United States v. Anthem, Inc.

• Citation: 855 F.3d 345
• Decision Date: 28 April 2017
• Docket Number: No. 17-5024,C/w 17-5028,17-5024
• Parties: UNITED STATES of America, et al., Appellees v. ANTHEM, INC., Appellant Cigna Corporation, Appellant
• Court: United States Courts of Appeals. United States Court of Appeals (District of Columbia)

855 F.3d 345

UNITED STATES of America, et al., Appellees

v.ANTHEM, INC., Appellant

Cigna Corporation, Appellant

No. 17-5024

C/w 17-5028

United States Court of Appeals, District of Columbia Circuit.

Argued March 24, 2017

Decided April 28, 2017

Christopher M. Curran argued the cause for appellant Anthem, Inc. With him on the briefs was J. Mark Gidley. Noah A. Brumfield, Matthew S. Leddicotte, and George L. Paul entered appearances.

Charles F. Rule was on the brief for appellant Cigna Corporation. Craig A. Benson entered an appearance.

Paul T. Denis and Steven G. Bradbury were on the brief for amici curiae Antitrust Economists and Business Professors in support of appellant.

Scott A. Westrich, Attorney, U.S. Department of Justice, argued the cause for appellees. With him on the brief were Kristen C. Limarzi, James J. Fredricks, Mary Helen Wimberly, and Daniel E. Haar, Attorneys, Rachel O. Davis, Assistant Attorney General, Office of the Attorney General for the State of Connecticut, and Paula Lauren Gibson, Deputy Attorney General, Office of the Attorney General for the State of California. Loren L. AliKhan, Deputy Solicitor General, Office of the Attorney General for the District of Columbia, Sarah O. Allen and Tyler T. Henry, Assistant Attorneys General, Office of the Attorney General for the Commonwealth of Virginia, Ellen S. Cooper, Assistant Attorney General, Office of the Attorney General for the State of Maryland, Victor J. Domen Jr., Senior Counsel, Cynthia E. Kinser, Deputy Attorney General, and Erin Merrick, Assistant Attorney General, Office of the Attorney General for the State of Tennessee, Jennifer L. Foley, Assistant A ttorney Gener al, Office of the Attorney G eneral for the State of New Hampshire, Devin Laiho, Senior Assistant Attorney General, Office of the Attorney General for the State of Colorado, Layne M. Lindebak, Assistant Attorney General, Office of the Attorney General for the State of Iowa, Christina M. Moylan, Assistant Attorney General, Office of the Attorney General for the State of Maine, Irina C. Rodriguez, Assistant Attorney G eneral, Office of the Attorney Gen er al for the Stat e of New York, an d Daniel S. Walsh, Assistant Attorney General, Office of the Attorney General for the State of Georgia, entered appearances.

David A. Balto was on the brief for amici curiae American Antitrust Institute, et al. in support of plaintiffs-appellees.

Edith M. Kallas, Joe R. Whatley, Jr., and Henry C. Quillen were on the brief for amici curiae The American Medical Association and The Medical Society of the District of Columbia in support of appellees.

Douglas C. Ross, David A. Maas, and Melinda Reid Hatton were on the brief for amicus curiae American Hospital Association in support of appellees.

Richard P. Rouco was on the brief for amici curiae Professors in support of appellees.

Before: Rogers, Kavanaugh and Millett, Circuit Judges.

Concurring opinion filed by Circuit Judge Millett.

Dissenting opinion filed by Circuit Judge Kavanaugh.

Rogers, Circuit Judge:

This expedited appeal arises from the government's successful challenge to "the largest proposed merger in the history of the health insurance industry, between two of the four national carriers," Anthem, Inc. and Cigna Corporation. Appellees Br. 1. In July 2015, Anthem, which is licensed to operate under the Blue Cross Blue Shield brand in fourteen states, reached an agreement to merge with Cigna, with which Anthem competes largely in those fourteen states. The U.S. Department of Justice, along with eleven States and the District of Columbia (together, the "government"), filed suit to permanently enjoin the merger on the ground it was likely to substantially lessen competition in at least two markets in violation of Section 7 of the Clayton Act. Following a bench trial, the district court enjoined the merger, rejecting the factual basis of the centerpiece of Anthem's defense, and focus of its current appeal, that the merger's anticompetitive effects would be outweighed by its efficiencies because the merger would yield a superior Cigna product at Anthem's lower rates. The district court found that Anthem had failed to demonstrate that its plan is achievable and that the merger will benefit consumers as claimed in the market for the sale of medical health insurance to national accounts in the fourteen Anthem states, as well as to large group employers in Richmond, Virginia.

Anthem and Cigna (hereinafter, Anthem) challenge the district court's decision and order permanently enjoining the merger on the principal ground that the court improperly declined to consider the claimed billions of dollars in medical savings. See Appellant Br. 10.¹ Specifically, Anthem maintains the district court improperly rejected a consumer welfare standard—what it calls "the benchmark of modern antitrust law," id. —and generally abdicated its responsibility to balance likely benefits against any potential harm. According to Anthem, the merger's efficiencies would benefit customers directly by reducing the costs of customer medical claims through lower provider rates, without harm to the providers. The government has not challenged Anthem's reliance on an efficiencies defense per se . Rather, it points out that Anthem neither disputes that the merger would be anticompetitive but for the claimed medical cost savings, nor challenges the district court's findings on the relevant market definition, ease of entry, the effect of sophisticated buyers, or innovation. Instead, Anthem's appeal focuses principally on factual disputes concerning the claimed medical cost savings, which the government maintains were not verified, not specific to the merger, and not even real efficiencies.

For the following reasons, we hold that the district court did not abuse its discretion in enjoining the merger based on Anthem's failure to show the kind of extraordinary efficiencies necessary to offset the conceded anticompetitive effect of the merger in the fourteen Anthem states: the loss of Cigna, an innovative competitor in a highly concentrated market. Additionally, we hold that the district court did not abuse its discretion in enjoining the merger based on its separate and independent determination that the merger would have a substantial anticompetitive effect in the Richmond, Virginia large group employer market. Accordingly, we affirm the issuance of the permanent injunction on alternative and independent grounds.

I.

Under Section 7 of the Clayton Act, a merger between two companies may not proceed if "in any line of commerce or in any activity affecting commerce in any section of the country, the effect of such [merger] may be substantially to lessen competition." 15 U.S.C. § 18.

A burden-shifting analysis applies to consider the merger's effect on competition. United States v. Baker Hughes Inc. , 908 F.2d 981, 982 (D.C. Cir. 1990). First, the plaintiff must establish a presumption of anticompetitive effect by showing that the "transaction will lead to undue concentration in the market for a particular product in a particular geographic area." Id. The most common way to make this showing is through a formula called the Herfindahl-Hirschman Index ("HHI"), which compares a market's concentration before and after the proposed merger. See id. at 983 n.3. By squaring the market share percentage of each market participant and adding them together, a market's HHI can range from >0 to 10,000 (i.e. , a pure monopoly, or 100²). Dept. of Justice & Fed. Trade Comm'n, Horizontal Merger Guidelines § 5.3 & n.9 (Aug. 19, 2010) (the "Guidelines"). Under the Guidelines, a market will be considered highly concentrated if it has an HHI above 2500, and if the merger increases HHI by more than 200 points and results in a highly concentrated market, it "will be presumed to be likely to enhance market power." Id. § 5.3. Although, as the Justice Department acknowledges, the court is not bound by, and owes no particular deference to, the Guidelines, this court considers them a helpful tool, in view of the many years of thoughtful analysis they represent, for analyzing proposed mergers. See Baker Hughes , 908 F.2d at 985-86.

The burden shifts, once the prima facie case is made, to the defendant to rebut the presumption. Id. at 982. To do so, it must provide sufficient evidence that the prima facie case "inaccurately predicts the relevant transaction's probable effect on future competition," or it must sufficiently discredit the evidence underlying the initial presumption. Id. at 991. "The more compelling the prima facie case, the more evidence the defendant must present to rebut it successfully," but because the burden of persuasion ultimately lies with the plaintiff, the burden to rebut must not be "unduly onerous." Id.

Upon rebuttal by the defendant, "the burden of producing additional evidence of anticompetitive effect shifts to the [plaintiff], and merges with the ultimate burden of persuasion, which remains with the [plaintiff] at all times." Id. at 983.

II.

Anthem is the second-largest seller of medical health insurance to large companies in the United States, and it serves approximately 38.6 million medical members. It is a member of the Blue Cross Blue Shield Association, a group of thirty-six health insurance companies licensed to do business under the Blue Cross and/or Blue Shield brands. Anthem holds an exclusive license to the Blue brands in all or part of fourteen states (the "Anthem states"), and it may also compete for business outside those states if it receives permission from the Blue licensee in the relevant area. Anthem also owns non-Blue subsidiaries through which it may operate both in and outside of the Anthem states, subject to Anthem's "Best Efforts" obligations in its licensing agreement with the Blue Cross Association. Under these "Best Efforts" provisions, at least 80% of Anthem's revenue within the Anthem states must come from Blue-branded products, as must at least 66.67% of its revenue...