United States v. Anthem, Inc.

• Decision Date: 08 February 2017
• Docket Number: Civil Action No. 16–1493 (ABJ)
• Citation: 236 F.Supp.3d 171
• Parties: UNITED STATES of America, et al., Plaintiffs, v. ANTHEM, INC., et al., Defendants.
• Court: U.S. District Court — District of Columbia

236 F.Supp.3d 171

UNITED STATES of America, et al., Plaintiffs,

v.ANTHEM, INC., et al., Defendants.

Civil Action No. 16–1493 (ABJ)

United States District Court, District of Columbia.

Signed February 8, 2017

Filed February 21, 2017

Adam T. Severt, Bryson Love Bachman, Daniel McCuaig, David Lewis Snyder, Eric J. Mahr, Henry Jake Hauser, Jennifer Hane, Jesus Manuel Alvarado–Rivera, John R. Read, Jon B. Jacobs, Kathleen Simpson Kiernan, Matthew C. Hammond, Nathan Daniel Brenner, Peter Joseph Mucchetti, Peter Joseph Schwingler, Ryan Scott Struve, Scott Ivan Fitzgerald, Soyoung Choe, Aaron Comenetz, U.S. Department of Justice, Catherine Anne Jackson, Elizabeth Sarah Gere, Office of Attorney General, Washington, DC, Paula Lauren Gibson, Patricia L. Nagler, Office of the Attorney General, Los Angeles, CA, Rachel O. Davis, Office of Attorney General, Hartford, CT, Daniel Stephen Walsh, Monica Anne Sullivan, Office of Attorney General, Atlanta, GA, Layne M. Lindebak, Attorney General's Office for the State of Iowa, Des Moines, IA, Christina M. Moylan, Linda J. Conti, Office of the Attorney General, Augusta, ME, Ellen S. Cooper, John R. Tennis, Office of the Attorney General, Baltimore, MD, Francis C. Fredericks, Jr., Jennifer Lynne Foley, Joseph A. Foster, Department of Justice, Concord, NH, Irina Cristina Rodriguez, Office of the New York State Attorney General, New York, NY, Sarah Oxenham Allen, Tyler Timothy Henry, Office of the Attorney General, Richmond, VA, Abigail Leah Smith, Devin M. Laiho, Jennifer Hutchinson Hunt, Attorney General's Office for the State of Colorado, Denver, CO, Cynthia Elaine Kinser, Erin Frankrone Merrick, J. David McDowell, Victor J. Domen, Jr., Office of the Attorney General & Reporter, Nashville, TN, for Plaintiffs.

Andrew Keith Mann, Charles Christopher Moore, Christine N. Chang, Christopher M. Curran, Daniel J. Rosenthal, Douglas M. Jasinski, George Lovell Paul, Heather P. Greenfield, John D. Donaldson, John Mark Gidley, Kathryn J. Mims, Matthew Sterrett Leddicotte, Noah A. Brumfield, Trisha Grant, Amanda Lee Czocher, Jaclyn Epstein, White & Case LLP, Matthew Aaron Tabas, Richard Lawrence Rosen, Seth J. Wiener, Wilson D. Mudge, Arnold & Porter Kay Scholer LLP, Philip M. Busman, Nelson Mullins Riley & Scarborough LLP, Andrew J. Forman, Charles F. Rule, Craig Aaron Benson, Daniel J. Howley, Jonathan S. Kanter, Joseph J. Bial, Kenneth Anthony Gallo, Zachary Alan Dietert, Margot Campbell, Michelle Parikh, Sasha Freedman, William E. Dolan, Paul, Weiss, Rifkind, Wharton & Garrison LLP, Washington, DC, Robert Dale Grimes, R. Gregory Parker, Bass, Berry & Sims PLC, Nashville, TN, Allen Wang, Cale Tolbert, Eric Krause, Eric Lancaster, Erica R. Sutter, Heather M. Burke, Pan Lee, Thomas Flynn, White & Case LLP, Palo Alto, CA, C. Kelly Newman, Jack E. Pace, III, Jared R. Danilson, Kristen O'Shaughnessy, Leon Miniovich, Martin M. Toto, Michael J. Gallagher, Michael E. Hamburger, Robert Counihan, Robert A. Milne, White & Case LLP, New York, NY, Danielle M. Garten, Alexandria, VA, Heyward Dodkin Bonyata, John Derrick Martin, Julie Annette Flaming, Lucile Hartley Cohen, Nelson Mullins Riley & Scarborough LLP, Columbia, SC, Shanyah Albert Wang, Arnold & Porter Kay Scholer LLP, Los Angeles, CA, Travis Andrew Bustamante, Nelson Mullins Riley & Scarborough LLP, Charlotte, NC, Jared S. Sunshine, Paul, Weiss, Rifkind, Wharton & Garrison LLP, New York, NY, for Defendants.

MEMORANDUM OPINION

AMY BERMAN JACKSON, United States District Judge

Anthem and Cigna, the nation's second and third largest medical health insurance carriers, have agreed to merge. They propose to create the single largest seller of medical healthcare coverage to large commercial accounts, in a market in which there are only four national carriers still standing. The United States Department of Justice, eleven states, and the District of Columbia have sued to stop the merger, and they have carried their burden to demonstrate that the proposed combination is likely to have a substantial effect on competition in what is already a highly concentrated market. Therefore, the Court will not permit the merger to go forward.

Judgment will be entered in favor of the plaintiffs on their first claim, and the merger will be enjoined due to its likely impact on the market for the sale of health insurance to "national accounts"—customers with more than 5000 employees, usually spread over at least two states—within the fourteen states where Anthem operates as the Blue Cross Blue Shield licensee. So the Court does not need to go on to decide the question of whether the combination will also affect competition in the sale to national accounts within the larger geographic market consisting of the entire United States. The Court also does not need to rule on the allegations in plaintiffs' second claim that the merger will harm competition downstream in a different product market: the sale of health insurance to "large group" employers of more than 100 employees in thirty-five separate local regions within the Anthem states. But the evidence has shown that the proposed acquisition will have an anticompetitive effect on the sale of health insurance to large groups in at least one of those markets: Richmond, Virginia. Finally, given the ruling against the merger, the Court need not reach the allegations in the complaint that the merger will also harm competition upstream in the market for the purchase of healthcare services from hospitals and physicians in the same 35 locations.

What follows is a summary of the ruling on the first claim in the complaint. The Court finds first that the market for the sale of health insurance to national accounts is a properly drawn product market for purposes of the antitrust laws, and that the fourteen states in which Anthem enjoys the exclusive right to compete under the Blue Cross Blue Shield banner comprise a relevant geographic market for that product.

The evidence demonstrated that large national employers have a unique set of characteristics and needs that drive their purchasing processes and decisions, and that the industry as a whole recognizes national accounts as a distinct market. Witness after witness agreed that there are only four national carriers offering the broad medical provider networks and account management capabilities needed to serve a typical national account. Notably, both Anthem and Cigna have established business units devoted to national accounts, and these separate profit and loss centers each have their own executives, sales teams, and customer service personnel. While various brokers and insurance carriers may draw differing lines to define the boundaries of a "national account," the government's use of 5000 employees as the threshold is consistent with how both Anthem and Cigna identify the accounts within their own companies. Moreover, when measured against the appropriate legal standard, the government's definition was sufficient to include reasonable substitutes and to fairly capture the competitive significance of other products.

The geographic market also passes the legal test since the Blue Cross Blue Shield Association rules have a significant impact on the commercial conditions governing the sale of medical coverage to national accounts, and Anthem's exclusive territory is where the acquisition will have a direct and immediate effect on competition.

Next, the Court finds that plaintiffs have established that the high level of concentration in this market that would result from the merger is presumptively unlawful under the U.S. Department of Justice and Federal Trade Commission Horizontal Merger Guidelines, which courts regularly consult for guidance in these cases. The evidence has also shown that the merger is likely to result in higher prices, and that it will have other anticompetitive effects: it will eliminate the two firms' vigorous competition against each other for national accounts, reduce the number of national carriers available to respond to solicitations in the future, and diminish the prospects for innovation in the market.

Within the national accounts market, health benefits coverage is a differentiated product, which means that individually customized policies are sold to customers one at a time—in this case, through a bid solicitation process. National account customers evaluate responses to their requests for proposals based upon a number of factors, including the amount of the fees charged by each carrier for claims administration services; the quality and breadth of the carrier's medical provider network; the extent of the discounts the carrier has negotiated with those providers; whether the carrier is willing to guarantee that the customer's medical costs will not increase by more than a particular percentage; and other features of interest to any particular customer. The expert testimony as well as the firms' internal documents reflect that while Anthem tends to enjoy superior discounts, the two companies are competing head-to-head with respect to many of the other aspects of their offerings, all of which can factor into the employer's total cost per employee for medical benefits.

The defense came forward with evidence to rebut the presumption, shifting the burden back to the government, but the Court concludes based on the entire record that plaintiffs have carried their burden to show that the effect of the acquisition may be to substantially lessen competition in violation of Section 7 of the Clayton Antitrust Act. Defendants insist that customers face an array of alternatives, and that there are many new entrants poised to shake up the market. But entering the commercial health insurance market is not such an easy proposition. And while third party administrators and new insurance ventures being launched by strong local healthcare systems may be attractive to smaller or more localized customers, it became quite clear from the evidence that the larger a company gets, and...