Antitrust Law

DOJ Successfully Blocks Insurance Mergers: What Are the Takeaways?

In July 2016, following a lengthy review, the Antitrust Division of the Department of Justice (DOJ), together with several states, sued to block two proposed health insurer mergers: Aetna/Humana and Anthem/Cigna. On January 23 and February 8, two D.C. District Court judges issued decisions enjoining each of the transactions.

Although both transactions concerned health insurance markets, Judge John Bates, to whom both cases were initially assigned, ruled that there was little overlap in terms of parties, products, geographic markets and other factual issues, and in order to expedite the proceedings, separated the two cases. Judge Bates kept the Aetna/Humana case, in which the parties' agreement had a December 31 drop dead date, while the Anthem/Cigna case was assigned to Judge Amy Berman Jackson. This enabled hearings to take place in the late fall and decisions to be rendered early this year, a very quick six-month timeline for such complex matters.


In a 156-page opinion, Judge Bates concluded that the proposed merger would likely substantially lessen competition in Medicare Advantage (MA) in all 364 counties that the DOJ listed in its complaint, as well as in the public exchanges in three counties in Florida. The court rejected the parties' efficiency claims, as well as claims that a proposed divestiture of MA plan assets to Molina would resolve competitive concerns.

Medicare Advantage Markets

As is customary in merger antitrust litigation, a key issue to be decided in the case was the appropriate definition of the relevant market. In this case, the main dispute was whether MA plans comprised a distinct market, or whether the market also should include original Medicare. The DOJ had consistently taken the position that MA plans were separate from original Medicare in earlier enforcement actions, but this was the first time the issue was considered by a court.

The court weighed the extensive evidence on the nature and extent of competition between original Medicare options and MA. The main sources of this evidence were the parties' documents and expert economic testimony. While acknowledging that some degree of competition exists between original Medicare and MA given their functional interchangeability, the court found industry and public recognition of a separate MA market. In particular, Aetna and Humana each segregated their MA businesses from other lines of Medicare business (Medicare Supplement plans), reported on MA market shares, and did not appear to take competition from original Medicare into account when pricing MA plans. The court noted that the parties' business documents were "ubiquitous" and "abundant" in focusing on competition within a separate MA market.

Competitive Effects in MA markets

Once the DOJ had established MA as a separate product market, it was able to show increases in concentration that led presumptively to the conclusion that the merger would lessen competition. The DOJ also introduced evidence of head-to-head competition between Aetna and Humana that has benefited consumers.

In response, the parties argued that government regulation, in the form of Centers for Medicare and Medicaid Services (CMS) rules and regulations around the MA bid process and tools, such as limits on medical loss ratios and margin and total beneficiary cost rules, would effectively prevent any attempt by the merged firm to act anticompetitively. The court disagreed, finding little ability for CMS to prevent the merged firm from increasing prices or reducing benefits.

The parties also argued that the threat of new MA entry into the counties in which the DOJ claimed competitive impact would be able to discipline post-merger conduct. Again, the court disagreed, referencing testimony that barriers to entry into MA markets are high, as well as economic evidence showing that entry was unlikely to be sufficient or timely enough to prevent a possible price increase.

Molina Divestiture

During the DOJ review period, Aetna and Humana had initiated a sale process for a set of MA plans that covered 290,000 members in 437 counties, including all the counties listed in the DOJ's complaint. Shortly after the complaint was filed, the parties entered into an agreement to sell the assets to Molina, a publicly-traded health insurance company with much of its current business in Medicaid. The court accepted that the Molina transaction should be considered in rebutting the DOJ's case, but ultimately found that the divestiture would not restore the competition lost by the proposed merger.

The parties argued that Molina had the capability to provide care management to lower income populations and build competitive provider networks, as well as the internal capacity to manage the MA plans, and would be able to use marketing and brokers to retain members. The court concluded that these arguments were undercut by documents authored by Molina board members and executives expressing skepticism about Molina's ability to execute the deals, in particular emails written while Molina's board was considering the deal to the effect that Molina did not have the resources, management and skills to manage the MA business it would be acquiring. The court also expressed concern at the low price Molina was paying for the assets, which "supports the conclusion that Molina has serious doubts about its own ability to manage all the divestiture plans, but is willing to try given the low risk to the company."

Competitive Effects in Public Exchange Markets

Although the anticompetitive impacts in 364 MA county markets would have been sufficient grounds on which to grant an injunction, the court went on to consider the DOJ's allegations that the merger would substantially lessen competition in public exchange markets in 17 counties in Florida, Georgia and Missouri. The market definition aspect of this part of the case was undisputed; the major disagreement was whether Aetna's withdrawal from those markets shortly after the complaint was filed mooted the government's case.

There was considerable debate over whether the reasons for Aetna's withdrawal from the exchanges mattered at all. Once Aetna had withdrawn, there was no competition to be lessened, and therefore, no antitrust concern. The court dismissed this argument, finding that there was nothing barring Aetna from deciding to re-enter the markets in question and compete in the future, and that it would be inappropriate to limit judicial inquiry in circumstances where the DOJ alleged that Aetna acted intentionally to evade judicial review.

The court held that there was adequate evidence in documents and testimony that Aetna had tried to leverage its participation in the exchanges for favorable treatment from the DOJ during the review period, and once it was clear the DOJ would move to block the merger went forward with plans to withdraw from the 17 counties in response. The court found that contemporaneous emails and documents ran counter to the argument that the withdrawal was a business decision and that underlying data concerning profitability in the Florida markets also supported the inference that withdrawal was litigation-related.

Ultimately, the court concluded that, given the profitability of its exchange business prior to withdrawal, Aetna would be likely to re-enter the three Florida exchange markets (but not the markets in Missouri and Georgia) and that the merger would reduce competition in those three markets.


The parties claimed $2.8 billion in annual efficiencies arising from cost savings, including pharmacy rebate maximization, network medical cost savings and clinical services savings. The court expressed concern that a substantial portion of the efficiencies (approximately $2 billion) would likely be retained by the merged firm rather than be passed on to consumers, and that consumers actually harmed by the transaction (for example, MA plan purchasers) may not see any benefits from efficiencies. The court also analyzed favorably the DOJ's expert's criticisms of the companies' analyses of the potential efficiencies. Overall, the court found that the efficiencies did not reach the "extraordinary" level that would be required to mitigate the anticompetitive effects of the merger.


On February 8, Judge Jackson issued a 12-page Order enjoining the Anthem/Cigna merger, and also issued under seal a more detailed Memorandum Opinion. At the time of writing, the detailed opinion has not been unsealed, so the discussion below is based on the summary only.

National Accounts Market

The court accepted the DOJ's allegation that there was a separate market for large national accounts, defined as customers with more than 5,000 employees usually spread over at least two states. Although the Order describes the market as "the sale of health insurance to national accounts," it is clear that the companies are providing claims administration, claims adjudication and access to provider networks (ASO contracts), rather than insurance coverage. The Order also noted Anthem's and Cigna's separate business units for national accounts, and evidence that the industry as a whole recognizes national accounts as a distinct market.

The Order referenced witness testimony that there were only four national carriers offering the broad medical provider networks and account capabilities needed to serve a typical national account. Although the parties attempted to argue that customers have many alternatives and new entrants are poised to shake up the market, the court disagreed. The court noted that the barriers to entry are high, and although there are third-party administrators and new insurance ventures being launched by strong local healthcare systems, these typically do not have sufficient reach to meet the needs of a national account.

The court also rejected the parties' arguments that customers could slice up their businesses among multiple carriers to cover different geographic regions, finding that although this is theoretically possible, employers do not elect to do so very often. Even when national accounts do break up their business, they tend to use no more than two companies chosen from the big four national players and a strong regional player, such as Kaiser in California.

Although the Order discusses the needs of "national" accounts, the geographic market in which the court analyzed competitive effects was limited to the 14 states in which Anthem operates as the Blue Cross Blue Shield licensee. Because the court found anticompetitive impact in this market, it did not go on to consider the impact nationally, in an alternative market for the sale of health insurance to large group employers of more than 100 employees in the Anthem states, or in markets for the purchase of healthcare services from hospitals and physicians. Curiously, the Order does reference findings in relation to a specific large group market in Richmond, VA, even though this does not appear to be essential to the ultimate decision.


As in the Aetna/Humana case, Anthem asserted that any anticompetitive effects would be outweighed by the efficiencies that would be generated by the merger. In addition to cost savings in general and administrative areas, Anthem contended that national account customers would save a total of over $2 billion in medical expenditures, because Cigna members would be able to access the more favorable discounts that Anthem had negotiated with its provider network, while Anthem members would benefit where Cigna had lower rates.

The court rejected the claimed medical cost savings as not merger-specific because they are based on "the application of existing discounts to an existing patient population." The court also questioned whether Anthem's ability to drive a hard bargain with providers by virtue of its size should even be considered an efficiency when the product that Anthem and Cigna are selling in the national accounts market is ASO contracts, not healthcare.

The court criticized other arguments Anthem made concerning the need to control growing healthcare costs as seeking to have the court make "complex policy decisions about the overall allocation of healthcare dollars in the United States." The court also noted other evidence about the potential difficulties in Anthem seeking to extend its discounted fee schedule to additional providers and facilities and the possible erosion of relationships between insurers and providers.

Cigna Evidence

The court noted that Cigna was "actively warned against" the merger, and referenced Cigna testimony undermining the efficiencies claims, Cigna cross-examination of the defendants' own expert and Cigna's refusal to sign Anthem's Findings of Fact and Conclusions of Law. Although Anthem urged the court to "look away" from the differences between the merging parties, the court found this evidence relevant to its decision.

The Order discusses Anthem's and Cigna's fundamentally different approaches to their healthcare strategy: Anthem believing that its greater ability to command discounts from providers will save its customers money and Cigna saying that its greater engagement and collaboration with providers will ultimately save customers money. The court concluded that these differences highlight the need to preserve the different options generated by such disparate approaches for customers.


The Order also discusses Cigna's differentiation in providing better information and clinical management to lower utilization and achieve cost-savings over time. Some customers prefer this approach, notwithstanding Cigna's discount disadvantage, and there was testimony that the approach is working. The court held that permitting the merger would result in less opportunity for such ideas to be tested and refined, and lead to a loss of innovation in the industry.


To be sure, the government has been enormously successful over the past year in challenging mergers in the healthcare industry. From the Federal Trade Commission's successes in challenging two major hospital mergers to the DOJ's successful enforcement actions against the two health insurer mergers, the government has established itself as a serious hurdle for any major transaction.

The two insurer merger decisions highlight several aspects of the ways in which agencies win merger cases: the use of documentary evidence and the high bar required for the efficiency defense. The decisions also highlight the need for collaboration and consistency between merger parties.

Both opinions rely heavily on documentary evidence from the parties' files, notably ordinary-course business documents describing the industry and competitive landscape in which the parties operate. As Judge Bates' treatment of such material in considering whether MA is a separate market demonstrates, consistent references in company documents will outweigh subsequent testimony or post-announcement discussions of the markets that will be affected. A careful and honest appraisal of the documents a company already has in place is essential when considering a transaction.

Key evidence also included documents that directly contradicted the parties' trial positions and witness testimony on certain issues. While parties often receive advice on document creation when considering a transaction, such guidance is often too late for some important issues, and third parties cannot be controlled. Companies should consider including guidelines on company document creation in regular compliance and other briefings.

In addition, the decisions make it clear that, once the government establishes its prima facie case that competition will likely be adversely affected, it is very difficult to defend a transaction on the basis of potential efficiencies. While significant work appears to have been done in developing the efficiencies claims in the two insurance cases, both decisions set very high standards for the efficiencies to be cognizable, and overall appear quite hostile to the effectiveness of potential efficiencies in ameliorating anticompetitive impacts. When a transaction leads to significant concentrations and the agencies are skeptical of efficiency defenses in the review process, an efficiencies defense is unlikely to win the day in court.

Finally, it seems obvious that cooperation between merging parties is essential to putting on an effective defense of a merger case. Most merger agreements contain express provisions requiring such cooperation, and parties and counsel typically work side-by-side in sharing evidence and strategy and preparing presentations and arguments at all stages of the review process. Such collaboration also is essential to ensuring swift and effective implementation of the transaction once it has cleared regulatory hurdles.

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