United States of America v. Anthem, Inc.

UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF COLUMBIA

____________________________________

)

UNITED STATES OF AMERICA, et al., )

)

Plaintiffs, )

)

v. ) Civil Action No. 16-1493 (ABJ)

)

ANTHEM, INC., et al., )

)

Defendants. )

____________________________________)

MEMORANDUM OPINION

Anthem and Cigna, the nation’s second and third largest medical health insurance carriers,

have agreed to merge. They propose to create the single largest seller of medical healthcare

coverage to large commercial accounts, in a market in which there are only four national carriers

still standing. The United States Department of Justice, eleven states, and the District of Columbia

have sued to stop the merger, and they have carried their burden to demonstrate that the proposed

combination is likely to have a substantial effect on competition in what is already a highly

concentrated market. Therefore, the Court will not permit the merger to go forward.

Judgment will be entered in favor of the plaintiffs on their first claim, and the merger will

be enjoined due to its likely impact on the market for the sale of health insurance to “national

accounts” – customers with more than 5000 employees, usually spread over at least two states –

within the fourteen states where Anthem operates as the Blue Cross Blue Shield licensee. So the

Court does not need to go on to decide the question of whether the combination will also affect

competition in the sale to national accounts within the larger geographic market consisting of the

entire United States. The Court also does not need to rule on the allegations in plaintiffs’ second

claim that the merger will harm competition downstream in a different product market: the sale

of health insurance to “large group” employers of more than 100 employees in thirty-five separate

local regions within the Anthem states. But the evidence has shown that the proposed acquisition

will have an anticompetitive effect on the sale of health insurance to large groups in at least one of

those markets: Richmond, Virginia. Finally, given the ruling against the merger, the Court need

not reach the allegations in the complaint that the merger will also harm competition upstream in

the market for the purchase of healthcare services from hospitals and physicians in the same 35

locations.

What follows is a summary of the ruling on the first claim in the complaint. The Court

finds first that the market for the sale of health insurance to national accounts is a properly drawn

product market for purposes of the antitrust laws, and that the fourteen states in which Anthem

enjoys the exclusive right to compete under the Blue Cross Blue Shield banner comprise a relevant

geographic market for that product.

The evidence demonstrated that large national employers have a unique set of

characteristics and needs that drive their purchasing processes and decisions, and that the industry

as a whole recognizes national accounts as a distinct market. Witness after witness agreed that

there are only four national carriers offering the broad medical provider networks and account

management capabilities needed to serve a typical national account. Notably, both Anthem and

Cigna have established business units devoted to national accounts, and these separate profit and

loss centers each have their own executives, sales teams, and customer service personnel. While

various brokers and insurance carriers may draw differing lines to define the boundaries of a

“national account,” the government’s use of 5000 employees as the threshold is consistent with

how both Anthem and Cigna identify the accounts within their own companies. Moreover, when

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measured against the appropriate legal standard, the government’s definition was sufficient to

include reasonable substitutes and to fairly capture the competitive significance of other products.

The geographic market also passes the legal test since the Blue Cross Blue Shield

Association rules have a significant impact on the commercial conditions governing the sale of

medical coverage to national accounts, and Anthem’s exclusive territory is where the acquisition

will have a direct and immediate effect on competition.

Next, the Court finds that plaintiffs have established that the high level of concentration in

this market that would result from the merger is presumptively unlawful under the U.S.

Department of Justice and Federal Trade Commission Horizontal Merger Guidelines, which courts

regularly consult for guidance in these cases. The evidence has also shown that the merger is likely

to result in higher prices, and that it will have other anticompetitive effects: it will eliminate the

two firms’ vigorous competition against each other for national accounts, reduce the number of

national carriers available to respond to solicitations in the future, and diminish the prospects for

innovation in the market.

Within the national accounts market, health benefits coverage is a differentiated product,

which means that individually customized policies are sold to customers one at a time – in this

case, through a bid solicitation process. National account customers evaluate responses to their

requests for proposals based upon a number of factors, including the amount of the fees charged

by each carrier for claims administration services; the quality and breadth of the carrier’s medical

provider network; the extent of the discounts the carrier has negotiated with those providers;

whether the carrier is willing to guarantee that the customer’s medical costs will not increase by

more than a particular percentage; and other features of interest to any particular customer. The

expert testimony as well as the firms’ internal documents reflect that while Anthem tends to enjoy

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superior discounts, the two companies are competing head-to-head with respect to many of the

other aspects of their offerings, all of which can factor into the employer’s total cost per employee

for medical benefits.

The defense came forward with evidence to rebut the presumption, shifting the burden back

to the government, but the Court concludes based on the entire record that plaintiffs have carried

their burden to show that the effect of the acquisition may be to substantially lessen competition

in violation of Section 7 of the Clayton Antitrust Act. Defendants insist that customers face an

array of alternatives, and that there are many new entrants poised to shake up the market. But

entering the commercial health insurance market is not such an easy proposition. And while third

party administrators and new insurance ventures being launched by strong local healthcare systems

may be attractive to smaller or more localized customers, it became quite clear from the evidence

that the larger a company gets, and the more geographically dispersed its employees become, the

fewer solutions are available to meet its network and administrative needs. Thus, regional firms

and new specialized “niche” companies that lack a national network are not viable options for the

vast majority of national accounts, and they will not ameliorate the anticompetitive effects of this

merger.

While defense economists theorized that large customers are free to “slice” their insurance

business and contract with multiple carriers to cover different geographic regions and employee

preferences, the record shows that there are substantial costs and administrative burdens associated

with fragmentation, so employers do not elect to do it very often. The national accounts that do

slice tend to use no more than two companies, usually chosen from among the big four national

carriers and possibly a particularly strong regional option, such as Kaiser, the uniquely popular

health maintenance organization in California. Anthem and its experts made much of the advent

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of private exchanges – sets of prepackaged plans that afford customers the opportunity to offer

their employees a choice of several options – but those have proved to be largely just another

vehicle for delivering the major national carriers’ products to the market. The defense repeatedly

drew attention to the existence of third party administrators, provider-sponsored plans, and other

specialty firms that have recently begun to populate the insurance marketplace. But to the extent

these so-called new entrants and competitors are owned by, teamed with, rent networks from, or

funnel business to the big four national carriers, they do not alter the competitive landscape, and

in fact, they represent multiple additional arenas where the constriction of competition will be felt.

Anthem has taken the lead in defending the transaction, and it contends that any

anticompetitive effects will be outweighed by the efficiencies it will generate. It points, in part, to

substantial general and administrative (“G&A”) cost savings that have been projected to be

achieved through the combination of the two companies. And the centerpiece of its defense is its

contention that Anthem and Cigna national account customers will save a combined total of over

$2 billion in medical expenditures because Cigna members will be able to access the more

favorable discounts that Anthem has negotiated with its provider network, Anthem members will

have the benefit of any lower rates that Cigna has obtained, and those costs are paid directly by

the employers. In short, Anthem maintains that the overriding benefit of the merger is that the

new company will be able to deliver Cigna’s highly regarded value-based products at the lower

Anthem price.

But the claimed medical cost savings are not cognizable efficiencies since they are not

merger-specific, they are not verifiable, and it is questionable whether they are “efficiencies” at

all. And the projected G&A efficiencies suffer from significant verification problems as well.

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The law is clear that a defendant must both substantiate any claimed efficiencies and

demonstrate that they are “merger-specific,” which means that it must show that the savings cannot

be accomplished by either company alone in the absence of the proposed merger. But here,

Anthem and Cigna have already obtained the provider discounts alone. The medical network

savings are not merger-specific because they are based upon the application of existing discounts

to an existing patient population that the companies have already delivered to the providers; the

calculations do not depend upon the expectation that the volume of patients will increase by virtue

of the merger.

Furthermore, it is plain that the companies do not have to merge for customers to be able

to access Anthem’s lower provider rates: any customers that value the discounts above other

aspects of the contractual arrangement can choose Anthem as their carrier today. As the Anthem

executives responsible for the integration agreed, one of the most likely mechanisms to be

employed to achieve the savings – the “rebranding” of Cigna customers as Blue customers – is no

different from Anthem’s ongoing marketing of its products on a daily basis. Also, there is nothing

stopping Anthem from improving its wellness programs, or any other offerings that Cigna now

does better, on its own.

It is also questionable whether Anthem’s ability to drive a hard bargain with providers by

virtue of its size can be characterized as an “efficiency” at all. The Guidelines define an efficiency

as something that would enable the combined firm to achieve lower costs for a given quantity and

quality of product. Here, the combined firm will not be selling healthcare. Its “product” in the

national accounts market – as Anthem has emphasized since the first day of the trial – is “ASO”

or “administrative services only” contracts, which include claims administration, claims

adjudication, and access to a network of health providers. So there is no evidence that the claimed

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network savings will arise because the cost of what the merged firm produces, and what it sells in

the relevant market, will go down.

Anthem characterizes this scenario as a supply-side efficiency resulting from the merger,

but it has not shown that there is anything about the mere combination of the carriers’ two pools

of patients that will enable doctors or hospitals to treat patients more expeditiously or at a lower

cost. Since the medical cost savings will not be accomplished by streamlining the two firms’

operations, creating a better product that neither carrier can offer alone, or even by enabling the

providers to operate more efficiently, they do not represent any “efficiency” that will be introduced

into the marketplace.

Anthem is asking the Court to go beyond what any court has done before: to bless this

merger because customers may end up paying less to healthcare providers for the services that the

providers deliver even though the same customers are also likely to end up paying more for what

the defendants sell: the ASO contracts that are the sole product offered in the market at issue in

this merger. It asks the Court to do this because it is the insurers that negotiate the in-network

provider discounts, access to those rates is part of what the customers are buying when they buy

health insurance, and medical costs account for the overwhelming portion of any customer’s total

healthcare expenditure. In short, Anthem is encouraging the Court to ignore the risks posed by the

proposed constriction in the health insurance industry in the relevant market on the grounds that

consumers might benefit from the large size of the new company in other ways at the end of the

day. But this is not a cognizable defense to an antitrust case; the antitrust laws are designed to

protect competition, and the claimed efficiencies do not arise out of, or facilitate, competition.

Moreover, Anthem’s own documents reveal that the firm has considered a number of ways to

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capture the network savings for itself and not pass them through to the customers as it insisted in

court that it would.

Anthem argues that even if expanding access to provider discounts does not technically

qualify as an antitrust efficiency that can offset anticompetitive effects on a dollar-for-dollar basis,

it is a factor to be taken into consideration in assessing the overall impact of a merger in a market

where it is universally acknowledged that growing costs must be controlled. In short, the Court

should decide that the pressure the merger would place on providers would be beneficial to

consumers in general. But the record created for this case did not begin to provide the information

needed to reveal whether all providers, no matter their size, location, or financial structure, are

operating at comfortable margins well above their costs, as Anthem’s expert suggested, or whether

Anthem’s use of its market power to strong-arm providers would reduce the quality or availability

of healthcare as the plaintiffs alleged. And the trial did not produce the sort of record that would

enable the Court to make – nor should it make – complex policy decisions about the overall

allocation of healthcare dollars in the United States.

More important, Anthem has not been able to demonstrate that its plan is achievable or that

it will benefit consumers as advertised. One of the other key strategies Anthem intends to employ

to generate the claimed savings is to unilaterally invoke provisions in provider contracts that

require physicians or facilities to extend Anthem’s discounted fee schedule to Anthem’s affiliates.

But even the Anthem executives have expressed doubts that the providers will take this lying down,

and they have acknowledged that they have no plan in hand for whether they will proceed by

rebranding on the customer side, by renegotiating contracts on the provider side, or by enforcing

these affiliate clauses in any particular situation.

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There was also considerable testimony that an enforced reduction in fees paid to providers

through rebranding or contractual mechanisms could erode the relationships between insurers and

providers. It would also reduce the collaboration that industry participants agree is an essential

aspect of the growing trend to move from a pure fee-for-service based system to a more value-

based model as a means of both lowering the cost and improving the outcome of the delivery of

healthcare in this country. And here, the Court cannot fail to point out that it is bound to consider

all of the evidence in the record in connection with the question of whether the merger will benefit

competition, and in this case, that includes the doubt sown into the record by Cigna itself.

This brings us to the elephant in the courtroom. In this case, the Department of Justice is

not the only party raising questions about Anthem’s characterization of the outcome of the merger:

one of the two merging parties is also actively warning against it. Cigna officials provided

compelling testimony undermining the projections of future savings, and the disagreement runs so

deep that Cigna cross-examined the defendants’ own expert and refused to sign Anthem’s Findings

of Fact and Conclusions of Law on the grounds that they “reflect Anthem’s perspective” and that

some of the findings “are inconsistent with the testimony of Cigna witnesses.” Anthem urges the

Court to look away, and it attempts to minimize the merging parties’ differences as a “side issue,” a

mere “rift between the CEOs.” But the Court cannot properly ignore the remarkable circumstances

that have unfolded both before and during the trial.

The documentary record and the testimony reflect that the pre-merger integration planning

that is necessary to capture any hoped-for synergies is stalled and incomplete. Much of the work

has not proceeded past the initial stage of identifying goals and targets to actually specifying the

steps to be taken jointly to implement them. Moreover, the relationship between the companies is

marked by a fundamental difference of opinion over the effect the Anthem strategy to impose

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lower rates on providers and move members away from Cigna’s network will have on the

collaborative model of care that is central to the Cigna brand. Both Cigna witnesses and providers

have testified that effective collaboration requires more of the physicians and hospitals, and they

expect to be paid for it, and the engagement with members to improve behaviors that can affect

wellness requires an investment of resources on the part of the insurer. All of this raises serious

questions about when, how, and whether the medical savings can be achieved, whether the G&A

savings can be verified, and whether there is any basis in the record to believe in the rosy vision

being put forward by Anthem of a new national carrier that delivers the Cigna product at the

Anthem price.

In sum, the theme of Anthem’s defense is that its greater ability to command discounts

from providers will save customers money at the end of the day. At the same time, Cigna says

that its collaboration with providers will save customers money at the end of the day. Plaintiffs

take the position that customers should continue to have a choice between these options, and the

Court agrees.

While Anthem has also moved to incorporate quality and cost savings incentives into its

provider contracts, Cigna has sought to differentiate itself with its approach towards reducing costs

by increasing health. Its message is that better information and clinical management on the

provider side, along with encouraging behaviors that support health on the patient side, can reduce

a patient’s need to be hospitalized or undergo expensive medical procedures at all, and that this

decrease in utilization will reduce the total medical cost per employee over time. For this reason,

some customers prefer Cigna notwithstanding its discount disadvantage, and there was some

testimony from medical personnel that the approach is working. Eliminating this competition from

the marketplace would diminish the opportunity for the firms’ ideas to be tested and refined, when

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this is just the sort of innovation the antitrust rules are supposed to foster. Considering all of these

circumstances, and for all of the reasons set forth in greater detail in this opinion, the Court is

persuaded that the merger should not take place.

OUTLINE OF OPINION

BACKGROUND .......................................................................................................................... 13

I. The Parties and Proposed Merger ......................................................................................13

II. Procedural History .............................................................................................................15

III. Overview of the Commercial Healthcare Industry ............................................................17

A. The customers............................................................................................................ 17

B. The plans ................................................................................................................... 18

C. The networks ............................................................................................................. 19

D. Other industry participants and options for employers ............................................. 21

LEGAL STANDARD ................................................................................................................... 22

ANALYSIS ................................................................................................................................... 24

I. Plaintiffs have met their initial burden to show that the merger is

presumptively anticompetitive in the market for the sale of health insurance to

national accounts within the fourteen Anthem states. .......................................................25

A. The sale of medical health coverage to national accounts within the fourteen

Anthem states is a relevant market. ........................................................................... 25

1. The sale of health insurance to national accounts with more than 5000

employees is a relevant product market. ............................................................... 26

a. The proposed product market ...................................................................... 29

b. National accounts are a unique set of customers with unique needs. .......... 30

c. 5000 employees is an appropriate definition. .............................................. 32

1) Practical indicia support the definition. ................................................. 32

2) Economic expert testimony supports the definition............................... 34

a) Plaintiffs’ expert ............................................................................. 35

b) Defense experts .............................................................................. 36

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2. The fourteen Anthem states comprise a relevant geographic market. .................. 40

B. Market share and concentrations in the relevant market establish the

presumption. .............................................................................................................. 48

1. Plaintiffs’ expert’s calculations............................................................................. 50

2. Defense experts’ critiques ..................................................................................... 53

C. Evidence of price effects supports the prima facie case. ........................................... 58

II. Defendants have come forward with evidence to rebut the prima facie case. ...................60

III. Plaintiffs have carried their burden to establish that the merger is likely to harm

competition. .......................................................................................................................64

A. The merger will have the unilateral effect of eliminating the existing head-to-

head competition between Anthem and Cigna. ......................................................... 65

B. The merger will reduce the number of significant competitors in the market. ......... 73

C. National account customer sophistication and bargaining power are not

sufficient to ameliorate the anticompetitive effects. ................................................. 74

D. New entrants and expansion will not be a constraint on the new firm. ..................... 74

1. There are significant barriers to entry and history shows a lack of success

by new entrants. .................................................................................................... 76

2. Large regional carriers are not an option. ............................................................. 79

3. Slicing is not a practical solution. ......................................................................... 80

4. Other options do not serve national accounts’ needs and are often alternative

distribution channels for the Big Four. ................................................................. 82

E. The merger will reduce innovation in the market. .................................................... 89

IV. The claimed efficiencies do not outweigh the anticompetitive effects of the

merger. ...............................................................................................................................92

A. Anthem has presented some evidence of efficiencies. .............................................. 92

1. Medical Cost Savings ........................................................................................... 92

2. General and Administrative Savings .................................................................... 97

B. The Court may consider evidence of efficiencies. .................................................... 99

C. The claimed savings are not cognizable efficiencies. ............................................. 102

1. The medical network savings are not merger-specific. ...................................... 102

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2. The claimed savings are not verifiable. .............................................................. 112

3. It is questionable whether the medical cost savings can rebut the prima facie

case since there is no evidence of “efficiencies” created in the relevant

market. ................................................................................................................ 123

D. The potential buy-side savings do not change the analysis of the merger’s

competitive effects. ................................................................................................. 126

V. The merger is also likely to cause anticompetitive harm in the market for the sale

of medical insurance coverage to large group employers. ...............................................130

A. Plaintiffs have met their initial burden to show that the merger is presumptively

anticompetitive in the Richmond, Virginia market. ................................................ 131

1. Relevant market .................................................................................................. 131

2. Market share and concentration establish the presumption. ............................... 134

B. Defendants’ rebuttal evidence ................................................................................. 137

C. Plaintiffs have carried their burden to establish that the merger is likely to harm

competition in the Richmond market. ..................................................................... 137

CONCLUSION ........................................................................................................................... 140

BACKGROUND

I. The Parties and Proposed Merger

Anthem is “one of the largest health benefits companies . . . in the United States, serving

38.6 million medical members through [its] affiliated health plans as of December 31, 2015.”

PX 125, Anthem SEC 10-K Filing, Feb. 19, 2016, at 48. It offers medical healthcare benefits to a

variety of customers including individuals, large and small employers, and Medicaid and Medicare

enrollees. PX 125; PX 701. The company, which is based in Indianapolis, Indiana, is a member

of the Blue Cross Blue Shield Association (“BCBSA”), an association of thirty-six health

insurance companies licensed to use the Blue Cross and/or the Blue Shield brands. See Swedish

(Anthem) Tr. 222. Anthem holds the exclusive license to use the Blue brands in all or part of

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fourteen states. PX 125; PX 701. 1 Anthem also owns and operates non-Blue Cross entities, which

market health coverage under the Amerigroup, Simply, and CareMore brands in other states. PX

125.

Cigna is a health services company based in Bloomfield, Connecticut. PX 701. It offers

products and services to customers, including large employers, in the fifty states and the District

of Columbia, as well as health benefits to employers internationally, operating in more than thirty

countries. Cigna Answer [Dkt. 144] ¶ 11; Cigna SEC10-K Filing, Feb. 25, 2016, PX 284; DX 333.

It covers approximately thirteen million medical members in the United States. Cigna Answer

¶ 11. Cigna also offers various specialty products and services, such as behavioral health,

disability insurance, and dental and vision coverage, among others. See PX 284.

On July 23, 2015, Anthem and Cigna entered into an Agreement and Plan of Merger, which

their separate shareholders approved on December 3, 2015. PX 125; PX 284. According to

Anthem, the transaction is valued at approximately $54.2 billion. Anthem Answer [Dkt. 15] ¶ 1.

The planned equity ownership of the combined company is to be comprised of approximately 67%

Anthem shareholders and 33% Cigna shareholders, PX 126, and the new firm is slated to provide

medical coverage to more than fifty-three million people across its commercial and government

segments. DX 325.

The two firms are bound by their merger agreement through April 30, 2017. See Anthem’s

Reply Mem. in Supp. of Mot. for Expedited Status Conf. [Dkt. 17]. But since the initial decision

1 The fourteen Anthem service areas are California (Blue Cross license only), Colorado,

Connecticut, Georgia, Indiana, Kentucky, Maine, Missouri (excluding thirty counties in western

Missouri), Nevada, New Hampshire, New York (excluding certain areas), Ohio, Virginia

(excluding certain counties near Washington, D.C.), and Wisconsin. PX 125. Throughout the

trial, the parties have referred to these territories as the Anthem “states,” even though Anthem does

not have an exclusive license for all fourteen states in their entirety, and the Court will use that

designation in this opinion.

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to merge was announced, the relationship between the parties has started to fray. In December of

2015, the companies began to exchange letters and emails related to the integration, see, e.g., PX 2,

PX 8, and they grew more heated over time. Through its CEO, Jospeh Swedish, Anthem expressed

concerns about the pace and quality of the integration effort and the amount of data and information

that was being shared. PX 1; PX 3; see also Swedish (Anthem) Tr. 323. Meanwhile, Cigna

complained that Swedish was improperly reducing the role that the current Cigna CEO, David

Cordani, would play in the new company, PX 4, and it took issue with Anthem’s approach towards

medical providers and its plans for the movement of members from Cigna to the Anthem brand.

Cordani (Cigna) Tr. 492–93. By April of 2016, Cigna’s participation in the integration activities

had slowed, PX 725, and when this lawsuit was filed, it stopped altogether. See Schlegel (Anthem)

Tr. 1412–13, 1431–32. By July 2016, counsel for the two companies began writing letters

accusing the other party of breaching the merger agreement. See, e.g., PX 16; PX 17; PX 18;

PX 19.

II. Procedural History

On July 21, 2016, plaintiffs the United States, the States of California, Colorado,

Connecticut, Georgia, Iowa, Maine, Maryland, New Hampshire, New York, and Tennessee, the

Commonwealth of Virginia, and the District of Columbia sued to enjoin the merger. Compl.

[Dkt. 1]. Plaintiffs allege that the Anthem-Cigna merger will violate Section 7 of the Clayton Act,

15 U.S.C. § 18, because it will harm competition in the sale of commercial healthcare insurance

to two groups of customers: “national accounts” and “large group employers.” Compl. ¶ 8.

In their first claim, plaintiffs allege that the acquisition will harm competition in the sale

of health insurance to national accounts both within a geographic market consisting of the fourteen

Anthem states and in a market consisting of the United States as a whole. Compl. ¶¶ 19–37. The

second claim alleges anticompetitive effects in the market for the sale of health benefits coverage

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to large group employers in 35 separate local regions within those states. Compl. ¶¶ 38–50. And

in its third claim, plaintiffs allege that the newly formed company will use its market power to

pressure doctors, hospitals, and other providers to lower their prices, so the merger will result in

harm to competition in the market for the purchase of healthcare services, or a monopsony, in the

same thirty-five geographic markets. Compl. ¶¶ 64–75. 2

Anthem answered the complaint on July 26, 2016, and Cigna answered on September 19,

2016. Extensive discovery was undertaken on an expedited schedule under the supervision of a

Special Master appointed by the Court with the parties’ consent. See Order Appointing Special

Master [Dkt. 66], Scheduling Order [Dkt. 68], Interim Case Mgmt. Order [Dkt. 74]. The Court

divided the presentation of evidence at trial into two phases: the first dealing with the effect of the

merger on competition in the sale of commercial insurance to national accounts, and the second

dealing with both its effect on competition in the sale to large group employer accounts in the

thirty-five markets and the purchase of healthcare services from providers in those markets. Order

Am. Order Appointing Special Master and Final Case Mgmt. Order [Dkt. 196] at 4.

The bench trial began on November 21, 2016 and ended on January 4, 2017. The parties

presented sixteen fact witnesses in Phase I and thirteen in Phase II, along with deposition excerpts

from more than 100 individuals. Plaintiffs presented the testimony of two experts, one of whom

testified in both phases. Anthem proffered three experts who each testified twice. Each side

introduced more than 800 exhibits in each phase of the trial, and each side submitted two sets of

proposed findings of fact and conclusions of law. [Dkt. 401, 404, 416, 417].

2 Plaintiffs also initially alleged that the merger would harm competition for the sale of

individual insurance policies on the public exchanges, Compl. ¶¶ 51–63, but they subsequently

dismissed that claim. See Stip. re Pls.’ Allegations Concerning the Sale of Individual Insurance

Policies on Public Exchanges [Dkt. 163].

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III. Overview of the Commercial Healthcare Industry

This case does not involve healthcare obtained through government programs such as

Medicare or Medicaid, or health insurance sold to individuals either directly or through a public

exchange. The allegations that were tried relate solely to the commercial market – the sale of

medical benefits coverage to employers. To analyze the antitrust implications of the acquisition,

it is necessary to have a general overview of how the commercial health insurance industry

operates.

A. The customers

Millions of people in this country obtain healthcare insurance for themselves and their

dependents through their employers. Commercial health insurance sold to employers is regulated

by state and federal statutes; 3 state laws draw a distinction between healthcare insurance sold to

“small group” and “large group” employers. Goulet (Anthem) Dep. 13–16. In forty-six states, a

small group employer is defined as an employer with two to fifty employees, and in the remainder,

small group employers are defined as having up to 100 employees. See Bailey (Cigna) Dep. 59–

60; Goulet (Anthem) Dep. 14–15. Employers with more than fifty or 100 employees, respectively,

are considered “large group” employers. Goulet (Anthem) Dep. 15–16. This case concerns the

sale of commercial healthcare insurance to large group employers; the employees and their

dependents who are covered by the plans are referred to as “members” or “covered lives.”

Because purchasing healthcare coverage can be a complex process, particularly for large

group employers, these customers often work with consultants and insurance brokers. The

consultants assist with determining and ranking the employers’ needs, identifying the firms that

3 The federal Affordable Care Act imposes penalties on large group employers that fail to

meet certain minimum value and affordability requirements. 26 U.S.C. § 4980H(b)(1), (c)(3).

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can meet those needs, issuing requests for proposals (“RFPs”), negotiating with the top bidders,

and making a final a contract decision. Abbott (WTW) Tr. 65–66.

Within the industry, large group employers are generally divided into two categories

according to size, and the larger entities within the large group segment are referred to as “national

accounts.” The term is not defined by regulation, and the threshold used varies, but industry

participants generally define national accounts by the number of individuals they employ, and

many include a requirement that the employees reside in more than one state. Abbott (WTW) Tr.

157–58. Regardless of the numerical limits they apply, insurance carriers, consultants, and brokers

tend to market, service, and account for their large group accounts and national accounts

separately.

B. The plans

What health insurance carriers offer employers is a combination of claims administration

services and access to a network of medical care providers that have agreed to treat the employees

and their dependents at a discounted rate. Abbott (WTW) Tr. 74–75. Commercial insurance

carriers provide employers with these networks and services through two types of plans: fully-

insured plans and self-insured plans. Self-insured plans are also known as “ASO,” or

administrative services only, plans. Id.

In either case, the insurer processes and adjudicates the members’ claims. Fully-insured

and ASO plans differ, though, with respect to who pays the medical costs and therefore bears the

risk connected with those costs. In fully-insured plans, it is the insurer’s obligation to cover the

healthcare costs incurred by the employees and their dependents in addition to administering the

claims. Thus it is the insurer that bears the risk of the members’ medical costs, and it prices the

premiums accordingly. Abbott (WTW) Tr. 69.

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In self-insured plans, the employer takes on the risk of the medical costs itself. Abbott

(WTW) Tr. 69–70. It pays the insurer an ASO fee in return for both the access to the provider

network and claims administration and adjudication services. But the employer pays the

healthcare costs directly, usually by funding a bank account from which the insurer pays the claims

as they are submitted by the providers. Abbott (WTW) Tr. 174. Therefore, ASO fees are lower

than full insurance premiums. Abbott (WTW) Tr. 175; see Hayes (Aetna) 29–31. Larger

employers tend to purchase ASO plans because they can spread the risk of the medical costs over

a larger number of covered lives, 4 and smaller employers tend to purchase full insurance because

they cannot.

Finally, employers may purchase ancillary products such as dental coverage and behavioral

health coverage from insurers, as well as other services, including employee wellness programs,

data analytics to help employers and providers understand and manage their healthcare costs, and

the technology to deliver claims information to members electronically. Generally speaking, the

larger and more sophisticated the employer, the more customization it will seek when soliciting

proposals from insurers. Abbott (WTW) Tr. 77.

C. The networks

Access to a network of medical care providers is an essential component of any commercial

health insurance plan. Insurers create networks by entering into contractual arrangements with

hospitals, doctors, and other healthcare professionals through which the providers agree to accept

payment for services supplied to plan members at a discount in return for the volume of patients

that the carrier will deliver to them as in-network providers. Drozdowski (Anthem) Tr. 1643–44.

4 Employers may also purchase stop-loss insurance to cap their healthcare expenses at a

particular level if they suffer any unusually large claims. See Abbott (WTW) Tr. 69; Archer

(HealthSMART Benefit Solutions) Dep. 35–36.

19

Employees who receive care from out-of-network providers face higher fee schedules with no

discounts, Kertesz (Anthem) Tr. 538, so the breadth and depth of a carrier’s network factors

heavily into an employer’s contracting decision.

Anthem gains access to a national network for its customers by virtue of its membership in

the Blue Cross Blue Shield Association. Association members enjoy an exclusive license to

market insurance under the Blue brands within their individual territories, and therefore, no two

Blue companies will ever bid on the same large group or national account, and no Blue licensee

may bid on an account headquartered in another licensee’s state without receiving a “cede” from

that carrier. Bills (Anthem) Dep. 60, 85, 207–09.

An important feature of the Blue Cross Blue Shield Association is the Blue Card System.

Members of any Blue plan – those who carry a “Blue card” – are entitled to access the providers

in the Blue networks in every state at the in-network rate. Swedish (Anthem) Tr. 226–27. The

Blue Card network is the largest national provider network in the country. PX 208; PX 367.

Blue plans refer to members whose employers are located within their licensed territories

as “home” members, and members who receive services through the Blue network outside of their

plans’ service area as “host” members. Pogany (Anthem) Dep. 89; PX 125. Anthem has

approximately 13 million national accounts members, including both home and host members.

Pogany (Anthem) Dep. 87. Like all other members of the Blue Cross Blue Shield Association,

Anthem receives Blue Card fees for network access and administrative services when it “hosts” a

member of another Blue plan. PX 125. With its fourteen states, Anthem has the largest exclusive

territory of any Blue Cross licensee; the second largest licensee has the exclusive rights to sell

Blue products in five states. Swedish (Anthem) Tr. 222.

20

D. Other industry participants and options for employers

There are additional options for employers purchasing commercial health insurance that

are of significance in this case:

• Slicing: When a company employs workers in multiple parts of the country, it may choose

to purchase a plan from a single carrier with a broad enough network to serve all its

employees. These carriers include United Healthcare, Cigna, Aetna, and Anthem, with its

Blue Cross Blue Shield network. Or, it may choose to piece together several plans from

multiple carriers, either national or regional, that offer attractive networks in the specific

areas where the employees reside. This practice is referred to as slicing. Employers may

also slice insurance business across types of plans, to offer its employees a choice between

more than one carrier with distinctive offerings or cost structures. Abbott (WTW) Tr. 85–

86.

• Private Exchanges: In recent years, several of the large consultants in the health insurance

industry have begun contracting with local, regional, and national insurers to put together

packages of standard plans available in particular geographic areas, and then sell them as

a whole to employers as an alternative to purchasing coverage directly from a single

insurer. Sharp (Aon Hewitt) Dep. 10–11. Private exchanges give employers a means to

offer employees choices among plans without assuming the burden of contracting with

multiple carriers. Id. Aon Hewitt, Willis Towers Watson, Mercer, and Buck Consulting,

owned by Xerox, are large consulting firms that that operate national private exchanges,

Kertesz (Anthem) Tr. 662–63, and in response to this “disintermediation” by the

consultants and brokers, Schumacher (United) Dep. 114; Hayes (Aetna) Dep. 238, the

national carriers have begun building and marketing their own exchanges. Employees who

choose Anthem or Cigna through an exchange are covered members who may access the

network providers.

• Direct Contracting: Some very large and centralized employers, such as Boeing and Intel,

have brought the task of negotiating discounted healthcare services in-house by “direct

contracting” with providers for discounted services, bypassing commercial insurers’

networks. See DX 9; Abbott (WTW) Tr. 122; Bisping (Caterpillar) Dep. 17–20. Some of

these employers utilize consultants to negotiate discounted rates for them, see Fowdur Tr.

1351–52, and then retain third-party administrators (“TPA”) to administer and adjudicate

their employees’ healthcare claims. Others work with national carriers to create and

administer the network. Kendrick (Anthem) Tr. 1190–91.

• Provider-Sponsored Plans: Similarly, some healthcare providers have created provider-

sponsored insurance plans (“PSPs”) to cover their own large employee populations and

then be available for purchase by outside groups. See, e.g., Parker (Indiana University

Health) Dep. 21; Adams (Centra Health) Dep. 78–79, 83. One way to accomplish this is

through a joint venture with a national carrier, and the Virginia hospital system, Inova

Health, formed a provider-sponsored plan with Aetna called Innovation Health. Henderson

(Innovation Health) Dep. 17–18.

21

• Third Party Administrators: Some employers also look to third party administrators, or

TPAs, to design plans and administer claims. Benedict (Cigna) Dep. 28–29. TPAs

typically rent providers networks from insurers, including Anthem and Cigna. See Abbott

(WTW) Tr. 117; Kertesz (Anthem) Tr. 583–84; Benedict (Cigna) Dep. 30–31.

• Specialty Services. Finally, other entities identify a niche and focus on enhancing or

replacing particular services that larger carriers offer as an aspect of their plans. For

example, Castlight markets a “quality transparency tool” which allows “plan members to

understand the cost of services that they’re selecting, and the fact that there is price

variation among providers, as well as variation in the quality of the outcomes.” Abbott

(WTW) Tr. 214. It was one of the first companies to “synthesiz[e] that data and to create

a consumer-friendly tool designed to better educate the patient or consumer on the variation

and cost and potential variations and the quality of care.” Id. Other examples are Accolade

and Quantum, two companies that offer concierge customer services. See DX 14

(Accolade is a “[n]iche total population care management carrier” that “performs case

management and also advocates employers’ turning off DM, nurse line, maternity

programs, decision support, etc.”); Kertesz (Anthem) Tr. 637; Smith (Cigna) Tr. 786–87

(describing Quantum as a concierge model offering customer service and coaching).

LEGAL STANDARD

Section 7 of the Clayton Act prohibits mergers or acquisitions “where in any line of

commerce or in any activity affecting commerce in any section of the country, the effect of such

acquisition may be substantially to lessen competition.” 15 U.S.C. § 18. “Congress used the words

‘may be substantially to lessen competition’ . . . to indicate that its concern was with probabilities,

not certainties.” Brown Shoe Co. v. United States, 370 U.S. 294, 323 (1962); see also FTC v.

H.J. Heinz Co., 246 F.3d 708, 719 (D.C. Cir. 2001) (the government is not required to prove the

alleged impact on competition “with certainty”). In essence, in a merger trial, the Court is making

a prediction about the future. It must engage in a “comprehensive inquiry” into the competitive

conditions that will exist in the market in question after the transaction, United States v. Baker

Hughes Inc., 908 F. 2d 981, 998 (D.C. Cir. 1990), and to meet their burden, plaintiffs must prove

that anticompetitive effects are “sufficiently probable and imminent.” United States v. Marine

Bancorporation, Inc., 418 U.S. 602, 623 n.22 (1974), quoting United States v. Cont’l Can Co., 378

22

U.S. 441, 458 (1964); see also Heinz, 246 F.3d at 713, quoting S. Rep. No. 1775 at 6 (1950) (the

use of the words “may be” means the statute applies “to the reasonable probability of the

pr[o]scribed effect” and not “the mere possibility”).

In analyzing whether a transaction violates Section 7, courts in this Circuit apply the burden

shifting framework set out by the Court of Appeals in United States v. Baker Hughes, 908 F.2d at

982.

Plaintiffs bear the initial burden to prove that the merger would result in “undue

concentration in the market for a particular product in a particular geographic area.” Baker

Hughes, 908 F.2d at 982; Heinz, 246 F.3d at 715, quoting United States v. Phila. Nat’l Bank, 374

U.S. 321, 363 (1963) (“[T]he government must show that the merger would produce ‘a firm

controlling an undue percentage share of the relevant market, and [would] result[] in a significant

increase in the concentration of firms in that market.”’). This showing establishes a “presumption”

that the merger will substantially lessen competition, Heinz, 246 F. 3d at 715, and the burden then

shifts to defendants to rebut the presumption. Baker Hughes, 908 F.2d at 982.

If plaintiffs establish the prima facie case, defendants must present evidence to rebut the

presumption by “affirmatively showing why a given transaction is unlikely to substantially lessen

competition, or by discrediting the data underlying the initial presumption in the government’s

favor.” Id. at 991; Heinz, 246 F.3d at 715 (“defendants must produce evidence that ‘show[s] that

the market share statistics [give] an inaccurate account of the [merger’s] probable effects on

competition’ in the relevant market’”), quoting United States v. Citizens & S. Nat’l Bank, 422 U.S.

86, 120 (1975). The threshold the defendants must overcome to shift the burden back to plaintiffs

is not high; the defendants are not required to “‘clearly’ disprove anticompetitive effect,” but rather

to make “a ‘showing.’” Baker Hughes, 908 F.2d at 990–91, quoting Marine Bancorporation, 418

23

U.S. at 631. “But the ‘more compelling the prima facie case, the more evidence the defendant

must present to rebut it successfully.’” Unites States v. Aetna Inc., No. 16-cv-1494, 2017 WL

325189, at *10 (D.D.C. Jan. 23, 2017), quoting Baker Hughes, 908 F.2d at 991.

If defendants are able to make a showing that rebuts the presumption, “the burden of

producing additional evidence of anticompetitive effect shifts to the government, and merges with

the ultimate burden of persuasion, which remains with the government at all times.” Baker

Hughes, 908 F.2d at 983; see also Kaiser Aluminum & Chem. Corp. v. FTC, 652 F.2d 1324, 1340

& n.12 (7th Cir. 1981); FTC v. Arch Coal, Inc., 329 F. Supp. 2d 109, 116 (D.D.C. 2004) (plaintiffs

“have the burden on every element of their Section 7 challenge, and a failure of proof in any respect

will mean the transaction should not be enjoined”). Plaintiffs must prove the alleged Clayton Act

violation by a preponderance of the evidence. United States v. SunGard Data Sys., Inc., 172 F.

Supp. 2d 172, 180 (D.D.C. 2001). But “section 7 does not require proof that a merger or other

acquisition will cause higher prices in the affected market. All that is necessary is that the merger

create an appreciable danger of such consequences in the future.” Id., quoting Hosp. Corp. of Am.

v. FTC, 807 F.2d 1381, 1389 (7th Cir. 1986).

ANALYSIS

Plaintiffs allege that the merger of Anthem and Cigna will substantially lessen competition

for the sale of health insurance, first to national accounts in a geographic market consisting of the

fourteen Anthem states and in the United States as a whole, Compl. ¶¶ 19–37, and second, to large

group employers in thirty-five local markets. Compl. ¶¶ 38–50. With respect to the national

accounts market, the Court finds that each side has met its respective burden under the Baker

Hughes framework. Plaintiffs have established a prima facie case that the merger is presumptively

anticompetitive, defendants have introduced evidence to rebut the presumption, and plaintiffs have

carried their ultimate burden of showing that the effect of this merger “may be substantially to

24

lessen competition” in the market for sales to national accounts within the fourteen states.

Therefore, the Court will enjoin the merger.

I. Plaintiffs have met their initial burden to show that the merger is presumptively

anticompetitive in the market for the sale of health insurance to national accounts

within the fourteen Anthem states.

A. The sale of medical health coverage to national accounts within the fourteen

Anthem states is a relevant market.

Because the ultimate determination of the legality of a merger involves an assessment of

the new firm’s market power, and the prima facie case concerns market concentration, “‘a

necessary predicate’ to deciding whether a merger contravenes the Clayton Act” is defining the

relevant market. Marine Bancorporation, 418 U.S. at 618, quoting United States v. E.I. du Pont

De Nemours & Co., 353 U.S. 586, 593 (1957). The relevant market consists of two elements: a

relevant product market and a relevant geographic market. Arch Coal, 329 F. Supp. 2d at 119;

Brown Shoe, 370 U.S. at 324 (stating that the two factors are “a product market (the ‘line of

commerce’) and a geographic market (the ‘section of the country’)”), quoting 15 U.S.C. § 18.

A court may enjoin a merger based on proof of probable harm to any market alleged. United States

v. Pabst Brewing Co., 384 U.S. 546, 549 (1966) (to prove a violation of Section 7, plaintiffs “may

introduce evidence which shows that as a result of a merger competition may be substantially

lessened through the country, or . . . that competition may be substantially lessened only in one or

more sections of the country”).

“Congress prescribed a pragmatic, factual approach to the definition of the relevant market

and not a formal, legalistic one.” Brown Shoe, 370 U.S. at 336; see also Pabst Brewing, 384 U.S.

at 549. This is because “[t]he ‘market,’ as most concepts in law or economics, cannot be measured

by metes and bounds.” Times-Picayune Publ’g Co. v. United States, 345 U.S. 594, 611 (1953).

Thus, plaintiffs’ relevant market need not include all potential customers or participants. FTC v.

25

Penn State Hershey Med. Ctr., 838 F.3d 327, 338–46 (3d Cir. 2016) (finding a geographic market

definition correct even when 43.5% of a hospital’s patients came from outside the defined market).

Here, plaintiffs define the product market as the sale of commercial health insurance to

national accounts with 5000 employees or more, and the complaint alleged a diminution of

competition for the sale of that product in two geographic markets: the fourteen Anthem states and

the entire United States.

1. The sale of health insurance to national accounts with more than 5000

employees is a relevant product market.

The relevant product market refers to the “product and services with which the defendants’

products compete.” Arch Coal, 329 F. Supp. 2d at 119. Since in defining the boundaries of the

market, the Court is trying to answer the question of whether particular products “are sufficiently

close substitutes to constrain any . . . anticompetitive pricing,” H & R Block, 833 F. Supp. 2d 36,

55 (D.D.C. 2011), a properly drawn market must include all products that are “reasonable

substitute[s]” for, but not necessarily exactly the same as, defendants’ offerings. FTC v. Cardinal

Health, Inc., 12 F. Supp. 2d 34, 46 (D.D.C. 1998).

The Supreme Court set out the rules for identifying a relevant product market in Brown

Shoe, and it started with the proposition that “the outer boundaries of a product market are

determined by the reasonable interchangeability of use or the cross-elasticity of demand between

the product itself and substitutes for it.” 370 U.S. at 325. Both of these concepts relate to the

availability of any reasonable substitutes, that is, “whether two products can be used for the same

purpose, and if so, whether and to what extent purchasers are willing to substitute one for the

other.” FTC v. Staples, Inc., 970 F. Supp. 1066, 1074 (D.D.C. 1997) (“Staples I”), quoting Hayden

Publ’g Co. v. Cox Broad. Corp., 730 F.2d 64, 70 n.8 (2d Cir. 1984). Functional interchangeability

refers to whether buyers view other products available to them as being “similar in character or

26

use to the products in question;” in other words, are they suitable for use, even if they are not

identical products. Id.; see also Brown Shoe, 370 U.S. at 325; Arch Coal, 329 F. Supp. 2d at 119,

quoting SunGard, 172 F. Supp. 2d at 182. Cross-elasticity of demand incorporates price,

convenience, and availability into the analysis and considers “the responsiveness of the sales of

one product to price changes of the other.” E.I. du Pont De Nemours & Co., 351 U.S. at 400; see

also, e.g., FTC v. Whole Foods Market, Inc., 548 F.3d 1028, 1037 (D.C. Cir. 2008). Simply put,

if a substantial price increase of one product would cause purchasers to switch to a different

product, and purchasers can do so easily and conveniently, the two products are considered to

compete in the same market.

Courts routinely turn to “practical indicia” as “evidentiary proxies for direct proof of

substitutability.” Rothery Storage & Van Co. v. Atlas Van Lines, Inc., 792 F.2d 210, 218 (D.C.

Cir. 1986), quoting Brown Shoe, 370 U.S. at 325; see also FTC v. CCC Holdings Inc., 605 F. Supp.

2d 26, 38 (D.D.C. 2009) (using these indicia to “augment the analyses of interchangeability and

cross-elasticity of demand”). Following the Supreme Court’s guidance in Brown Shoe, courts have

reiterated that “the boundaries of a relevant market within a broader market ‘may be determined

by examining such practical indicia as industry or public recognition of the [relevant market] as a

separate economic entity, the product’s peculiar characteristics and uses, unique production

facilities, distinct customers, distinct prices, sensitivity to price changes, and specialized

vendors.’” H & R Block, 833 F. Supp. 2d at 51, quoting Whole Foods, 548 F.3d at 1037–38.

Within the category of practical indicia, defendants’ business records are “strong evidence” for

defining the relevant product market. Id. at 52–53; see also Whole Foods, 548 F.3d at 1045; CCC

Holdings, 605 F. Supp. 2d at 41–42; FTC v. Swedish Match, 131 F. Supp. 2d 151, 162 (D.D.C.

2000); Cardinal Health, 12 F. Supp. 2d at 49; Staples I, 970 F. Supp. at 1076. Courts also consider

27

economic testimony and utilize the “hypothetical monopolist test” set out in the 2010 U.S.

Department of Justice and Federal Trade Commission Horizontal Merger Guidelines

(“Guidelines”) to ascertain whether the market has been properly defined to include all appropriate

substitute products. 5

But a broad general market may contain smaller markets which separately “constitute

product markets for antitrust purposes.” Brown Shoe, 370 U.S. at 325. Because the relevant

product market in any particular case need only include “reasonable substitutes.” FTC v. Sysco

Corp., 113 F. Supp. 3d 1, 26 (D.D.C. 2015), the fact that a firm may be considered a competitor

“in the overall marketplace does not necessarily require that it be included in the relevant product

market for antitrust purposes.” Id., quoting Staples I, 970 F. Supp. at 1075; Cardinal Health,

12 F. Supp. 2d at 47. The Merger Guidelines specifically caution that “defining a market broadly

to include relatively distant product or geographic substitutes can lead to misleading market

shares.” Guidelines § 4.

Market shares of different products in narrowly defined markets are more

likely to capture the relative competitive significance of these products, and

often more accurately reflect competition between close substitutes. As a

result, properly defined antitrust markets often exclude some substitutes to

which some customers might turn in the face of a price increase even if such

substitutes provide alternatives for those customers.

Id. Courts have similarly recognized that “[m]arkets must be drawn narrowly to exclude any other

product to which, within reasonable variations in price, only a limited number of buyers will turn.”

Aetna, 2017 WL 325189, at *10, quoting Times-Picayune, 345 U.S. at 612 n.31.

5 The D.C. Circuit Court of Appeals, and other courts, have approved the use of the

Horizontal Merger Guidelines as guidance in merger cases. See Heinz, 246 F.3d at 716 n.9;

Fruehauf Corp. v. FTC, 603 F.2d 345, 353–54 (2d Cir. 1979); H & R Block, 833 F. Supp. 2d at 52

n.10.

28

a. The proposed product market

Plaintiffs maintain that the sale of commercial health insurance to national account

customers is a relevant product market. They define a national account as an employer with 5000

or more employees, and their analysis of concentration in the market looks at both employers with

5000 employees and employers with 5000 employees spread over more than one state. Compl.

¶ 20; Dranove Tr. 877–78; Pls.’ Proposed Findings of Fact: Phase I [Dkt. 416] ¶¶ 65–72.

Defendants contend that this product market is invalid because: (1) there is no uniform industry

definition for what constitutes a national account, (2) it is improper to combine ASO and fully

insured plans into a single product market, and (3) and the threshold of more than 5000 employees

used by plaintiffs’ economics expert in analyzing the market is arbitrary and too large.

Case law provides for the distinction of product markets by customer. Brown Shoe, 370

U.S. at 325, citing E.I. du Pont de Nemours & Co., 353 U.S. at 593–95 (“[W]ithin this broad

market, well-defined submarkets may exist which, in themselves, constitute product markets for

antitrust purposes.”); Guidelines § 3 (“When examining possible adverse competitive effects from

a merger, the Agencies consider whether those effects vary significantly for different customers

purchasing the same or similar products.”). A submarket exists when sellers can profitably raise

prices “to certain targeted customers but not to others,” in which case regulators “may evaluate

competitive effects separately by type of customer.” See, e.g., FTC v. Staples, 190 F. Supp. 3d

100, 117 (D.D.C. 2016) (“Staples II”) (recognizing “targeted” or “price discrimination” markets

in antitrust law); Whole Foods, 548 F.3d at 1037–41 (upholding lower court’s finding of a narrower

market of core customers for premium, natural, and organic supermarkets rather than grocery store

customers generally).

29

b. National accounts are a unique set of customers with unique

needs.

There was considerable evidence presented to establish that there is a distinct type of large

employer that is looking for an insurance plan that can deliver a national network, a high degree

of plan customization, and sophisticated claims administration, customer service, and data

reporting. A review of the wealth of practical indicia in the record shows that the industry

universally recognizes that national accounts exhibit different needs and characteristics that drive

the design and pricing of their products. As one industry consultant testified:

Large employers, certainly, are by nature more complex. They tend to have

more locations, they tend to have more sophisticated requirements just by

virtue of their size. Not necessarily so, but generally, they are looking for a

broader portfolio of services. They’re looking for that national network,

and they are also looking for an ability to customize programs, often to a

fairly substantial degree.

Abbott (WTW) Tr. 76–78, 159; see also Sharp (Aon Hewitt) Dep.76–78 (large employers require

customized solutions and benefit plans and may have different employee populations, such as

union and non-union employees). As Anthem’s former President of National Accounts, John

Martie, explained, “national account purchasers tend to be more sophisticated and tend to

appreciate greater levels of innovation.” Martie (Anthem) Dep. 84; see also Kertesz (Anthem) Tr.

535–37. By the end of the trial, it was crystal clear that just about everyone in the industry,

certainly everyone within Anthem and Cigna, has a consistent understanding of exactly what a

national account is.

National accounts require carriers that can supply in-network providers in all of the

locations where their employees live, work, and travel, and even where they may relocate as

retirees. Cordani (Cigna) Tr. 404; Kertesz (Anthem) Tr. 538; Swedish (Anthem) Tr. 226; Martie

(Anthem) Dep. 125; Mascolo (Wells Fargo) Dep. 65–66; Kidd (Sodexo) Dep. 20–21; Loring

(Applied) Dep. 40–41; Record (Steel Dynamics) Dep. 30; see also Burnell (Buck Consultants)

30

Dep. 112–13. The national network is critical; as Anthem’s former head of national accounts

testified, “you don’t really call yourself a . . . national account carrier unless you can cover all 50

states.” Goulet Dep. 96.

National accounts are also more likely to demand customized plans, technological

platforms that enable employees to access claims information, data reporting so that the customers

can understand and manage their healthcare costs, and in light of recent data breaches,

sophisticated data security measures. See, e.g., Schumacher (United) Dep. 226–27 (for large,

multi-state national employers “there’s more customization . . . more interaction from the account

management team and the support efforts”); Bierbower (Humana) Tr. 802 (national accounts

typically desire “customized data files, customized plan designs, customized clinical programs”);

Sharp (Aon Hewitt) Dep. 75–78 (large market clients with more than 5000 employees “tend to be

requiring more customized solutions”); see also Abbott (WTW) Tr. 77–79, 159; Guilmette (Cigna)

Dep. 73–74; Welch (Cigna) Dep. 25; Martie (Anthem) Dep. 161–62; Bailey (Cigna) Dep. 67–68;

Parr (Cigna) Dep. 18–19; PX 94. In other words, national account customers demand an

individualized, or differentiated, product.

National accounts typically work with consultants to navigate the RFP and selection

process used to purchase such a product. See, e.g., Pogany (Anthem) Dep. 34; Martie (Anthem)

Dep. 52; Bailey (Cigna) Dep. 66–67; PK 94; Schumacher (United) Dep. 203–04, 228–29. Thus,

they are sophisticated customers who bring the expertise of knowledgeable advisors to the task of

procuring coverage for their employees.

Furthermore, both brokers and carriers – including the merging parties – manage this

segment separately from the rest of the 50+ employee large group segment. Both Anthem and

Cigna have established separate profit and loss centers for national accounts, with their own

31

executives and separate marketing, sales, customer relations, and underwriting teams. See, e.g.,

Swedish (Anthem) Tr. 224–25; Cordani (Cigna) Tr. 404; Williams (Cigna) Dep. 23; Bailey

(Cigna) Dep. 66–67; Guilmette (Cigna) Dep. 73–74; Hayes (Aetna) Dep. 24; PX 118 (Aetna

document); Schumacher (United) Dep. 230; Jay (Anthem) Dep. 12, 15; Cheslock (Anthem) Dep.

20. Thus, the evidence strongly supports the conclusion that national account customers are a

distinct subset of the health insurance market, with needs that differentiate them from employers

on the smaller end of the large group spectrum.

c. 5000 employees is an appropriate definition.

Defendants can hardly contest the existence of a category of “national account” customers

within the large group market, but they insist that there is no industry consensus for what the term

means, “either as to the number of employees or their geographic spread.” Anthem’s Phase I

Pretrial Br. [Dkt. 324] at 6. So the next question to consider is whether plaintiffs’ definition of

national accounts as customers with more than 5000 employees is appropriate.

1) Practical indicia support the definition.

Here there is strong evidence coming from the merging parties themselves. The firms’

own business records show that they each use the 5000 employee threshold to define their national

accounts and manage their lines of business. PX 125 (Anthem SEC 10-K filing); PX 127 (Anthem

website); see also DDX 88 (defense demonstrative exhibit listing the thresholds used by various

carriers and TPAs to define national accounts). The CEO of Anthem testified that Anthem defines

national accounts as multi-state employers with more than 5000 eligible employees. Swedish

(Anthem) Tr. 225; see also PX 127 (at least 5% of employees must be located outside of the

headquarter state). Cigna also uses the definition of multi-state employers with 5000 or more full-

time employees. PX 284 (Cigna SEC 10-K filing).

32

Aon Hewitt, a national consulting firm also finds 5000 to be an appropriate dividing line;

it groups its large employer clients into “middle market” customers with fewer than 5000

employees and “large market” customers with more than 5000 employees. Sharp (Aon Hewitt)

Dep. 76. The record does reveal, though, that there is also variation in the way other industry

participants define the term. The largest national carrier, United Healthcare, defines its national

accounts as customers with 3000 or more employees, whether in a single or multiple states.

Schumacher (United) Dep. 106. Aetna uses the same definition. Hayes (Aetna) Dep. 22–23.

Randall Abbott, a consultant with Willis Tower Watson, agreed that industry participants employ

varying definitions: “2500, 3000 or 5000 is very common. Some will . . . have a multi-location

requirement. Generally, though, it’s a size threshold.” Abbott (WTW) Tr. 157–58.

The evidence also indicates that the defendants do not always adhere strictly to the

definition in their day to day operations. The Anthem Vice President for National Account

Management explained that Anthem has some employers with fewer than 5000 employees

managed by its national accounts team because Anthem changed its definition of the segment and

some customers were “grandfather[ed]” in as national accounts. Mathai (Anthem) Tr. 1257. She

also noted that some customers prefer to continue to remain within that segment even after their

workforce is reduced in a divestiture. Mathai (Anthem) Tr. 1257. Similarly, at Cigna, there may

be some customers with fewer than 5000 employees managed as national accounts and some with

more than 5000 employees managed as regional accounts because those customers have changed

in size over time, or because a customer requested to be managed by the other segment in light of

a prior customer service relationship. Thackeray (Cigna) Tr. 740–41.

But these small variations and the existence of some exceptions does not negate the force

of the evidence of defendants’ own ordinary course of business operations, and the other practical

33

indicia of the defining characteristics of a national account customer. This real world evidence

reinforced and verified the conclusions reached by plaintiffs’ economics expert, notwithstanding

the defendants’ efforts to counter him with experts of their own.

2) Economic expert testimony supports the definition.

A second category of evidence that courts consider at the market definition stage is

testimony from experts, and a primary tool used by economists to determine whether the alleged

set of products is relevant for antitrust purposes is called the hypothetical monopolist test. See

Guidelines § 4.1.1; H & R Block, 833 F. Supp. 2d at 51–52. This test asks whether a “hypothetical

profit-maximizing firm,” that was the only seller of all of the products within a proposed market,

would be likely to impose “a small but significant and non-transitory increase in price (“SSNIP”)

on at least one product in the market, including at least one product sold by one of the merging

firms.” Guidelines § 4.1.1. The Guidelines consider a SSNIP to be a price increase of 5% or more.

Id. § 4.1.2.

The test is designed to measure whether a higher price “would drive consumers to an

alternative product” or to forego purchases altogether. Whole Foods, 548 F.3d at 1038. The

question of whether the hypothetical monopolist could profitably impose a SSNIP depends upon

the number of substitutes outside the market under consideration. “If enough customers are able

to substitute away from the hypothetical monopolist’s product and thereby make a price increase

unprofitable,” then the market has been drawn too narrowly for purposes of the antitrust laws and

more substitutes must be included. Sysco, 113 F. Supp. 3d at 33. If enough customers would

continue to purchase the products in the proposed market despite the price increase rather that

switch to an alternative, that set of products constitutes an appropriate product market for antitrust

analysis. See Guidelines § 4.1.1. Only those products that prevent a hypothetical monopolist from

34

significantly increasing prices should be included in the relevant market. H & R Block, 833 F.

Supp. 2d at 51–52.

Here, the question is whether it would be hypothetically useful to have a monopoly over

all health insurance products sold to national account customers because a monopolist could

profitably raise prices for those products by 5% or more; or whether there would be no reason to

monopolize the market because substitution and price competition would restrain a potential

monopolist from profitably raising prices.

To derive an answer, plaintiffs’ economic expert, David Dranove, Ph.D., considered what

employers with 5000 or more employees purchasing group health insurance would do in the face

of a SSNIP. His definition of the relevant product market included both ASO and fully-insured

group health plans purchased from carriers, as well as coverage obtained through TPA’s, private

exchanges, or direct contracting. Dranove Tr. 2245, 2247. Using this definition, Dr. Dranove

concluded that there would be only two alternatives for employers that sought to avoid the price

increase: managing all aspects of their employees’ health benefits coverage themselves or

foregoing the purchase of commercial insurance entirely, and neither is a reasonable substitute for

purchasing commercial health insurance. Dranove Tr. 861–65. Therefore, he concluded a

hypothetical monopolist in the alleged market would likely be able to impose a SSNIP. 6 Dranove

Tr. 863–66.

6 Dr. Dranove calculated the critical elasticity in the market based on data obtained from the

insurers, and that exercise led to the conclusion that 6% of national accounts would drop their

coverage if the price went up 5%. Dranove Tr. 864. But studies of the industry revealed that the

marketplace is actually much less responsive, and that insurers do not eliminate this important

employee benefit even if the price goes up. Dranove Tr. 865.

35

Defendants challenged plaintiffs’ definition of the relevant product market with testimony

of the first of its three experts: the economist, Lona Fowdur, Ph.D. Dr. Fowdur criticized plaintiffs’

expert for using the 5000 employee threshold to define national accounts and insisted that the

products those customers purchase are “reasonably interchangeable” with insurance products

purchased by customers with fewer than 5000 employees. Fowdur Tr. 1304. As she put it, “to the

extent that the products sold to national accounts of size 5000 plus are alternatives for groups that

are less than 5000 in size, the two products’ markets become reasonably interchangeable, so this

bright line that plaintiffs are arguing about becomes blurry.” 7 Fowdur Tr. 1304. In Dr. Fowdur’s

view, including customers with 3000 or 1000 employees in the relevant market would more fairly

reflect the presence of the smaller players in the market. See Fowdur Tr. 1303–06.

It is true that some customers with fewer than 5000 employees may have geographically

dispersed employees or other needs and characteristics similar to national accounts. But the

question is not simply whether one product competes to some extent with another; it is whether

consumers in the market in general view the products as “reasonable substitutes.” Cardinal

Health, 12 F. Supp. 2d at 46. Here, the defense critique assumes that an insurance product suitable

for a customer with 3000 (or 1000) 8 employees is an adequate substitute in all instances, and that

7 While Anthem argued there is no economic basis for combining ASO and fully-insured

plants into a single product market for national accounts, Anthem Pretrial Br. at 5–6, Dr. Fowdur

did not take issue with this particular aspect of Dr. Dranove’s hypothetical market. “I think the

source of the confusion is not between ASO and fully insured. I think the source of the confusion

stems from the fact that plaintiffs have arbitrarily established this bright-line threshold at 5000 plus

enrollees.” Fowdur Tr. 1303.

8 Dr. Fowdur steadfastly resisted offering her own opinion as to what number would have

been the correct one to choose, confining her opinion to what was wrong with plaintiffs’ selection

of 5000 as a place to draw the line. Fowdur Tr. 1364–65.

36

theoretical proposition is contrary to the evidence of the actual conditions in the market and the

firms’ internal business records.

The evidence of industry practice discussed above made it clear that the larger a customer

becomes, it requires greater customization, sophistication, and network coverage, and its range of

choices narrows. A parade of industry participants testified that given the distinct requirements of

national accounts, only a handful of carriers can serve their needs. Peter Kilmartin, a partner at

Mercer, emphasized that only the four “large national carriers” can deliver effectively in the vast

majority of geographies, because they offer the provider networks with the requisite scope along

with the necessary level of account management and customer service. Kilmartin (Mercer) Dep.

123. He identified United, Anthem, Cigna, and Aetna as the four options, and Tucker Sharp of

Aon Hewitt, another consulting firm, agreed. “[T]he national carriers tend to be Aetna, Anthem,

Cigna, and UnitedHealthcare . . . . We don’t tend to include anyone else in that list.” Sharp (Aon

Hewitt) Dep. 91; see also Burnell (Buck Consultants) Dep. 29, 87 (there are only four national

carriers, and Kaiser is not a national carrier).

The fact that Anthem and Cigna themselves use the 5000 employees threshold to structure

and account for their lines of business is “strong evidence” that supports Dr. Dranove’s use of that

figure in his analysis. H & R Block, 833 F. Supp. 2d at 53. And Anthem’s own salesforce records

revealed that many of its national accounts are considerably larger than the firms Dr. Fowdur

opined would be comparable. As of June 2016, many of Anthem’s more than 500 national

accounts included more than 20,000 or 50,000 members – significantly more than would be

generated by 5000 employees – and some represented membership of over 100,000 and even

200,000. See DX 687. So the suggestion that what might be good for some would be good for all

is not a practical one.

37

Here, the fact there may be some overlap between plans purchased by some customers

with 3000 employees and those sold to customers with 5000 employees does imply that all of the

products suitable for smaller customers should be part of the relevant market for the purpose of

merger analysis. “[P]roperly defined antitrust markets often exclude some substitutes to which

some customers might turn in the face of a price increase even if such substitutes provide

alternatives for those customers.” Guidelines § 4. The agencies’ guidance makes it clear that some

substitutes may be excluded – indeed should be excluded – to more accurately reflect the extent of

competition between closer, reasonable substitutes.

The competitive significance of distant substitutes is unlikely to be

commensurate with their shares in a broad market. Although excluding

more distant substitutes from the market inevitably understates their

competitive significance to some degree, doing so often provides a more

accurate indicator of the competitive effects of the merger than would the

alternative of including them and overstating their competitive significance

as proportional to their shares in an expanded market.

Id. So while Dr. Dranove’s 5000 employee threshold may exclude some products that would meet

the needs of smaller employers and even some national accounts, it is more consistent with how

the industry actually operates, and it focuses the competitive analysis on the products that industry

participants appear to agree are preferred by customers with more than 5000 employees. This

narrower definition is “more likely to capture the relative competitive significance of these

products, and often more accurately reflect competition between close substitutes.” Guidelines

§ 4. 9

9 Indeed, the evidence showed that there could be some national accounts of 5000 employees

or more that do not require highly individualized plans, or are sufficiently concentrated that

regional plans may satisfy their network needs. But products sold to those employers were

included in the market even if doing so overstated their significance to the group as a whole.

38

At one point during the trial, defendants’ expert, Dr. Fowdur, complained that plaintiffs

had failed to supply “conclusive proof” of the relevant market. Fowdur Tr. 4211. And during

closing argument, counsel for Anthem cited United States v. SunGard, 172 F. Supp. 2d at 172, as

support for Anthem’s view that plaintiffs’ delineation of the product market lacked sufficient

economic rigor. Curran (Def. Counsel) Tr. 4895–96. However, in that case, the district court did

not articulate any new or more stringent standard, and there is no need for “conclusive proof” at

this point. The court recited all of the applicable tests, starting with the statement that a plaintiff

must show that a pending acquisition is “reasonably likely” to cause anti-competitive effects,

SunGard, 172 F. Supp. 2d at 180, and that the court must follow the Baker Hughes analytical

approach. Id. The opinion does emphasize the importance of defining the relevant market

properly, and the impact that will have on assessing competitive effects, id. at 181, but it also

quotes Brown Shoe, 370 U.S. at 325, for the proposition that in addition to following the Horizontal

Merger Guidelines and looking at the hypothetical monopolist and the SSNIP test, the court should

consider “practical indicia” because “the determination of the relevant market in the end is a matter

of business reality.” Id. at 182, quoting Cardinal Health, 12 F. Supp. 2d at 46. And when the

court applied the law to the facts, it seemed more affected by the heterogeneity of the customers

and the conflicting evidence of how the market is perceived and what the adequate substitutes

might be rather than by any failure of economic rigor. So the observation of the Supreme Court

in Times-Picayune that the market “cannot be measured by metes and bounds,” 345 U.S. at 611,

still pertains, and SunGard does not require a change in the Court’s analysis. Here, the “business

reality” is entirely consistent with plaintiffs’ economic analysis, and the Court holds that the

market for the sale of health insurance to national account customers, defined as employers with

more than 5000 employees, is a relevant antitrust product market.

39

Anthem also argued there was no economic basis for combining both ASO and fully-

insured plans into a single healthcare coverage product market for national accounts. Anthem

Pretrial Br. at 5–6. But this combination does not invalidate the proposed market. The law is clear

that the “product” that comprises the market need not be a discrete good for sale. “We see no

barrier to combining in a single market a number of different products or services where that

combination reflects commercial realities.” United States v. Grinnell Corp., 384 U.S. 563, 572

(1966); Phila. Nat’l Bank, 374 U.S. at 356, (citation omitted) (finding that “the cluster of products

. . . and services . . . denoted by the term ‘commercial banking’. . . composes a distinct line of

commerce”). While most national accounts purchase ASO plans, the narrow distinction between

these types of plans does not alter their key elements: the network being supplied and the claims

administration services delivered to the customer. Neither Anthem nor Cigna carve fully insured

customers out of their national accounts divisions or track or manage them separately. See, e.g.,

Swedish (Anthem) Tr. 246; PX 123 (Anthem financial document); see also Hayes (Aetna) Dep. 30–

31, 74–75. So fully insured plans with carriers that can otherwise handle the national needs of

these customers are “reasonable substitutes” for national ASO accounts for purposes of the market

definition. Cardinal Health, 12 F. Supp. 2d at 46. And in the end, this dispute had little practical

bearing on the market share calculations that flowed from the market definition since “virtually

all” national accounts have ASO plans. See Abbott (WTW) Tr. 169.

2. The fourteen Anthem states comprise a relevant geographic market.

With respect to the second component of the market definition, plaintiffs allege that the

fourteen Anthem states combined comprise a relevant geographic market for the sale of healthcare

insurance to national accounts. Compl. ¶¶ 24–25.

A relevant geographic market identifies “where, within the area of competitive overlap, the

effect of the merger on competition will be direct and immediate.” Phila. Nat’l Bank, 374 U.S. at

40

357; see also Marine Bancorporation, 418 U.S. at 620–21 (defining it as “the area in which the

goods or services at issue are marketed to a significant degree by the acquired firm”); Cardinal

Health, 12 F. Supp. 2d at 49 (a geographic market is the area “to which consumers can practically

turn for alternative sources of the product and in which the antitrust defendants face competition”),

quoting Morgenstern v. Wilson, 29 F.3d 1291, 1296 (8th Cir. 1994); Arch Coal, 329 F. Supp. 2d

at 123 (it is “the region in which the seller operates, and to which the purchaser can practicably

turn for supplies”), quoting Cardinal Health, 12 F. Supp. 2d at 49.

As with a product market, a relevant geographic market must “correspond to the

commercial realities of the industry and be economically significant.” Brown Shoe, 370 U.S. at

336–37 (footnote omitted) (internal quotation marks omitted). While this market “must be

sufficiently defined so that the Court understands in which part of the country competition is

threatened,” Cardinal Health, 12 F. Supp. 2d at 49, it need not be defined with “scientific

precision,” since an “element of ‘fuzziness would seem inherent in any attempt to delineate the

relevant geographical market.’” United States v. Conn. Nat’l Bank, 418 U.S. 656, 669 (1974),

quoting Phila. Nat’l Bank, 374 U.S. at 360 n.37.

When analyzing the proposed geographic market, the Court may again consider economic

testimony, which often also consists of the results of a hypothetical monopolist test that asks

whether a hypothetical firm that sells all the relevant products sold in that particular geographic

area could profitably impose a SSNIP. See Guidelines § 4.2.

Plaintiffs allege that the fourteen Anthem states combined are a single relevant geographic

market. Compl. ¶ 24. The defense contends that this proposed market is “gerrymander[ed]” and

“lacks economic coherence.” Anthem Pretrial Br. at 8.

41

Dr. Dranove testified that the fourteen Anthem states comprise a relevant geographic

market because that is where Anthem is licensed to use the Blue brand and so the merger will

directly affect competition by eliminating Cigna as a competitor. Dranove Tr. 866–68 (“[T]he

Anthem territories are the territories where Anthem has the right to sell and, therefore, this merger

eliminates head-to-head competition between Anthem and Cigna. It’s the market that has the

greatest potential, therefore, for direct, competitive harm. If you are headquartered in this area and

you want a national accounts vendor, you want one of the big four, you now get a choice of one

of the big three.”).

The economist also conducted a hypothetical monopolist test on the geographic market.

Again, he defined the product market as all health insurance purchased by national accounts,

whether from carriers, direct contracting, TPAs, or other channels. Dranove Tr. 868–69. Using

this definition, he concluded that national accounts headquartered in the Anthem states could only

respond to a SSNIP by forgoing providing health insurance for their employees or relocating their

headquarters to a non-Anthem state, neither of which is a realistic option. Dranove Tr. 868.

The defense objects to the geographic market on the grounds that aggregating the fourteen

states into a single geographic market improperly diminishes the competitive significance of

regional firms. Its economist, Mark A. Israel, Ph.D. testified that there are regional competitors,

such as Kaiser in California or Harvard Pilgrim of Massachusetts, within the geographic market

as a whole that account for a significant share in their localities but are not a factor elsewhere.

Israel Tr. 2001–02.

Dr. Fowdur also opposed the combination of the fourteen states into one market, and she

opined that the geographic market is “ill-defined” because it is “very geographically dispersed”

and national accounts with sufficient enrollees outside the Anthem states could slice or move to a

42

private exchange “to impose competitive discipline on this hypothetical monopolist.” Fowdur Tr.

1311–14.

Finally, Robert D. Willig, Ph.D., found the 5000 employee definition to be problematical,

too. Willig Tr. 2224–25. He pointed out that the studies Dr. Dranove relied upon to determine the

elasticity of the market were based on companies of 1000 employees or more, and therefore, in his

view, there was no proper SSNIP test supporting the use of 5000. Willig Tr. 2224–25.

The Court finds that the fourteen Anthem states comprise a relevant geographic market. It

has everything to do with how Anthem conducts its business on a day to day basis. The Blue Cross

Blue Shield association imposes exclusivity rules, which are defined by geography. They bar other

Blue licensees from pursuing national account customers within the Anthem territory, and they

prohibit Anthem from competing for customers headquartered outside its fourteen states without

a “cede,” that is, permission from the Blue licensee in that state to do so. Swedish (Anthem) Tr.

235–36; Kendrick (Anthem) Tr. 1205; Bills (Anthem) Dep. 60, 85–86, 207–09. This means that

right now, Anthem competes directly against Cigna for national accounts in the fourteen states at

the very least, and that the merger would eliminate Cigna as a direct competitor there. Since the

fourteen Anthem states comprise an “area of competitive overlap, the effect of the merger on

competition will be direct and immediate.” Phila. Nat’l Bank, 374 U.S. at 357. Indeed, the

Anthem executive heading the integration team referred to the fourteen states as the “overlap

markets” when describing the new company’s strategy for achieving saving or going to market.

See Matheis (Anthem) Tr. 1483, 1524. As Dr. Dranove put it, “[f]or companies headquartered in

those markets, this is effectively, slice business notwithstanding, a four to three merger.” Dranove

Tr. 2251.

43

Furthermore, there is no evidence that the lack of contiguity of the fourteen states matters,

especially since the employees of national accounts may be scattered across non-contiguous

geographies. Abbott (WTW) Tr. 68 (some employers are “very, very centralized,” with “a home

office and then perhaps a couple of manufacturing locations, there may be a distribution facility”

and others like a retail bank might have “hundreds, if not thousands of locations”); see also

Dranove Tr. 871. Defendants did not articulate any way in which the shape of the market should

be viewed as significant in light of the undeniable fact that the fourteen states are exactly where

Anthem competes with Cigna and the other major national and regional carriers for national

account business, and they are where the new firm’s products will be marketed to a significant

degree.

While a proposed geographic market would be too narrow if customers could respond to a

SSNIP by shifting to products produced outside the geographic area, Arch Coal, 329 F. Supp. 2d

at 123, citing Guidelines § 1.21, there was no testimony that customers could avail themselves of

that option in this case. Geography is a significant constraint on the purchase of health insurance;

while someone in the market for a new car might head to a neighboring state to avoid a price

gouging hypothetical monopolist in his own, medical care is local, and a large group employer

headquartered in a particular state must purchase insurance from a carrier licensed to do business

in that state that offers its employees a network in the same state. 10

10 There is evidence that healthcare providers in the fourteen Anthem states draw some

patients from outside the fourteen states. See Wilhelmsen (SNHHS) Dep. 77, 176 (approximately

5% of patients at the Southern New Hampshire Health System’s Nashua hospital came from

Massachusetts and its service area includes four Massachusetts towns). But the relevant question

is not how patients (employees) would respond to a SSNIP in the market for national accounts

health insurance but how the employers that are the customers – would. See, e.g., Penn State

Hershey Med. Ctr., 838 F.3d at 338–46 (holding that basing geographic market on patient flow

data in a hospital merger case “failed to properly account for the likely response of insurers in the

face of a SSNIP”). Dr. Fowdur frequently blurred this distinction. Fowdur Tr. 4215–16.

44

Dr. Fowdur’s assertion that national account customers can defeat a price increase does not

posit that there is any means to solve the problem when buying coverage for employees residing

within the hypothetical monopolist’s fourteen states. But she calculated the critical loss in this

instance to be 9.2%, which means that if 9.2% of the monopolist’s business moved to plans offered

in another geographic region, the 5% price increase would become unprofitable. Fowdur Tr.

1319–20. Since a large number of employees covered by plans issued to employers within the

fourteen states live outside those states, she reasoned that slicing the dispersed employees would

be enough to reach the critical loss figure. See Fowdur Tr. 1319–20. But even if this is sensible

as a matter of economic theory, it ignores the practical impediments involved in slicing and cannot

be reconciled with the persuasive testimony that the current trend in the industry is to avoid this

kind of fragmentation.

Randall Abbott, a healthcare consultant with Willis Towers Watson, detailed the “frictional

cost” involved in contracting with a new entity:

[T]here’s simply the cost of change. It’s setting up new data interfaces, it’s

printing new communication material, it’s typically changing open

enrollment materials, it’s adjusting all needed filings under ERISA, it’s staff

time required to redefine the plans with a new partner. Often there are minor

variations in plan design that have to be adjusted for. And increasingly now,

with larger companies, there’s a focus on contract negotiations that can be

very extensive, and, also, data security considerations, technology

interfaces, information security penetration testing and the like that all

require time. But I would say the primary frictional concern is the risk of

change for employees and their families, because . . . healthcare is very

immediate for . . . a company’s people.

Abbott (WTW) Tr. 71. He added that each of the major health plans has a set of in-network

providers, and that if an employee’s provider is not in the new plan’s network, “that would create

a disruption in the doctor-patient relationship, which would be a concern. The same could hold

true of specialist relationships or hospital facilities or outpatient facilities, as well.” Abbott

(WTW) Tr. 72. Similarly, “[t]he disadvantages of slicing are those frictional costs . . . . Every

45

relationship requires contracting, every relationship requires data interfaces. There will be some

variations, perhaps, in the plan of benefits offered. There will be differences in the various

wellness care management, condition management services. And to the extent there are

differences, those have to be reflected in either . . . required statutory filings . . . or in employee

communication material. Each additional health plan requires added effort at open

enrollment . . . .” Abbott (WTW) Tr. 111–12; see also Kilmartin (Mercer) Dep. 137 (“[I]t takes

effort and resources for an employer to maintain and actively manage the carrier relationships.”).

Given these costs and administrative burdens, there has been a “pendulum swing” by

national accounts towards using fewer carriers, and “since the mid-’90s the focus has been on

consolidating with one national health plan.” Abbott (WTW) Tr. 111. According to Peter

Kilmartin of Mercer, 73% of his clients use only one carrier. Kilmartin Dep. 137. Customers

agree. See Monti (Kroger) Dep. 31–32 (using one carrier to cover as many associates as possible

provides “administrative simplicity”: having more insurers is more expensive to administer due

to such issues as the need for multiple data feeds and additional communications to employees);

Loring (Applied) Dep. 37–38.

It is also important to consider that Dr. Fowdur’s point was that national account employees

are spread broadly throughout the United States – not that customers tend to have one or two

discrete satellite locations. But the national accounts that do slice typically do so among only one

or two national carriers, or they incorporate one large regional carrier such as Kaiser or Harvard

Pilgrim; they do not slice among multiple carriers. Abbott (WTW) Tr. 199 (“[T]he vast majority

[of major employers] use one national health plan with occasional regional solutions . . . .”); id. at

207 (offering four or more carriers is “rare”); Kilmartin (Mercer) Dep. 68 (slicing for national

accounts is typically one large national with one regional).

46

Dr. Fowdur’s vision of the slicing that is possible also stood in contrast to what the Anthem

executives testified is more probable. John Martie, currently the Senior Vice President of

Integration for the Cigna acquisition and formerly the Anthem President of National Accounts,

observed that the customer trend today is to reduce the number of carriers, Martie Dep. 257–58,

and Ken Goulet, the former Anthem President of Commercial and Specialty Business, which

includes national accounts, repeated that the trend is moving towards consolidation, usually with

two big carriers side by side. Goulet Dep. 122. Vice President and Head of New Sales for Anthem

National Accounts, Jerry Kertesz, also avowed that national accounts are consolidating

relationships, and that it is “rare” for a customer to contract with more than two carriers. 11 Kertesz

(Anthem) Tr. 560, 588.

Further, Dr. Fowdur’s testimony that as an abstract matter national accounts could avoid a

SSNIP by turning to private exchanges does not comport with the evidence detailing the drawbacks

of these relatively new products and their failure to take hold in the marketplace. See, e.g.,

Schumacher (United) Dep. 182; Hayes (Aetna) Dep. 144–52 (reported in October 2015 Quarter

Business Review that only 4% of the national accounts market will have adopted an exchange for

2016); section III.D.4 below. Moreover, if the hypothetical monopolist in the relevant market were

to raise prices on all plans sold to national account customers, prices would go up on the exchanges

as well, since the exchanges are just an alternative means to bring plans sold by the existing carriers

in the market to the customer. See Kilmartin (Mercer) Dep. 27–28 (Mercer’s Marketplace is a

private exchange “is a technology-enabled platform that allows carriers to compete for business”);

Kertesz (Anthem) Tr. 636.

11 None of this is inconsistent with Dr. Fowdur’s conclusion, based on Dr. Dranove’s data,

that 60% of the 126 Anthem national accounts she reviewed were sliced. Fowdur Tr. 1347.

47

Finally, while aggregating the fourteen states when calculating market share may

understate the local power of a particular regional carrier, it does not give an inaccurate picture of

the overall conditions in the national accounts market, and therefore, it does not fall short of the

relatively flexible standard imposed by the Guidelines and the case law. Both Anthem and Cigna

generate internal reports that discuss national accounts in the aggregate. See, e.g., DX 697.

Although the record shows that competitive conditions across the fourteen states may vary, see

Mathai (Anthem) Tr. 1263,1270, some oversimplification is inevitable when defining a geographic

market, see Guidelines § 4.0, and aggregating across the fourteen states will provide a useful

measure of the competitive impact of this acquisition in the territory in which Anthem and Cigna

compete most directly. Therefore, plaintiffs have established the existence of both a relevant

product and geographic market. 12

B. Market share and concentrations in the relevant market establish the

presumption.

Having defined the relevant market, the next step in analyzing the prime facie case is to

calculate the market share and level of concentration in the market. Heinz, 246 F.3d at 716;

Guidelines §§ 5.2–5.3. The level of concentration in a market “is a function of the number of firms

in a market and their respective market shares.” Staples II, 190 F. Supp. 3d at 128, quoting Arch

Coal, 329 F. Supp. 2d at 123.

12 Ultimately, Dr. Fowdur’s theory that reducing the number of employees to 3000 or 1000,

or disaggregating the states, would radically alter the picture and reveal the strength of numerous

smaller market participants, was not borne out by the evidence introduced in Phase II. Since the

allegations in the second phase of the trial concerned all large group employers, the market share

data that was introduced related to employers with as few as 50 or 100 employees, and tightly

drawn geographic regions. Yet the dominance of the four national carriers, and therefore, the level

of market concentration that would exist in the wake of a merger of two of them remained striking

in the majority of plaintiffs’ thirty-five sample markets. See PDX 28; PX 751; Dranove Tr. 3719–

23.

48

Merger law “rests upon the theory that, where rivals are few, firms will be able to

coordinate their behavior, either by overt collusion or implicit understanding, in order to restrict

output and achieve profits above competitive levels.” FTC v. PPG Indus., 798 F.2d 1500, 1503

(D.C. Cir. 1986). Market concentrations above certain levels are thought to raise the likelihood of

“interdependent anticompetitive conduct.” Id. A merger that produces “a firm controlling an

undue percentage share of the relevant market, and results in a significant increase in the

concentration of firms in that market is so inherently likely to lessen competition substantially that

it must be enjoined in the absence of evidence clearly showing that the merger is not likely to have

such anticompetitive effects.” Phila. Nat’l Bank, 374 U.S. at 363–64 (holding that “[w]ithout

attempting to specify the smallest market share which would still be considered to threaten undue

concentration, we are clear that 30% presents that threat”).

The Herfindahl-Hirschmann Index (“HHI”) is a formula used by the U.S. Department of

Justice Antitrust Division and the Federal Trade Commission to employ market shares to calculate

the level of concentration in a particular market. See Guidelines § 1; Staples I, 970 F. Supp. at

1081 n.12. “The HHI is calculated by totaling the squares of the market shares of every firm in

the relevant market.” Heinz, 246 F.3d at 716 n.9. 13 According to the 2010 Horizontal Merger

Guidelines, a post-merger market is “highly concentrated” when the HHI is 2500 or greater.

Guidelines § 5.3. Further, if the HHI increases by more than 200 points as the result of a merger,

the merger is “presumed to be likely to enhance market power,” Guidelines § 5.3, and is

presumptively unlawful. H & R Block, 833 F. Supp. 2d at 71–72; see also Heinz, 246 F.3d at 716

13 For example, a market with four firms having market shares of 45%, 30%, 18% and 7%

has an HHI of 3298 (452 + 302 + 182 + 72). If the firms with 18% and 7% market shares were to

merge, the new HHI would be 3550 (452 + 302 + 252), so the HHI would increase by 252 points

(3550 - 3298). See Heinz, 246 F.3d at 716 n.9.

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(“Sufficiently large HHI figures establish the [plaintiffs’] prima facie case that a merger is anti-

competitive.”).

While economic measures play a role in antitrust analysis, plaintiffs “need not present

market shares and HHI estimates with the precision of a NASA scientist. The ‘closest available

approximation’ often will do.” Sysco, 113 F. Supp. 3d at 54, quoting PPG Indus., 798 F.2d at

1505. This makes sense because as the President of Anthem Virginia cautioned, “[i]t’s very

difficult to track market share or to have an accurate market share estimate in health insurance,

because it’s difficult to know which market segment customers are in; and it’s difficult to know

what the entire population is, which you need for the denominator in order to calculate market

share.” King (Anthem) Tr. 3041.

1. Plaintiffs’ expert’s calculations

Dr. Dranove calculated the market shares and HHI for the national accounts market in the

fourteen Anthem states based largely on the data gathered during the Antitrust Division’s

investigation. The Department of Justice issued twenty-eight Civil Investigative Demands

(“CIDs”) to health insurance carriers and received twenty-six responses. See Dranove Tr. 1102–

03. To determine market shares, Dr. Dranove used carrier enrollment numbers, which is how

carriers determine their own market shares. See Dranove Tr. 1107–08; PX 36. Since some

industry participants define national accounts purely based on number of enrollees and others

include a geographic requirement, see, e.g., PX 36; Abbott (WTW) Tr. 157–58, Dr. Dranove

calculated market shares two ways: based on enrollment in plans sponsored by employers with

more than 5000 employees (“NA5”) and based on enrollment in plans sponsored by employers

with more than 5000 employees and at least 5% of members residing outside of the state with the

largest proportion of employees (“NA5G”). Dranove Tr. 876–78. Since both definitions are

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consistent with how the industry defines the term, Dr. Dranove ran the numbers both ways as “a

robustness check” to ensure accuracy. Dranove Tr. 878.

The numerator in Dr. Dranove’s individual market share fraction is each carrier’s number

of national account enrollees who reside within the geographic market. Dranove Tr. 884–88. In

calculating Anthem’s market share, he combined Anthem’s enrollees in the fourteen states,

Anthem’s home lives, with the enrollees of other Blues carriers located in the fourteen states,

Anthem’s host lives. 14

The denominator in Dr. Dranove’s market share fraction is an estimate of the total number

of national account enrollees who reside in the geographic market. Dranove Tr. 888. Dr. Dranove

used two alternatives data sets to generate a denominator. The first set identified was potential

enrollees based on publicly-available census data. Dranove Tr. 888. Dr. Dranove used this

approach to capture small regional insurers that did not receive or respond to the CIDs and

therefore did not appear in the data collected by the government. Dranove Tr. 889–90. Dr.

Dranove called this the census approach. Dranove Tr. at 888 (“There’s a lot of different data

reported in a number of different censuses . . . that allows one to estimate the total number of

enrollees in a given geographic area who work for large employers. And so, I took the combination

of the data from these different censuses to estimate the total size of the national accounts market

in the Anthem footprint . . . .”). The second approach was to generate a sum derived from the

enrollment data produced to the United States by the twenty-six insurers that responded to the

CIDs. Dranove Tr. 890–91. This group included the four national carriers, many of the other

14 Dr. Dranove made an exception for Blue Shield of California, which competes against

Anthem in California under a separate Blue Shield license, and is therefore treated as a distinct

competitor from Anthem in calculating market shares. Dranove Tr. 883–84.

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Blues, and several major regional carriers, including Humana, Kaiser, Harvard Pilgrim, and Health

Net. Id. at 891; see DDX 2. Dr. Dranove called this the build-up approach. Dranove Tr. 890–92.

To include the largest possible number of market participants in his denominator, Dr.

Dranove used the larger of the sums derived from the two approaches, which in five of the six

calculations turned out to be the build-up method total. Dranove Tr. 891–92, 1115. He described

this as a “conservative approach” since a larger denominator would result in “smaller estimated

market shares and smaller estimated measures of market concentration.” Dranove Tr. 891–92.

Armed with these numbers, Dr. Dranove calculated market shares for the national accounts

market in the fourteen Anthem states and concluded that the market shares that would result from

the merger would be presumptively anticompetitive. Dranove Tr. 940. For the NA5 definition of

national accounts with 5000 employees that does not include a geographic component, Anthem’s

share combined with the lives of other Blues carriers in the Anthem states is 41%, and Cigna’s

share is 6%, so their combined market share would be 47%. Dranove Tr. 899; PDX 5.

Looking at the NA5G definition of national accounts that includes the geographic element,

Anthem’s share is 40%, Cigna’s share is 8%, and their combined share would be 48%. Dranove

Tr. 899; PDX 5.

Dr. Dranove also calculated the merging companies’ share of the national accounts market

for ASO products alone – “[w]ithout speculating on whether ASO constitutes [a] well-defined

market, because [he] did not do the SSNIP test specifically to ASO . . . .” Dranove Tr. 899. He

found that the post-merger shares would be even higher than with ASO and fully-insured plans in

combination: a post-merger combined share of 54% using the NA5 data, and 50% using the NA5G

(geographic spread) data. Dranove Tr. 899–900; PDX 5.

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Dr. Dranove used these market shares to calculate market concentration using the HHI, and

he concluded that the concentration resulting from the merger would be presumptively

anticompetitive. See Dranove Tr. 940. According to the Merger Guidelines, market concentration

in excess of HHI over 2500 is a highly concentrated market and is presumed to be anticompetitive,

and an increase in market concentration of 200 or more will also trigger the presumption.

Guidelines § 5.3.

For national accounts using the NA5 definition – based solely on the number of

employees – the post-merger HHI will be 3000, and the increase in HHI is 537. Dranove Tr. 898–

99, 941; PDX 5.

For the NA5G national accounts with 5000 employees, 5% of whom reside outside the

state where the employees are most concentrated, the post-merger HHI will be 3124, with an

increase in HHI of 641. Dranove Tr. 899, 941; PDX 5.

The post-merger HHIs for the market for the sale of ASO products alone were even larger

than with ASO and fully-insured combined. Dranove Tr. 899–900, 941; PDX 5 (showing for NA5

a post-merger HHI of 3663 and an increase of 771 and for NA5G a post-merger HHI of 3675 and

a change of 880). 15

All of these numbers are well over the presumptive limits in the Merger Guidelines.

2. Defense experts’ critiques

Anthem criticizes Dr. Dranove for doing a market share calculation in the first place,

asserting that the Horizontal Merger Guidelines recommend using tools other than market share,

15 Dr. Dranove also calculated market shares and the HHI with looking at Anthem’s share

alone, without combining it with any host lives covered by the other Blues. He testified that “the

merger would still put the market concentration above the presumptive threshold [and] . . . the

[change in] HHI would also still be above the presumptive thresholds.” Dranove Tr. 1169.

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such as econometrics, diversion ratios, and merger simulation models, to assess the competitive

effect of a merger in an industry involving differentiated products. See Willig Tr. 2164–66. The

Guidelines do recommend using those tools to look at competitive effects, Guidelines § 6.1, but at

this stage of its analysis, the Court is not assessing the competitive effect of the merger. It is only

assessing whether plaintiffs have made out a prima facie case.

The Merger Guidelines make clear that calculating market shares and applying them in the

HHI is a predicate step to determining whether agencies need to investigate a potential merger

further.

[The HHI] thresholds . . . provide one way to identify some mergers unlikely

to raise competitive concerns and some others for which it is particularly

important to examine whether other competitive factors confirm, reinforce,

or counteract the potentially harmful effects of increased concentration.

The higher the post-merger HHI and the increase in the HHI, the greater are

the Agencies’ potential competitive concerns and the greater is the

likelihood that the Agencies will request additional information to conduct

their analysis.

Guidelines § 5.3. Further, controlling authority provides that “[s]ufficiently large HHI figures

establish the [plaintiffs’] prima facie case that a merger is anti-competitive.” Heinz, 246 F.3d at

716. So it was entirely proper for Dr. Dranove to begin with market shares and an HHI analysis.

Anthem also raises a number of concerns about how plaintiffs’ economist went about

calculating the shares. Dr. Willig testified that combining the enrollment of Anthem and the other

Blues improperly overstates the competition between Anthem and Cigna and inflates the share of

the post-merger entity. Willig Tr. 2213–14. But as was the case with the objection to the use of

the 5000 employee cut-off, or the consideration of both ASO and fully-insured plans in one market,

the refutation of the defense expert’s criticisms can be found in Anthem’s own files.

First of all, Anthem counts these lives itself. Anthem covers the home lives within its

territory and receives income from the other Blues for allowing their members – the host lives – to

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access the Anthem network, and when analyzing its national accounts enrollment, it takes both

sets of lives into account. Kertesz (Anthem) Tr. 559; PX 63 (Anthem internal document tracking

national account market shares for United, Cigna, Aetna, and “BCBS”); see also PX 494 (Anthem

document reporting combined market share of “We the Blues”); Martie (Anthem) Dep. 190 (when

an Anthem business record refers to the national accounts market as “Blue, UHC, Aetna, and

Cigna,” “Blue” means “Blue plans, wherever they competed”).

Second, the Blue network is an integral part of Anthem’s ability to win and woo national

accounts and the source of Anthem’s greatest competitive strength: its discounts. The evidence

shows that Anthem and the other Blues work together to win national business; as the company

stated in litigation in another court: “[a]bsent cooperation, Blue Plans could not effectively service

(and thus would not compete effectively) for national employers . . . .” See PX 216 (discussed at

Swedish Tr. 233). It is the combination of Blue networks that enables Anthem’s customers to

obtain a single national network for their employees. See PX 216; Swedish Tr. 233 (“BlueCard

also allows multi-state employers to gain access to multiple Plans’ networks in a single transaction

rather than cobble together the needed coverage.”). And the discounts Anthem can offer, no matter

where the customer’s employees reside, factor prominently into any Anthem bid for a national

account. See Abbott (WTW) Tr. 90, 107–08; PX 310, 494.

A key selling point, according to Anthem’s Ken Goulet, is that Anthem is offering its own

assets plus the Blues’ networks. Goulet (Anthem) Dep. 117 (if Anthem decides it is competitively

necessary to do so, “we will go out and just offer a zero trend guarantee. What customer wouldn’t

want to avoid future trends by switching to Anthem and Blue Cross Blue Shield networks and

that’s what we instituted in 2014”). Certainly industry participants view them in tandem, often

lumping them together as “the Blues” or referring to the four national carriers as “BUCA” – Blues,

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United, Cigna, and Anthem. See, e.g., Kilmartin (Mercer) Dep. 122–23 (if multistate employers

want a single carrier, “[t]ypically it falls back to Cigna, United, Blue Cross and Aetna”). Given

this evidence, the Court holds that it was appropriate for Dr. Dranove to combine the Blues when

calculating market shares.

Dr. Willig testified that using the build-up method improperly excluded many competitors.

Willig Tr. 2219–20 (stating “the 26 CIDs understates the market because it leaves out hundreds of

market participants,” including all TPAs). But while the Merger Guidelines consider “[a]ll firms

that currently earn revenues in the relevant market” to be “market participants,” Guidelines §5.1,

they permit market concentration to be measured using the “significant competitors” in the market,

particularly “when there is a gap in market share between significant competitors and smaller rivals

. . . in the relevant market.” Guidelines § 5.3.

There is no dispute that many healthcare insurance carriers and TPAs in the market did not

receive CIDs from the government. But the evidence at trial showed conclusively that there are

not hundreds of participants gaining any significant traction in the national accounts market, and

that the Big Four carriers are by far the most significant competitors for national accounts. See

PX 63 (internal Anthem document showing that the Big Four account for more than 80% of the

market for commercial health plans sold to national accounts); see section I.A.1.c.2)b) above.

Anthem, Cigna, Aetna, and United were among the twenty-six companies that responded

to CIDs, so they were included in Dr. Dranove’s buildup method. Dranove Tr. 891; DDX 2. The

CID data included the company generally viewed as number five on the national scene, or at least,

a particularly strong regional company: Humana. The buildup method also included data from

Kaiser and Harvard Pilgrim, the key carriers that came up most often in testimony as strong

regional forces. According to Dr. Dranove, adding the regional firms’ membership to the

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denominators understated the national carriers’ market shares across the Anthem territory since

Kaiser and Harvard Pilgrim only compete for national accounts in their limited geographic areas.

Dranove Tr. 891–92, 894. But they were included nonetheless. Since the buildup denominators

account for the most significant carriers, as required by the Merger Guidelines, § 5.3, and they go

even further to include an additional twenty-two carriers, the Court holds that Dr. Dranove’s

methodology appropriately measured market concentrations. Dr. Dranove tested his results

against the census data, and that examination did not expose the presence of a major competitor

that had not been accounted for. Use of the 26 CIDs was not only appropriate as a matter of

practice, but it leads to a conclusion that is entirely consistent with the ordinary course evidence

and testimony of market participants. 16 The build-up approach was conservative, if not outright

generous, and if anything, it understated the power of the two merging parties.

Dr. Fowdur stated that the calculations fail to account for slicing, and therefore, Dr.

Dranove overstated the merging parties’ market share. Fowdur Tr. 1349–51. The economist added

that her own analysis of 126 Anthem and Cigna national accounts revealed that 40% were sliced

with Kaiser and about 15% are sliced with other carriers. Fowdur Tr. 1349–51. But Kaiser was

included in the CID data along with the other logical slice recipients. Dr. Dranove testified that

his review of Anthem’s internal data showed that when national accounts sliced, “they almost

always sliced to the big four.” Dranove Tr. 2254–56. This is borne out by a review of the

company’s Salesforce records depicting all of Anthem’s national account slice business. DX 697.

The data available on this issue for the economists to analyze may have been imperfect

with respect to the smallest participants in the market, but given that “scientific precision” is not

16 While plenty of industry witnesses agreed that TPA’s exist, none supplied evidence of

anything other than anecdotal evidence of their connection to a handful of national accounts. Thus,

they appeared to be “significant” competitors in this market only to defendants’ economists.

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required in calculating market shares, Conn. Nat’l Bank, 418 U.S. at 669, Dr. Dranove’s market

shares and market concentration figures include the significant competitors, and the expert analysis

fairly reflects the actual business conditions, defendants’ concerns do not undermine Dr.

Dranove’s conclusions. 17

C. Evidence of price effects supports the prima facie case.

Dr. Dranove was asked to consider whether the merger would lead to “static harm,” that

is, effects on prices, as well as “dynamic” or long term effects, such as impacts on quality or

innovation. As part of his economic analysis then, in addition to calculating market share and

concentration, he conducted a merger simulation to analyze the merger’s likely effects on price in

the relevant market. See Dranove Tr. 956–57; Sysco, 113 F. Supp. 3d at 67 (evidence of a merger’s

likely price effects through economist’s merger simulation “strengthen[ed] the FTC’s prima facie

case”); H & R Block, 833 F. Supp. 2d at 88 (stating that merger simulations have “some probative

value in predicting the likelihood of a potential price increase after the merger”).

Based upon several different economic analyses, Dr. Dranove concluded that the merger

will lead to static harm in the Anthem states in the form of higher health insurance premiums and

ASO fees. Dranove Tr. 844–45. His merger simulation resulted in a calculation of $219.7 million

of static harm in the fourteen Anthem states. Dranove Tr. 845, 959–60. Using an Upward Pricing

Pressure (UPP) analysis, Dr. Dranove predicted static harm totaling $383.8 million. Id. And when

he performed the UPP analysis again, this time incorporating the fact that win/loss data suggests

17 Dr. Willig also testified that Dr. Dranove’s census method is improper because the census

number was lower than the buildup number in five out of six of Dr. Dranove’s calculations, which

suggests that census-based denominators understated the total market size. Willig Tr. 2219; see

also Fowdur Tr. 1330–31. But if even both sets of data were imperfect, the fact that they mirrored

each other is important.

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that Anthem and Cigna are close competitors, the exercise led to a total of $930.3 million in static

harm in the relevant market. Id.

Anthem’s expert, Dr. Israel, criticized Dr. Dranove’s merger simulation and UPP model

because they focus on the fees to be charged by the newly formed carrier for claims administration

services and do not account for any of the savings in medical costs that Anthem claims will flow

to the customers from its greater network discounts. Israel Tr. 1867–69. He informed the Court

that if just 33% of the medical cost savings he had calculated were factored into Dr. Dranove’s

model, the merger would turn out to be procompetitive. Israel Tr. 1867, 2012–13. Dr. Israel then

described his own merger simulation. It was performed considering all large group employers,

not just the national account customers which the Court has found to comprise the relevant market,

because the witness rejected the distinction. Israel Tr. 2017. He reported his conclusion that in

the fourteen Anthem states, the merger would result in a net average cost of care savings of $4.50

per member per month (“PMPM”), or $1.5 billion in net consumer benefits. Israel Tr. 2017–19;

DDX 15. He explained that the savings would apply to all 27 million ASO customers in the

Anthem states, not only those that choose the new company, because his models “take into account

that . . . a stronger Anthem or Cigna will put more competitive pressure on United and Aetna.”

Israel Tr. 2018. When he limited the analysis to the national account market, he found that the

merger would remain procompetitive, and he predicted a total PMPM cost savings of $5.04. Israel

Tr. 2025–26; DDX 15.

All of Dr. Israel’s calculations assume that it is appropriate to factor in differences in

provider rates obtained by Anthem and Cigna for members in their networks. So his entire critique

of Dr. Dranove’s conclusions rises and falls with Anthem’s efficiencies defense, which the Court

rejects for a number of factual and legal reasons in section IV below.

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There were also more nuanced differences in the manner in which each expert structured

his analysis, but regardless of the particular methodology employed, both economists found that

the merger will result in some level of anticompetitive effects if one sets the medical cost savings

aside. Dranove Tr. 2285–86, 2295 (“[B]oth approaches predict there will be price effects in the

absence of substantial efficiencies.”); see also Israel Tr. 2017–19 (medical cost savings were

balanced “against the loss of Anthem/Cigna competition”). Therefore, plaintiffs’ evidence of price

effects bolsters the presumption created by the market shares and market concentration evidence,

and plaintiffs have established their prima face case.

II. Defendants have come forward with evidence to rebut the prima facie case.

Because plaintiffs have established the prima facie case, the Court must next determine

whether defendants have presented evidence to rebut the presumption that the likely effects of the

merger will be anticompetitive. The standard for the quantum of evidence defendants must

produce to shift the burden back is relatively low. Baker Hughes, 908 F. 2d at 991, quoting Phila.

Nat’l Bank, 374 U.S. at 363 (defendants are not required to “‘clearly’ disprove anticompetitive

effect,” but rather to make merely “a ‘showing’”).

Defendants may rebut the presumption either by “affirmatively showing why a given

transaction is unlikely to substantially lessen competition, or by discrediting the data underlying

the initial presumption in the government’s favor.” Id.; see also Heinz, 246 F.3d at 715; Citizens

& S. Nat’l Bank, 422 U.S. at 120. They may rely on “[n]onstatistical evidence which casts doubt

on the persuasive quality of the statistics to predict future anticompetitive consequences . . . .”

Heinz, 246 F.3d at 715 n.7, quoting Kaiser Aluminum, 652 F.2d at 1341. To rebut the presumption

established by the government’s prima facie case, Anthem presented evidence on a number of

relevant issues.

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Competition between Anthem and Cigna: The defense presented evidence to show that

United, not Cigna, is Anthem’s closest competitor for national accounts and that Cigna competes

more directly with Aetna. See, e.g., Curran (Def. Counsel) Tr. 53, 2703–04; Kendrick (Anthem)

Tr. 1198 (United is “clearly [Anthem’s] most formidable competitor”); Schell (Anthem) Dep. 233

(Anthem’s closest competitor for national accounts business is United); Goulet (Anthem) Dep. 97,

108–11 (United and Anthem have the best discounts and United is a “formidable competitor” for

national accounts business, while Aetna and Cigna are “second tier” competitors); DX 35 (internal

win/loss data); Manders (Cigna) Dep. 207 (Aetna’s “value proposition historically has been more

aligned to [Cigna’s]” and thus Aetna has been one of the hardest competitors for Cigna because

they are “more similar to [Cigna] than others”).

Anthem also presented economic testimony to show that Cigna is not Anthem’s closest

competitor. Dr. Israel conducted a diversion analysis and testified that the level of direct

competition between the merging parties for national accounts is smaller than their market shares

would imply. Israel Tr. 1995–96; DDX 15.

Customer sophistication and bargaining power: The defense presented evidence that

national accounts have the level of sophistication to thwart any effort by the merged company to

raise prices. National accounts rely upon experienced and sophisticated consultants to advise

them, and they are well-informed about industry trends, and pricing in the marketplace, and the

array of competitive offerings, including non-carrier options. Abbott (WTW) Tr. 64–66, 155;

Kendrick (Anthem) Tr. 1212–13; Fowdur Tr. 1360; Thackeray (Cigna) Tr. 751.

New entrants and expansion: The defense presented evidence that new entrants in the

market will also constrain the ability of the merged company to increase prices. It showed that

some existing regional competitors compete for national accounts or slices of national account

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business, and that they are expanding or seeking to expand. See Fowdur Tr. 1319–20; Gray (Key

Benefit Administrators) Dep. 43–44; Edwards (HealthSCOPE Benefits) Dep. 54. Witnesses also

offered proof that TPAs, provider-sponsored plans, and other firms have recently entered the

market or are expanding their existing share. See DX 2 (showing that twenty-five new PSPs

entered in sixteen states between 2012 and 2014); Batniji (Collective Health) Dep. 85–86; DX 19

(identifying acquisitions by a TPA to facilitate its expansion beyond its existing geographic

region). They also presented evidence that some of these entities have been successful in securing

national accounts business: some TPAs have won some national accounts, Schumacher (United)

Dep. 305; Kendrick (Anthem) Tr. 1197; providers, such as hospital systems, have teamed with

health plans to offer their own provider networks to national accounts, Henderson (Innovation

Health) Dep. 26–27; Spooner (Tufts Health Plan) Dep. 36, 155–56; and some very large national

accounts have bypassed insurance carriers altogether by directly contracting for certain services.

Bisping (Caterpillar) Dep. 12–13; McHugh (HTA) Dep. 13–1, 19–20, 40–42; see also Batniji

(Collective Health) Dep. 58–61, 63–64; Hatch (AmeriBen) Dep. 21–22; Edwards (HealthSCOPE

Benefits) Dep. 15, 87; Horvath (CoreSource) Dep. 63; see also section III.D.4. Defendants also

showed that other specialized entities, innovators, or “niche players” are competing for portions

of the services that the major carriers offer to national accounts. See Thackeray (Cigna) Tr. 746–

47, 760; id. at 748–49 (Quantum and Accolade are beginning to offer utilization management

services); see also DX 2 (BCBS presentation on emerging competitors and market innovators).

And, as discussed above, Dr. Fowdur testified that her critical loss calculation shows that the mere

presence of the other national competitors, along with the additional regional and newly emerging

competitors, will impose price discipline on the market since customers can slice, or even simply

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threaten to slice or move their business entirely. Fowdur Tr. 1319–20, 1324, 1330, 1361–63

(bluffing “imparts competitive discipline”).

To demonstrate the ease of entry into the marketplace, the defense presented evidence

about the legal and regulatory requirements for serving ASO customers. See Gray (Key Benefit

Administrators) Dep. 43–44, Edwards (HealthSCOPE Benefits) Dep. 54; Major (UCHealth) Dep.

76–78. The defense presented testimony that fully-insured plans can receive state regulatory

approval in less than a year, see Spooner (Tufts Health Plan) Dep. 79–80; Roberts (Harvard

Pilgrim) Dep. 114, and that provider networks can be rented or created within a few months to a

year. Fowdur Tr. 1336; Archer (HealthSmart Benefit Solutions) Dep. 140–41; Bierbower

(Humana) Tr. 836.

Innovation: The defense presented evidence in an effort to show that the merger will

enhance innovation. Beginning with Joe Swedish, the Anthem witnesses touted Anthem’s

leadership in innovation, particularly in the fields of value-based and accountable care. Swedish

Tr. 295–96; Drozdowski (Anthem) Tr. 1670; Kendrick (Anthem) Tr. 1200–01 (discussing

Anthem’s innovation laboratory in Atlanta); see also DX 106; DX 155. Anthem’s economist

testified that after the merger, the new company will have increased incentive to continue

innovating. Israel Tr. 2032–33 (the merged company will be a stronger competitor with “more

opportunity to recoup the investments in innovation . . . [because] their innovations become more

profitable”). This would be consistent with the trend across the industry towards value-based care

and provider collaborations, DX 362 (Kaiser document on growth of ACOs and provider-owned

health plans); Austen (MVP Health Care) Dep. 31–33 (discussing plans to increase value-based

reimbursements), and the need to respond to the new entrants offering innovative programs to

national accounts. Fowdur Tr. 1353–54; Guptill (Kaiser) Dep. 103–04 (non-traditional players

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such as UberHealth, CVS Health, and Walmart are launching “consumer friendly tactics that have

the potential to disrupt traditional care of delivery models”); id. at 117–18 (providers such as Inova,

MedStar, Johns Hopkins, and Sentara, that have or are developing insurance products).

Anthem also presented evidence of efficiencies to be discussed in greater detail in

section IV below. Applying the Baker Hughes burden-shifting rubric, the Court finds that the

defense has rebutted the presumption that the merger will likely result in anticompetitive effects

in the market, and the burden of persuasion shifts back to plaintiffs.

III. Plaintiffs have carried their burden to establish that the merger is likely to harm

competition.

The Supreme Court has adopted a “totality-of-the-circumstances approach to the statutes,

weighing a variety of factors to determine the effects of particular transactions on competition.”

Baker Hughes, 908 F.2d at 984. These factors may include: ease of entry in the marketplace, the

significance of market shares and concentration; the likelihood of express collusion or tacit

coordination; prevalent marketing and sales methods; the absence of a trend toward concentration;

industry structure; any weakness of the data underlying the prima facie case; elasticity of industry

demand, product differentiation; and the prospect of efficiencies from the merger. Id.

Courts examine two types of effects that may arise from mergers: coordinated effects and

unilateral effects. Coordinated effects refer to markets with few competitors, in which firms may

“coordinate their behavior, either by overt collusion or implicit understanding in order to restrict

output and achieve profits above competitive levels.” ProMedica Health Sys., Inc. v. FTC, 749

F.3d 559, 568 (6th Cir. 2014), quoting H & R Block, 833 F. Supp. 2d at 77. An example of this

would be parallel pricing by two gas stations located across the street from each other in a remote

small town. Id. at 568–69. Unilateral effects refers to a merger’s elimination of competition

between the two merging companies, which “may alone constitute a substantial lessening of

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competition.” Id., quoting Guidelines § 6. “The most obvious example of this phenomenon is a

‘merger to monopoly’ – e.g., where a market has only two firms, which then merge into one – but

unilateral effects ‘are by no means limited to that case.’” Id., quoting Guidelines § 6.

Relevant evidence of a merger’s potential unilateral effects include the merging

companies’ ordinary course of business documents, testimony of industry participants, and the

history of head-to-head competition between the two merging parties. See, e.g., Staples II, 190 F.

Supp. 3d at 131–33; H & R Block, 833 F. Supp. 2d at 73–75, 81–82; Heinz, 246 F.3d at 717–18;

Swedish Match, 131 F. Supp. 2d at 169–70.

The Court finds that the merger will have the anticompetitive effects of eliminating direct

competition between the two firms, reducing the number of national carriers from four to three,

and diminishing innovation, and that new entrants and other market conditions identified by the

defense are not sufficient to forestall price increases and ameliorate these effects.

A. The merger will have the unilateral effect of eliminating the existing head-to-

head competition between Anthem and Cigna.

The Horizontal Merger Guidelines advise that “[u]nilateral price effects are greater, the

more the buyers of products sold by one merging firm consider products sold by the other merging

firm to be their next choice.” Guidelines § 6.1. But “mergers that eliminate head-to-head

competition between close competitors often result in a lessening of competition.” Staples II, 190

F. Supp. 3d at 131; Staples I, 970 F. Supp. at 1083 (holding that “the elimination of a particularly

aggressive competitor in a highly concentrated market [is] a factor which is certainly an important

consideration when analyzing possible anti-competitive effects”). And this is true even where the

merging parties are not the only two, or even the two largest, competitors in the market. Aetna,

2017 WL 325189, at *29; see also Sysco, 113 F. Supp. 3d at 62; Heinz, 246 F.3d at 717–19; H & R

Block, 833 F. Supp. 2d at 83–84.

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Given this standard, Anthem’s insistence that United, not Cigna, is its “closest” competitor,

is beside the point. The acquired firm need not be the other’s closest competitor to have an

anticompetitive effect; the merging parties only need to be close competitors. Staples II, 190 F.

Supp. 3d at 131; see also Guidelines § 6.1 (“The elimination of competition between two firms

that results from their merger may alone constitute a substantial lessening of competition.”).

The evidence in this case, including Anthem records and testimony from Anthem

witnesses, firmly establishes that United, Cigna, Aetna, and the Blues compete against each other

for national accounts, and that together, they dominate the market. See PX 63 (internal Anthem

document reporting that BCBS, United, Cigna, and Aetna have 83% of the market share for

commercial health plans sold to national accounts); PX 121 (Anthem affiliate WellPoint document

describing market as “consolidated”); Abbott (WTW) Tr. 109–11; Martie Dep. 177–81, 186, 189–

91, 193–200; PX 259; Guilmette (Cigna) Dep. 187–88; Mascolo (Wells Fargo) Dep. 156–57.

But insurance products are not sold off-the-shelf to every customer for a single price; health

benefits coverage sold to national accounts is a “differentiated product,” and the carriers compete

by submitting bids to individual customers. Therefore, both sides engaged in economic analyses

to ascertain what the level of direct competition between Anthem and Cigna has been within the

tightly packed national accounts environment. See Guidelines § 6.1 (in differentiated product

industries, “the extent of direct competition between the products sold by the merging parties is

central to the evaluation of unilateral price effects”).

Dr. Dranove conducted a diversion analysis, which is used in markets with differentiated

products, to examine the level of competition between merging companies. Dranove Tr. 2257–

80. He explained that customers buying group health insurance are “trying to play the top bidders

against each other,” economists consider the procurement process for group health insurance to be

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what the Guidelines and economists refer to as an “auction,” and this means that this merger will

affect competition most significantly when Anthem and Cigna are both among the top bidders.

Dranove Tr. 2280–84.

For that reason, Dr. Dranove analyzed the company’s internal data to first isolate the

occasions when the two companies had been the top two bidders for any national account’s

business and then determine how often each won or lost against the other in that situation. See

Dranove Tr. 2280–81. 18 He then compared the data to the market shares he had calculated for the

prima facie case.

Dr. Dranove looked first at situations when the merging companies lost business to each

other. He determined that the market shares for national accounts in the Anthem territories indicate

that Anthem should win 44% of the contracts where Cigna is the incumbent and loses. Dranove

Tr. 952–53; PDX 5. But Cigna’s internal win/loss data showed that Anthem wins those contracts

more than the market shares predicted: Anthem won 60% of those solicitations. Dranove Tr. 952–

53 (using Cigna’s SalesForce.com win/loss data from 2011 to 2017); PDX 5.

Similarly, the market shares indicated that Cigna should win “about 10 percent” of the

contracts when Anthem is the incumbent and loses. Dranove Tr. 953–54; PDX 5. But Anthem’s

internal win/loss data showed that Cigna won “about 17 percent” of those sales. Dranove Tr. 953–

54 (using Anthem’s iAvenue win/loss data); PDX 5.

18 Dr. Dranove testified that each company tracks when it wins or loses business and who the

incumbent is when it bids for business, but they do not track when they were the top two bidders

for an account. Dranove Tr. 2281–82, 2285. To approximate that information, Dr. Dranove

narrowed the competitive situations he analyzed to those situations where Anthem was the

incumbent and a customer switched away to Cigna and vice versa. Id. at 2281–82. He reasoned

that if Anthem or Cigna “bid and lost and they were the incumbent, they were more likely to be

second and third than they were to be fourth and fifth” since ordinarily, “the incumbent doesn’t

lose because it’s not well-liked” but “because somebody jumped over them.” Id. at 2285.

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Looking at situations when the merging companies won business away from each other,

Dr. Dranove testified that market shares predict that Cigna should have won business from Anthem

44% of the time. Dranove Tr. 954; PDX 5. But Cigna’s data showed that when Cigna wins an

account, it does so about 54% of the time from Anthem. Dranove Tr. 954–55 (using Cigna

SalesForce.com win data from 2011 to 2017); PDX 5. And looking at Anthem’s wins, its market

share for national accounts would give rise to the prediction that 11% of the wins would be in

situations where Cigna was the incumbent and lost. Dranove Tr. 954–55; PDX 5. But Anthem’s

data showed that when Anthem won a contract from an incumbent, Cigna was the incumbent

almost 35% of the time. Dranove Tr. 954–55 (using Anthem’s SalesForce data from 2015 to

2017); PDX 5. In sum, the data showed that Anthem and Cigna are winning business from and

losing business to each other more than their market shares would predict.

Given these results, Dr. Dranove concluded that his HHI calculations – which are dramatic

in and of themselves – actually understate the competitive significance of the merger, because the

underlying market shares understate the closeness of competition between the merging firms.

Dranove Tr. 953.

Not surprisingly, Anthem’s expert conducted a diversion analysis that reached the opposite

conclusion: the level of competition between the merging parties for national accounts is smaller

their market shares imply. Israel Tr. 1995–96 (referencing DDX 15). To calculate his diversion

ratios, Dr. Israel matched Anthem’s and Cigna’s bid information from 2015 and 2016 to identify

instances in which both companies bid. Id. at 1995, 2004. Using each company’s win/loss bid

data and customer lists, he calculated how often Anthem and Cigna lost a solicitation that the other

company won. Id. at 1995, 1997 (referencing DDX 15).

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Dr. Israel testified that if Anthem and Cigna were particularly close competitors, then when

they both bid for an account, Anthem would be expected to lose more frequently to Cigna than the

rate implied by Cigna’s overall market share and, similarly, Cigna should lose more frequently to

Anthem than the rate implied by Anthem’s overall market share. See Israel Tr. 1996. But his

diversion ratio calculations found that they lost to each other less frequently than the market shares

would suggest. Id. at 1996.

Dr. Israel’s diversion analysis also examined each company’s pricing patterns to discover

whether one reacted to the presence of the other as a competitor by offering more competitive ASO

bids. Israel Tr. 2006–07. He concluded that Anthem’s presence or absence as a competitor on a

given bid had no statistically detectable effect on Cigna’s bids, and that the same was true for

Anthem’s bids with respect to Cigna’s presence. Id. at 2007. So, he found that the loss of direct

competition between the two would have little or no effect on the merged company’s bids. Id.

at 2007–08.

In addition, Dr. Israel searched Anthem’s data to cull out the competitive situations in

which Anthem must have viewed Cigna as a particularly weak competitor because Cigna’s

discounts were six to eight percentage points lower than Anthem’s. Israel Tr. 2010–11. He

explained that if Cigna were a close competitor, Anthem would be expected to raise its price when

Cigna’s discounts were not competitive to its own. Israel Tr. 2011. But he found that Cigna’s

competitiveness on the discount factor had no statistically significant effect on Anthem’s bid.

Israel Tr. 2011. 19

19 This analysis does not take into account the fact that even with its discount advantage,

Anthem has been forced to fend off Cigna not by lowering its ASO fees, but by offering trend

guarantees or making other concessions. See, e.g., Kertesz (Anthem) Tr. 575–76.

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Each witness went to great lengths to discredit the other’s economic evaluation of the

intensity of the direct competition between the two companies. As noted above, Dr. Dranove

compared the RFP bidding situation to the economic model of an auction, see, e.g., Dranove Tr.

943 (“[I]t’s the competition between the two top bidders that ultimately drives the price.”), while

Dr. Israel favored the model of a negotiation. Dr. Dranove maintained that Dr. Israel’s negotiation

model unrealistically assumed that customers would be armed with perfect knowledge about the

carriers’ actual costs and profit margins when responding to a bid, and that they would know

“exactly how much the insurance company is willing to sell the product for.” Dranove Tr. 2291–

93. 20 According to Dr. Dranove, incorporating this assumption into the merger simulation meant

that Dr. Israel’s calculation “dramatically reduce[d] the amount of harm resulting from the price

increases.” Dranove Tr. 2294. Dr. Dranove also criticized Dr. Israel for failing to factor in

incumbency, and the role that would play in the outcome of any solicitation. Dranove Tr. 2281–

82, 2284–85, 2415–16 (“There’s a final two bidders in every single RFP . . . . What’s relevant for

the win-loss is finding out when they are one and two. As I’ve testified, we don’t know who’s

two, so I conditioned on incumbency.”). In response, Dr. Israel insisted that it was important to

consider all instances where one of the carriers bid and lost instead of just those situations when

an incumbent was unseated. He characterized Dr. Dranove’s diversion analysis as a switching

study that used too small a sample and inappropriately assumed that the incumbent was always the

20 In the Court’s view, neither economic model provides a perfect analogy. Dr. Dranove’s

criticism that customers would not have the level of information assumed in Dr. Israel’s model has

some force; notwithstanding the evidence that customers were aided by brokers who gather

considerable intelligence concerning discounts and other factors, the notion that customers would

be certain of a carrier’s bottom line was not established by the evidence. But there was testimony

from brokers in Phase II to support Dr. Israel’s supposition that at least in some instances, the

customer may initiate another round of negotiation after the final two bids have been submitted

and ranked. See, e.g., Hawthorne (Scott Insurance) Tr. 2992–93.

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customer’s second best option. Israel Tr. 2003–05. Meanwhile, Dr. Dranove observed that Dr.

Israel’s regression analysis, which was based on the ASO fees in Anthem bids, did not take into

account occasions when Anthem may have made other concessions to improve its offer without

reducing its fees. Dranove Tr. 2274, 2279.

Faced with these differences of opinion, the Court notes that these were both highly

qualified and articulate economists. As Dr. Israel was wont to emphasize, he has been retained by

the Department of Justice in other merger cases. Sysco, 113 F. Supp. 3d at 34. Putting aside the

technical differences in the two approaches, one thing the diversion analyses had in common was

that they were predicated on economic assumptions underlying the various methodologies, and not

on the internal communications that shaped and chronicled these events in real time. And, here

again, Anthem’s ordinary course documents tell a consistent story that contravenes the firm’s

litigation position.

The documentary record shows that Anthem unquestionably competes directly and

aggressively against Cigna for national accounts. See PX 47; PX 59; PX 62; PX 63; PX 77. In

2011, Anthem found itself losing national accounts to Cigna. See PX 138; see also PX 59 (internal

email stating that Anthem needed to be more aggressive; “Aetna and Cigna should not exist”). In

2012, Anthem specifically set out to win national accounts from Cigna and Aetna by offering zero

percent trend guarantees to customers moving to Anthem from either company. Kertesz (Anthem)

Tr. 575–76; Martie Dep. 235 (Anthem was offering trend guarantees against Cigna pre-merger

even though it already beat Cigna on cost); PX 62 (“[W]e will guarantee a 0% trend whenever

replacing Cigna or Aetna.”). And in 2014, Anthem encouraged this direct competition by offering

“strategic alignment bonuses” to national accounts team members who were able to fully replace

Cigna, Aetna,

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