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Hospitals Argue Against Anthem Purchase of Cigna

By Jad Chamseddine, CQ Roll Call

March 2, 2016 -- The American Hospital Association (AHA) is renewing its opposition to Anthem Inc.’s acquisition of Cigna Corp., arguing the transaction would further hurt competition by increasing the Blue Cross and Blue Shield Association’s market power in the health insurance industry.

The hospital association said in a letter to Assistant Attorney General Bill Baer the merger would "further entrench" Blue Cross health insurance plans in an already uncompetitive system.

Anthem is part of Blue Cross Blue Shield, an association composed of 36 independent and locally operated Blue Cross and Blue Shield companies that provide health insurance coverage to about 105 million members across the country.

"The addition of Cigna adds 14.7 million more lives," the hospital association said. "That is more than one third of the entire U.S. population."

The hospital association—the largest trade organization representing hospitals, health systems and other health care organizations—has been urging lawmakers and regulators to block the deal since the transaction was first announced in July.

AHA members were invited to voice their opposition to the merger during hearings held by the House and Senate Judiciary committees last year. The association, over the past six months, sent several letters to the Justice Department pointing to extreme consolidation and lack of choice for consumers in choosing insurance as reasons to block the combination.

This is the first time, however, the hospital group focused on Anthem's membership in the Blue Cross association as a reason for regulators to reject the deal.

AHA argues throughout the letter the increased market power Blue Cross would gain from the Cigna transaction would lead to a rise in premiums and further help the health insurance group keep out smaller competitors. Blue Cross is able to negotiate better discounts because of its scale, a crucial factor which new entrants lack. The hospital association pointed to a Justice Department study regarding new health care insurance entrants that shows the difficulty facing new entrants.

"New insurers cannot compete with incumbents for enrollees without provider discounts, but they cannot negotiate for discounts without a large number of enrollees," Justice’s study said.

Besides being able to band together in offering better deals to enrollees, AHA said Blue Cross members are aided by the name, which brings "brand familiarity." According to a study by consulting firm McKinsey, the brand "is likely to play a key role in consumer choice on the exchanges."

The hospital association said even Anthem’s plans to expand have been thwarted in Blue Cross-dominated jurisdictions where Anthem lacks a Blue Cross license. Anthem operates under several names including Amerigroup and Simply Healthcare in more than a dozen states where it doesn't qualify to be a Blue Cross licensee based on local net revenue requirements.

"Despite its size and business acumen, Anthem’s effort appear to have failed because it could not compete effectively outside its assigned territories against another" Blue Cross provider, AHA said, accusing the Blue Cross rules of hurting competition.

AHA argues Anthem's ultimate goal is to incorporate Cigna members into the "Blue system" by rebranding the Cigna name and taking advantage of the "Blue network" in other states where it lacks a license.

But Anthem disputes the letter’s accuracy, saying not all 14.7 million members would join the Blue Cross association. Anthem is a Blue Cross licensee in "only 14 states," it said, and "outside those 14 states, the Blues will continue to compete just as they did prior to the acquisition."

"Cigna products will not become Anthem BCBS products in states where we do not have a Blue license," an Anthem spokeswoman said in an email.

AHA disputes that Cigna would be a strong competitor, though, saying "even if Cigna did jockey against other Blue plans for some opportunities when the deal was closed" it would not introduce "significant" competition to alleviate damages done by the deal.

The incorporation of Cigna into Anthem will prove tricky and was a source of contention between the two companies during takeover discussions. When Cigna initially rejected an offer by Anthem in June, Cigna CEO David Cordani questioned how the combined company would "comply with the intricate rules and constraints administered by the BCSBA."

Cordani also highlighted some of the points made by AHA regarding the lack of real competition in areas where the Blue Cross association is the major provider of health care.

Cordani pointed to several antitrust lawsuits that "could redefine the market for all of its member companies." The Blue Cross members were hit last month with another antitrust lawsuit, accusing the association of conspiring among its members to hurt several medical centers in the state of Oklahoma.

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