Washington – In its showdown next week with Anthem over a planned merger with Cigna, the Justice Department will make Bloomfield-based Cigna’s unique business model a key part of its argument aimed at swaying an appellate court to reject the $54 billion deal.
Anthem was blocked from merging with Cigna by a federal court in Washington, D.C., last month.
Cigna wanted to end pursuit of the deal, asking a chancery court in Delaware to end the merger agreement and require Anthem to pay a $1.85 billion “breakup fee” and an additional $13 billion in damages. But Anthem is fighting to complete the merger, leading an appeal to the federal antitrust lawsuit that blocked it.
The lower court determined that the merger, which would shrink the number of large health insurers from four to three, is anticompetitive, reducing choices in the large employer group market.
In its appeal, Anthem says $2.4 billion in medical cost savings resulting from the proposed merger would be passed along to employers and their employees, and those savings “should be considered and weighed against any anticompetitive effect from the loss of the rivalry between the two companies.”
The Justice Department will argue that the only way that savings could occur is through the clout the merged company would have in the marketplace to reduce payments to doctors, hospitals and other health care providers – hurting the way Cigna does business.
Joined by Connecticut, the District of Columbia and 11 other states, the Justice Department’s brief says Cigna uses a “value-based” care arrangement that, unlike Anthem’s traditional fee-for-service model, rewards providers for achieving health-outcome targets.
Services offered under these programs include free health screenings, making nurses available to patients to explain health issues and how best to manage them, and tracking information such as whether patients are refilling prescriptions.
“Cigna offers better and more complete data on patients, which providers consider necessary to develop collaborative care options that lower costs and improve health outcomes,” the brief says. “As Cigna’s CEO David Cordani explained, healthcare costs have been rising, so the right approach to controlling costs ‘could not be limited to lowering the cost of care when a patient got sick—the effort had to be refocused on encouraging and sustaining health.’”
University of Connecticut law professor John Aloysius Cogan Jr., a former state insurance regulator in Rhode Island, said, “There are some people for whom the extra attention pays off.”
Among those, he said are asthmatic and elderly patients who do not comply with their prescription regimen.
The Justice Department said Cigna’s approach works so well the insurer’s customers “have the lowest medical-cost trend among the big insurers.”
In oral arguments scheduled for March 24 in the U.S. Court of Appeals for the District of Columbia, the Justice Department will argue that Anthem never explained how it would be able to build or maintain collaborative arrangements with providers — which it would need to offer Cigna’s customer-facing programs — while at the same time pressuring providers for lower rates.
The lower court found that the merger “will inhibit Cigna’s incentive to innovate,” because the insurer’s relationship with providers, “relationships that are fundamental to Cigna’s capacity to innovate,” would erode if Anthem applied its provider rates to Cigna patients.
Cogan said if Cigna has the data that shows their approach works, and the Justice Department can prove Anthem is not going to allow its partner to continue to follow it, Anthem would have a hard time proving its case.
During the lower court trial, Anthem CEO Joseph Swedish denied his company would “drop the hammer” on Cigna providers.
“Anthem can say anything they want now, but after the merger there’s nothing to compel them to allow Cigna to follow its model,” Cogan said.
Unless, however, there’s a settlement between Anthem and the Justice Department that requires Anthem to give Cigna a guarantee of some autonomy, he said.
Meanwhile, the key argument on trial next week will be whether the merger would save any money and whether those savings would end up doing more harm to consumers.
The Justice Department will fight Anthem’s claims the merger will result in $2.4 billion in lower medical costs.
“At the end of the day, the $2.4 billion in medical cost savings are purely aspirational and cannot justify the proposed merger,” the government’s brief said.
Connecticut Assistant Attorney General Rachel Davis and Califormia Deputy Attorney General Paula Lauren Gibson will assist the Justice Department in the effort to knock down Anthem’s appeal.