1.85 billion reverse termination fee and further damages, including over $13
billion of lost premium value to Cigna’s stockholders, caused by Anthem’s willful
breaches.
Parties
14. Cigna is a Delaware corporation with its principal executive offices in
Bloomfield, Connecticut. Cigna is a global healthcare services company and one
of the nation’s largest health insurance carriers. For years, Cigna has been a key
driver of innovation in the healthcare market. In addition to its groundbreaking
work in value-based care, Cigna has leading consumer-centric technology
platforms and highly regarded behavioral, pharmacy, vision, dental, and other
specialty offerings. Cigna has a broad geographic presence, with 15 million global
medical customers located throughout the United States and Canada, Europe, the
Middle East, and Asia. Cigna’s reputation as an innovator, as well as its leading
client service and collaborative approach, has positioned the company as one of the
strongest competitors in the industry, on a trajectory for long-term growth. The
company generated $38 billion in revenue in 2015 and has seen growth in both
270
-9-
revenue and earnings per share at a compound annual growth rate of 13% over the
last seven years—far outstripping its peer companies in these growth metrics.
15. Anthem is an Indiana corporation with its principal executive offices
in Indianapolis. It is the nation’s second-largest health insurance company, with
38 million members. Anthem has an exclusive license to sell under a “Blue” brand
in fourteen states; it obtains significant market share in these states and uses its
power to negotiate steep discounts off the reimbursements it pays to health
providers. Anthem has been less successful in developing the types of innovative
programs that have driven Cigna’s growth. Anthem also lacks the specialty
products and international presence that are important components of Cigna’s
business. Given its more traditional approach, Anthem does not have the growth
prospects as a standalone company that Cigna has.
16. Anthem Merger Sub Corp. (“Merger Sub”) is a Delaware corporation
and a direct and wholly owned subsidiary of Anthem. Merger Sub is a party to the
merger agreement, pursuant to which Merger Sub was intended to merge with and
into Cigna in accordance with Delaware law.
Jurisdiction, Venue, and Governing Law
17. This Court has subject matter jurisdiction pursuant to 8 Del. C.
§ 111(a)(6). Under Section 8.11 of the merger agreement, Anthem and Cigna
expressly agreed that (i) “any legal action or proceeding with respect to this
271
-10-
Agreement . . . shall be brought and determined exclusively in the Delaware Court
of Chancery” and (ii) they would “irrevocably consent[] to the jurisdiction and
venue in the Delaware Court of Chancery.”
18. Under Section 8.6(a) of the merger agreement, the agreement is
governed by, and must be construed in accordance with, Delaware law.
Background
A. The parties negotiate a transaction and identify key regulatory hurdles.
19. Beginning in May 2014, Anthem and Cigna engaged in discussions
concerning a potential business combination. From the outset, regulatory
obstacles, particularly those relating to Anthem’s Blues membership, were a focus
for Cigna as it considered the possibility of a transaction with Anthem. Among
other things, Cigna pressed Anthem to explain how the combined company could
meet the Blues’ “best efforts” rules, which require Anthem to derive at least two-
thirds of its healthcare revenue across the country from its Blue-branded business.
These preliminary discussions ended in February 2015 due to Anthem’s view of
the Blues issues, as well as its need to focus on a recent data-security breach.
20. Anthem reengaged Cigna in mid-2015. Anthem made four
unsuccessful bids for Cigna in June 2015 alone, eventually sending a public “bear
hug” letter on June 21, 2015. In response to Anthem’s overtures, Cigna pushed to
get more value for its stockholders while again raising questions about the Blues-
272
-11-
related issues. Although Cigna conducted its own thorough diligence on the Blues
rules, Cigna was largely reliant on Anthem—as the party that was a member of the
Blues—to provide complete and accurate information that was within Anthem’s
exclusive control. Anthem repeatedly assured Cigna that the Blues issues could be
solved. In fact, Anthem represented in the course of negotiations that there was a
clear path to ensuring that the combined company would be compliant with the
Blues rules: either the antitrust litigation against the Blues would relax the
constrictive best efforts rules, or Anthem, as the largest member of the Blues,
would aggressively petition and push back on the Blues to make sure that the rules
were changed to accommodate the merger.
21. During this time, Anthem’s CEO, Joseph Swedish, made bullish
statements to the market attempting to minimize any concerns about Blues issues.
He told the Wall Street Journal, for example, that the Blues requirements would
not stand in the way of regulatory clearance and that he was “optimistic” that “we
will meet the test and be in full compliance with the rules.” Mr. Swedish also told
the market that the Blues issues were “fully vetted” and represented to Cigna,
including in a letter to Cigna’s board, that Anthem’s board, senior management
team, and advisors had “resoundingly concluded” that the Blues rules would not
interfere with the proposed merger.
273
-12-
22. Following Cigna’s due diligence and additional negotiations,
including an increase in the price that Anthem was offering—to a combination of
cash and stock worth about $188 per Cigna share, representing a 38% premium—
the Cigna board determined to accept the improved offer, and the parties entered
into a merger agreement on July 23, 2015.
B. The merger agreement gives Anthem control over the regulatory process and puts the risk of regulatory failure on Anthem.
23. As the acquiring company, Anthem bargained in the merger
agreement to take the lead in the regulatory process. Section 5.3(e) of the merger
agreement (attached hereto as Exhibit A) specifies that Anthem “shall take the lead
in coordinating communications with any Governmental Entity and developing
strategy for responding to any investigation or other inquiry by any Governmental
Entity related to any of the Necessary Consents.” Section 5.3 of the merger
agreement further requires Anthem to use “reasonable best efforts to take, or cause
to be taken, all actions, to do, or cause to be done, all things reasonably necessary
to satisfy the conditions to Closing” and “to avoid each and every impediment” to
the transaction under applicable law, including obtaining necessary regulatory
consents and opposing any objections or litigation by the government.
24. Anthem’s contractual duty to lead the regulatory process, however,
must be carried out “in consultation with Cigna.” Merger Agreement § 5.3(e).
This obligation to consult applies to developing regulatory strategy, to
274
-13-
communications with any governmental entity, and to making regulatory filings
and meeting with the government.
25. Anthem’s successful performance of its regulatory obligations is
necessary to complete the merger. Under the express terms of the merger
agreement, closing cannot occur if there are any “Legal Restraints” in place (e.g.,
any judicial order enjoining the merger) or if any government action seeking to
block the merger remains pending. Id. § 6.1(a). In addition, all “Necessary
Consents” must be obtained. Id. § 6.1(b). These Necessary Consents include
approvals by 26 state departments of insurance who, under applicable state law,
must approve the merger.
26. Closing is also explicitly conditioned on Anthem’s compliance with
all of its covenants and agreements under the merger agreement. Section 6.3(b) of
the merger agreement provides that Cigna’s obligation to effect the merger is
subject to the condition that “Anthem and Merger Sub shall have performed or
complied in all material respects with all agreements and covenants required to be
performed by them under this Agreement at or prior to the Closing Date.”
27. Section 7.1(b) of the merger agreement provides that the merger
agreement may be terminated “[b]y either Anthem or Cigna, if the Merger shall not
have been consummated on or before January 31, 2017 (the ‘Termination Date’).”
275
-14-
28. The Termination Date may be extended by no more than three
months, to April 30, 2017, only if all conditions to Closing other than regulatory
approval are satisfied:
if all of the conditions to Closing shall have been satisfied or shall be then capable of being satisfied, other than the conditions set forth in Section 6.1(a) [“No Injunction or Restraints; Illegality”] (but only if the applicable Legal Restraint constitutes a Regulatory Restraint) and Section 6.1(b) [“Government Consents”], the Termination Date may be extended by Anthem or Cigna, by written notice to the other party, to a date not later than April 30, 2017.
Id. § 7.1(b). As noted, Anthem’s compliance in all material respects with its
covenants under the merger agreement is a condition to closing. Id. § 6.3(b). If
that condition under Section 6.3(b) is not satisfied because Anthem is in material
breach of any covenant, it is not true that all of the conditions to closing other than
those in Sections 6.1(a) and 6.1(b) are satisfied, and extension of the Termination
Date is not available under the express terms of the merger agreement.
29. In the event the transaction fails to be consummated by the
Termination Date due to the failure to obtain regulatory approval, Anthem is
obligated to pay Cigna a $1.85 billion Reverse Termination Fee by the second
business day following termination of the merger agreement. Id. § 7.3(e). The
Reverse Termination Fee can also become payable before the Termination Date if
a regulatory restraint on closing becomes final and non-appealable. Id.
276
-15-
30. Cigna is not required to show any breach by Anthem to be entitled to
the Reverse Termination Fee. To the contrary, Anthem can deprive Cigna of the
Reverse Termination Fee (in relevant part) only if the failure of the regulatory
conditions to be satisfied was “caused by Cigna’s Willful Breach of Section 5.3,”
which section contains Cigna’s obligation to use reasonable best efforts. Id. The
merger agreement defines a “Willful Breach” as a “material breach” by a party
with “actual knowledge” that its act or omission would constitute a material breach
of the merger agreement. Id. § 8.13.
31. Although the $1.85 billion Reverse Termination Fee is payable
without regard to whether Anthem has breached the merger agreement, if Anthem
has “Willfully Breached” the agreement, Cigna is entitled to additional damages
over and above the Reverse Termination Fee. Id. §§ 7.2, 7.3(e), 8.5(b)(iii).
32. The merger agreement thus places on Anthem not only the obligation
to lead the process of seeking regulatory approval, in consultation with Cigna, but
also the risk—carrying an obligation to pay at least $1.85 billion to Cigna—that
Anthem will fail to obtain such approval within the contractually specified
timeframe and thus cannot consummate the transaction.
C. Anthem commits numerous breaches of its contractual obligations.
33. At the time the merger agreement was signed, Anthem led Cigna to
believe that it would pursue a regulatory strategy that would highlight the pro-
277
-16-
competitive features of the transaction. In particular, leveraging the parties’
complementary strengths—including Cigna’s innovative, collaborative approach
and Anthem’s leading provider discounts—would drive value for consumers,
create a leader in the evolving healthcare market, and expand consumer choice. As
Anthem touted to the market at the time, the transaction would “combine[] two
companies with complementary consumer solutions and a differentiated mix of
products and services that will enhance our combined ability to lead change in the
healthcare experience as a trusted partner for consumers.” Likewise, in the
companies’ joint proxy statement, Anthem asserted that the combination “could
yield immediate value through the realization of synergies and expand consumer
choice.” And in other public statements, Mr. Swedish repeatedly stressed the
benefits of the companies’ “complementary platforms,” praised Cigna’s
“strengths,” including its “highly regarded wellness programs and strong client
reporting capabilities,” and affirmed that the Cigna brand would be used “as a
competitive element against all payers” in the marketplace.
34. Critically, Cigna believed that if Anthem adhered to this strategy, the
transaction could obtain regulatory approval. After the merger agreement was
signed, however, Anthem failed to execute this strategy. While Anthem had told
the market that it was “confident in [its] ability to obtain regulatory approval”
because the companies’ strengths were “highly complementary” and would
278
-17-
“provide greater choice” for consumers, Anthem set out on a course directly
opposed to this deal rationale. Anthem sought to protect its own interests above all
else, building a bigger more powerful version of itself and strengthening the Blues
network while eliminating Cigna as a competitor. Anthem’s willful and malicious
conduct was evidenced in numerous ways, as set forth below.
(i) Anthem fails to develop any coherent regulatory strategy.
35. Despite having the contractual obligation to lead the regulatory
approval process, Anthem repeatedly refused to develop a strategy for moving the
deal through that complex process. After the deal was signed, Anthem elected not
to engage at all with the substantive regulatory issues the transaction faced. Other
than a preliminary meeting in early September 2015, the one substantive meeting
Anthem had with the DOJ in 2015 took place only because the government issued
Anthem a deposition notice and raised concerns about the Blues rules—concerns
that Anthem had done nothing to address proactively.
36. Despite Anthem’s failures, Cigna did its part to support regulatory
approval. Cigna diligently responded to the DOJ’s information requests,
expending massive resources and submitting its response to the government’s
second request before Anthem did. Cigna also took affirmative steps to clear the
path towards regulatory approval, including successfully soliciting customer
279
-18-
support letters and a favorable op-ed in The Hill authored by a prominent
physician. Anthem took no such affirmative steps to Cigna’s knowledge.
37. Cigna also pressed Anthem to address regulatory issues. For example,
Cigna provided Anthem with input on the legal challenges that Anthem would
need to address, including Blues-related issues and national market antitrust
theories (i.e., that there is a nationwide market for the sale of insurance to large
employers). Cigna also urged from the outset that Anthem would need to come up
with a strategy in the event that the DOJ required divestitures as a condition to
approving the deal. Anthem met Cigna’s efforts with resistance and refused to
take Cigna’s views into account. Indeed, Anthem chose instead to ignore the
problems the deal may face: before Anthem had done anything to even discern the
government’s position, Anthem’s CEO told the press that Anthem was “not
expecting divestitures” and that Anthem had not made a divestiture proposal to the
DOJ.
38. A February 16, 2016 meeting between the Cigna directors who would
continue on the board of the combined company and the Anthem board was
emblematic of Anthem’s utter failure to follow through on its contractual
responsibility to lead the regulatory process, even in the face of constructive input
from Cigna. At the meeting, Cigna highlighted the numerous issues at play—chief
among these, the DOJ’s concerns about the Blues and the need to develop a
280
-19-
divestiture strategy. Anthem’s directors and top executives, including its CEO and
General Counsel, heard Cigna’s message but failed to do anything to implement
that advice.
39. When Anthem was finally forced to tackle the regulatory hurdles in
the face of the government’s coming attack on the deal, it still decided to forego
meaningful engagement with the DOJ. Despite Cigna’s urging to do so, Anthem
did not attempt to have meetings with the government and present the parties’
affirmative case. Instead, Anthem decided to make written white papers the
centerpiece of its advocacy efforts, but then failed to approach them with any sense
of urgency or discipline. Anthem would commit to provide papers to the DOJ on
certain dates, then blow through those deadlines with no valid excuse. At one
point when it became clear that Anthem would not even have all of the papers done
before a key meeting with the government, Anthem’s General Counsel
dismissively said that they would have been “nice to have.”
40. Although Anthem’s white paper drafts were regularly delayed,
missing key arguments, and in some cases in conflict with one another, Cigna
remained fully engaged in providing constructive feedback. But Anthem refused
to address many of the concerns Cigna raised on particular issues, instead insisting
that it alone was managing the regulatory strategy. Anthem was unwilling to vet or
even share with Cigna the regulatory arguments that it planned to pursue or explain
281
-20-
how it intended to address fundamental issues that were holding up regulatory
approval, such as the Blues rules and a remediation strategy. Ultimately, Cigna
was never given the whole picture—or even a meaningful slice—of what
Anthem’s regulatory strategy was.
41. Anthem also committed other breaches of its obligation to consult
with Cigna throughout the regulatory process. Among other things, it unilaterally
pursued meetings with multiple governmental entities, including the Virginia
Bureau of Insurance, and proceeded to attend these meetings with minimal, if any,
notice to Cigna and no coordination about the substance of what would be
discussed. Anthem also failed to provide Cigna with notice when it unilaterally
chose to place misguided advertisements in national publications maligning the
DOJ after it filed litigation.
42. All the while, Anthem continued to insist to Cigna and the market that
it had the regulatory strategy under control. But the reality of the situation could
not have been more stark: Anthem in fact had no viable regulatory strategy to
offer. It had failed to develop arguments that were reasonably likely to succeed
under the antitrust laws; failed to develop any proof points to demonstrate the pro-
competitive nature of the transaction; failed to garner any third-party support for
the transaction; refused to meaningfully engage with the DOJ; and failed to
develop a remediation strategy altogether.
282
-21-
(ii) Anthem attempts to undercut Cigna’s role and develops a secret integration team to exclude Cigna from the process.
43. As Anthem ignored all input from Cigna in the regulatory process, it
also worked to undermine Cigna’s role in the transaction more broadly. This
behavior demonstrated that Anthem’s failures to lead the regulatory process were
intentional and malicious.
44. On December 29, 2015, only days after a conversation with Cigna’s
CEO, David Cordani, in which no issues or concerns were raised, Mr. Swedish
took the highly unusual step of sending an adversarial letter to Cigna, marking the
start of a year-long attempt to create a false record impugning Cigna’s efforts in
support of the deal. Mr. Swedish followed up with a second letter that same week,
making clear his intent to unilaterally impose a governance structure that would
limit Cigna’s involvement in the combined company. In response, the Chairman
of Cigna’s board conveyed that the contracted-for governance structure was a
fundamental premise on which the board had agreed to the deal, as integrating
Cigna’s leadership was critical to leveraging Cigna’s innovations to deliver
synergies for the combined company and generate value for stockholders. Indeed,
during the negotiations over the merger, Cigna’s board pushed for its stockholders
to get more of their consideration in stock precisely on this basis.
45. Anthem continued to impose its unilateral decision-making on Cigna
in every way it could. This heavy-handed approach was made explicit in the
283
-22-
integration process. Section 5.10 of the merger agreement specifically required the
parties to establish an Integration Committee “to ensure the successful combination
of the operations of Anthem and Cigna after the Closing.” Consistent with the
clear import of this provision, Cigna sought to have a collaborative role in the
process. Mr. Swedish, however, declared that he alone would make all final
decisions about integration. Anthem then delegated control of most integration
matters, including the key work on identifying synergies, to McKinsey, a
consultant that Anthem unilaterally retained. Even worse, Anthem put together a
team that was unequipped for the task: the head of McKinsey’s team had limited
M&A experience, having previously only worked on one merger that had gone to
closing, and Anthem’s own business integration leader had no experience
overseeing an integration at all.
46. Anthem’s control over the integration process also put it in a position
to harm Cigna in the marketplace by misappropriating and failing to protect its
confidential information. Cigna continuously pushed Anthem to put robust
security protections in place during the integration process. Anthem ignored or
resisted all efforts by Cigna to correct these problems, instead pushing for more lax
rules that made it easier for Anthem to take advantage of the confidential
information Cigna had shared in the integration process. For example, Anthem
announced a new Facility Reimbursement Policy in September 2016 that appeared
284
-23-
to have been directly modeled on Cigna’s pre-existing claims-editing system and
was only made possible through confidential information Cigna had shared to
facilitate integration.
47. The extent of Anthem’s abuse of the integration process did not
become fully apparent until trial in the DOJ litigation in late November 2016,
when Mr. Swedish admitted in open court that Anthem’s executive leadership, on
Mr. Swedish’s orders, had assembled a separate, secret Anthem-only integration
team designed specifically to exclude Cigna from the integration process.
48. Despite Anthem’s repeated attempts to cut Cigna out of the process,
Cigna continued to fully comply with its contractual obligations and tried to guide
the integration process in the most productive direction. In April 2016, Cigna
informed Anthem that the best use of the parties’ resources was to focus on the
combined company’s Day 1 go-to-market strategy, which was a more pressing
matter than the cost-cutting efforts with which Anthem had become obsessed.
Cigna also continued work to support the regulatory process. As Anthem admitted
in its own post-trial findings of fact in the DOJ litigation, Cigna participated in and
“worked extensively” on integration efforts, participating in “over 1,000 joint
meetings” of the integration teams and devoting hundreds of employees to the
integration process.
285
-24-
49. Anthem has repeatedly acknowledged in public statements that Cigna
was a cooperative partner, while concealing the extent of the dysfunction on
Anthem’s side. At a May 2016 investor conference, for example, Anthem’s
General Counsel, Thomas Zielinski, stated that working with Cigna on the
transaction “had been a very collaborative process and maybe more so than other
transactions I have been involved with.” Mr. Swedish further declared that “the
teams are working very, very well together” and that “we have been very
collaborative.” Anthem apparently never wavered in its view that Cigna was a
positive force in the process: In late November 2016, Mr. Swedish testified in
open court that the parties had “work[ed] very well together” and that any
perceived conflict was just “noise” that had not impacted Anthem’s ability to move
forward with its integration plans. He further testified that it was “inspirational”
how well the Cigna and Anthem teams had worked together.
(iii) Anthem develops the “bias to Blue” plan and puts its self-interest and allegiance to the Blues ahead of the deal.
50. Anthem had an affirmative obligation under the merger agreement to
seek solutions to the Blues-related impediments to the deal. However, by seizing
unilateral control of the integration process, Anthem put itself in a position to use
the transaction to strengthen itself and the Blues.
51. After Anthem’s board and senior executives worked in negotiations
with Cigna to downplay the risk posed by the Blues rules, as well the extent of
286
-25-
their allegiance to the Blues more broadly, Anthem’s post-signing conduct
revealed a different story. In its transaction announcement, Anthem committed to
remaining “Blue.” Anthem then held multiple private meetings with its fellow
Blue insurers, going out of its way to conceal these meetings from Cigna. Only
later did Mr. Swedish acknowledge—when he was forced to in open court—that he
held one-on-one meetings with key Blue executives for months after the deal was
announced, including a secret meeting at the Peninsula Hotel in Chicago. During
this time, Anthem refused to give Cigna any information at all on what its plans
were for complying with the Blues best efforts rules after the merger.
52. As it met in secret with its fellow Blues, Anthem also developed plans
that would favor the Blues while harming the chances of regulatory approval for
the merger with Cigna. The “bias to Blue” plan was a stark example. Contrary to
the strategy of defending the deal on the ground that it would expand consumer
choice and that Cigna’s offerings would increase, the “bias to Blue” plan would
have the opposite effect. Under this strategy, which Anthem announced it would
adopt at a June 9, 2016 meeting of the Steering Committee tasked with overseeing
the integration process, Anthem would push Cigna customers towards the Blue
platform by withholding the additional discounts that the combined company
expected to negotiate with healthcare providers unless customers made the
transition over to Anthem, i.e., to Blue. Anthem also advocated for “forced
287
-26-
migrations” from Cigna to Anthem. Even while the deal remained pending, the
Anthem sales team went so far as to tell potential customers that they should
switch to Anthem then, as they would likely be rebranded post-merger anyway.
53. The extent of Anthem’s intent to undermine the Cigna brand became
even clearer at trial. Anthem’s Vice President of Corporate Development, Stephen
Schlegel, admitted that, contrary to Mr. Swedish’s earlier public reassurances,
Anthem was calculating that the merger would push the combined company out of
compliance with the Blues rules. It would be up to the other Blue plans to
determine whether Anthem had fixed the problem to their satisfaction, and they
had the power to assess a $3 billion penalty and strip Anthem of its Blues license.
This would be uncharted territory: no Blue had ever gone out of compliance
before. Anthem thus had to adopt an even more aggressive rebranding plan than it
had revealed in “bias to Blue.” In Mr. Schlegel’s words, Anthem would do
everything it could to “take revenue from the Cigna side . . . and bring it over to the
Blue Cross side.”
54. Anthem’s coercive rebranding tactics were the complete opposite of
the consumer-choice rationale that was supposed to be key to the regulatory
strategy, and they became a lightning rod for the DOJ. Among other things,
Anthem became increasingly dependent on arguing that efficiencies would be
generated by applying Anthem’s deeper provider discounts to Cigna customers.
288
-27-
But this argument played directly into one of the government’s key arguments: that
the combined company would use anticompetitive market power to drive down the
reimbursement rates it pays to providers for their services.
55. Anthem also attempted to downplay to the court—just as it had with
Cigna—the level of cooperation among the Blues. Throughout the trial, Anthem
characterized the Blues as a mere “rental network arrangement” that gave its
customers access to insurance coverage outside of Anthem’s fourteen states. But a
mountain of documents showed to the contrary: that there is deep coordination
among the Blues in competing for customers, especially national accounts. This
evidence only grew as the regulatory process went on. Documents unsealed in the
pending antitrust multi-district litigation (“MDL”) against Anthem and the other
Blues revealed a troubling picture of the Blues as a unified block, which did not
meaningfully compete against each other. These unsealed documents also shed
light on how the Blues worked together to win national accounts through
Consortium Health Plans, a coalition of Blues plans of which Anthem is a member
and part owner. Anthem neither informed Cigna of the underlying facts
surrounding its coordinated action with its “Blues brethren,” nor did it seek to
consult with Cigna on how to mitigate the damage from these documents.
56. The pendency of the Blues MDL undercut Anthem’s defense of the
transaction in other ways. Shortly after the merger was announced, counsel for the
289
-28-
plaintiffs in the MDL wrote a letter to the DOJ urging it to focus on two arguments
that would ultimately become centerpieces of the government’s case: (i) that the
Blues “best efforts” rule, requiring Anthem to generate two-thirds of its business
under a Blue brand, would limit Anthem’s ability to grow the Cigna brand, and
(ii) that Anthem competes for business with other insurers, including Cigna, not
just in local geographic markets, but also for large “national accounts.” The MDL
plaintiffs also made it known to Anthem that they would be closely watching the
merger case, sending document requests about the merger to both Anthem and
Cigna. The threat of prejudicing its position in the Blues MDL may have impacted
Anthem’s defense of the merger, for example giving Anthem an incentive to try to
downplay the importance of the Blues best efforts rules, which were at the
forefront of the antitrust claims in the MDL.
57. Anthem’s Blues-driven motivations also dictated its misguided
approach to divestitures. After many months of failing to engage with the
government at all, when Anthem finally threw together a purported remedial
plan—only after senior DOJ staff expressed serious concerns about the deal in
June 2016—it settled on a strategy that was not only completely unworkable, but
designed to disproportionately harm Cigna and its ongoing competitiveness while
strengthening the Blues. Anthem insisted that Cigna alone divest assets, while
refusing to take customary steps such as hiring an investment banker that would be
290
-29-
necessary to identify qualified bidders. Then, despite DOJ’s repeated and voiced
concerns regarding the Blues organization and rules, including the Blues’
competing as one for national accounts, Anthem demanded that Cigna share its
competitively sensitive information with two Blues that Anthem had identified.
Anthem failed to acknowledge Cigna’s serious information-protection concerns.
Indeed, even after the DOJ indicated to the parties that divestiture to Anthem’s
fellow Blues would be a non-starter—telling the parties that “divestiture to a Blue
plan is not a path forward”—Anthem continued to demand that Cigna share its
competitive information with Blue insurers.
58. Given Anthem’s misguided priorities, the DOJ publicly announced
that Anthem’s proposed fix was intrinsically flawed on the merits and that
Anthem’s proposed buyers were inadequate. Indeed, Anthem so mismanaged this
effort that it killed any prospect of discussing a resolution with the DOJ at any time
throughout the litigation. Although Anthem would occasionally thereafter try to
push for mediation, the government refused at every turn.
59. There is no innocent explanation for Anthem’s position that it could
somehow resolve the DOJ’s concerns around national accounts by divesting to a
Blue. As it realized that it had severely harmed the prospects of getting the merger
closed, Anthem had turned its efforts to harming Cigna and helping its fellow
Blues.
291
-30-
(iv) Anthem further undermines the deal by commencing a self-interested litigation against its pharmacy benefits manager.
60. Anthem allowed the pursuit of its self-interest to interfere with the
transaction in ways that went beyond the Blues issues. Anthem’s misguided
lawsuit against its pharmacy benefits manager (“PBM”)—one of the most
important relationships for any health insurer—was another glaring example of
such conduct.
61. In its bid for Cigna, Anthem stressed the importance of synergies
relating to the combination of the companies’ PBM operations. In a June 20, 2015
press release, Anthem stated: “We believe there are substantial and achievable
synergy opportunities, including operating efficiencies, as we leverage our
respective core competencies as well as PBM savings from our combined scale.”
62. Anthem repeatedly touted the significant value and opportunity the
merged firms’ customers would gain from PBM efficiencies. As Anthem’s CFO
stated on a June 22, 2015 investor call, “The synergy is the combination of the 2
PBMs coming together and what can that incremental value actually drive for the
combined organization that neither of us could get individually.” Indeed, a third-
party consultant the parties jointly retained had conducted a market analysis and
calculated PBM cost savings of nearly $15 billion over five years.
63. Nonetheless, Anthem commenced a breach of contract suit against its
PBM provider, Express Scripts, on March 21, 2016 in the midst of the parties’
292
-31-
regulatory review, claiming $15 billion in damages. Anthem did so without any
consultation of Cigna, even though launching such litigation threatened to raise a
host of issues that could impact the regulatory review process and the savings
expected to be achieved by the combined company.
64. Soon after filing the litigation, Anthem informed Cigna that it would
not be including PBM synergies in its submissions to the DOJ. This was a
complete reversal of course, and it undermined the prospects of regulatory
approval by eliminating a significant, sustainable and innovative synergy that
would benefit health care customers and value-based health care providers.
65. The Express Scripts litigation also put on vivid display Anthem’s
mishandling of Cigna’s confidential information. For the integration, Anthem had
access to highly confidential information relating to Cigna’s PBM pricing.
Anthem’s allegations against Express Scripts indicating that “market analysis” had
revealed the terms in the Anthem/Express Scripts PBM agreement to not be
competitive raised the distinct possibility that Anthem had misappropriated for its
own purposes Cigna’s confidential pricing information.
66. Anthem’s handling of the Express Scripts situation was further glaring
evidence that Anthem was motivated, first and foremost, to act for its own benefit,
even when doing so would undermine the prospects of obtaining approval for the
transaction.
293
-32-
(v) Anthem intensifies its efforts to harm Cigna after thegovernment files suit.
67. Anthem’s self-interested conduct and mishandling of the regulatory
process destroyed any prospect of convincing the government to approve the
transaction. On July 21, 2016, the DOJ, 11 states and the District of Columbia
filed suit to block the Anthem-Cigna merger. As the prospects of regulatory
approval grew even more dim, and Anthem realized that it would still have to deal
with Cigna as an independent competitor, Anthem sharpened its focus on harming
Cigna’s prospects as a standalone competitor.
68. After the litigation was filed, Anthem’s sales representatives
contacted Cigna customers to solicit their business. These solicitations appeared to
misappropriate customer information Anthem obtained from Cigna during the
integration process, in direct violation of the parties’ confidentiality agreement and
Section 5.3 of the merger agreement. Anthem also undertook unilateral outreach
to Cigna’s customers about the merger without any notice to Cigna and used the
third-party subpoena process as a pretext for harassing Cigna’s customers. This
pattern of behavior confirmed that Anthem was now using the merger to disrupt
Cigna’s relationship with its customers. A buyer actually expecting to close the
transaction would seek to preserve, not damage, these relationships. But as
Anthem saw the writing on the wall that its strategy could not get the merger
294
-33-
approved, and that it would need to continue competing with Cigna, it did
everything it could to weaken Cigna’s competitive status.
69. At trial, Anthem focused its efforts on eliciting false and disparaging
testimony about Cigna. For example, Anthem caused one of its expert witnesses to
testify that—contrary to all real-world evidence and to Anthem’s public statements
at the outset of the deal praising Cigna’s strengths—Cigna was not a leader in
value-based care. This testimony was designed to undercut Cigna and bolster
Anthem’s own business. Anthem executives also gave similar false testimony
disparaging Cigna’s standing in the market. Anthem would not have elicited such
testimony in open court if it actually intended to acquire Cigna and compete
vigorously using the Cigna brand. Rather, instead of defending the transaction,
Anthem was set on harming Cigna’s interests as an independent company. Indeed,
the Anthem sales team began touting these misstatements to potential customers in
an effort to win business away from Cigna.
70. After failing to defend the transaction, in its post-trial proposed
findings of fact, Anthem abandoned any pretense of seeking to acquire Cigna for
its innovative offerings or its pioneering value-based care. After telling the market
that Cigna’s “distinctive strengths” were, among other things, its “consumer-
centric technology platforms” and value-based care model, Anthem’s findings of
fact were singularly aimed at undercutting Cigna and elevating Anthem’s own
295
-34-
relative position in the market. Anthem’s disparagement of Cigna was blatant:
Anthem alleged that it “le[]d the competition in value-based initiatives” and that
Cigna was unable “to do value-based care effectively,” called Cigna a “second
tier” competitor, and sought to discredit Cigna’s growth model. In so doing,
Anthem relinquished any plausible defense for the merger, reinforcing the
government’s argument that Anthem had pursued the transaction with the aim of
eliminating an innovative competitor in the industry.
71. Anthem’s false and malicious statements thus gave Cigna no option
but to take certain limited measures to correct the factual record and protect the
interests of the company and its stockholders. In particular, Cigna could not in
good faith endorse the inaccurate statements made in Anthem’s proposed findings
of fact, which, as the trial judge described, were “distressing” and “insulting” in
their misleading presentation of facts. Nor could Cigna stand by while Anthem’s
unilaterally-retained expert disparaged Cigna’s business model through inaccurate
testimony which served no purpose in defending the deal and served only to
malign Cigna. Cigna’s witnesses also had to testify truthfully in response to the
questions asked of them, which created tension with Anthem’s attempt to tell a
story that was divorced from reality. Anthem thus further undermined the chances
of success in the litigation by putting its desire to harm Cigna ahead of presenting a
credible defense of the transaction.
296
-35-
72. In addition to its damaging conduct before the district court, Anthem’s
misuse of Cigna’s confidential information, which had already been a major
concern for Cigna, became even more apparent as the deal neared its end. At a
JPMorgan healthcare conference in early January 2017, Anthem touted to investors
that it had learned valuable information from Cigna, including about how to sell
certain specialty products that Anthem does not currently offer, and would use that
information to compete against Cigna if the transaction did not close. Anthem’s
management reiterated this point in discussions with securities analysts following
the company’s February 1, 2017 earnings call. Anthem told UBS, for example,
that from the due diligence it conducted on Cigna, Anthem learned that Cigna has a
“great franchise” that is “way better” than Anthem in a number of areas, including
integrated healthcare management and specialty products, and Anthem would use
what it had learned from Cigna to create an “upside opportunity” for Anthem if the
deal did not close. Anthem made similar statements to AllianceBernstein, adding
that it would focus on a “stop-loss” product—an offering to self-insured employers
for which Cigna is well-known as a market leader. Again, these comments
confirmed Anthem’s malicious intent to use the merger agreement to improve its
competitive standing in the market, to Cigna’s detriment.
297
-36-
D. The District Court enjoins the deal, leaving no viable path to closing.
73. Trial on the government’s claims to block the transaction proceeded in
the U.S. District Court for the District of Columbia, before Judge Amy Berman
Jackson, from November 21, 2016 through January 4, 2017. Judge Jackson
bifurcated the case into two phases, corresponding to the primary claims that the
government leveled against the transaction: (1) that it would unlawfully harm
competition in the market for national accounts, and (2) that it would unlawfully
harm competition in 35 local markets.
74. On January 18, 2017, while a decision from Judge Jackson remained
pending, Anthem issued a notice to Cigna purporting to extend the Termination
Date under the merger agreement from January 31, 2017 to April 30, 2017. The
notice stated that, regardless of the outcome of the district court’s proceeding,
“additional time will be needed to consummate the merger.” In separate
correspondence, Anthem’s General Counsel also stated that, if the district court
enjoined the merger, Anthem would seek an expedited appeal of the decision. This
correspondence also stated that it was “Anthem’s position that Cigna has no right
to terminate the merger agreement on or after the initial termination date, January
31, 2017.”
75. Anthem’s breaches of the merger agreement continued even while the
court’s decision was pending. On January 25, 2017, Anthem communicated to the
298
-37-
DOJ that it intended to make a supplemental post-trial filing. In breach of
Anthem’s consultation obligation under the merger agreement, Anthem failed to
give Cigna any advance notice that it was contacting the government and then
made its filing with the court only hours after sending a draft to Cigna—an empty
gesture that provided Cigna no meaningful opportunity to review. Anthem’s
unilateral action proved to be misguided: Judge Jackson responded that she
“would have denied any motion for leave to file such a pleading if Anthem had
asked before docketing it.”
76. On February 8, 2017, Judge Jackson issued a detailed, 140-page
opinion finding for the government and enjoining the transaction. Judge Jackson
concluded that the merger would be anticompetitive because it would “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 opinion
further observed that Anthem had been unable “to demonstrate that its plan [was]
achievable or that it [would] benefit consumers as advertised,” including because
Anthem’s own documents revealed that it had “considered a number of ways to
capture [the claimed savings from the merger] for itself and not pass them through
to the customers as it insisted in court that it would.” Because the district court
found that the transaction would harm competition in the market for national
299
-38-
accounts, it did not need to reach the question of whether the merger would harm
competition in 35 local markets. Judge Jackson did, however, add that the
evidence supported the government’s claim as to at least one of those markets,
Richmond, Virginia.
77. Immediately after the opinion came down, and before the parties were
even permitted to review it in light of the confidentiality rules in the case, Anthem
informed Cigna that it would be issuing a press release vowing to appeal and
“aggressively” pursue the transaction, offering no explanation for how it had
reached the determination that this course was appropriate. Cigna prudently
informed Anthem that it believed the parties should review the opinion and then
have a discussion about how to proceed. Anthem refused to have any such
discussion and, on February 9, still before a public version of the opinion was even
available, filed a hasty notice of appeal in the D.C. Circuit. In an appellate filing
and subsequent correspondence, Anthem confirmed that it “disputes that Cigna has
a right to terminate at all” and that “Cigna has no right to terminate the Merger
Agreement even if final approvals have not been received by April 30,” but is
nevertheless seeking a ruling on the merits from the D.C. Circuit by that date.
78. Anthem’s claim that it can somehow get the deal approved before
April 30 is contrary to both reality and to Anthem’s prior statements. An appeal to
the D.C. Circuit will almost certainly not be decided within the timeframe Anthem
300
-39-
is seeking. But even if Anthem were somehow to get the injunction overturned,
significant additional obstacles to closing the transaction would remain, including a
likely remand to the district court to address the government’s remaining claim
concerning anticompetitive harm in the 35 local markets. Anthem must also secure
approval from thirteen additional states, five of which have not even held a hearing
yet, as well as from three international jurisdictions.
79. Anthem has already admitted that, even without a federal injunction,
getting through the state approval process would take 120 days. In an August 2,
2016 submission to the district court, Anthem stated that, “[a]s a practical
matter . . . Anthem’s ability to close its acquisition of Cigna depends on [the
district court] action concluding (without an injunction) before the end of 2016,
thereby leaving 120 days to obtain the remaining State regulatory approvals before
the extended Termination Date of April 30, 2017.” On August 12, 2016, Anthem
again told the court at a status conference that the “April 30th date [was] fixed”
and that a judicial decision at least 120 days prior to that date would be needed to
secure necessary state approvals. Now, with only 75 days before April 30,
Anthem, by its own admission, does not have the time to appeal the federal
injunction, succeed on that appeal, get the injunction overturned, and secure
approvals from sixteen additional jurisdictions. Anthem is pursuing a course that
cannot succeed and that will only further harm Cigna.
301
-40-
80. On February 14, 2017, Cigna delivered a notice of termination
informing Anthem that Cigna was terminating the merger agreement pursuant to
Section 7.1(b). Cigna sent the notice to Anthem and other persons entitled to
receive notice under the merger agreement.
E. Anthem’s conduct has caused substantial harm to Cigna.
81. The merger agreement entitles Cigna to at least the $1.85 billion
Reverse Termination Fee if the transaction cannot close for regulatory reasons.
Because Anthem has committed numerous Willful Breaches of its contractual
obligations under the merger agreement, however, Sections 7.2 and 7.3(e) are clear
that Cigna is not limited to the Reverse Termination Fee. Anthem also must pay
the damages resulting from its breaches.
82. Anthem’s intentional actions described above directly undercut its
ability to secure regulatory approval for the transaction. As a result, Cigna and its
stockholders have lost the substantial benefits that they expected to receive from
the transaction, including a premium of over $13 billion. They have also lost the
opportunity to participate in a combined company that, had Anthem pursued the
strategy that the parties envisioned at the outset, would have generated substantial
returns for its stockholders (including former Cigna stockholders).
83. Anthem has also worked to directly undercut Cigna in the
marketplace, including by maligning Cigna’s reputation in public testimony,
302
-41-
seeking to harm Cigna’s relationships with its customers and potential customers,
and misappropriating Cigna’s confidential information. These actions have caused
competitive harm to Cigna. This harm is ongoing, as shown, for example, by
Anthem’s repeated statements to the market that it will use Cigna’s competitive
information to bolster its own business. Anthem cannot be permitted to continue
this damaging conduct, and it must be held liable for the harm it has already
inflicted on Cigna.
COUNT I (Declaratory Judgment – Termination of Merger Agreement)
84. Cigna repeats and realleges the allegations of paragraphs 1 through 83
as if fully set forth herein.
85. The Court is authorized to issue a declaratory judgment under 10 Del.
C. §§ 6501-6505.
86. An actual controversy exists between Cigna and Anthem regarding
whether the merger agreement should be deemed terminated pursuant to Section
7.1(b) and whether Anthem has validly extended the Termination Date pursuant to
such section. In accordance with 10 Del. C. §§ 6501 and 6502, Cigna has a legal
interest in this Court construing this provision of the merger agreement.
87. Section 7.1(b) of the merger agreement provides that the agreement
may be terminated “[b]y either Anthem or Cigna, if the Merger shall not have been
consummated on or before January 31, 2017 (the ‘Termination Date’).”
303
-42-
88. The Merger was not consummated on or before January 31, 2017.
89. Cigna delivered a notice of termination to Anthem, in compliance
with the notice provisions of the merger agreement, on February 14, 2017.
90. Cigna has fully performed its obligations under the merger agreement.
No failure of performance by Cigna proximately caused or resulted in the failure of
the Merger to have been consummated by the Termination Date.
91. Anthem is not entitled to extend the Termination Date:
i. Under Section 7.1(b) of the merger agreement, a party may
extend the Termination Date to April 30, 2017 only “if all of the conditions to
Closing shall have been satisfied or shall be then capable of being satisfied, other
than the conditions set forth in Section 6.1(a) (but only if the applicable Legal
Restraint constitutes a Regulatory Restraint) and Section 6.1(b).”
ii. Under Section 6.3(b) of the merger agreement, Cigna’s
obligation to effect the merger is subject to the condition that “Anthem and Merger
Sub shall have performed or complied in all material respects with all agreements
and covenants required to be performed by them under this Agreement at or prior
to the Closing Date.”
iii. Anthem has materially breached its covenants and agreements
under the merger agreement as set forth above and in Counts III through V below.
Accordingly, the condition in Section 6.3(b) is not satisfied, and it is not true that
304
-43-
all conditions to Closing other than those set forth in Sections 6.1(a) and 6.1(b) are
satisfied.
iv. Any extension of the Termination Date would also be futile as
it is impossible for Anthem to obtain regulatory approval by April 30, 2017.
92. Cigna is, therefore, entitled to a declaration that the merger agreement
is terminated, effective as of February 14, 2017, and that Anthem’s purported
extension of the Termination Date to April 30, 2017 was not valid.
93. In the alternative, if the Court determines that Anthem’s purported
extension of the Termination Date was valid, Cigna is entitled to a declaration that
the merger agreement will be terminated immediately after the earlier of (i) the
date on which the district court’s injunction or any other regulatory restraint on
closing becomes final and non-appealable, or (ii) April 30, 2017.
COUNT II (Reverse Termination Fee)
94. Cigna repeats and realleges the allegations of paragraphs 1 through 93
as if fully set forth herein.
95. Section 7.3(e) of the merger agreement provides that Anthem is
required to pay Cigna a $1.85 billion Reverse Termination Fee, among other
things, if the merger agreement is terminated pursuant to Section 7.1(b).
96. As set forth in Count I above, Cigna has validly terminated the merger
agreement pursuant Section 7.1(b).
305
-44-
97. The only potentially relevant exception to Anthem’s obligation to pay
the Reverse Termination Fee—if the failure to obtain regulatory approval was
“caused by Cigna’s Willful Breach” of its reasonable best efforts obligations—is
inapplicable here. Cigna has fully complied with its obligations under the merger
agreement, and the failure to obtain regulatory approval was not caused by any
Willful Breach by Cigna.
98. Anthem is, therefore, obligated to pay Cigna the $1.85 billion Reverse
Termination Fee in its entirety under Section 7.3(e) of the merger agreement within
two business days of the date of termination of the merger agreement.
COUNT III (Breach of Contract – Failure to Use Reasonable Best Efforts)
99. Cigna repeats and realleges the allegations of paragraphs 1 through 98
as if fully set forth herein.
100. Section 5.3(a) of the merger agreement required Anthem to use
“reasonable best efforts to take, or cause to be taken, all actions, to do, or cause to
be done, all things reasonably necessary to satisfy the conditions to Closing.” This
obligation extended under Section 5.3(b) to “taking any and all actions necessary
to avoid each and every impediment under the HSR Act, any Healthcare Law,
antitrust law, insurance law or other applicable law that may be asserted by or on
behalf of any Governmental Entity,” including, among other things, obtaining all
Necessary Consents, resolving any objections that may be asserted by the
306
-45-
government, and opposing “fully and vigorously” any litigation initiated to block
the merger.
101. Anthem committed multiple willful and material breaches of its
obligations under Section 5.3 of the merger agreement. In particular, as more fully
set forth above, Anthem (i) failed to develop a viable regulatory strategy to secure
antitrust approval, including by failing to engage with the government;
(ii) unilaterally acted at trial to malign Cigna and harm Cigna’s standing in the
market rather than to support approval of the transaction; (iii) introduced testimony
and evidence that were false or contrary to the factual record, undermining the
credibility of the defense of the transaction; (iv) failed to make any effort to
resolve the Blues-related impediments to the deal and instead adopted a “bias to
Blue” plan designed to strengthen Anthem’s own business and its fellow Blues
while damaging the prospects of regulatory approval for the merger; (v) undertook
damaging outreach to Cigna’s customers; (vi) assembled a “secret” integration
team in an attempt to cut Cigna out of merger planning; and (vii) misappropriated
Cigna’s competitive business information for its own gain.
102. Each of the foregoing breaches was a Willful Breach as defined in the
merger agreement. Anthem committed the “material breach” with “actual
knowledge” that its act or omission would constitute a material breach of the
merger agreement. Merger Agreement § 8.13.
307
-46-
103. Cigna is entitled to damages due to Anthem’s Willful Breaches
pursuant to Sections 7.2 and 7.3(e) of the merger agreement.
104. Cigna and its stockholders were damaged by Anthem’s Willful
Breaches in an amount that will be determined at trial.
COUNT IV (Breach of Contract – Failure to Consult with Cigna)
105. Cigna repeats and realleges the allegations of paragraphs 1 through
104 as if fully set forth herein.
106. The merger agreement required Anthem to consult with Cigna in
developing its regulatory and litigation strategy. In particular, Sections 5.3(e) and
5.8 of the merger agreement specifically barred Anthem from unilaterally making
any filings, issuing any press release or communications relating to the merger, or
pursuing any meetings with the government without first notifying Cigna and
giving it the opportunity to comment. Section 3.2 of the Amended and Restated
Mutual Non-Disclosure Agreement (“NDA”), dated as of August 6, 2014, between
Anthem and Cigna, which is incorporated into the merger agreement, further
barred Anthem from contacting Cigna’s customers without Cigna’s consent.
107. Anthem breached these obligations by, among other things: (i) failing
to keep Cigna apprised of and consult Cigna with respect to its regulatory and
litigation strategy; (ii) engaging in damaging outreach to Cigna’s customers
without notifying or consulting Cigna; (iii) attending meetings with governmental
308
-47-
entities without including Cigna; (iv) engaging in substantive discussions with the
government, and sending communications to the government, concerning the DOJ
litigation without giving Cigna notice or the opportunity to participate; (v) placing
advertisements criticizing the government without notifying or consulting Cigna;
(vi) disregarding Cigna’s urging that a credible divestiture plan needed to be
developed; (vii) persistently failing to acknowledge or incorporate Cigna’s advice
and feedback in its advocacy efforts; and (viii) failing to give Cigna a meaningful
opportunity to review litigation filings.
108. Each of the foregoing breaches was a Willful Breach as defined in the
merger agreement. Anthem committed the “material breach” with “actual
knowledge” that its act or omission would constitute a material breach of the
merger agreement. Merger Agreement § 8.13.
109. Cigna is entitled to damages due to Anthem’s Willful Breaches
pursuant to Sections 7.2 and 7.3(e) of the merger agreement.
110. Cigna and its stockholders were damaged by Anthem’s Willful
Breaches in an amount that will be determined at trial.
COUNT V (Breach of Contract – Misuse of Confidential Information)
111. Cigna repeats and realleges the allegations of paragraphs 1 through
110 as if fully set forth herein.
309
-48-
112. Sections 5.2 and 5.3(e) of the merger agreement required Anthem to
protect Cigna’s confidential information; the Anthem-Cigna NDA also imposed
such obligations on Anthem. Anthem repeatedly breached these obligations and
harmed Cigna in the marketplace by misappropriating and failing to protect
Cigna’s confidential information, and using that information for Anthem’s own
gain.
113. Anthem resisted Cigna’s repeated attempts to implement robust
information security protocols in the integration process and disregarded Cigna’s
significant confidentiality concerns, including those specifically raised before the
Steering Committee. Anthem deliberately took advantage of the lax control
environment it had created so it could obtain access to Cigna’s competitive
business information and then improperly leverage this knowledge in the
marketplace.
114. Among its many breaches, Anthem misappropriated confidential
information Cigna shared during the integration process to develop its new Facility
Reimbursement Policy. Anthem’s litigation against Express Scripts also indicated
that Anthem used Cigna’s competitive business information for its own gain. And
Anthem stated, including in discussions with investors and securities analysts, that
it would use information taken from Cigna, including about how to sell certain
310
-49-
specialty products that Anthem does not currently offer, to compete against Cigna
if the transaction did not close.
115. Each of the foregoing breaches was a Willful Breach as defined in the
merger agreement. Anthem committed the “material breach” with “actual
knowledge” that its act or omission would constitute a material breach of the
merger agreement. Merger Agreement § 8.13.
116. Cigna is entitled to damages due to Anthem’s Willful Breaches
pursuant to Sections 7.2 and 7.3(e) of the merger agreement.
117. Cigna and its stockholders were damaged by Anthem’s Willful
Breaches in an amount that will be determined at trial.
REQUEST FOR RELIEF
WHEREFORE, Cigna Corporation, on behalf of itself and its stockholders,
respectfully requests judgment:
i. Declaring that the merger agreement is terminated, effective as of
February 14, 2017, and that Anthem’s purported extension of the Termination Date
to April 30, 2017 was not valid;
ii. In the alternative, if the Court determines that Anthem’s extension of
the Termination Date was valid, declaring that Cigna is entitled to terminate the
merger agreement immediately after the earlier of (i) the date on which the district
311
-50-
court’s injunction or any other regulatory restraint on closing becomes final and
nonappealable, or (ii) April 30, 2017;
iii. Ordering Anthem to pay Cigna the $1.85 billion Reverse Termination
Fee under the merger agreement and all interest accruing on any portion thereof
that remains unpaid from the date that is two business days after the date of
termination of the merger agreement;
iv. Ordering Anthem to pay Cigna damages in an amount to be proven at
trial, including but not limited to over $13 billion of lost premium value to Cigna’s
stockholders;
v. Awarding Cigna attorneys’ fees and costs associated with this action;
and
vi. Awarding Cigna such other relief as the Court deems just and proper.
312
-51-
Of Counsel:
WACHTELL, LIPTON, ROSEN & KATZ William Savitt Graham W. Meli Steven Winter Bita Assad 51 West 52nd Street New York, New York 10019 (212) 403-1000
ROSS ARONSTAM & MORITZ LLP
/s/ David E. Ross David E. Ross (Bar No. 5228) Garrett B. Moritz (Bar No. 5646) 100 S. West Street, Suite 400 Wilmington, Delaware 19801 (302) 576-1600
Attorneys for Plaintiff Cigna Corporation
February 14, 2017
PUBLIC VERSION FILED:February 17, 2017
313
1
IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
ANTHEM, INC., :
:
Plaintiff, :
:
v. : C.A. No.
: 2017-0114-JTL
CIGNA CORPORATION, :
:
Defendant. :
- - -
Chambers
Leonard L. Williams Justice Center
500 North King Street
Wilmington, Delaware
Wednesday, February 15, 2017
4:00 p.m.
- - -
BEFORE: HON. J. TRAVIS LASTER, Vice Chancellor
- - -
TELECONFERENCE
PLAINTIFF'S MOTION FOR A TEMPORARY RESTRAINING ORDER
AND THE COURT'S RULING
------------------------------------------------------
CHANCERY COURT REPORTERS
500 North King Street
Wilmington, Delaware 19801
(302) 255-0521
314
2
CHANCERY COURT REPORTERS
APPEARANCES: (via telephone)
KEVIN M. COEN, ESQ.
D. MCKINLEY MEASLEY, ESQ.
RICHARD LI, ESQ.
Morris, Nichols, Arsht & Tunnell LLP
-and-
GLENN M. KURTZ, ESQ.
CLAUDINE COLUMBRES, ESQ.
of the New York Bar
White & Case LLP
for Plaintiff
DAVID E. ROSS, ESQ.
ADAM D. GOLD, ESQ.
Ross Aronstam & Moritz LLP
-and-
WILLIAM SAVITT, ESQ.
of the New York Bar
Wachtell, Lipton, Rosen & Katz LLP
for Defendant
- - -
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
315
3
CHANCERY COURT REPORTERS
THE COURT: Good afternoon, everyone.
This is Travis Laster speaking.
I'd like to start by asking Delaware
counsel for Anthem to speak up and tell me who is on
the line and who will be making the presentation this
afternoon.
MR. COEN: Good afternoon, Your Honor.
This is Kevin Coen at Morris Nichols here on behalf of
Anthem. With me in my office is Mac Measley, and on
the line is Glenn Kurtz and Claudine Columbres from
White & Case. Mr. Kurtz will be speaking today on
behalf of Anthem.
THE COURT: Okay. I have the same
request for Delaware counsel for CIGNA.
MR. ROSS: Good afternoon, Your Honor.
David Ross of Ross, Aronstam & Moritz on behalf of
CIGNA. Adam Gold of our office is here with me. Also
on the line is Bill Savitt of Wachtell Lipton Rosen &
Katz, for whom we filed a pro hac motion a few minutes
ago. And with the Court's permission, Mr. Savitt will
be speaking on behalf of CIGNA.
THE COURT: All right. That's fine.
So to let you know what I have done, I
have read the entire complaints in both the
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
316
4
CHANCERY COURT REPORTERS
Anthem-initiated case, which we're technically here
on, as well as the CIGNA-initiated case that is its
companion.
I have looked at but I can't pretend
to have read fully by any means the termination
provisions in the merger agreement; and I have read
memorandum of law in support of the TRO; and I have
looked at the proposed form of orders; and most
recently, I have read Mr. Ross' letter.
So I say that because you all have
radically different views of the underlying facts, and
I don't think it will behoove any of us to use this
time to review your respective positions on the
underlying facts or how you reached this phase.
What I think would be helpful is if
you all focused your minds and your comments on
whether a TRO should be granted and then what type of
schedule we should have, depending on what happens,
with or without a TRO.
So with that framing, Mr. Kurtz, I'd
ask you to go first.
MR. KURTZ: Thank you, Your Honor.
Good afternoon.
THE COURT: Good afternoon.
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
317
5
CHANCERY COURT REPORTERS
MR. KURTZ: I will try to avoid
talking about too many of the merits which are in
dispute. I think we could say that there is one
matter that has been agreed to, and that is that the
merger is a unique and transformative merger; that it
would offer better and lower cost health care to tens
of millions of consumers; and it would pay over
$13 billion of deal premium value to CIGNA
shareholders. So without intending a pun here, there
is a great deal at stake.
This case and this motion are brought
to preserve that value by maintain the status quo in
the deal and, specifically, by enjoining termination
and interference with ongoing efforts to clear the
merger.
I think it's important for the Court
to understand that there are at least two pathways to
a closing here. One is through appeal and the other
is through resolution with a new DOJ. And the motion
is intended to preserve those options, primarily.
There's reasons that we believe the
merger is still able to clear. Notably, now Vice
President Pence was supportive of the transaction as
the governor of Indiana. The merger would allow
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
318
6
CHANCERY COURT REPORTERS
Anthem to expand into nine new states under the
Affordable Care Act.
That seems particularly important now,
as Aetna has pulled out of certain states and it's
mulling over whether to reduce its presence further.
And today, timely enough, Humana announced a decision
to pull out of the exchanges altogether. Looking at
new rules, this is a way to sort of help with that as
well.
And then on the appeal front, Anthem
promptly filed a motion to expedite. The D.C. Circuit
Court set a schedule that had the Government's papers
going in today and a reply by Anthem tomorrow at
12:00. And we think that's what generated the
termination notice, because now the Government has
taken enormous advantage of this to oppose the
expedition as saying the deal is now dead. And we're
looking to get a TRO in place in order to be able to
let the D.C. Circuit Court know by tomorrow at noon
that the deal has not been terminated.
Obviously, the lynchpin of a TRO is
ordinarily irreparable harm. We have two forms of
irreparable harm here. The termination of a unique
and transformative merger is irreparable harm. The
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
319
7
CHANCERY COURT REPORTERS
courts in Delaware have repeatedly recognized that:
True North, Oracle, Hollinger, Revlon. There's no
replacement. There is no replacement here.
The second irreparable harm here is
the damage if not the entire thwarting of an appeal.
If there's no merger in place, then we can expect DOJ
to move to strike an appeal as no longer available.
Then it wouldn't be justiciable if you were litigating
a decision that couldn't result in the consummation of
a merger. That has been recognized by several courts,
that the loss of an appellate right is irreparable
harm, harm that can't be compensated for with money
damages.
And then a third way to get to
irreparable harm is that CIGNA agreed that a breach of
the merger agreement constitutes irreparable harm.
Delaware courts have enforced those provisions. It
seems particularly appropriate here, where you have
extremely large and sophisticated parties represented
by lots of counsel to support that and enforce it.
And I'll get to momentarily why we think that we have
a clear right to keep the merger alive. So we think
this presents a textbook case of irreparable harm.
When you have irreparable harm, the
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
320
8
CHANCERY COURT REPORTERS
colorable claim element of a TRO is a really low
threshold, we think. We've seen it described as
claims are colorable if the facts that are alleged are
true would make them colorable or that they're
nonfrivolous. And we think that the verified
complaint more than demonstrates colorable claims. We
think they're clear.
There's fundamentally two claims here
at issue. The first one is that Anthem, on
January 18th, extended the termination date of the
agreement. The original termination date was
January 31st. That's Section 7.1(b) of the merger
agreement. That's not a drop-dead date. The merger
stays in place unless and until it's validly
terminated. But the original termination date was
January 31st.
Section 7.1(b) permitted Anthem to
unilaterally extend the termination date through
April 30. That's what we did. That's been recognized
throughout this case. In fact, at the time that the
District court -- and that's the underlying antitrust
case -- was considering a schedule, all parties
indicated that the merger would stay around through
April 30. And in reliance on that, the District Court
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
321
9
CHANCERY COURT REPORTERS
set the schedule. And then, notably, in the recent
opinion in which the Court enjoined the transaction,
she said that the merger agreement is in place through
April 30.
So we think that one is more than
colorable. We think that's clear. That maybe even
irrefutable. I'll come back in a second to CIGNA's
response to that.
The second reason that a termination
would be invalid is that CIGNA just doesn't have a
right to terminate because the termination right, as
set forth in 7.1(b), does not permit termination where
a party has failed to fully perform its obligations in
a manner that proximately causes the merger to not
close by the termination date.
We set out a whole host of conduct
that I won't go over, given the Court's statement on
it, about why we think that's a pretty clear breach.
I will say only as an overall matter that you have two
different stories. You have identified, that's true,
I think, that when the time comes to get into the
details, you know, we'll be able to demonstrate why
our story is the right one.
But I think, objectively, looking at
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
322
10
CHANCERY COURT REPORTERS
what happened and didn't happen, we demonstrated very
clearly a breach of best efforts. Best efforts is a
daunting standard. It's got a hell or high water
obligation with respect to the regulatory clearance
matter. That's been described as bracketed only by
financial disaster by a leading case, Bloor v.
Falstaff, which was also cited in Hexion, in this
court, as the standard.
And we think that if Your Honor looks
at all the conduct that's been pled, you'll see that,
objectively, that's a lack of best efforts and that
the kinds of things that CIGNA raises are in the
nature of excuses. And the best efforts is an
objective criteria that doesn't really accommodate
excuses or reasons. It demands behavior.
The balancing of equities -- actually
I'll direct my comments to the balancing of the
equities but I'll also note that the merger agreement
contains a provision where the parties agree that
injunctive relief should be issued to enjoin breaches
of the agreement. It also includes specific
performance. We obviously haven't sought that today.
And, again, we're with sophisticated
parties, and we think that we've pretty clearly
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
323
11
CHANCERY COURT REPORTERS
demonstrated that these are breaches; that a
termination is a breach in and of itself, in addition
to the best efforts issues.
Balancing of the equities we think
decisively weighs in favor of a TRO. As I've already
addressed, there's enormous irreparable harm to Anthem
in losing a unique and transformative merger. The
same is true with respect to tens of millions of
consumers who will lose out on better and less
expensive health care at a time when health care is in
a bit of a state of flux if not distress.
And then, of course, CIGNA
stockholders stand to lose $13 billion of deal premium
that's not easily replicated either.
When balancing that against CIGNA, we
think it's pretty overwhelming. I don't see any harm
to CIGNA. CIGNA is merely basically sitting around,
probably, while we try to get this deal through. And
it's abiding by the terms of the agreement. And the
only thing it loses is its ability to continue its
efforts to avoid a merger.
And we're going to work diligently.
And if we can get the merger cleared through a
settlement or through an appeal, then everybody is
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
324
12
CHANCERY COURT REPORTERS
going to benefit. And if we are unsuccessful in that,
then the termination is going to come soon enough.
But certainly there's no urgency to
anything that's going on in terms of CIGNA being
restrained. And I think some of that is even
reflected in the submission that CIGNA made a few
minutes ago, which we sort of have been able to get
through but largely seems to suggest that they would
continue to cooperate, going forward, both on an
appeal -- and I don't think that actually works
because I think they've just undermined, and hopefully
not irreparably, our motion to expedite -- but also in
terms of taking steps to get to a close.
And CIGNA points out that they're not
at the point -- it's not imminent that they need to
sign certificates of merger or anything like that.
And I agree with that. We haven't asked for that.
But the reality is if this is a
terminated deal, then the cost of entry for us in
settlement has been revoked, and, as I mentioned, I
think also potentially our appeal. We can't go and
negotiate a settlement, with or without divestitures,
with new DOJ if DOJ says, Well, you don't have a
merger to negotiate around.
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
325
13
CHANCERY COURT REPORTERS
And as I mentioned, we're a little
afraid that there will be a problem perfecting an
appeal in the D.C. Circuit if there is an argument
that's already been made heavily by DOJ that there's
no merger to protect.
So there's a lot of damage here. We
lose a deal, and we lose an appeal, potentially, on
one end; and there's really nothing that we see on the
other end. CIGNA has been living around the merger
agreement for many, many months. It contracted to
live through April 30, just for the asking. And we
don't see any harm at all. And, frankly, by the time
we get to April 30, we probably have a better record
and understanding about where we can go with this.
And then the last thing that I'd like
to address, Your Honor, is the CIGNA notion that
Anthem is in breach of the agreement and, therefore,
Anthem is not able to extend the -- and I know there
hasn't been a lot of time to focus on the niceties of
the language, but 7.1(b), that provides for both
pieces of the puzzle. One is the termination right,
which is surrounded by the breach language. That's
the right that requires a party, before they could
exercise termination, to have performed fully the
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
326
14
CHANCERY COURT REPORTERS
obligations, not have breached them, and not to have
proximately caused the problem.
The extension, which was designed just
to allow the parties to extend in order to get more
time if more time was needed with regulators, doesn't
replicate that language at all. It just talks about
conditions other than regulatory approval that are
satisfied or are capable of being satisfied. And, of
course, all of this is still capable of being
satisfied. We can still get regulatory approval.
And even as to the best efforts
allegations, if regulatory approval is forthcoming,
then there can't really be an argument that we got
there but we didn't get there in the best possible way
and that, therefore, somehow, there's no need to close
the transaction.
And the last point on the contract is
the condition is set up, it cross-references over to
the Article Sixth conditions. And those conditions
are satisfied expressly, either by satisfaction of the
condition or waiver of it. And, again, it's
capable -- the magic language in the contract -- the
condition is capable of being satisfied, not only,
therefore, through the regulatory approval but also
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
327
15
CHANCERY COURT REPORTERS
it's capable of being satisfied through waiver.
So I'm happy to answer questions, but
without getting into any of the factual matters that
Your Honor has read and didn't need repeated, that
would be my opening remarks.
THE COURT: That's helpful.
Let me ask you a couple questions
before I go to Mr. Savitt.
Assuming that I were to give you a TRO
today, one would normally think we'd have to come back
relatively soon for some type of preliminary
injunction. What would be your preference for when
that would occur?
MR. KURTZ: Well, we are prepared to
move on any schedule, light speed or otherwise, as the
Court would like to see, or CIGNA would like to see.
We're sort of protected with a TRO. It may be that
CIGNA would have a bigger interest.
If I were going to make a suggestion
on my own, it would probably be if we got ourselves to
April 30, then we could deal with at a preliminary
injunction stage the issue about whether or not CIGNA
has any right to terminate in light of the breaches.
But we're also prepared to move next
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
328
16
CHANCERY COURT REPORTERS
week or any other time, if CIGNA wants it or Your
Honor wants it.
THE COURT: All right. That's
probably enough of an answer on that, then.
Let me hear from Mr. Savitt.
MR. KURTZ: Thank you.
MR. SAVITT: Thank you, Your Honor.
And thank you for hearing us.
We are digesting this morning's
filings from our good friends on the other side. I
think I can, in summary, respond, however, to the
information that's been put before the Court and the
parties.
The remedy that's been sought, as the
Court, of course, knows, is an extraordinary one, not
readily granted, notwithstanding my friends'
suggestion to the contrary. It requires a showing on
the merits. It requires a showing as to harm. And
the short answer for why a TRO ought not be entered
here is that there has been no showing on the merits
and no showing as to harm.
As to the merits -- and I will, with
fidelity, Your Honor, respect your suggestion that we
not litigate the facts. It is for sure that there is
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
329
17
CHANCERY COURT REPORTERS
a significant disagreement with respect to how the
events over the past 18 months plus have unfolded. We
register our disagreement with what's been said on the
other side of it, and particularly with respect to
what's been suggested about the impact for the
insurance market, the health insurance markets and
health insurance industry and health care industry in
the United States as a whole, but will not use the
Court's time to litigate that matter except to
register our disagreement.
The folks on the other side seeking a
TRO have to make a showing, and what they have to make
a showing of is that they haven't breached the
agreement. The allegations in our verified complaint
are detailed and extensive and we think will be
abundantly supported by massive evidence at trial.
I'm not litigating that now, of
course, Your Honor, but the question is whether
there's been a showing that that hasn't happened. And
there has been no showing. Literally nothing. Zero.
They haven't even tried to make such a showing, and
there is nothing before the Court in the nature of
evidence that could support a restraining order.
It's not as though Anthem has been
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
330
18
CHANCERY COURT REPORTERS
taken by surprise with respect to this situation, what
with a 55-page brief. It seems rather more that they
were waiting for this to happen.
You can't do a TRO without a showing
on the merits, and there hasn't been one. And by
that, to be express, Your Honor, I mean there hasn't
been a showing that CIGNA does not have a right to
terminate.
And it's not as though this is a new
issue that cries out for resolution right now or --
for the love of Mike, the issue of the parties'
dispute was front and center in the litigation in the
District of Columbia, and it figured in Judge Berman's
decision, which I believe the Court now has.
As to the harm, the irreparable harm
piece of it, we don't think there's been any showing
on that either, Your Honor.
Now, some of what my friends said I
think confuses the issue whether there would be
irreparable harm with respect to an ultimate judgment
that the merger was terminated, that is to say whether
the remedy of an injunction is an adequate substitute
for an award of damages. That is an irreparable harm
question, but it's not the precise irreparable harm
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
331
19
CHANCERY COURT REPORTERS
question we're dealing with now.
What we're dealing with now is the
irreparable harm question whether, absent a
restraining order, the extraordinary device that
Anthem proposes, it will suffer irreparable harm. We
think there's been no showing there either.
We are struggling to define with
precision what even is alleged to be the irreparable
harm. Reference was made in my friend's presentation
to the loss of a valuable transaction, but that's not
the irreparable harm here.
At the end of trial, if the Court
believes that Anthem is correct, then it can order
specific performance and the transaction will proceed,
assuming that it's able to clear the other conditions
necessary for consummation, which we think is
exceedingly unlikely, but that's another matter.
The irreparable harm that is on issue
here, that's on offer here, seems to be the argument
that without an order of this Court, Anthem won't be
able to proceed with its appeal, and Anthem won't be
able to take steps to continue to get regulatory
approval.
We don't see a showing that that's so.
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
332
20
CHANCERY COURT REPORTERS
They can prosecute their appeal without us. Anthem
indeed took its appeal without CIGNA as a participant
in that appeal.
What they can tell the District of
Columbia Circuit is the truth, which is perfectly
clear, not just from today's filings but what has come
before, which is the parties dispute whether there has
been a breach and whether there are termination
rights.
They can say that that issue is before
Your Honor, and they can tell the D.C. Circuit that
the parties to that dispute, to the dispute we are
presently on the phone about, agree -- at least we
do -- that we should try to ensure that whatever
ruling this Court ultimately makes can be given proper
effect. A principle that we think is important in the
context of evaluating a motion for a TRO which we're
happy to say we clearly agree with.
To the extent there is an argument
regarding whether Vice President Pence thinks that the
merger ought to be approved, well, it's not in any
papers as far as we can tell.
Their arguments regarding new DOJ, the
fact is there is no new DOJ. There is only old DOJ.
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
333
21
CHANCERY COURT REPORTERS
No new DOJ personnel has been appointed or approved.
And the idea that we are doing
anything on the CIGNA side of things to impair any
discussions there is without any basis, as is the
suggestion that there is some new DOJ to talk to.
I did want to address the question why
what's happened happened now because my friend
adverted to it with a suggestion -- false -- that it
was driven by their motion to expedite. What's
happened, Your Honor, is that Anthem has only now,
recently, in the past number of days, made clear that
it believes CIGNA has no right to terminate the merger
agreement, not to January 31st, not on April 30th, as
my friend suggested, but ever.
Their position is that Anthem is -- is
that CIGNA can't terminate the merger agreement
because it's breached the merger agreement in ways
that precluded regulatory approval. If that's right,
then by Anthem's light, CIGNA is on the hook
indefinitely.
That rendered the dispute presently
before the Court utterly inevitable, because it is as
certain as the day is long that April 30th will come
and go and regulatory approval for this transaction
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
334
22
CHANCERY COURT REPORTERS
will not be had. I doubt I will even hear my good
friend on the other side dispute it.
It is Anthem's own words that it's 120
days from Court approval until regulatory approval can
be had. From today, that takes us into June. And
we're not going to start today. We're going to start
only after an appeal on whatever calendar is decided
by the D.C. Circuit, and in the event of a favorable
ruling for the transaction in the D.C. Circuit, a
remand for further proceedings in the District Court.
There isn't any question that April 30th is not going
to see regulatory approval.
But what's fundamental now is Anthem's
position that CIGNA is precluded from escaping the
merger agreement, terminating the merger agreement,
even then. This isn't a circumstance where Anthem
said, Well, give us until April 30th and we'll see
where we are. Anthem has taken precisely the opposite
position.
And even then, so the Court
understands, it's very difficult for CIGNA to continue
to perform this contract even if it was otherwise able
to. We are being asked to approve of filings in the
District of Columbia Circuit Court that we believe are
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
335
23
CHANCERY COURT REPORTERS
legally misguided and are factually inaccurate.
We've navigated this tension as best
we could in the District Court but we couldn't
continue to be bound by any obligation to cooperate in
the Circuit Court, given the increasingly
irresponsible litigating positions Anthem has taken,
especially when balanced against the literally zero
percent chance of success on the regulatory front by
April 30th.
And in few of all this -- and I'm
coming to a point, Your Honor, that we believe is
important for purposes of responding to what the folks
on the other side have said -- we've concluded that
what's happening here is Anthem wants to keep CIGNA on
ice. It wants to continue to keep a competitor from
competing. It wants to continue exploiting the merger
agreement for its own narrow gain. That's what
they've done for over a year and a half. We've been
tied up for over a year and a half. And they aren't
entitled to do it anymore.
CIGNA has a right to terminate. It
has obligations to stockholders and to customers and
the people it serves to move to put a deal behind it
that cannot be done when a termination right is ripe,
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
336
24
CHANCERY COURT REPORTERS
which it is.
My friend made reference to -- I think
he said that there was no harm because CIGNA would
just be basically sitting around while the months ran
off the clock and Anthem pursued increasingly hopeless
regulatory strategy. But large public companies worth
many tens of billions of dollars with obligations to
stockholders and constituencies don't basically sit
around. There is a strategy to be deployed. There
are capital deployments to be made. There are any
number of initiatives that each of these companies,
CIGNA and Anthem, need to get to if they're going to
go about their business.
The idea that an ongoing temporary
restraining order is cost-free to CIGNA is false, just
plain false. There's no showing of it. And handcuffs
of the sort that Anthem proposes to continue to bind
CIGNA are not justified on the facts, not justified on
the contract, and not at all cost-free.
Now, it's our position that we've
complied with our obligations under the merger
agreement, and I think the evidence will show that. I
know the Court doesn't want to hear about it and,
candidly, I don't want to talk about it now.
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
337
25
CHANCERY COURT REPORTERS
I do want to say that we are keen on
the CIGNA side to continue to conduct ourselves so as
to ensure that any relief the Court orders will be
capable of being given effect.
What we are not trying to do here is
to short-circuit the ability of this Court or any
other to have its rulings enforced. Candidly, we
don't think, ultimately, an order of specific
performance can happen here because we don't think
there's any way this transaction can ever be approved,
given the self-interested way in which Anthem has gone
about seeking regulatory approval.
But we have no interest in doing
anything to impair this Court's remedial authority.
If anything, candidly, Your Honor, it's the Anthem
side of the equation that is ignoring the merger
agreement.
As an illustration, both companies
have covenants in the merger agreement that restrict
their ability to deploy capital for share repurchases.
As the Court knows, this is an important issue from a
governance and capital management perspective.
CIGNA announced to Wall Street in the
past number of days that it would undertake
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
338
26
CHANCERY COURT REPORTERS
repurchases this year only within the tolerance
permitted by the merger agreement, attempting to live
within the boundaries of the merger agreement so as to
ensure the capacity of the Court to order effective
relief. That's a company that's trying to remain
compliant.
Anthem, on the other hand, announced
to Wall Street that they'll undertake buybacks this
year that will exceed the amount permitted by the
merger agreement. That is a company that is not
coloring within the lines of the merger agreement.
There are all sorts of other matters
pertinent to integration that evince Anthem's failure
to do its contractual duty, and it just can't be said,
Your Honor, that the situation is cost-free or that
either party should be put in the position of having
to indefinitely comply with the restrictions of the
agreement.
Finally, I think I heard the other
side say that CIGNA has conceded that the contract
could be extended to April 30th, and I think that was
in their papers as well. That just is not true.
Anthem, to be sure, argued before
Judge Jackson in the D.C. Circuit that the trial
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
339
27
CHANCERY COURT REPORTERS
schedule needs to be compressed to hit an April 30th
deadline, but among other things, they told the Court
that it needed to be finished 120 days before
April 30th so they could have time to appeal so they
could have time to implement a favorable ruling.
So all that does is confirm that
April 30th is no longer even remotely in prospect. It
doesn't do anything to support the idea that anyone on
the CIGNA side made such a concession.
Anthem cites in page 3 of its papers a
statement from the District Court's opinion enjoining
the merger that the parties are bound by their merger
agreement through April 30th, but all the Court was
citing there was a unilateral filing of Anthem in
which Anthem made the point that expedition was
necessary.
I mean, it's kind of worth noting that
Anthem doesn't think that the statement is true
because Anthem thinks that CIGNA is bound well beyond
April 30th, as it has made perfectly clear.
These issues come together, Your
Honor, in our response to the temporary restraining
order because we submit that what has not been shown
is, on the merits, a sufficient likelihood of success
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
340
28
CHANCERY COURT REPORTERS
to allow the extraordinary remedy ordered, or on the
irreparable harm, to justify the extraordinary relief
that's been requested.
I've said it a couple of times and
I'll say it again, and it's in Mr. Ross' letter, we
believe that we should get this case tried. We
believe we should get it tried promptly. It's
complicated, and it's going to be very fact-intensive.
We want to make sure the Court has an adequate record,
but we are ready to get to work on it. And we're also
ready to do that in a way that will ensure the Court's
ultimate ability to do substantial justice as it sees
fit. And we're happy to cooperate with our friends on
the other side of the caption to see to it.
Having said all that, the idea that a
sufficient record has been submitted to justify a
temporary restraining order, we would submit, Your
Honor, is inaccurate and ought not be countenanced.
So I'll stop there and, of course, be
delighted to take any questions that the Court might
have.
THE COURT: Thank you, Mr. Savitt.
Mr. Kurtz, do you have anything you
want to reply?
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
341
29
CHANCERY COURT REPORTERS
MR. KURTZ: Yes. Thank you, Your
Honor. I'll be brief, but let me take the big issues
on, at least.
On the merits, I think I accurately
described the standards, which is colorable claim,
which is, in fact, a low threshold.
I also walked through and we briefed
that breach -- and that's the only basis on which
CIGNA says that the extension is improper, that there
was a breach. I walked through in the brief and we
walked through today, Your Honor, that 7.1(b)
extensions are not attached to breaches; that,
instead, it just has to be a condition that's capable
of being satisfied. And my brethren didn't respond to
that, but that's a legal issue. Your Honor can look
at the words and decide yourself.
Also, the notion, factually, that
Anthem is in breach is not supported even by the
complaint. We have proof by Your Honor in the form of
our verified complaint that Anthem, in fact, incurred
$520 million, which may be a record -- I don't know --
in trying to get through regulatory clearance.
We've walked through -- and I won't
repeat the facts -- obviously, just tireless work.
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
342
30
CHANCERY COURT REPORTERS
And we continue to work. And a lot of times, I think
when you're trying to figure out who really did what
they were supposed to do, maybe you look at parties'
interests, because people tend to act in their own
interests. And you can see our interest has been at
the outset to merge. We reinitiated it over
resistance. And here we are, later in the game, and
we're fighting for it. And we're reaching out to DOJ,
which is new, by the way. There is a confirmed
Attorney General, Sessions. And CIGNA is fighting to
terminate it.
So I think on the merits, which is a
low threshold, I don't know if it had to be an
overwhelming likelihood of success on the merits, but
I think we have met it.
And on that April 30 date, you can
look to our brief on pages 30 and 31 and you can get
the quotes. It's not just Anthem that was at
April 30. It was also CIGNA that stood up and said,
We agree. And the Court, of course, established that
date as the foundational basis for a trial schedule
and reiterated that in the recent decision. So it's
only CIGNA that's trying to change the timing rules as
they got here.
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
343
31
CHANCERY COURT REPORTERS
In terms of harm, I'm not sure how it
could credibly be argued that the loss of a
transformative merger is not irreparable harm. It's
textbook irreparable harm.
The appeal, which I'm not sure my
friend responded to, likewise, the loss of an
appellate right is irreparable harm. I think the
response was, Oh, it's okay, you can argue your
position, but, unfortunately, our position is
compromised in the event of a termination.
And I'll quote from a DOJ filing
today, where DOJ said CIGNA's termination "gut"
Anthem's argument for expedited appellate review.
"Since CIGNA has already terminated the agreement,
expedited review and perhaps any appellate review" --
any appellate review -- "would be futile." So I don't
really think we can argue about the harm this is
discussing.
CIGNA says, Well, the harm isn't the
loss of the transaction because we're still available,
but there is no way to make progress on the
transaction if you don't have a merger agreement that
purports to still be in place. No one will talk with
you. Nobody will -- we can't negotiate divestitures
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
344
32
CHANCERY COURT REPORTERS
or approvals, and we may not be able to take an
appeal.
And counsel says, Well, look, this is
not painless. There's a cost. I don't dispute
there's a cost for all parties. That's the cost that
they undertook when they entered into an agreement
that, in fact, had an extension date for the asking,
unilaterally, through April 30.
And that became the cost also when
they chose to attack the merger instead of support it,
because under the terms of the agreement between these
sophisticated commercial parties, that breached it.
If you breach, you don't get to terminate. So we're
not asking them to do anything outside the agreement.
And it is indefinite. We don't
dispute it's indefinite. It's indefinite because
we're where we are, based on the conduct of CIGNA.
But having said that, as I said
before, nobody is looking to delay this. We're going
to try to get it through, which is going to create
enormous benefit for everyone. And if it doesn't get
through, we have the same interest as CIGNA has in
terminating.
And I'll tell you, we had I think it
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
345
33
CHANCERY COURT REPORTERS
was a $120 million commitment fee payment due on our
extension. Our financing only went through
January 31st. That's real dollars spent in support of
trying to clear a merger with a real belief that we
have an opportunity to do so. Companies don't
undertake extended financing commitment fees in the
nine figures lightly.
And we're certainly not trying to keep
CIGNA on ice. I don't know how CIGNA is on ice.
Maybe they have an equity repurchase interest that I
don't know about. But they're out competing and
trying to get more work and operating their businesses
and making various flowery and optimistic statements
into the marketplace about their abilities to continue
on in business.
And any ice that is involved in
remaining tied to the agreement that the parties
signed, it applies both ways. And, obviously, Anthem
isn't looking to put itself on ice either, which is
why we're moving diligently and tirelessly to get to a
result here.
The idea -- the conspiracy theory that
Anthem spent $520 million, including a $120 million
commitment fee, just to extend and is pursuing
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
346
34
CHANCERY COURT REPORTERS
settlement and appeal somehow to harm CIGNA really is
a little offensive. It also doesn't make any sense.
There is no harm attendant to efforts to continue to
clear the merger or to take an appeal. It's a little
bit fantasy, and there is no way that it actually
could be happening. There's no handicuffs at all.
So we think that this is a TRO that
doesn't hurt CIGNA, even with respect to the matters
that they've identified, because they say they'll come
right back. They'll come right back if we win at the
trial. But the problem is we'll have lost all the
time between now and then, because we have an
agreement that by all public accounts has been
terminated and not reinstated through our TRO.
And so talk about being on ice. The
progress of the deal is on ice. And there's no way,
then -- when we get to a hearing, if we win, you're
starting from scratch, but you've lost your appeal
right, potentially. The D.C. Circuit doesn't get to
play the game that we start and stop whenever we feel
like it because we can put the genie back in the
bottle. It's a public termination.
And CIGNA's statement that it didn't
make that to coincide at all with the motion to
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
347
35
CHANCERY COURT REPORTERS
expedite is at least a little suspect, given that we
only had to get through tomorrow before we could have
seen if we got an expedited motion before feeding the
DOJ juicy quotes for their opposition.
But at the end of the day, all we're
trying to do here -- we're not asking to require them
to sign over shares or sign stock certificates or
provide due diligence, which we'll need at some point
in order to divest assets, if a divestiture of assets
is required to remediate in order to get a settlement.
All we're saying now is the
termination is stayed, the invalid piece of paper that
got sent across the wire is stayed, and that CIGNA
can't interfere with our efforts to get it cleared, at
least through April 30th, pending Your Honor's
determination of the next step, trial or preliminary
injunction, however people want to proceed. Which, as
I said, maybe makes sense to do sometime before
April 30, by which time Your Honor will have more
record.
And, obviously, my friend over there
says the record indisputably is going to undermine me,
so that will help him. I'm not nearly as convinced.
I think that we have the ability to make progress, and
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
348
36
CHANCERY COURT REPORTERS
we'll be in a position to report into that over time.
So we believe we're entitled to a TRO,
and we would ask for it.
THE COURT: All right. Thank you both
for your eloquence.
MR. SAVITT: Your Honor, I apologize
for interrupting. If I may make a couple points. And
I will be still briefer than my good friend on the
other side.
THE COURT: Very quickly.
MR. SAVITT: One is to observe -- and
this is in Mr. Ross' letter -- but the matter of
breach, the short of it is that if there's been a
breach of obligation on Anthem's part, its right to
extend is terminated. That is a function of the
interplay of Section 6.3(b) and Section 7.1(b) of the
merger agreement.
As to this business about being on
ice, we have been, and as long as we're subject to the
merger agreement, are trying to comply with that. We
doubt Anthem is. It's not a trivial matter in the
least.
Conspiracy theory. Well, it only
takes -- you need two to conspire. So there is no
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
349
37
CHANCERY COURT REPORTERS
conspiracy theory. It's all Anthem. But what doesn't
make a lot of sense is that CIGNA would throw down --
would file a complaint and terminate if it didn't need
to escape the deal for legitimate purposes, if it
didn't need to invoke its rights for legitimate
purposes.
If it was as simple as waiting for
April 30th to come and go, then there's no reason we
wouldn't have done that. We couldn't do it because we
were being put in an impossible legal and business
position by the conduct of Anthem.
And as to the relief with respect to
not interfering with their efforts, no one is
interfering with their efforts. It's not even
alleged. The question of whether it's an invalid
piece of paper, that's not a fit subject for a TRO or
preliminary injunctive, frankly. It's essentially
final relief in the case and requires a trial.
I apologize, Your Honor, and I
appreciate the indulgence.
THE COURT: All right. Thank you.
I'm going to go ahead and give you all
my ruling now. I am granting the TRO. Here's my
reasoning.
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
350
38
CHANCERY COURT REPORTERS
I won't go into the details of the
situation that the parties have presented except to
say that Anthem and CIGNA are parties to a detailed
merger agreement. There has been an injunction issued
by the District Court of the District of Columbia
blocking the merger.
Anthem desires avidly to appeal that
injunction. It has argued, and I think it has the
better reading of the merger agreement on this point,
that CIGNA is required to support it in its appeal.
Notwithstanding that fact, CIGNA has
issued a termination notice purporting to terminate
the agreement and has filed a lawsuit seeking to
establish that it complied with its obligations and
that Anthem, in fact, breached its obligations under
the agreement.
We are technically here on Anthem's
countersuit which seeks, in the first instance, to
hold CIGNA to its agreement and, in the second
instance, should that not be possible, to recover
damages.
The relief that is sought today is a
temporary restraining order that would preserve the
status quo so that this case can be litigated and this
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
351
39
CHANCERY COURT REPORTERS
Court can indeed grant final relief, if appropriate,
enforcing the merger agreement through a decree of
specific performance.
It is also a TRO that is designed to
preserve the status quo pending April 30, 2017, which
is the drop-dead date for the merger agreement,
assuming that neither party establishes a breach that
would prevent the other party from terminating as of
April 30th.
A status quo order that would keep the
merger agreement in place pending that date is
critically important because, otherwise, without that
type of temporary restraining order, CIGNA can claim,
as it has, to have terminated the merger agreement.
That obviously has real-world
consequences, notwithstanding the suggestion by
CIGNA's counsel to the contrary. One of those
real-world consequences is that if the merger
agreement is terminated, then the injunction issued by
the District Court is arguably moot. That, in turn,
would prevent the Court of Appeals for the District of
Columbia from reviewing that injunction.
I can tell you, as a trial judge, that
while it seems highly likely, having read the District
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
352
40
CHANCERY COURT REPORTERS
Court's opinion, that the government has the strong
hand going into that appeal, I have been reversed on
many occasions where I had thought I had gotten it
right, and so it is certainly possible that the Court
of Appeals could reverse that decision and result in
the elimination of an impediment to the closing.
It's also possible that with the
merger agreement still in place, impediments to the
closing could be addressed through other ways.
Mr. Kurtz has cited several of them.
This brings us to the analysis of the
TRO application. It requires, in the first instance,
a colorable claim. It requires, in the second
instance, a showing of irreparable harm. And then the
Court, as it always must, has to take into account the
balancing of the hardships.
CIGNA's counsel starts from the
proposition that this is an extraordinary remedy. It
is an extraordinary remedy but in the sense of a
non-ordinary remedy. It is an out-of-the-ordinary
remedy. It is not an extraordinary remedy in the
sense of "The League of Extraordinary Gentlemen" or
extraordinary superpowers or things that a Court just
never does.
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
353
41
CHANCERY COURT REPORTERS
It is out of the ordinary in the sense
that cases normally do not proceed at an expedited
pace and normally do not involve preliminary
injunctive relief, whether as a temporary restraining
order or otherwise, to preserve the status quo. We
normally proceed in a nonexpedited fashion to a trial.
So in that sense and only that sense is preliminary
injunctive relief extraordinary.
But preliminary injunctive relief
including a TRO is quite common, particularly in this
Court, which deals with a lot of similar and, using
the word in the same sense, extraordinary situations
where it is necessary to preserve the status quo so
that effective legal relief can be granted.
This is an extraordinary transaction.
And I say that not in the sense of whether I believe
it's a great deal, as Mr. Kurtz cleverly put it, but
in the sense that it is an out-of-the-ordinary
transaction. It is quite large. It involves two
major companies. It is quite detailed. It is the
type of thing that, while it is in place, creates a
very different state of play than if it is purportedly
terminated.
Preliminary injunctive relief of the
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
354
42
CHANCERY COURT REPORTERS
TRO variety or the preliminary injunction variety also
becomes less extraordinary where, as here, the parties
have agreed to its availability by stipulating in the
merger agreement that irreparable harm will arise from
breach.
If parties don't want that, don't put
it in your merger agreement. If you want to be able
to come in later and say that there's no irreparable
harm, don't agree in your merger agreement that there
is irreparable harm. It's credibility impairing to
say that there's no irreparable harm when there is a
provision in the agreement where you stipulated that
there is irreparable harm.
So in terms of the TRO standard, the
first question is whether a colorable claim has been
asserted. As I see it, the first aspect of the
colorable claim is whether the merger agreement
remains in existence as of now but for the termination
because of the extension of the drop-dead date through
April 30, 2017.
In my view, Anthem's arguments on that
are not only colorable but are, at least on a
preliminary basis, more persuasive.
The termination date provision gives
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
355
43
CHANCERY COURT REPORTERS
Anthem the right to extend to April 30th not only if
the conditions to closing are satisfied as of that
date but if they are capable of being satisfied.
What CIGNA would like to say is that
Anthem had already breached as of the time when the
time for extension came and therefore could not
exercise its extension right. There are several
problems with that argument.
The first is that CIGNA's claims of
breach themselves have to be proven. It is not
established. And Anthem has countered that, in fact,
it did not breach and that it did what it was supposed
to do under the merger agreement. That is contested.
The second is that it is colorable for
purposes of today that Anthem could establish that if
it had failed to or was not then able to satisfy one
of the conditions, that it was capable of satisfying
the conditions by April 30, 2017. It's not clear to
me that because of that language, an actual breach
would prevent you from exercising your extension right
to April 30 if that breach, to the extent it existed,
was curable.
There's a third reason why I think
Anthem has the better of the argument on the
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
356
44
CHANCERY COURT REPORTERS
extension, and that's the dialogue with the District
Court in the District of Columbia about the timing of
the merger agreement and how long it would be in
place. Nowhere in that dialogue is there any
indication of CIGNA taking the position that it's
taking now about the extension right not being able to
be exercised. To the contrary, CIGNA appeared to be
on all fours with Anthem and with the District Court
in believing that the drop-dead date had been extended
and was then April 30, 2017.
What that means, then, is that this
agreement, but for CIGNA's purported termination,
remains in place. And CIGNA's purported termination
is a change in the status quo that has consequences
for Anthem.
As I see it, Anthem has more than
cleared the low hurdle for a colorable claim in terms
of the agreement remaining in effect. It remains in
effect subject to the District Court's order enjoining
the parties from proceeding, but that is the current
state of play, a binding merger agreement that the
parties are not allowed to proceed with because of the
District Court's order. That is a very different
state of play from what CIGNA would like to achieve,
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
357
45
CHANCERY COURT REPORTERS
which is a terminated merger agreement that moots the
District Court's order and the prospect of any appeal.
The second claim that I think is in
play in this case is whether, because of the
allegations of breach, the merger agreement can remain
in place after April 30, 2017. That possibility
arises because if a party has breached, then a party
cannot exercise its termination right.
I don't think I have to express any
view on that today because the question for me today
is whether I preserve the status quo through a TRO
pending a preliminary injunction hearing later, when
we can determine whether the status quo should be
continued.
I think in connection with the later
preliminary injunction hearing, we will have to deal
with the arguments about which sides breached -- maybe
both sides breached -- and what the consequences of
that are for an April 30th termination. But I think
for purposes of today, the fact that the merger
agreement would be in place but for CIGNA's attempt to
terminate is enough to establish a colorable claim.
I then get to the issue of irreparable
harm. And this is the one where I find that CIGNA's
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
358
46
CHANCERY COURT REPORTERS
eloquent arguments are somewhat astounding.
Clearly, the loss of a major
transaction is irreparable harm. If Anthem is in a
position to close this deal or otherwise hold CIGNA to
the merger agreement, it is in a very different
position than if the agreement is terminated. Those
two states of the universe are literally universes
apart. They're fundamentally different.
Second, in terms of irreparable harm,
not only is the deal potentially lost, but the
opportunity to pursue things in the interim, such as
the appeal, such as potential alternatives to
regulatory approval, are also lost.
CIGNA's counsel took the strong
position that he thought it was certain as the day is
long that it would be impossible for Anthem to achieve
regulatory approval. This is a year in which we've
seen the Cavaliers come back from a 3-1 deficit for
the first time in NBA history. This is a year where
we've seen the Cubs come back from a 3-1 deficit to
win their first World Series in over a century. This
is a year where we've seen the Patriots come back from
a 28-3 deficit to win the Super Bowl for the first
time in overtime. This is a year where the new
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
359
47
CHANCERY COURT REPORTERS
Administration that Mr. Kurtz wants to deal with was
not predicted by virtually any political pundit to be
the Administration that Mr. Kurtz would be dealing
with. I don't think that, given that, this is the
year in which someone can reasonably posit and be
certain as the day is long that there is no chance for
this merger to get approved.
Yeah, there might be no chance for it
to get approved in a traditional fashion, but there
are untraditional things that are available, and
Mr. Kurtz has identified some routes short of a
full-blown appeal followed by state-by-state approval
that he thinks theoretically could get him there.
At least for purposes of today, I am
not going to deny relief and allow the status quo to
be fundamentally changed based on overconfidence about
what is certain not to happen.
We, finally, get to the balancing of
the hardships on this issue. I think it's
foreshadowed by my analysis of the irreparable harm.
If no TRO issues, then CIGNA gets to claim that the
merger agreement is terminated, and any ability to go
forward with the transaction is lost.
By contrast, if the status quo is
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
360
48
CHANCERY COURT REPORTERS
maintained, then that is all that happens. The status
quo is maintained. The agreement remains in place.
The parties continue to comply with it. They're still
in a situation where they have a binding merger
agreement that they have been enjoined from proceeding
with. Anthem can pursue its appeal. And CIGNA simply
has to live by the agreements that it voluntarily
undertook when it signed up the transaction.
So for all these reasons, I'm granting
the TRO.
I think what you all need to target is
a preliminary injunction hearing during the week of
April 10th. At that preliminary injunction hearing, I
would be inclined to consider not only the question of
whether Anthem validly extended in January, which is
what I've given you a preliminary and tentative view
on today, but also the question of whether there was a
sufficient basis to believe that a breach occurred and
that the breach was by CIGNA such that the merger
agreement would need to stay in place beyond
April 30th.
And then we can go from there as to
what proceedings we need from that point on in terms
of a trial for specific performance or damages or
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
361
49
CHANCERY COURT REPORTERS
whatever has to happen.
Now, let me give you a couple caveats.
Nothing I say today presages how I view the case as a
whole. I've obviously ruled in favor of Anthem. I've
obviously expressed some skepticism about some of the
arguments that CIGNA has advanced, particularly on the
absence of irreparable harm, when we're talking about
an agreement governing a front-page Wall Street
Journal headline deal that contains an irreparable
harm provision.
Yeah, I'm skeptical that there's no
irreparable harm from the loss of that, and I'm
surprised that that argument was made, but that
doesn't translate into the idea that Anthem wins the
case. It means that for purposes of today, they have
cleared the relatively lenient standard for a TRO,
which requires only a colorable claim and a threat of
irreparable harm and the balancing of hardships, to
maintain the status quo pending further proceedings.
Certainly, once there is a more
developed record in terms of a preliminary injunction,
things could be different. And when we ultimately get
to the merits in terms of deciding what actually has
happened, things could be very different.
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
362
50
CHANCERY COURT REPORTERS
I also will say that in terms of the
form of temporary restraining order that I'm granting,
I am striking the words that appear in the single
sentence from "or" to the end.
So, in other words, I am enjoining
CIGNA from terminating the merger agreement. I am not
going further than that. Because once I have enjoined
CIGNA from terminating the merger agreement, CIGNA is
bound by the provisions under the merger agreement.
So is Anthem.
But for purposes of any additional
restriction on taking any action to prevent or impede
regulatory approval on consummation of the merger, the
actions that CIGNA is expected to take, is obligated
to take, and the things it's obligated not to do, are
set forth in the merger agreement. By keeping the
merger agreement in place, those restrictions stay in
place.
I'm not going to substitute for what
sophisticated parties agreed to. I'm not going to
replace that with whatever this is, a dozen words.
You all are going to have to stick with what your
sophisticated deal lawyers worked out for you in terms
of the obligations relating to transactional approval
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
363
51
CHANCERY COURT REPORTERS
and regulatory approval.
All right. I've talked almost as long
as you all did, for which I apologize.
Mr. Kurtz, you were the movant. What
questions do you have?
MR. KURTZ: I have no questions, Your
Honor. And we appreciate your immediate attention.
THE COURT: All right.
Mr. Savitt, what questions do you
have?
MR. SAVITT: No questions, Your Honor.
Thank you.
THE COURT: All right. I will sign
the order in the form that I've suggested, and you all
can go from there in terms of pursuing what other
issues you want to pursue.
Thank you, everyone.
(Conference adjourned at 5:08 p.m.)
- - -
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
364
52
CHANCERY COURT REPORTERS
CERTIFICATE
I, JEANNE CAHILL, RDR, CRR, Official
Court Reporter for the Court of Chancery of the State
of Delaware, do hereby certify that the foregoing
pages numbered 3 through 51 contain a true and correct
transcription of the proceedings as stenographically
reported by me at the hearing in the above cause
before the Vice Chancellor of the State of Delaware,
on the date therein indicated.
IN WITNESS WHEREOF I have hereunto set
my hand at Wilmington, Delaware, this 15th day of
February, 2017.
/s/ Jeanne Cahill
----------------------------
Jeanne Cahill, RDR, CRR
Official Chancery Court Reporter
Registered Diplomate Reporter
Certified Realtime Reporter
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
365
top related