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February 27, 2017

Anthem's pursuit of Cigna still in play, but faces huge hurdles

Anthem’s effort to merge with Cigna, which seemed to end with a huge thud when a federal court ruled the $54 billion deal is anti-competitive, may have been given new life – but the odds are long, and Connecticut could stand in the way.

One sign the mega-deal is not dead is that a federal appeals court approved Anthem’s request for an expedited appeal of federal Judge Amy Berman Jackson’s ruling that the merger would make it more difficult for large national employers to get competitive rates for health insurance.

Analysts also say that a change from an Obama Justice Department – which sued to block the merger last summer – to a Trump Justice Department gives the insurers another chance to make their case.

In fact, Anthem attorneys said company officials are hoping new lawyers brought into the Justice Department by the Trump administration will have a different view of the deal’s effect on competition.

Right now it’s a tale of two courthouses – the U.S. Circuit Court in Washington, D.C., where the antitrust case is being heard, and a state chancery court in Wilmington, Del., where Anthem and Cigna are trading accusations that the other sabotaged the merger, and Cigna is arguing that it is impossible for Anthem to clear all legal hurdles before its merger agreement with Cigna runs out on April 30.

Oral arguments for Anthem’s antitrust appeal in federal court are set for March 24.

The health insurer’s job will be to convince the appeals court that the lower court made a mistake.

Spokeswoman Jill Belcher said Anthem will continue to work to complete the merger as it “would positively impact the health and well-being of millions of Americans – saving them more than $2 billion in medical costs annually.”

“Anthem has been a leader in providing individuals with access to high quality, affordable healthcare,” Belcher said. “Our decision to acquire Cigna is grounded in our commitment to this goal and to leading our industry during this period of dynamic change.”

Professor Thomas Greaney, co-director of the Center for Health Law Studies at St. Louis University School of Law, said convincing the appeals court that the lower court erred will be tough, because “it wrote a pretty good opinion.”

Antitrust attorney David Balto, who advised a coalition of consumer groups and health provider associations who opposed the merger, agreed. “The Justice Department had a strong case, and Judge Jackson wrote an impressive decision,” he said.

Yet some analyst are pointing to a Microsoft antitrust case. After the Clinton Justice Department won a lawsuit that accused the company of abusing its power in the software business, Microsoft was saved from being split in half by a federal appeals court decision handed down early in the George W. Bush administration.

Vice President Mike Pence supported the merger as governor of Indiana and may want a favorable outcome for Anthem, which is based in his home state. Indiana insurance regulators were the first to approve the deal in May.

In addition, a top contender to head the Justice Department’s Antitrust Division is a former lobbyist for Anthem who worked on the merger, Makan Delrahim. He deregistered as a lobbyist for the insurer in December.

“Mr. Delrahim has not been involved in any merger-related activities since he deregistered as a lobbyist last year,” Anthem’s Belcher said.

Greaney said the Trump administration “might just say ‘we disagree with the court and the efficiencies are just great’.”

But the law professor also said there are huge hurdles to a favorable outcome for Anthem, whose merger partner Cigna is suing to get out of the deal and win billions of dollars in damages from Anthem.

A settlement between Anthem and the Trump Justice Department is possible, but unlikely, Greaney said, because the insurers aren’t able to make divestitures that would make their union less of a threat to competition in the market.

“It’s not like you can create a new national account insurance company to compete with,” Greaney said.

Anthem and Cigna, along with United Healthcare and some Blue Cross/Blue Shield companies, have been invited to the White House to meet with President Donald Trump on Monday. Cigna CEO David Cordani confirmed he will attend.

Connecticut could stand in the way

Even if the Justice Department has a change of heart about the merger, the state of Connecticut could stand in Anthem and Cigna’s way.

The attorneys general of Connecticut and California are leading a group of 11 states and the District of Columbia as co-plaintiffs with the Justice Department in the lawsuit to block the merger.

“Even if Trump and company fall in line, I just don’t think the states will fall in line. They could essentially block the merger,” said John Aloysius Cogan Jr., a University of Connecticut law professor who specializes in health care law.

One, some or all of the states and the District of Columbia could continue to litigate. In addition, every state has its own antitrust laws and they could conceivably block the merger in their states, forcing Anthem and Cigna to remain independent companies in those states, said Cogan, a former insurance regulator in Rhode Island.

The office of Connecticut Attorney General George Jepsen declined comment on what Connecticut would do.

Then there’s the tricky timeline.

With the clock ticking toward the April 30 deadline for the merger agreement to expire and an April 10 court date set by the chancery court to hear Cigna’s suit to break away from Anthem, time is short.

“It’s very unclear what the Delaware court will do in April when the case is still going on in the D.C. court,” Greaney said. “And there’s always the possibility the D.C. circuit may not issue a decision but kick the case back to the lower court to answer other questions.”

Another obstacle to getting the merger approved on time is that a handful of key state insurance regulators have not yet decided whether they will approve the merger, Greaney said.

If it fails, Anthem is required to pay Cigna $1.85 billion as a “breakup fee.” But Cigna wants at least $13 billion more in damages.

It’s up to the Delaware chancery court to decide whether Cigna is correct in alleging Anthem undermined its business by stealing confidential information, soliciting its customers and misleading Cigna by saying regulatory approval of the merger was assured.

The court also must weigh whether Anthem is right in blaming Cigna for “sabotaging” the deal after Cordani was rebuffed in his demand to head the combined company.

Cogan said Cigna has a strong case, if it can prove its allegations.

“If Anthem told Cigna it had the regulatory part under control, the $1.85 billion breakup fee would not cover the damages Cigna suffered because Anthem was involved in dirty dealing,” he said.

All in all, the lawsuits over the Anthem-Cigna merger, and another one that blocked Aetna’s effort to merge with Humana, have given the public a glimpse at the inner life of the nation’s largest health insurers.

“It was interesting from the start and remains interesting from a public spectacle point of view and a legal and insurance standpoint,” Cogan said.

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