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Anthem-Cigna Mega Merger Likely Problematic for Providers

Anthem announced on July 24, 2015 that it would purchase Cigna, just three weeks after Aetna agreed to buy Human for $37 billion. The deal is valued at $54.2 billion, and would create the United States’ largest health insurer by membership, with a combined 53 million members. The merger will close sometime in 2016, pending regulatory approval.

Rightfully, there are significant concerns about the merger. Anthem is the parent company of Blue Cross and Blue Shield and is one of the largest players in offering health insurance through the Affordable Care Act created Health Exchanges. Cigna is a global insurance player and has many well-known insurance plans in the US. Currently, there are only four major players in the commercial insurance market: UnitedHealth, Anthem, Cigna, and Aetna. After the merger, there will only be three. By reducing the number of players in the market, there is less competition and more pricing power for the health plans.

While the merger is likely to save Cigna and Anthem $2 billion a year, it is uncertain whether these savings will be passed onto consumers. Further, from a provider’s perspective, the deal is highly problematic. As a rule, the bigger insurers get, the more bargaining power they have, and the harder it is to negotiate rates. Hence, diminished competition in the health insurance market will likely allow the few remaining companies to exploit their market power and dictate provider reimbursement rates.

This deal also illuminates the conflict between the Federal Trade Commission (“FTC”) and the Department of Justice (“DOJ”). Hospital mergers are governed by the FTC, which has recently challenged many mergers and acquisitions based on antitrust concerns. In contrast, the DOJ governs insurance mergers, and has not historically challenged health insurance mergers and acquisitions. Thus, there will likely be two competing philosophies regarding how big an insurance company can be, versus how big a hospital can be. Ideally, if the DOJ allows the merger, the FTC will loosen its standards on hospital mergers in order to give hospitals the ability to effectively bargain with health insurance companies.

This article is not offered as, and should not be relied on as, legal advice. You should consult an attorney for advice in specific situations.