United States v. Anthem, Inc.
2017 U.S. App. LEXIS 7521
| D.C. Cir. | 2017Background
- Anthem (second-largest national employer insurer) agreed to acquire Cigna (third-largest); both compete in 14 “Anthem states.”
- DOJ, 11 states, and D.C. sued under Section 7 of the Clayton Act to enjoin the merger, alleging probable substantial lessening of competition in (a) national-accounts market (employers with >5,000 employees across states) within the 14 Anthem states and (b) Richmond, VA large-group employer market.
- District court found highly concentrated post-merger HHIs, credited government market definitions, and issued a permanent injunction after trial, rejecting Anthem’s claimed $2.4 billion in medical-cost efficiencies as not sufficiently merger-specific or verifiable and as unlikely to be passed through to customers.
- Anthem appealed principally arguing the district court improperly discounted its efficiencies defense (consumer-welfare standard) and failed to balance benefits against harms; government did not dispute the structure of the efficiencies defense but challenged the factual support.
- D.C. Circuit affirmed: held district court did not abuse discretion in rejecting efficiencies and independently upheld injunction based on Richmond market harms.
Issues
| Issue | Plaintiff's Argument (Gov't) | Defendant's Argument (Anthem) | Held |
|---|---|---|---|
| Prima facie market power from post-merger concentration | Market concentration (HHI increases) shows presumptive likely harm | Concedes concentration but argues efficiencies offset harm | Court: Government proved highly concentrated markets; presumption stands |
| Availability/role of efficiencies as rebuttal to Section 7 liability | Efficiencies must be merger-specific and verifiable; may rebut prima facie but cannot automatically validate harmful mergers | Efficiencies (medical-cost savings) should be credited; courts must balance benefits against harms under consumer-welfare standard | Court: Allowed that efficiencies evidence may rebut but did not decide ultimate legal limits; affirmed district court’s factual rejection of Anthem’s efficiencies as insufficiently merger-specific/verifiable and unlikely to be passed through |
| Merger-specificity and verifiability of Anthem’s $2.4B savings (rebranding, affiliate clauses, renegotiation) | Claimed savings are speculative, achievable without merger, impeded by provider resistance, Anthem’s "Best Efforts" obligations, and timing/utilization uncertainties | Savings validated by Anthem experts and McKinsey; integration plan supports realizability and magnitude | Court: District court’s factual findings rejecting merger-specificity and verifiability were not clearly erroneous; efficiencies insufficient to offset harm |
| Independent regional market (Richmond) harm | Merger would create dominant local share (64–78%) and even crediting claimed efficiencies predicts price increases | Anthem argued models (e.g., Dranove’s chart) were unreliable and that entry / other competitors would constrain pricing | Court: Affirmed district court’s independent finding of substantial anticompetitive effect in Richmond and upheld injunction on that alternative ground |
Key Cases Cited
- FTC v. Procter & Gamble Co., 386 U.S. 568 (1967) (Supreme Court rejected ‘‘possible economies’’ as a defense to illegality under Section 7)
- United States v. General Dynamics Corp., 415 U.S. 486 (1974) (directed courts to consider structure, history, and probable future — including efficiencies — in merger analysis)
- United States v. Baker Hughes Inc., 908 F.2d 981 (D.C. Cir. 1990) (articulated burden-shifting framework for merger cases; prima facie HHI presumption and role of rebuttal evidence)
- FTC v. H.J. Heinz Co., 246 F.3d 708 (D.C. Cir. 2001) (discussed evidentiary standard for efficiencies and remanded where district court failed to make concrete factual findings)