Washington – The hostilities between proposed merger partners Anthem and Cigna was on full display Tuesday at a key point of a U.S. antitrust trial over the deal.
U.S. District Judge Amy Berman Jackson intently questioned lawyers representing the Justice Department and Anthem after about two weeks of trial testimony on Tuesday. Before wrapping up the first phase of the trial, Jackson asked Cigna attorney Rick Rule why he did not sign on to Anthem’s summary documents.
The voluminous concluding documents, filed by each side, constitute the final pitches Anthem and the DOJ make to the judge in the case. Rule said the company did not sign because it did not agree with Anthem’s characterizations of the testimony of certain Cigna witnesses.
Rule said he “would also take issue” with Anthem’s description of its friction with Cigna over the merger as clashes between two CEO’s that did not impact efforts to integrate the companies.
“It’s not just CEOs,” Rule said. Differences between the insurers extended to managers, members of the board and others in the company, the Cigna attorney told Jackson.
At issue in the first phase of the merger trial is whether the deal will hurt competition in the “national account” market, the big employer plans that cover workers in more than one state.
DOJ Attorney Jon Jacobs said the merger would result in rising prices and poorer service for Anthem and Cigna policyholders and others who rely on employment-linked health plans.
The DOJ also said animosity between Anthem and Cigna is evidence the companies would not be able to successfully merger and bring about the efficiencies they promised. Court documents indicate Cigna stopped cooperating with Anthem on the merger after the DOJ filed its lawsuit in July to block it.
Jackson questioned how Anthem could say the rift did not impact progress on the merger if work had stopped.
Anthem attorney Christopher Curran responded that by that time “most of the work had been achieved.” He also said the new company would have a new board of directors who would make sure the merged insurer would run smoothly.
“It’s not uncommon when companies are merging that there would be some contentiousness, he said.
If the merger does not go through, the merger agreement provides that Anthem will owe Cigna a $1.85 billion breakup fee.
Curran argued the DOJ had defined national accounts too narrowly, as companies that had 5,000 or more employees instead of 3,000 or fewer. That meant the impact of the merger was assessed on only about 800 companies, too small a sample, Curran said.
He also said DOJ economists failed to take into consideration dozens of small and regional companies when they say the merger would result in too much consolidation.
DOJ Attorney Jon Jacobs argued the merger would leave only three major insurers providing group policies for big companies, the other two being Aetna and United Healthcare. He called the other companies Anthem said could be potential competitors “negligible” when it came to market share and “insignificant.”
Jackson pressed that point.
“The question is: ‘Are they significant players in the national account market?’” she asked Curran.
The Anthem attorney said antitrust law allows considering “realistic current competitors and potential future competitors” as proof against too much consolidation.
Curran also said the merger’s “efficiencies will outweigh any alleged competitive harm” that might push premiums up.
Curran also told Jackson that “slice business, in which large and midsize employers offer multiple plans to their employees, is putting more and more competition in the large employer market.
He also said that Anthem would continue to compete with, and be allied to, the other individual Blue Cross/Blue Shield companies that operate outside the 14 states where Anthem currently has a presence.
Jackson was sometimes skeptical of Anthem’s analysis, saying at one point of the insurer’s interpretation of some economic data, “I felt it was a little insulting.”
During the trial, Anthem argued that a merger would create a company that had both Anthem’s lower average premiums and Cigna’s wider array of services, including wellness programs.
“You will be getting the Anthem product at the Anthem price and the Cigna product at the Anthem price,” Curran said.
Jacobs disagreed.
“You wouldn’t end up with the best of both worlds, you’d end up with Anthem’s world.
Jacobs also disputed the argument that the companies needed to merge because they had “flattened,” pointing to Cigna’s projections that 2017 will be its best year in business.
He said the merger could only hurt the insurers.
“I know the fact that the companies aren’t talking to each other will have an enormous impact on revenue,” he said.
The second phase of the trial will begin Wednesday. In it, the government will try to prove the merger will dramatically decrease competition in dozens of local markets and several states, including Connecticut.
Meanwhile, in a different courtroom in the same federal courthouse, Aetna began its defense of a DOJ lawsuit against its proposed merger with Humana.
Humana CEO Bruce Broussard took the stand Tuesday to press the main argument the insurers are using to undercut the DOJ’s argument that the Medicare Advantage market would dramatically shrink, hurting seniors.
“Our largest competitor is Medicare fee-for-service,” he said.
The DOJ argues that fee-for-service Medicare, or regular Medicare, is a different market.