First Health Insurance Trial Teed Up Monday

Lawyers for Anthem Inc. (ANTM) on Monday are planning to argue that the company's $54.2 billion acquisition of Cigna Corp. (CI)--the largest-ever merger in the healthcare industry-will bring sweeping benefits to employers and individuals who buy health insurance coverage.

Anthem is defending the merger from a challenge brought by the U.S. Department of Justice in July. The trial and final argument, which are scheduled to run through the first week of January, begin Monday, Nov. 21.

In pre-trial briefs, Anthem's legal team called the case against the merger, also joined by attorneys general from eleven states, an "extraordinary action" in which the federal and state officials are, "according to their own allegations, seeking to deprive American consumers of lower healthcare costs." Anthem noted that the DOJ's lawsuit against the merger accepts that the merger will reduce the reimbursement rates paid to healthcare providers and that those lower rates will be passed on to the overwhelming majority of large employers that provide coverage to employees through self-insured plans that require insurance companies to provide only claim processing and other administrative services.

Anthem is being represented by White & Case partners Christopher Curran, Mark Gidley, George Paul and Noah Brumfield and counsel Matthew Leddicotte.

The suit against Anthem and Cigna alleges that the merger would substantially reduce competition for millions of consumers who receive commercial health insurance coverage from national employers throughout the United States; from large-group employers in at least 35 metropolitan areas, including New York, Los Angeles, San Francisco, Denver, and Indianapolis; and from public exchanges created by the Affordable Care Act in St. Louis and Denver.

Judge Amy Berman Jackson of the U.S. District Court in Washington has split the trial into two segments. The question of whether the merger would hurt employers that buy insurance for their employees on a national basis will be addressed first in testimony that will run through Dec. 2. After a week hiatus Berman will resume proceedings to examine whether the merger harms the local markets identified in the DOJ's complaint.

Jackson could hand the Justice Department a quick victory if she finds adequate harm to the national market to enjoin the merger, making the second half of the trial moot.

Anthem CEO Joseph Swedish acknowledge that a fast decision from Jackson on the national market claim would doom the merger. "If the judge decides in our favor on the National Account issue, we will then move forward and try the other two remaining issues," he told analyst during the company's Q3 earnings call Nov. 2.

If the deal fails to win regulatory approval by April 30, 2017 Anthem must pay Cigna a $1.85 billion reverse breakup fee.

The challenge is one of two major health insurance mergers the DOJ is seeking to block. On the same day the suit against the Cigna deal was filed, the Justice Department also sued to stop Aetna Inc.'s (AET) proposed $37 billion acquisition of Humana Inc. (HUM). The trial in the Humana case begins Dec. 5 before U.S. District Judge John Bates. That case is scheduled to run through Dec. 21.

In its pretrial brief submitted Nov. 10 Anthem said the DOJ wrongly claims the merger will harm companies that buy employee insurance coverage on a national basis. The government's apparent claim that national accounts may only be served by insurers having a nationwide network of healthcare providers is "unsupportable," the company said.

Employers that purchase insurance in such a manner have other options, Anthem said, including using regional and local insurers, contracting for service from vertically integrated hospital systems and using third-party administrators and multicarrier private exchanges. Anthem also noted that it is not truly the kind of national provider that DOJ claims because Anthem directly sells commercial insurance in only 14 states and rents the networks of other Blue Cross Blue Shield Association members across the country.

"Other regional insurers similarly piece together rental networks in parts of the country," Anthem said. "By including Anthem as an alternative for 'national accounts' seeking a nationwide network, the complaint unwittingly acknowledges that 'national accounts' have available solutions well beyond insurers that own nationwide networks."

Because Anthem is really a regional insurer with access to the Blues' nationwide network, the company said the DOJ also has improperly defined the geographic market affected by the merger and wrongly presumed that the combined Anthem-Cigna will have power to raise prices.

Because Anthem and Cigna are not each other's closest competitor, any "decrease in competition from the absence of direct rivalry between the two firm will be small and easily offset by the massive efficiencies that will be passed on to consumers," Anthem said.

For its part, the DOJ stressed in its brief that unprovable predictions about the merger's efficiencies are not enough to let the deal occur. "Courts are extremely cautious when evaluating these arguments," the DOJ said. Besides needing efficiencies to be merger-specific and verifiable, the DOJ noted that the federal courts have accepted the defense only in cases where the combined company is so efficient that the merger actually increases competition.