WEBVTT - Anthem-Cigna Deal Faces Judicial Scrutiny (Audio) 0:00:00.160 --> 0:00:03.800 The proposed fifty four billion dollar Signa Anthem merger would 0:00:03.800 --> 0:00:06.720 be the largest healthcare merger in United States history, and 0:00:06.760 --> 0:00:09.399 the federal government's lawsuit to block the merger on anti 0:00:09.400 --> 0:00:12.680 trust grounds is on trial right now. But testimony at 0:00:12.680 --> 0:00:15.760 the trial is raising questions about whether SIGNA CEO David 0:00:15.800 --> 0:00:18.720 Cordani thinks the merger is a good idea. An Anthem 0:00:18.800 --> 0:00:21.960 CEO Joseph Swedish is testified that Anthem kept its efforts 0:00:22.040 --> 0:00:25.040 to plan the integration of the two companies secret from SIGNA. 0:00:25.160 --> 0:00:27.840 We'll be discussing one of the companies themselves are undermining 0:00:27.840 --> 0:00:30.720 their chance of merging with Jennifer Ree, a senior litigation 0:00:30.720 --> 0:00:36.360 analyst for Bloomberg Intelligence, Jennifer Um. There's a lot that's 0:00:36.440 --> 0:00:39.880 really interesting in the testimony of these two CEOs. Let's 0:00:39.920 --> 0:00:43.839 start with the doubts expressed by David Cordani of Signa. 0:00:43.960 --> 0:00:47.200 He's publicly defended the merger, but now he's under oath 0:00:47.240 --> 0:00:49.560 in court and he seems to be saying something different. 0:00:49.560 --> 0:00:52.480 What what's he's saying in court now, Well, what he's 0:00:52.479 --> 0:00:55.080 saying is that Um, in terms of some of the 0:00:55.440 --> 0:00:58.760 pre closing integration planning, that the companies were undergoing which 0:00:58.760 --> 0:01:00.600 is typical you know has come needs are going through 0:01:00.600 --> 0:01:03.400 a merger review to start thinking about the integration that 0:01:03.400 --> 0:01:06.240 they'll be doing after they closed, that there were problems 0:01:06.319 --> 0:01:09.039 between the companies and that they were in particular, Um, 0:01:09.040 --> 0:01:12.039 what I read was that he felt that some of 0:01:12.040 --> 0:01:15.119 the plans that Anthem had instituted or we're thinking about 0:01:15.160 --> 0:01:17.920 would harm harm Signa and would benefit the Blue Cross 0:01:17.959 --> 0:01:22.800 Blue Shield Association more so than Signa. Jen, what is 0:01:22.880 --> 0:01:26.080 the judge looking for? What kind of search is she 0:01:26.280 --> 0:01:30.920 doing for? What kind of facts? Well, first of all, 0:01:31.000 --> 0:01:32.679 you know, what the d J has done is they 0:01:32.760 --> 0:01:35.280 they've had to allege several different kinds of markets where 0:01:35.319 --> 0:01:38.480 there might where this deal could substantially less in competition. 0:01:38.880 --> 0:01:40.880 So the first thing really that she has to do 0:01:41.040 --> 0:01:43.440 is understand what those markets are and listen to what 0:01:43.520 --> 0:01:46.160 the economists have to say about, you know, whether those 0:01:46.160 --> 0:01:48.280 are appropriate markets or not. And that's a big issue 0:01:48.320 --> 0:01:51.480 in this trial because they've alleged the DOJ has alleged 0:01:51.520 --> 0:01:54.640 harm to a national market for you know, large national 0:01:54.680 --> 0:01:58.080 insurers and Anthem Insigna have refuted that that's an appropriate 0:01:58.120 --> 0:02:00.640 market to think about in which there could be harm. 0:02:00.720 --> 0:02:02.720 So that's one of the first things. But you know, 0:02:03.280 --> 0:02:05.120 going back to what Michael had just asked, one of 0:02:05.160 --> 0:02:07.640 the other very big things are the efficiencies claims of 0:02:07.680 --> 0:02:10.680 these companies, because that is a defense to a merger. 0:02:10.720 --> 0:02:12.360 That can be a defense, I should say, to a 0:02:12.400 --> 0:02:15.560 merger that may have some anti competitive effects in the market, 0:02:15.720 --> 0:02:18.600 if that could be outweighed according to the guidelines that 0:02:18.639 --> 0:02:21.720 the d o J uses by efficiencies, then perhaps the 0:02:21.760 --> 0:02:24.120 merger could be allowed to clear. And this is something 0:02:24.160 --> 0:02:26.480 that the companies are relying on here that they believe 0:02:26.520 --> 0:02:29.480 it's very efficient and could lead to lower costs for consumers. 0:02:29.919 --> 0:02:33.400 Um and and and this testimony by Signals CEO undermines 0:02:33.440 --> 0:02:36.240 that defense well. And it sort of undermines the idea 0:02:36.320 --> 0:02:39.280 that the merger would bring a lot of benefits to 0:02:39.400 --> 0:02:42.960 customers who might otherwise choose Signet, doesn't it. Yeah, absolutely, 0:02:43.080 --> 0:02:44.799 you know, it undermines I think in a couple of 0:02:44.800 --> 0:02:47.200 different ways. First of all, if they're just not getting 0:02:47.200 --> 0:02:49.920 along about the way they're going to integrate, it suggests 0:02:49.960 --> 0:02:52.360 that they won't even achieve the efficiencies or might have 0:02:52.440 --> 0:02:56.000 difficulty achieving the efficiencies they allege that will come from this. 0:02:56.440 --> 0:02:58.840 From this combination. That's the first thing. And the second 0:02:58.880 --> 0:03:00.639 thing is this is a of g issue that the 0:03:00.720 --> 0:03:03.200 d o J has said, this is going to keep 0:03:03.240 --> 0:03:06.880 SIGNA from competing as Signa competes today, um and and 0:03:06.960 --> 0:03:10.840 this supports that in a way. So as the trial 0:03:10.880 --> 0:03:13.880 has progressed, is the d o J making a good case? 0:03:15.280 --> 0:03:17.240 You know, I haven't been attending the trial, but from 0:03:17.240 --> 0:03:19.040 what I've been reading and the papers I've read that 0:03:19.040 --> 0:03:20.600 have been filed that, you know, it seems like they're 0:03:20.600 --> 0:03:24.360 making a good case um and and their economists are 0:03:24.360 --> 0:03:26.679 supporting where they're alleging about the markets and harm to 0:03:26.720 --> 0:03:30.519 the markets. Um It's so far it seems like the 0:03:30.600 --> 0:03:33.720 judges bit a bit skeptical of the defendants of the 0:03:33.720 --> 0:03:36.200 insurance companies here and seems to be supporting the d 0:03:36.400 --> 0:03:39.160 j's national market definition, which I think is a big 0:03:39.200 --> 0:03:41.960 deal here because in past insurance cases, this hasn't been 0:03:42.000 --> 0:03:44.840 a market definition that the d J has relied on 0:03:44.960 --> 0:03:48.600 to get settlements and mergers. Well, another unusual thing that 0:03:48.640 --> 0:03:51.640 seems to have happened in the cases that the Anthem 0:03:51.720 --> 0:03:57.160 CEO testified that they've kept their planning process secret from 0:03:57.600 --> 0:04:00.320 the company, signal that they were merging with what what's 0:04:00.360 --> 0:04:02.400 that all of them? Yeah, you know, it's it's very 0:04:02.440 --> 0:04:06.160 strange now now pre closing integration planning is a weird 0:04:06.200 --> 0:04:09.240 thing because you know, before companies closed, but after they've 0:04:09.240 --> 0:04:12.160 signed a merger agreement, they technically still have to behave 0:04:12.200 --> 0:04:14.760 in the market as competitors. So this whole integration planning 0:04:14.760 --> 0:04:17.520 thing is always something that the antitrust lawyers are watching 0:04:17.760 --> 0:04:20.799 very carefully because there is something that's called gun jumping 0:04:21.040 --> 0:04:23.640 that companies can be fined for and can also delay 0:04:23.640 --> 0:04:26.120 Emerger's closing. That if they integrate a little too much, 0:04:26.120 --> 0:04:28.400 they get a little too close and what they're doing 0:04:28.680 --> 0:04:31.800 can actually be an antitrust violation in and of itself. So, 0:04:32.000 --> 0:04:35.599 you know, it seems like Signa's lawyers were probably saying, hey, 0:04:35.640 --> 0:04:37.960 you know, it looks like we're facing this challenge and 0:04:37.960 --> 0:04:39.800 and maybe you should slow down on what you're doing 0:04:39.839 --> 0:04:41.839 with integration. And it seems like Anthem kind of took 0:04:41.880 --> 0:04:44.039 off and did their own thing and kept its secret 0:04:44.080 --> 0:04:47.520 from Signa, and you know it, it's definitely strange. Although 0:04:47.839 --> 0:04:50.520 some integration planning can take place in secret, but it 0:04:50.600 --> 0:04:53.200 still just doesn't bode well for these companies being able 0:04:53.240 --> 0:04:56.200 to achieve these efficiencies. Does it seem as if they're 0:04:56.279 --> 0:05:00.360 learning more as the trial goes on and perhaps wanting 0:05:00.440 --> 0:05:03.600 this merger less even Well, you know, that's a good question, 0:05:03.640 --> 0:05:06.400 an interesting question, because I think there's been speculation for 0:05:06.480 --> 0:05:08.600 quite a long time that SIGNA is not that interested 0:05:08.640 --> 0:05:10.840 anymore in this deal, that there was trouble at the 0:05:10.880 --> 0:05:14.280 beginning even getting into a purchase agreement, into an agreement. 0:05:14.560 --> 0:05:16.680 A lot of controversy about that it took them a 0:05:16.680 --> 0:05:19.160 long time to come to an agreement. Um, some think 0:05:19.200 --> 0:05:21.640 it was just in reaction to ETNA humanity, you know, 0:05:21.760 --> 0:05:24.200 deciding to emerge. That was kind of a race to 0:05:24.320 --> 0:05:28.720 get into a mergered yourself and SIGNA will get if 0:05:28.720 --> 0:05:32.000 if the deal is blocked for because of regulators, because 0:05:32.000 --> 0:05:35.599 of antitrust, SIGNA would get one point eight five billion 0:05:35.680 --> 0:05:40.680 dollars a fee from Anthem. But SIGNA has to continue 0:05:40.720 --> 0:05:43.159 to defend and support this deal all the way through 0:05:43.160 --> 0:05:44.800 to their end date, which is I think in the 0:05:44.800 --> 0:05:47.400 first quarter or second quarter of two thousand seventeen, in 0:05:47.520 --> 0:05:50.279 order to get that fee. So do you think that 0:05:50.440 --> 0:05:53.599 maybe there's some speculating a bit here, But do you 0:05:53.600 --> 0:05:55.599 think that there's some motivation on the part of the 0:05:55.640 --> 0:05:59.200 SIGNA executives. But you know, including their CEO, perhaps not 0:05:59.240 --> 0:06:02.000 to be is enthusiastick here as they might otherwise be. 0:06:02.920 --> 0:06:05.160 I it could be, It could be. Now, the thing 0:06:05.240 --> 0:06:07.080 is they have to they have a fine line they 0:06:07.080 --> 0:06:10.400 have to tread because according to their purchase agreement, they 0:06:10.400 --> 0:06:13.920 will not be able to collect that reverse termination fee 0:06:13.920 --> 0:06:17.080 that's what it's called when the buyer pays the seller um. 0:06:17.120 --> 0:06:19.279 They won't be able to collect that fee if the 0:06:19.400 --> 0:06:22.560 failure to get regulatory approval is due to a willful 0:06:22.600 --> 0:06:25.320 breach by SIGNA. So you know, they don't want to 0:06:25.360 --> 0:06:27.800 put themselves into a position where that kind of an 0:06:27.800 --> 0:06:30.359 allegation could be made. And at the very least ANTHEM 0:06:30.400 --> 0:06:33.200 could later, let's say this all falls apart and they say, 0:06:33.240 --> 0:06:35.680 you know, you ows this termination fee, that Anthem could 0:06:35.680 --> 0:06:37.479 then try to fight that and have some grounds to 0:06:37.520 --> 0:06:42.159 fight that. Why is the judge bifurcating or making the 0:06:42.240 --> 0:06:46.799 trial into two separate many trials? I believe the judge 0:06:47.000 --> 0:06:49.120 probably did that because the d o J sort of 0:06:49.120 --> 0:06:52.120 alleged two different kinds of buckets of harm here and 0:06:52.240 --> 0:06:55.279 they're quite different. So one bucket of harm is in 0:06:55.360 --> 0:06:58.480 this national market where where the d o J envisions 0:06:58.520 --> 0:07:01.440 some large company with employ ease spread across the country 0:07:01.720 --> 0:07:05.719 wanting to contract negotiating contract with just one entity to 0:07:05.760 --> 0:07:09.080 serve all their employees across the country, particularly for self 0:07:09.120 --> 0:07:13.200 insured employers like Bloomberg Um, that in in that market 0:07:13.200 --> 0:07:15.840 there will be harm. But the DJ is also alleged 0:07:15.920 --> 0:07:19.080 separately in the more traditional insurance markets that in local 0:07:19.280 --> 0:07:22.640 metropolitan areas I think thirty five they claim where these 0:07:22.640 --> 0:07:25.960 two companies compete head to head to you know, ensure 0:07:26.040 --> 0:07:28.880 large group employers in those local regions, that that's a 0:07:28.920 --> 0:07:31.440 different bucket of harm. And so the kind of economic 0:07:31.480 --> 0:07:34.520 analysis and and data that the judge has to evaluate 0:07:34.600 --> 0:07:37.600 will be different depending on whether it's this national market 0:07:37.800 --> 0:07:40.440 for you know, self insured employers or whether it's just 0:07:40.480 --> 0:07:47.040 your typical regional um commercial large group employers. So, Jennifer, 0:07:47.080 --> 0:07:50.760 you have had some doubts about whether this merger was 0:07:50.800 --> 0:07:54.600 going to be approved for some time. We're part way 0:07:54.600 --> 0:07:58.600 through the trial now, we've got had some pretty interesting testimony. 0:07:58.640 --> 0:08:00.160 What do you think is going to happen as we 0:08:00.240 --> 0:08:03.480 move towards the judge's decision. Yeah, I don't think it 0:08:03.520 --> 0:08:06.280 looks good for the insurers. I think that the argument 0:08:06.320 --> 0:08:10.600 they're making is not usually a winning argument. That efficiencies 0:08:10.600 --> 0:08:13.080 will win out the day where there are otherwise are 0:08:13.120 --> 0:08:16.000 anti competitive effects. This this is something that needs to 0:08:16.040 --> 0:08:18.160 be evaluated in mergers, and it is meant to be 0:08:18.240 --> 0:08:21.240 sort of a mitigating factor, but it just doesn't generally 0:08:21.240 --> 0:08:25.000 win the day where there will be some lessening of harm. 0:08:25.040 --> 0:08:27.720 And you're talking about healthcare markets, and you're talking about 0:08:27.720 --> 0:08:30.120 people's health and their costs for doctors, which is a 0:08:30.240 --> 0:08:33.080 very sensitive area right now, and and one of the 0:08:33.120 --> 0:08:35.400 ways that the companies claim that they'll be able to 0:08:35.400 --> 0:08:39.000 lower consumers costs looks like it's because they'll have better 0:08:39.080 --> 0:08:41.840 clout as a combined company to be able to reduce 0:08:41.880 --> 0:08:45.280 the reimbursement rates they're paying to providers like doctors, hospitals. 0:08:45.679 --> 0:08:48.480 You know, that is not really a great argument to make. 0:08:48.840 --> 0:08:52.040 Where the issue is when you start squeezing these doctors 0:08:52.040 --> 0:08:55.280 and dictating terms, it could reduce the quality of healthcare. 0:08:56.520 --> 0:08:59.960 Thank you very much to Jennifer re As, senior litigation 0:09:00.000 --> 0:09:04.040 analysts for Bloomberg Intelligence, talking about the Anthem Signal merger 0:09:04.080 --> 0:09:06.240 and the unusual testimony of the c E. O s 0:09:06.720 --> 0:09:09.520 at that trial, which raised some questions about whether this 0:09:09.600 --> 0:09:11.800 merger has got any chance of going through at all.