Action Against Merger Tied to Affordability, Quality of Health Care

Photo: Flickr.
Photo: Flickr.

The biggest merger in the history of the health insurance industry is on shaky ground. In June, the U.S. Department of Justice filed suit to block the $54 billion Anthem-Cigna merger, as well as a similar bid by Aetna to acquire Humana.

Nationally, the two mergers would shrink the nation’s five big insurers to three.

In California, the Anthem-Cigna combination would surpass non-for-profit Kaiser as the state’s largest insurer.

The government, backed by 12 state attorneys general who joined the lawsuit, including California Attorney General Kamala Harris, and cheered by a number of consumer groups, said increased market concentration would drive up costs and lower quality.

“These mergers would reshape the industry, eliminating two innovative competitors –Cigna and Humana—at a time when the industry is experimenting with new ways to lower health care costs,” Justice Department attorneys wrote in their complaint.

Thomas Greaney, a law professor who co-directs the Center for Health Law Studies at the St. Louis University School of Law, said this lawsuit may be particularly hard-fought by the Justice Department because competition is at the heart of the Obama administration’s health care reform.

“The whole idea of relying on a marketplace solution rather than the government setting rates underlies the Affordable Care Act,” Greaney said.

Greaney noted that during the debate over health care reform, the so-called public option was rejected as unnecessary because it was argued that competition between private insurers would keep prices low and quality high. The public option would have had health plans run by public agencies competing against commercial plans on the state-run exchanges.

But, Greaney argued that with only three big national insurers, a new player entering a state insurance exchange would be less likely, and competition would be limited.

In Congressional testimony last year, Greaney cited a 2015 study that showed prices on the exchanges are lower where competition is greater. The American Journal of Health Economics analyzed 34 exchanges and found that adding one additional insurer lowered prices by more than five percent. Adding all the insurers in a market would have lowered prices by more than 11 percent.

Anthem has vowed to fight the Department of Justice lawsuit, while Cigna appeared to waver. Both companies issued written statements, but declined further comment.

“The DOJ’s action is based on a flawed analysis and misunderstanding of the dynamic, competitive and highly regulated health care landscape and is inconsistent with the way that the DOJ has reviewed past health care transactions,” the Anthem statement reads. “Anthem has an unwavering commitment to enhancing access to affordable healthcare and the benefits and efficiencies from its merger with Cigna is one way that Anthem will continue its mission of improving consumer choice, quality and affordability.”

But, Cigna executives took a different approach.

“Cigna is currently evaluating its options consistent with its obligations under the agreement,” the company’s statement reads. “In light of the DOJ’s decision, we do not believe the transaction will close in 2016 and the earliest it could close is 2017, if at all.”

Anthem would owe Cigna a $1.85 billion breakup fee if the merger doesn’t occur.

At, the website that touts the Anthem-Cigna combination, the companies argued that the deal would spark health care innovation and create efficiencies that would drive down health care costs

But merger opponents said that in previous deals, cost savings weren’t passed on to consumers.

California Insurance Commissioner Dave Jones urged the Justice Department to reject the merger on antitrust grounds and because he contended that premiums would increase and quality would decline.

The state’s Department of Managed Health Care was also expected to weigh in on the Anthem-Cigna deal, but didn’t do so before the DOJ’s decision to file suit.

In urging California regulators to oppose the merger, several consumer groups cited Anthem’s below-par performance in providing access to care, paying providers properly and on time and handling customer grievances, and said it would only worsen in the absence of competition.

The DOJ complaint stated that Anthem has a reputation in many places for poor customer service, being slow to innovate and hard to work with for doctors and hospitals. Justice Department lawyers quoted one of Anthem’s own in summing up.

“The president of Anthem’s Indiana business conceded, ‘There are some customers, some prospects, who loathe us.’”

At Santa Monica-based Consumer Watchdog, spokeswoman Carmen Balber said that with limited competition, the company would be unlikely to address some of the most serious complaints of consumers, like their inability to find physicians within the company’s networks. “A massive Anthem would have less incentive to widen their networks or address any other benefit issues,” Balber said.

In California, Anthem provides Medicare Advantage plans, managed care plans and markets individual health plans on California’s insurance exchange, Covered California.

The company also provides Medi-Cal managed care services to nearly 700,000 of the poorest and most vulnerable people in the state in 28 counties from urban areas like Alameda, San Francisco and Sacramento to Fresno, Kings and Madera in the Central Valley to sparsely populated Northern California counties like Alpine and Tehama. In its most recent performance evaluation report, the California Department of Health Care Services measured the company’s success in providing quality care, access to care and timely care by examining specific criteria, such as controlling high blood pressure, medication compliance, access to care for children and youth, as well as prenatal and post-partum care. In most areas, the company’s health plans scored below the government’s minimum performance level or the 25th percentile compared to similar plans nationwide.

“Despite Anthem’s efforts to improve performance on measures, the managed care plan continued to demonstrate difficulty meeting DHCS minimum performance requirements for many measures, across all counties,” the authors wrote.

The report also noted that Anthem had been forced to operate under a DHCS-supervised corrective action plan since 2011, and would have to continue to do so because of its failure to improve.

Anthem has also run afoul of regulators at the Department of Managed Health Care, which fined the company $1.6 million in 2010 for denying payments to hospitals, and $415,000 last May for depriving members of grievance and appeal rights. Last year, DMHC also dinged the company for maintaining inaccurate medical provider directories, and imposed a quarter of a million dollar fine. Anthem had named a number of physicians in its directories who didn’t accept the company’s insurance plans, the DMHC found.

Similarly, the California state auditor called out the company in a June 2015 review of Medi-Cal managed care provider directories for inaccuracies. The auditor surveyed a small sample of providers in Fresno County and found that nearly 25 percent of them didn’t actually accept Anthem’s Medi-Cal patients or that the company listed wrong numbers for physician’s offices or provided other erroneous information.

Anthony Wright, who heads Sacramento-based consumer advocacy group Health Access, said the government will likely prevail in blocking the mergers. In his view, that would protect consumers from worsening conditions, but he argued that insurers have to do better.

“We’re concerned about what happens afterwards,” Wright said. “We hope they focus on competing and providing better cost and quality rather than buying their competitors.”

But Marianne Udow-Phillips, who heads the Michigan-based non-profit Center for Healthcare Research and Transformation, said that mergers are likely to continue, in part because more and more Medicaid recipients are likely to be placed in managed care. She said that companies like Long Beach-based Molina Healthcare, and AmeriHealth, which operates in New Jersey and Pennsylvania are both developing expertise in the field, are likely to try to scoop up smaller companies around the country.

Greaney, who previously was an assistant chief in the antitrust division of the DOJ, also noted that mergers are too tempting for some companies to resist.

“There’s a pot of gold if you win,” he said. And, the risk may be worth the reward. “You don’t go to jail. You don’t get fined. You just go back to where you were.”

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