The federal appeals court has ruled against Anthem in its bid to buy Cigna for $54 billion.
The 2-1 decision handed up Friday was based on the opinion that the merger would substantially reduce competition in the 14-state national accounts market and the large-group-employer market in Richmond, Virginia.
The district court, which ruled against the merger in February, did not err in its findings that the merger would have anticompetitive effects in the Richmond market, according to the majority opinion.
"Accordingly, we affirm the issuance of the permanent injunction on alternative and independent grounds," Federal Circuit Court Justices John Rogers and Patricia Millett said.
Also the district court determined Anthem failed to show the kind of "extraordinary efficiencies" that would be needed to constrain likely price increases in this highly concentrated market, and to mitigate the threatened loss of innovation, they said.
Circuit Court Judge Brett Kavanaugh dissented saying cost savings would be passed on to consumers. He recommended the case be remanded back to the District Court to decide the merger's effect on hospitals and doctors.
"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 require District 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."
Using claims data from Anthem and Cigna, defense expert Mark Israel calculated that the merger would generate $2.4 billion in medical cost savings through improved discount rates, 98 percent of which he predicted would be passed through to customers, the court said. Of the $2.4 billion in claimed savings, Israel projected that $1.5 billion would result from Cigna customers accessing Anthem's lower rates, while $874.6 million would result from Anthem customers accessing Cigna's lower rates.
However, the majority held that the economies of lower rates cannot be used as a defense to illegality.
"The crux of Anthem's argument regarding merger specificity is the theory that the combined company will allow Anthem to create a 'new product' that is "unavailable on the market today," the majority said. But Anthem Senior Vice President Dennis Matheis said in the short term, rebranding would simply involve Anthem offering Cigna customers Anthem products, they said.
The American Medical Association applauded the decision and had submitted an amicus brief to the appellate court in support of preserving the merger injunction.
"As the AMA has long observed, and as the trial court found, this merger would harm patients because it would likely lead to higher premiums, eliminate the existing head-to-head competition between Anthem and Cigna, reduce the number of national carriers from four to three, and diminish innovation," the AMA said.
"The appellate court sent a clear message to the health insurance industry: a merger that smothers competition and choice, raises premiums and reduces quality and innovation is inherently harmful to patients and physicians," said AMA President Andrew W. Gurman, MD.