Updated at 2 p.m. with Anthem’s decision to appeal.
Washington – Anthem’s $54 billion merger deal with Cigna is considered to be on life support after a federal appeals court ruled last week it violated antitrust law. But on Friday, Anthem said it is appealing that decision to the U.S. Supreme Court.
Anthem said the U.S. Circuit Court of Appeals’ 2-1 split decision gave it standing to appeal.
“As Judge (John) Kavanaugh concluded in his dissent, “The record evidence decisively demonstrates that this merger would be beneficial to the employer-customers who obtain insurance services from Anthem and Cigna,” the Indianapolis-based insurer said in a statement.
The U.S. Circuit Court of Appeals for the District of Columbia dismissed Anthem’s argument that $2 billion in medical cost savings that would result from its pairing with Cigna would more than make up for any loss of competition because of the merger.
But Anthem said the Supreme Court should consider that “1960s-era merger precedents relied upon by the courts below must be updated to reflect the modern understanding of economics and consumer benefit.”
Analysts say there’s a slim chance the Supreme Court will hear the case.
Anthem is battling on another front, too, with a lawsuit that’s scheduled for a hearing in a Delaware court Monday.
Anthem has spent hundreds of millions of dollars on its merger attempt with Cigna, but much more is at stake in a breakup of the deal. Under its merger agreement with the Bloomfield-based insurer, Anthem must pay Cigna a $1.85 billion fee if the deal isn’t completed, and Cigna is suing for nearly $14 billion in additional damages.
A Delaware chancery court granted Anthem an injunction preventing termination of the deal after Cigna sued in that same court to free itself from its merger partner and collect the breakup fee and damages.
On Monday, the chancery court will hold a hearing on the injunction in what may be the first step in a court trial that antitrust lawyer David Balto predicted “will be more fun than watching an episode of [the television melodrama] Dallas.”
Fiona Scott Morton, a Yale economics professor and former deputy assistant attorney general in the Justice Department’s antitrust division, predicted the trial would be unique – and contentious.
There’s plenty of acrimony between the insurers. It was on display in the first federal court hearing in the lawsuit the Justice Department brought to stop the merger.
“Cigna stood up and contested what Anthem was saying; that’s kind of rare,” Scott Morton said.
The Justice Department used the friction between the insurers as part of its argument that the merger would never work in the way Anthem said it would. In the end, the District Court for the District of Columbia determined the marriage would restrict competition and result in higher premiums and poorer heath care. A federal appeals court agreed.
The lawsuit Cigna filed in the chancery court peels back the curtain on the disintegrating relationship between the insurers during the nearly two-year effort to merge. What began as a mutually agreed-upon merger morphed in such a way that it looked more like a hostile takeover.
Cigna’s 51-page suit charged that Anthem “put its own interests ahead of its contractual obligations” and acted “with the intent to harm Cigna’s business.”
Cigna said Anthem, a Blue Cross/Blue Shield company, never intended to fulfill its promises in the merger agreement. It said Anthem wanted to avoid fines for violating Blue Cross/Blue Shield guidelines with 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,” Cigna said.
Cigna also accused Anthem of using the legal proceedings to ferret out confidential data and information about Cigna’s customers.
In its countersuit, Anthem accused Cigna of sabotaging the merger.
“Rather than working to unlock shareholder value, Cigna’s Chief Executive Officer, David Cordani, and Cigna’s Board of Directors tied their support of a merger to their own entrenchment,” Anthem’s lawsuit says.
Anthem said Cigna refused to negotiate unless, among other demands, Cordani was appointed CEO of the combined company and Cigna was given an equal number of seats on the board of the combined company.
Since they did not get their way, Anthem said, senior management and board members at Cigna instead “dedicated their efforts to sabotaging the merger in order to preserve their employment positions and capture the $1.85 billion reverse termination fee.”
Meanwhile, the bickering insurers remain legally tied even though the contractual deadline for ending the deal, April 30, has passed.
Neither Anthem nor Cigna would comment for this story.
Anthem not stopping
Balto, who was once an antitrust attorney for the Justice Department and led a coalition of consumer medical and consumer groups opposed to the Anthem-Cigna merger, has compared Anthem’s chances of having the Supreme Court review the antitrust suit to “landing a hole in one on Mars.”
But Anthem held that possibility open in a statement last week after the U.S. Circuit Court of Appeals upheld the lower-court ruling blocking the merger.
“We are committed to completing the transaction and are currently reviewing the opinion and will carefully evaluate our options,” Anthem said.
“Anthem is not stopping,” Balto said.
Ted Frech, an economics professor at the University of California, Santa Barbara, said it makes sense for Anthem to appeal to the Supreme Court.
“It’s pretty cheap, considering what’s at stake,” said Frech, who is an expert in health care economics and antitrust law.
But like Balto, Frech said the chances the Supreme Court would hear an Anthem appeal and overturn the lower-court decisions “are slim.”
Although the Justice Department won decisively in its attempt to block the Anthem-Cigna merger and another proposed tie-up between Aetna and Humana, Frech said “there could well be more mergers” in the health insurance industry.
But he said those deals probably will involve major insurers “vacuuming up” smaller, regional players like Centene, Molina and Harvard Pilgrim.
Balto, however, said there still may be attempts by the “big four” health insurers — Anthem, Cigna, UnitedHealthcare and Aetna — to merge with each other or with Humana. In its antitrust suit court filings, Cigna indicated it had wanted to merge with Humana.