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MERGER ANTITRUST LAW Unit 8: Anthem/Cigna Class 22 Fall 2017 Georgetown University Law Center Dale Collins COMPLETE

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Page 1:  · Unit 8 ANTHEM/CIGNA Table of Contents . Anthem/Cigna . The transaction . Anthem, Inc. and Cigna Corp., Press Release, Anthem Announces Definitive Agreement To Acquire Cigna Corpor

MERGER ANTITRUST LAW Unit 8: Anthem/Cigna

Class 22

Fall 2017 Georgetown University Law Center Dale Collins

COMPLETE

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Unit 8 ANTHEM/CIGNA

Table of Contents

Anthem/Cigna The transaction

Anthem, Inc. and Cigna Corp., Press Release, Anthem Announces Definitive Agreement To Acquire Cigna Corporation (July 24, 2015) ........... 5 Anthem, Inc., Agreement Presentation, Anthem and Cigna: Combination

Creates Premier Health Services Company ............................................ 12

American Med. Ass'n, Letter to Willima Baer, Ass't Att'y Gen., Antitrust Div., U.S. Dep't of Justice, re Aetna’s proposed acquisition of Humana and Anthem’s proposed acquisition of Cigna (Nov. 11, 2015) ............................ 36 American Med. Ass'n, Markets Where an Anthem-Cigna Merger

Warrants Antitrust Scrutiny .................................................................... 53

The trial U.S. Dep’t of Justice, Antitrust Div., News Release, Justice Department

and State Attorneys General Sue to Block Anthem’s Acquisition of Cigna, Aetna’s Acquisition of Humana (July 21, 2016) ............................... 66 Complaint, United States v. Anthem, Inc., No. 1:16-cv-01493 (D.D.C.

filed July 21, 2016) ................................................................................. 68

Anthem, Inc., News Release, Anthem Statement Regarding Action by the Department of Justice (July 21, 2016) ......................................................... 111

Cigna Corp., News Release, Cigna Comments on DOJ Position Regarding Proposed Transaction with Anthem (July 21, 2016) ................................... 113

Anthem, Inc., Form 8-K (filed Jan. 19, 2017) (reporting that it delivered written notice to Cigna that Anthem has elected to extend the “Termination Date” (as defined in the Merger Agreement) through and including April 30, 2017) ..................................................................... 115

Order (Feb. 8, 2017) (enjoining transaction)1 .................................................... 117 Notice of Appeal (Feb. 9, 2017) ........................................................................ 129

Anthem, Inc., Press Release, Anthem Responds to U.S. District Court’s Decision on Acquisition of Cigna (Feb. 9, 2017) ........................................ 131

The appeal Emergency Motion of Appellant Anthem, Inc. for Expedited Consideration

of Appeal (Feb. 13, 2017) ........................................................................... 133

Cigna’s termination of merger agreement Cigna Corporation, News Release, Cigna Terminates Merger Agreement

with Anthem (Feb. 14, 2017) ................................................................ 146

1 A 140-page Memorandum Opinion accompanied this order. We will not read the opinion, but

if you are interested you may find it here on AppliedAntitrust.com along with many other materials from the case.

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Unit 8 ANTHEM/CIGNA

Anthem, Inc., News Release, Anthem Files Suit Against Cigna Seeking a Temporary Restraining Order to Enjoin Cigna from Terminating the Merger Agreement, Specific Performance Compelling Cigna to Comply with the Merger Agreement and Damages (Feb. 15, 2017) .................. 149

Order Granting Motion for Temporary Restraining Order (Feb. 15, 2017) (restraining Cigna from terminating merger agreement) ...................... 157

Response of the United States and Plaintiff States in Opposition to Defendant-Appellant’s Motion to Expedite (Feb. 15, 2017) ......................................... 158

Appellant Anthem, Inc.'s Reply in Further Support of its Emergency Motion for Expedited Consideration of Appeal (Feb. 16, 2017) ................. 183

Order (Feb. 17, 2017) (granting motion for expedited appeal) .......................... 194

Opinion, United States v. Anthem, Inc., No. 17-5024 (D.C. Cir. Apr. 28, 2017) (affirming grant of permanent injunction) .......................... 196

Breach of contract action Complaint, Cigna Corp. v. Anthem Inc., C.A. No. 2017-0109-JTL (Del. Ch.

filed Feb. 17, 2017) (seeking payment of $1.85 billion antitrust reverse termination fee and damages for breach of contract) .................................. 263

Teleconference Plaintiff's Motion for a Temporary Restraining Order and the Court's Ruling (Feb. 15, 2017) .............................................................. 314

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The Transaction

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Anthem Announces Definitive Agreement to Acquire Cigna Corporation

• Combination will create the premier health services company with critical diversification to lead the transformation of health care for consumers by enhancing health care access, quality and affordability• Cigna shareholders receiving consideration of $103.40 per share in cash and 0.5152 shares of Anthem stock in exchange for each Cigna share, reflecting a value of $188.00 based on Anthem’s unaffected share price as of May 28, 2015• Combination expected to drive adjusted earnings per share accretion approaching 10% in year one, with accretion more than doubling in year two• The combined company will cover approximately 53 million medical members with well positioned commercial, government, consumer, specialty businesses along with a market-leading international franchise

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July 24, 2015 06:00 AM Eastern Daylight Time

INDIANAPOLIS & BLOOMFIELD, Conn.--(BUSINESS WIRE)--Anthem, Inc. (NYSE:ANTM) and Cigna Corporation (NYSE:CI) today announced that they have entered into a definitive agreement whereby Anthem will acquire all outstanding shares of Cigna in a cash and stock transaction and Cigna shareholders will receive $103.40 in cash and 0.5152 Anthem common shares for each Cigna common share. The total per share consideration equates to approximately $188.00 for each Cigna share based on Anthem's closing share price on May 28, 2015, valuing the transaction at $54.2 billion on an enterprise basis.

The combined company will be an industry leader with enhanced diversification and capabilities to advance the transformation of health care delivery for consumers. Following the transaction, Anthem will have more than $115 billion in pro forma annual revenues, based on the most recent 2015 outlooks publicly reported by both companies and will gain meaningful diversification covering approximately 53 million medical members with well positioned commercial, government, consumer, specialty and international franchises. Upon the close of the transaction, Joseph Swedish will serve as Chairman and Chief Executive Officer of the combined company and David Cordani will be President and Chief Operating Officer. In addition, effective upon closing, the Anthem Board of Directors will be expanded to 14 members. David Cordani and four independent directors from Cigna’s current Board of Directors will join the nine current members of the Anthem Board of Directors.

The agreement provides an “unaffected” premium to Cigna’s shareholders of approximately 38.4%, based on the unaffected closing price of Cigna’s shares on May 28, 2015. Under the terms of the transaction, the consideration consists of approximately 55% cash and 45% Anthem shares, and the combined company would reflect a pro forma equity ownership comprised of approximately 67% Anthem shareholders and approximately 33% Cigna shareholders.

“We are very pleased to announce an agreement that will deliver meaningful value to consumers and shareholders through expanded provider collaboration, enhanced affordability and cost of care management capabilities, and superior innovations that deliver a high quality health care experience for consumers. We believe that this transaction will allow us to enhance our competitive position and be better positioned to apply the insights and access of a broad network and dedicated local presence to the health care challenges of the increasingly diverse markets, membership, and communities we serve. The Cigna team has built a set of capabilities that greatly complement our own offerings and the combined company will have a competitive presence across commercial, government, international and specialty segments. These expanded capabilities will enable us to better serve our customers as their health care needs evolve,” said Joseph Swedish, President and Chief Executive Officer of Anthem.

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“Our companies share proud histories and an even brighter future. Going forward our new company will deliver an acceleration of innovative and affordable health and protection benefits solutions that help address our health system's challenges and provide supplemental insurance protection, and health care security to consumers, their families, and the communities we share with them. The complementary nature of our businesses will allow us to leverage the deep global health care knowledge, local market talent, and expertise of both organizations to ensure that consumers have access to affordable and personalized solutions across diverse life and health stages and position us for sustained success,” said David M. Cordani, President and Chief Executive Officer of Cigna.

Utilizing Anthem’s and Cigna’s complementary strengths, the combined company will be able to deliver higher quality health care as America’s valued health partner. By combining Anthem’s Blue Cross and Blue Shield footprint in 14 states and Medicaid footprint via its Amerigroup brand in 19 states with Cigna’s broad portfolio of health and protection services in the U.S. and globally, the combined company will offer a comprehensive range of high quality, high value products and services to the full spectrum of customers – individuals, employers and State and Federal governments.

The transaction is expected to close in the second half of 2016, pending the receipt of customary approvals, including certain state regulatory approvals and expiration of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act. In addition, the transaction is subject to customary closing conditions, including the approval of Cigna’s shareholders of the merger agreement and Anthem’s shareholders of the issuance of shares in the transaction. Anthem is confident in its ability to obtain all necessary regulatory and other approvals.

The combined company expects to achieve adjusted earnings per share accretion approaching 10% in year one, with the accretion more than doubling by year two following the closing of the transaction. We are confident in our ability to achieve synergy targets and are committed to retaining investment grade debt ratings. Anthem expects its debt-to-capital ratio to be approximately 49% at the time of close, with a plan to bring the ratio down to the low 40% range within 24 months. Anthem has received committed financing from Bank of America, Credit Suisse and UBS Investment Bank in connection with the transaction.

Anthem and Cigna management will host a conference call to discuss the transaction at 8:30 AM EDT today, July 24, 2015. Additional materials regarding the transaction are available on our website at www.betterhealthcaretogether.com/.

Anthem’s lead financial advisor is UBS Investment Bank and Credit Suisse also served as financial advisor and its legal advisor is White & Case LLP. Morgan Stanley is acting as Cigna’s financial advisor, and Cravath, Swaine & Moore LLP is acting as legal advisor to Cigna.

Conference Call

Anthem and Cigna will hold a conference call and webcast at 8:30 a.m. Eastern Daylight Time (“EDT”) today, July 24, 2015, to discuss the transaction. The conference call should be accessed at least 15 minutes prior to its start with the following numbers. An investor presentation is available for download at www.antheminc.com or www.cigna.com/aboutcigna/investors under the “Investors” link.

877-871-3172 (Domestic) 877-344-7529 (Domestic Replay)

412-902-6603 (International) 412-317-0088 (International Replay)

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The access code for the July 24, 2015, conference call is 4135855. The access code for the replay is 10069758. The replay will be available from 1:00 p.m. EDT on July 24, 2015, until the end of the day on August 7, 2015. A webcast replay will be available following the call.

About Anthem, Inc.

Anthem is working to transform health care with trusted and caring solutions. Our health plan companies deliver quality products and services that give their members access to the care they need. With nearly 71 million people served by its affiliated companies, including more than 38 million enrolled in its family of health plans, Anthem is one of the nation’s leading health benefits companies. For more information about Anthem’s family of companies, please visit www.antheminc.com/companies.

About Cigna

Cigna Corporation (NYSE:CI) is a global health service company dedicated to helping people improve their health, well-being and sense of security. All products and services are provided exclusively by or through operating subsidiaries of Cigna Corporation, including Connecticut General Life Insurance Company, Cigna Health and Life Insurance Company, Life Insurance Company of North America and Cigna Life Insurance Company of New York. Such products and services include an integrated suite of health services, such as medical, dental, behavioral health, pharmacy, vision, supplemental benefits, and other related products including group life, accident and disability insurance. Cigna maintains sales capability in 30 countries and jurisdictions, and has more than 88 million customer relationships throughout the world. To learn more about Cigna®, including links to follow us on Facebook or Twitter, visit www.cigna.com.

Important Information for Investors and Shareholders

This communication does not constitute an offer to sell or a solicitation of an offer to sell or a solicitation of an offer to buy any securities or a solicitation of any vote or approval, nor shall there be any sale of securities in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such jurisdiction. No offering of securities shall be made except by means of a prospectus meeting the requirements of Section 10 of the Securities Act of 1933, as amended, and otherwise in accordance with applicable law.

The proposed transaction between Anthem, Inc. (“Anthem”) and Cigna Corporation (“Cigna”) will be submitted to Anthem’s and Cigna's shareholders and stockholders (as applicable) for their consideration. In connection with the transaction, Anthem and Cigna will file relevant materials with the U.S. Securities and Exchange Commission (the “SEC”), including an Anthem registration statement on Form S-4 that will include a joint proxy statement of Anthem and Cigna that also constitutes a prospectus of Anthem, and each will mail the definitive joint proxy statement/prospectus to its shareholders and stockholders, respectively. This communication is not a substitute for the registration statement, joint proxy statement/prospectus or any other document that Anthem and/or Cigna may file with the SEC in connection with the proposed transaction.

INVESTORS AND SECURITY HOLDERS OF ANTHEM AND CIGNA ARE URGED TO READ THE JOINT PROXY STATEMENT/PROSPECTUS AND OTHER DOCUMENTS FILED WITH THE SEC CAREFULLY IN THEIR ENTIRETY WHEN THEY BECOME AVAILABLE AS THEY WILL CONTAIN IMPORTANT INFORMATION ABOUT THE PROPOSED TRANSACTION. Investors and security holders will be able to obtain free copies of the registration statement containing the joint proxy

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statement/prospectus and other documents filed with the SEC by Anthem or Cigna (when available) through the website maintained by the SEC at http://www.sec.gov. Copies of the documents filed with the SEC by Anthem will be available free of charge on Anthem’s internet website at http://www.antheminc.com or by contacting Anthem’s Investor Relations Department at (317) 488-6168. Copies of the documents filed with the SEC by Cigna will be available free of charge on Cigna’s internet website at http://www.cigna.com or by contacting Cigna’s Investor Relations Department at (215) 761-4198.

Anthem, Cigna and their respective directors and executive officers and other members of management and employees may be deemed to be participants in the solicitation of proxies in respect of the proposed transaction. You can find information about Anthem’s executive officers and directors in Anthem’s annual report on Form 10-K for the year ended December 31, 2014 and its definitive proxy statement filed with the SEC on April 1, 2015. You can find information about Cigna’s executive officers and directors in Cigna’s annual report on Form 10-K for the year ended December 31, 2014 and its definitive proxy statement filed with the SEC on March 13, 2015. Additional information regarding the interests of such potential participants will be included in the joint proxy statement/prospectus when it is filed with the SEC. You may obtain free copies of these documents using the sources indicated above.

SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995

This document, and oral statements made with respect to information contained in this communication, contain certain forward-looking information about Anthem, Inc. (“Anthem”), Cigna Corporation (“Cigna”) and the combined businesses of Anthem and Cigna that is intended to be covered by the safe harbor for “forward-looking statements” provided by the Private Securities Litigation Reform Act of 1995. Forward-looking statements are statements that are not generally historical facts. Words such as “expect(s),” “feel(s),” “believe(s),” “will,” “may,” “anticipate(s),” “intend,” “estimate,” “project” and similar expressions (including the negative thereof) are intended to identify forward-looking statements, which generally are not historical in nature. These statements include, but are not limited to, statements regarding the merger between Anthem and Cigna; Anthem’s financing of the proposed transaction; the combined company’s expected future performance (including expected results of operations and financial guidance); the combined company’s future financial condition, operating results, strategy and plans; statements about regulatory and other approvals; synergies from the proposed transaction; the combined company’s expected debt-to-capital ratio and ability to retain investment grade ratings; the closing date for the proposed transaction; financial projections and estimates and their underlying assumptions; statements regarding plans, objectives and expectations with respect to future operations, products and services; and statements regarding future performance. Such statements are subject to certain known and unknown risks and uncertainties, many of which are difficult to predict and generally beyond Anthem’s and Cigna’s control, that could cause actual results and other future events to differ materially from those expressed in, or implied or projected by, the forward-looking information and statements. These risks and uncertainties include: those discussed and identified in Anthem’s and Cigna’s public filings with the U.S. Securities and Exchange Commission (the “SEC”); those relating to the proposed transaction, as detailed from time to time in Anthem’s and Cigna’s filings with the SEC; increased government participation in, or regulation or taxation of health benefits and managed care operations, including, but not limited to, the impact of the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010, or Health Care Reform; trends in health care costs and utilization rates; our ability to secure sufficient premium rates including regulatory approval for and implementation of such rates; our participation in the federal and state health insurance exchanges under Health Care

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Reform, which have experienced and continue to experience challenges due to implementation of initial and phased-in provisions of Health Care Reform, and which entail uncertainties associated with the mix and volume of business, particularly in Individual and Small Group markets, that could negatively impact the adequacy of our premium rates and which may not be sufficiently offset by the risk apportionment provisions of Health Care Reform; our ability to contract with providers consistent with past practice; competitor pricing below market trends of increasing costs; reduced enrollment, as well as a negative change in our health care product mix; risks and uncertainties regarding Medicare and Medicaid programs, including those related to non-compliance with the complex regulations imposed thereon and funding risks with respect to revenue received from participation therein; our projected consolidated revenue growth and global medical customer growth; a downgrade in our financial strength ratings; litigation and investigations targeted at our industry and our ability to resolve litigation and investigations within estimates; medical malpractice or professional liability claims or other risks related to health care services provided by our subsidiaries; our ability to repurchase shares of its common stock and pay dividends on its common stock due to the adequacy of its cash flow and earnings and other considerations; non- compliance by any party with the Express Scripts, Inc. pharmacy benefit management services agreement, which could result in financial penalties; our inability to meet customer demands, and sanctions imposed by governmental entities, including the Centers for Medicare and Medicaid Services; events that result in negative publicity for us or the health benefits industry; failure to effectively maintain and modernize our information systems and e-business organization and to maintain good relationships with third party vendors for information system resources; events that may negatively affect Anthem’s licenses with the Blue Cross and Blue Shield Association; possible impairment of the value of our intangible assets if future results do not adequately support goodwill and other intangible assets; intense competition to attract and retain employees; unauthorized disclosure of member or employee sensitive or confidential information, including the impact and outcome of investigations, inquiries, claims and litigation related to the cyber attack Anthem reported in February 2015; changes in the economic and market conditions, as well as regulations that may negatively affect our investment portfolios and liquidity; possible restrictions in the payment of dividends by our subsidiaries and increases in required minimum levels of capital and the potential negative effect from our substantial amount of outstanding indebtedness; general risks associated with mergers and acquisitions; various laws and provisions in Anthem’s governing documents that may prevent or discourage takeovers and business combinations; future public health epidemics and catastrophes; and general economic downturns. Important factors that could cause actual results and other future events to differ materially from the forward-looking statements made in this communication are set forth in other reports or documents that Anthem and/or Cigna may file from time to time with the SEC, and include, but are not limited to: (i) the ultimate outcome of the proposed transaction, including the ability to achieve the synergies and value creation contemplated by the proposed transaction, (ii) the ultimate outcome and results of integrating the operations of Anthem and Cigna, (iii) disruption from the merger making it more difficult to maintain businesses and operational relationships, (iv) the risk that unexpected costs will be incurred in connection with the proposed transaction, (v) the timing to consummate the proposed transaction, (vi) the possibility that the proposed transaction does not close, including, but not limited to, due to the failure to satisfy the closing conditions, including the receipt of required regulatory approvals and the receipt of approval of both Anthem’s and Cigna’s shareholders and stockholders, respectively, and (viii) the risks and uncertainties detailed by Cigna with respect to its business as described in its reports and documents filed with the SEC. All forward-looking statements attributable to Anthem, Cigna or any person acting on behalf of Anthem and/or Cigna are expressly qualified in their entirety by this cautionary statement. Readers are cautioned not to place undue reliance on these forward- looking statements that speak only as of the date hereof. Except to the extent otherwise required by federal securities law, neither Anthem nor Cigna undertake any obligation to republish revised forward-looking statements to reflect

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events or circumstances after the date hereof or to reflect the occurrence of unanticipated events or the receipt of new information. Readers are also urged to carefully review and consider the various disclosures in Anthem’s and Cigna’s SEC reports.

ContactsAnthem Contacts:Investor RelationsDoug Simpson, [email protected] Binns, [email protected] Contacts:Investor RelationsWill McDowell, [email protected] Asensio, [email protected]

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Anthem and Cigna:

Combination Creates Premier Health Services Company

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Safe Harbor Statement (1 of 2) Safe Harbor Statement Under The Private Securities Litigation Reform Act of 1995: This document, and oral statements made with respect to information contained in this communication, contain certain forward-looking information about Anthem, Inc. (“Anthem”), Cigna Corporation (“Cigna”) and the combined businesses of Anthem and Cigna that is intended to be covered by the safe harbor for “forward-looking statements” provided by the Private Securities Litigation Reform Act of 1995. Forward-looking statements are statements that are not generally historical facts. Words such as “expect(s),” “feel(s),” “believe(s),” “will,” “may,” “anticipate(s),” “intend,” “estimate,” “project” and similar expressions (including the negative thereof) are intended to identify forward-looking statements, which generally are not historical in nature. These statements include, but are not limited to, statements regarding the merger between Anthem and Cigna; Anthem’s financing of the proposed transaction; the combined company’s expected future performance (including expected results of operations and financial guidance); the combined company’s future financial condition, operating results, strategy and plans; statements about regulatory and other approvals; synergies from the proposed transaction; the combined company’s expected debt-to-capital ratio and ability to retain investment grade ratings; the closing date for the proposed transaction; financial projections and estimates and their underlying assumptions; statements regarding plans, objectives and expectations with respect to future operations, products and services; and statements regarding future performance. Such statements are subject to certain known and unknown risks and uncertainties, many of which are difficult to predict and generally beyond Anthem’s and Cigna’s control, that could cause actual results and other future events to differ materially from those expressed in, or implied or projected by, the forward-looking information and statements. These risks and uncertainties include: those discussed and identified in Anthem’s and Cigna’s public filings with the U.S. Securities and Exchange Commission (the “SEC”); those relating to the proposed transaction, as detailed from time to time in Anthem’s and Cigna’s filings with the SEC; increased government participation in, or regulation or taxation of health benefits and managed care operations, including, but not limited to, the impact of the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010, or Health Care Reform; trends in health care costs and utilization rates; our ability to secure sufficient premium rates including regulatory approval for and implementation of such rates; our participation in the federal and state health insurance exchanges under Health Care Reform, which have experienced and continue to experience challenges due to implementation of initial and phased-in provisions of Health Care Reform, and which entail uncertainties associated with the mix and volume of business, particularly in Individual and Small Group markets, that could negatively impact the adequacy of our premium rates and which may not be sufficiently offset by the risk apportionment provisions of Health Care Reform; our ability to contract with providers consistent with past practice; competitor pricing below market trends of increasing costs; reduced enrollment, as well as a negative change in our health care product mix; risks and uncertainties regarding Medicare and Medicaid programs, including those related to non-compliance with the complex regulations imposed thereon and funding risks with respect to revenue received from participation therein; our projected consolidated revenue growth and global medical customer growth; a downgrade in our financial strength ratings; litigation and investigations targeted at our industry and our ability to resolve litigation and investigations within estimates; medical malpractice or professional liability claims or other risks related to health care services provided by our subsidiaries;…

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Safe Harbor Statement (2 of 2) Safe Harbor Statement Under The Private Securities Litigation Reform Act of 1995 Continued: …our ability to repurchase shares of its common stock and pay dividends on its common stock due to the adequacy of its cash flow and earnings and other considerations; non- compliance by any party with the Express Scripts, Inc. pharmacy benefit management services agreement, which could result in financial penalties; our inability to meet customer demands, and sanctions imposed by governmental entities, including the Centers for Medicare and Medicaid Services; events that result in negative publicity for us or the health benefits industry; failure to effectively maintain and modernize our information systems and e-business organization and to maintain good relationships with third party vendors for information system resources; events that may negatively affect Anthem’s licenses with the Blue Cross and Blue Shield Association; possible impairment of the value of our intangible assets if future results do not adequately support goodwill and other intangible assets; intense competition to attract and retain employees; unauthorized disclosure of member or employee sensitive or confidential information, including the impact and outcome of investigations, inquiries, claims and litigation related to the cyber attack Anthem reported in February 2015; changes in the economic and market conditions, as well as regulations that may negatively affect our investment portfolios and liquidity; possible restrictions in the payment of dividends by our subsidiaries and increases in required minimum levels of capital and the potential negative effect from our substantial amount of outstanding indebtedness; general risks associated with mergers and acquisitions; various laws and provisions in Anthem’s governing documents that may prevent or discourage takeovers and business combinations; future public health epidemics and catastrophes; and general economic downturns. Important factors that could cause actual results and other future events to differ materially from the forward-looking statements made in this communication are set forth in other reports or documents that Anthem and/or Cigna may file from time to time with the SEC, and include, but are not limited to: (i) the ultimate outcome of the proposed transaction, including the ability to achieve the synergies and value creation contemplated by the proposed transaction, (ii) the ultimate outcome and results of integrating the operations of Anthem and Cigna, (iii) disruption from the merger making it more difficult to maintain businesses and operational relationships, (iv) the risk that unexpected costs will be incurred in connection with the proposed transaction, (v) the timing to consummate the proposed transaction, (vi) the possibility that the proposed transaction does not close, including, but not limited to, due to the failure to satisfy the closing conditions, including the receipt of required regulatory approvals and the receipt of approval of both Anthem’s and Cigna’s shareholders and stockholders, respectively, and (viii) the risks and uncertainties detailed by Cigna with respect to its business as described in its reports and documents filed with the SEC. All forward-looking statements attributable to Anthem, Cigna or any person acting on behalf of Anthem and/or Cigna are expressly qualified in their entirety by this cautionary statement. Readers are cautioned not to place undue reliance on these forward- looking statements that speak only as of the date hereof. Except to the extent otherwise required by federal securities law, neither Anthem nor Cigna undertake any obligation to republish revised forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events or the receipt of new information. Readers are also urged to carefully review and consider the various disclosures in Anthem’s and Cigna’s SEC reports.

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Non-GAAP Measures

Non-GAAP Measures: This presentation includes certain non-GAAP financial measures. These non-GAAP measures may be different from non-GAAP financial measures used by other companies. The presentation of this financial information, which is not prepared under any comprehensive set of accounting rules or principles, is not intended to be considered in isolation of, or as a substitute for, the financial information prepared and presented in accordance with GAAP. This data should be read in conjunction with previously published company reports on Forms 10-K, 10-Q and 8-K. We refer you to the Appendix of these presentation materials for reconciliations to the most directly comparable GAAP financial measures and related information.

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This communication does not constitute an offer to sell or a solicitation of an offer to sell or a solicitation of an offer to buy any securities or a solicitation of any vote or approval, nor shall there be any sale of securities in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such jurisdiction. No offering of securities shall be made except by means of a prospectus meeting the requirements of Section 10 of the Securities Act of 1933, as amended, and otherwise in accordance with applicable law.

The proposed transaction between Anthem, Inc. (“Anthem”) and Cigna Corporation (“Cigna”) will be submitted to Anthem’s and Cigna's shareholders and stockholders (as applicable) for their consideration. In connection with the transaction, Anthem and Cigna will file relevant materials with the U.S. Securities and Exchange Commission (the “SEC”), including an Anthem registration statement on Form S-4 that will include a joint proxy statement of Anthem and Cigna that also constitutes a prospectus of Anthem, and each will mail the definitive joint proxy statement/prospectus to its shareholders and stockholders, respectively. This communication is not a substitute for the registration statement, joint proxy statement/prospectus or any other document that Anthem and/or Cigna may file with the SEC in connection with the proposed transaction.

INVESTORS AND SECURITY HOLDERS OF ANTHEM AND CIGNA ARE URGED TO READ THE JOINT PROXY STATEMENT/PROSPECTUS AND OTHER DOCUMENTS FILED WITH THE SEC CAREFULLY IN THEIR ENTIRETY WHEN THEY BECOME AVAILABLE AS THEY WILL CONTAIN IMPORTANT INFORMATION ABOUT THE PROPOSED TRANSACTION. Investors and security holders will be able to obtain free copies of the registration statement containing the joint proxy statement/prospectus and other documents filed with the SEC by Anthem or Cigna (when available) through the web site maintained by the SEC at http://www.sec.gov. Copies of the documents filed with the SEC by Anthem will be available free of charge on Anthem’s internet website at http://www.antheminc.com or by contacting Anthem’s Investor Relations Department at (317) 488-6168. Copies of the documents filed with the SEC by Cigna will be available free of charge on Cigna’s internet website at http://www.cigna.com or by contacting Cigna’s Investor Relations Department at (215) 761-4198.

Anthem, Cigna and their respective directors and executive officers and other members of management and employees may be deemed to be participants in the solicitation of proxies in respect of the proposed transaction. You can find information about Anthem’s executive officers and directors in Anthem’s annual report on Form 10-K for the year ended December 31, 2014 and its definitive proxy statement filed with the SEC on April 1, 2015. You can find information about Cigna’s executive officers and directors in Cigna’s annual report on Form 10-K for the year ended December 31, 2014 and its definitive proxy statement filed with the SEC on March 13, 2015. Additional information regarding the interests of such potential participants will be included in the joint proxy statement/prospectus when it is filed with the SEC. You may obtain free copies of these documents using the sources indicated above.

Important Information for Investors and Shareholders

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Participants

6

Joseph Swedish Anthem President and Chief Executive Officer

David Cordani Cigna President and Chief Executive Officer

Wayne DeVeydt Anthem EVP and Chief Financial Officer

Doug Simpson Anthem VP Investor Relations

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Transaction Summary • $188.00 per share in the form of ~55% funded through cash and

~45% funded through Anthem stock

• 38.4% premium to Cigna’s unaffected stock price*

• Anthem shareholders to own ~67% and Cigna shareholders to own ~33% of the combined company

• Cash portion financed through cash on hand and new debt issuance; equity portion through issuance of Anthem shares to Cigna shareholders

• Pro forma debt-to-cap approximately 49% at closing projected to decline to low 40% two years post-close

• Committed to retaining investment grade debt ratings

• Shareholder vote required for both companies

• Regulatory approvals including Hart-Scott-Rodino, state departments of insurance and other regulators

• Anticipated closing in the second half of 2016

7 * Calculated as of Anthem’s and Cigna’s closing stock price on May 28, 2015; stock consideration based on a fixed exchange ratio of 0.5152x 18

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Commercial- Risk 15%

ASO 66%

Medicare 4%

Medicaid 11%

FGS 3%

International 1%

Expanded Footprint Enhances Ability to Compete

8

Source: Company Filings. Note: Medical membership data as of 1Q 2015. Revenue projection based on the most recent 2015 outlook publicly reported by both companies.

+

38.5M Members

53.2M Members

Combined Company Generates Over $115 Billion in Annual Revenue

Leading Position • Commercial Risk

• Commercial ASO

• Government

• Individual

• Specialty

• International

Commercial- Risk 17%

ASO 61%

Medicare 4%

Medicaid 14%

FGS 4%

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Innovative Solutions Driving Affordability & Choice

• Leadership position in advancing provider collaboration and new payment models

• Proven health and wellness programs

• Local focus advancing affordability

• Technology centric investments across industry’s largest base of membership

• Enhanced administrative efficiency

• Comprehensive product and funding offerings • Serving employer-sponsored, individual, state

and federal government and international customers

• Breadth of served segments addresses evolving needs of consumers over their lifetime

• Diverse value based specialty products

Affordability Choice

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Combination of Complementary Businesses

Affordability:

• Most recognizable brand • Local focus • A leading Commercial franchise • Strong Public Exchange execution • A leading and growing Medicaid

franchise • A leading Medicare Supplement

and improving Medicare Advantage business

• Well-positioned for Dual Eligible opportunity

Choice: Anthem Cigna

• Strong Commercial player with broad geographic coverage

• Middle Market ASO/Stop Loss solutions

• A leading Specialty capability (Behavioral Health, Dental, Pharmacy, Disability & Life)

• Proven wellness programs • Medicare position with leading

physician-engagement model • Differentiated International

businesses

Diversified and Complementary Platforms 10

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Three Pillars to Benefit Combined Entity

Provider Collaboration

11

Managing Total Cost of

Care

Consumer Centricity

Data and Insights

Talent

Affordability

Quality

Choice/ Personalization

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Affordability Driven By Provider Collaboration and Connected Care

12

CUSTOMER

Provider Collaboration

Enhanced Personal Health Care Program

Realized Outcomes Select Models

Fewer acute inpatient admissions

Decrease in outpatient surgery costs

Fewer inpatient days per 1,000

Reduction in admission of high risk patients

Reduction in ER visit costs

Decrease in ER utilization

PROVIDER

Both companies are aligned in their goals to drive better health, choice and long-term affordability 23

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Total Cost of Care Advantage

13

Demonstrated ability to drive medical cost savings for the nation's leading companies

Company A • 150,000+ members • 6%+ in Year 1 savings

Company B • 200,000+ members • 15%+ in Year 1 savings

Discounts alone do not capture the full value

Healthy

Healthy at Risk

Chronic

Acute

Broad and Proven Health, Wellness & Engagement Capabilities Serving:

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Consumer-centric Approach Caters to Member Needs

14

1 2

Choice & Control

Ease & Affordability

Feeling confident you are covered and will be taken care of in the

event of a health issue

Understanding your costs and coverage so there aren’t any

negative surprises when you need to use your benefits

Minimal interaction with your insurer, except when you have a question or an issue arises – then

high engagement through personalized, effortless service

is demanded

Extensive research has identified the primary drivers of great consumer experiences

Confidence in coverage

Clarity in coverage

Ease of getting help

Health & Wellness Focus

3

Keys to a successful retail-oriented approach

Leading Data Analytics

4

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Compelling Financial Rationale

15

Synergies

• Confidence in ability to capture run-rate synergies approaching $2 billion pre-tax within two years post-close

• Expected PBM synergies have not been included in assumptions

Balance sheet

• Committed to retaining investment grade debt ratings

• Pro forma debt to cap of approximately 49% at closing with intent to decline to low 40% two years post-close

• Expect to maintain our dividend

• Will maintain flexibility with regards to share repurchases

Adjusted EPS

• Approaching 10% accretion to Adjusted Earnings per Share in first year post-close

• Accretion more than doubles in year two

* Transaction expected to close in the second half of 2016; 2018 estimate assumes transaction close on 12/31/2016

$17.00+ Adjusted Earnings per Share in 2018* 26

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Identifiable and Achievable Synergies

• Administrative structure

• Operational efficiencies

• Network efficiencies and medical management

• Cross leverage best in class capabilities

• Leverage Cigna Specialty capabilities across Anthem

• Unique capabilities to serve growing Dual Eligible population

• Potential PBM synergies have not been included

One-time implementation costs estimated to be ~$600 million spread over two years

Precedent transactions comfortably affirm a synergy level approaching $2 billion

Confidence in ability to achieve annual synergies

approaching

$2 billion

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$14.00

$3.00

$17.00

2015* 2018

Value Creation for Both Sets of Shareholders

+

Adjusted Earnings per Share

Greater than

+

+

• * 2015 Adjusted EPS guidance excludes greater than $0.25 per share of net unfavorable items. See appendix for the GAAP reconciliation table. • ** Transaction expected to close in the second half of 2016; 2018 estimate assumes transaction close on 12/31/2016

• Strong growth from Medicaid, Individual / Exchange, Medicare Advantage, Dual Eligible, and Specialty

• Confidence in ability to achieve annual run-rate synergies approaching $2 billion by year 2

+

$17.00+ Adjusted Earnings per Share in 2018**

17

$10.00

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A Clearly Defined Financing Plan

($ in billions)

Available cash $6

Term loans and public debt $22

Equity issued to Cigna shareholders $21

Total $49

Financing considerations Anticipated financing sources

• Received committed financing for the transaction

• Permanent financing anticipated to include combination of term loans, public debt and equity portion of the merger consideration issued to Cigna shareholders

• Debt-to-cap at close will be approximately 49%

• Committed to de-levering and project to decline to low 40% debt-to-cap two years post-close

• Committed to retaining investment grade debt ratings

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Continues Anthem's and Cigna's Strong Track Records of Value Creation

Source: FactSet data as of unaffected date of 5/28/15 Note: Share price performance over two years prior to unaffected date of 5/28/15

19

Anthem and Cigna Management teams have delivered on their promises • Both Management teams have an established track record of execution in this dynamic environment

• Industry leading execution in several end markets

• Successfully integrated and continue to outperform with Amerigroup and HealthSpring platform acquisitions

Anthem 109% Cigna 97%

75%

100%

125%

150%

175%

200%

225%

250%

05/13 09/13 01/14 05/14 09/14 01/15 05/15

Anthem Cigna

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$80

$100

$120

$140

$160

05/14 07/14 09/14 10/14 12/14 02/15 03/15 05/15Cigna

Compelling Transaction for Cigna Shareholders

Unaffected Price on 5/28/15: $135.87

Acquisition Price: $188.00*

10-day Trading Average as of 5/28/15: $133.82

Median WS Target Price on 5/28/15: $145.00

38.4% Premium

29.7% Premium

40.5% Premium

Source: Bloomberg

• Cigna shareholders to participate in significant upside of combined company • Approaching $2 billion of annual run-rate synergies + potential upside from PBM optionality • Anthem’s industry leading capital deployment track record

Will participate in the significantly enhanced value of the combined company

20 * Calculated as of Anthem’s closing stock price on May 28, 2015 31

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21

Consideration Mix and Value Creation

Given stock component, Cigna shareholders

will share in the synergy value

Total consideration

Cash consideration

Stock consideration

$188.00 per share*

$103.40 per share

$84.60 per share*

* Calculated as of Anthem’s closing stock price on May 28, 2015

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Summary

22

Diverse well positioned global growth platform with over $115 billion in combined annual revenue and 53 million medical members

Enhances ability to advance health care access, affordability and quality for our customers

Meaningful opportunities to improve operational efficiency and lower health care costs

Approaching 10% accretion to Adjusted EPS in year 1; more than doubling in year 2

Anthem and Cigna Boards unanimously support the transaction

Anthem and Cigna are highly confident in the ability to consummate the transaction

Anthem is committed to leading the change in health care delivery as a trusted partner for consumers

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We have referenced "Adjusted Net Income Per Diluted Share" (or “Adjusted EPS”), a non-GAAP measure, in this document. This non-GAAP measure is intended to aid investors and analysts when comparing our financial results among periods. Management also uses this measure as a basis for evaluating performance, allocating resources, forecasting future operating periods and setting incentive compensation targets. A reconciliation of this measure to the most directly comparable measure calculated in accordance with GAAP is presented below. For additional details, refer to our earnings results press releases and SEC filings, including but not limited to our Annual Report on Form 10-K for the year ended December 31, 2014, and our Quarterly Report on Form 10-Q for the three months ended March 31, 2015, available at www.antheminc.com.

*Estimated based on projections as of 7/24/15.

Full Year 2015

Outlook* Net income per diluted share Greater than $9.75 Add / (Subtract) - net of related tax effects: Net realized gains on investments ($0.33) Other-than-temporary impairment losses on investments $0.08 Loss on extinguishment of debt $0.00 Amortization of other intangible assets Greater than $0.50 Net adjustment items Greater than $0.25 Adjusted net income per diluted share Greater than $10.00

GAAP Reconciliation

24

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November 11, 2015 The Honorable William Baer Assistant Attorney General United States Department of Justice Antitrust Division 950 Pennsylvania Avenue, NW Washington, DC 20530 Dear Assistant Attorney General Baer: The American Medical Association (AMA) greatly appreciates the opportunity to provide our comments to the Antitrust Division as it engages in the vital work of investigating Aetna’s proposed acquisition of Humana and Anthem’s proposed acquisition of Cigna. We believe that high insurance market concentration is an important issue of public policy because the anticompetitive effects of insurers’ exercise of market power pose a substantial risk of harm to consumers. Our analyses of the proposed health insurance mergers reveal significant concerns with respect to the impact on consumers in terms of health care access, quality, and affordability. SUMMARY

• The proposed mergers are occurring in markets where there has already been a near total collapse of competition. Under the U.S. Department of Justice/Federal Trade Commission Merger Guidelines, the proposed mergers are presumed to enhance market power in a vast number of commercial and Medicare Advantage markets. Because of persisting high barriers to entry in health insurance markets, the lost competition through these proposed mergers would likely be permanent and the acquired health insurer market power would be durable.

• A growing body of peer-reviewed literature suggests that greater health insurer

consolidation leads to price increases, as opposed to greater efficiency or lower health care costs. The proposed mergers can be expected to lead to a reduction in health plan quality. Insurers are already creating very narrow and restricted networks that force patients to go out of network to access care. The mergers would reduce pressures on plans to offer broader networks to compete for members and would create fewer networks that are simultaneously under no competitive pressure to respond to patients’ access needs.

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The Honorable William Baer November 11, 2015 Page 2

• Health insurer monopsony, or buyer power, acquired through the proposed mergers would, as the Department of Justice has found in earlier cases, likely degrade the quality and reduce the quantity of physician services. Consumers do best when there is a competitive market for purchasing physician services. When mergers result in monopsony power and physicians are reimbursed at below competitive levels, consumers may be harmed in a variety of ways. Physicians may be forced to spend less time with patients to meet practice expenses. They also may be hindered in their ability to invest in new equipment, technology, training, staff, and other practice infrastructure that could improve the access to and quality of patient care and could enable physicians to successfully transition into new value-based payment and delivery models. Furthermore, in the long run health insurer exercise of monopsony power may motivate physicians to retire early or seek opportunities outside of medicine that are more rewarding. This would exacerbate an already significant shortage of primary care physicians in the United States.

• There is no evidence supporting the insurer’s claim that the proposed mergers would lead

to greater efficiencies and innovative payment and care management programs. There is also no economic evidence that consumers benefit when health insurers merge to respond to hospital consolidation by acquiring countervailing power.

• Fostering competition, not consolidation, benefits American consumers through lower prices, better quality, and greater choice.

• Accordingly, the AMA urges the Department of Justice to block the proposed mergers.

THE FOUNDATION FOR AMA’S CONCLUSIONS The AMA has participated in Congressional hearings on Anthem’s proposed acquisition of Cigna and Aetna’s proposed acquisition of Humana. In the course of these hearings, the AMA has analyzed the likely competitive effects of these mergers both in the sell-side market for insurance and the buy-side market for physician services. The AMA has considered data compiled annually by the AMA on competition in health insurance, recent studies on the effects of health insurance mergers, the testimony of experts called by House and Senate committees, and the written submissions and testimony of the merging parties. The AMA has reviewed this matter from the long-standing AMA perspective that competition in health insurance, not consolidation, is the right prescription for health insurer markets. Competition will lower premiums, force insurers to enhance customer service, pay bills accurately and on time, and develop and implement innovative ways to improve quality while lowering costs. Competition also allows physicians to bargain for contract terms that touch all aspects of patient care. The AMA has concluded that these mergers are likely to impair access, affordability, and innovation in the sell-side market for health insurance, and on the buy side, will deprive physicians of the ability to negotiate competitive health insurer contract terms in markets around the country. The result will be detrimental to consumers. “If past is prologue,” notes Leemore Dafny, Ph.D., “insurance consolidation will tend to lead to lower payments to healthcare providers, but those lower payments will not be passed

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The Honorable William Baer November 11, 2015 Page 3 on to consumers. On the contrary, consumers can expect higher insurance premiums.”1 Moreover, monopsony power acquired through the mergers would enable the health insurers to control physician payment rates in a manner that could harm the quality of healthcare delivered to consumers.2 Therefore, the AMA opposes the proposed mergers. MARKET SHARES AND MARKET CONCENTRATION Competition is likely to be greatest when there are many sellers, none of which has any significant market share. Unfortunately, health insurance markets are mostly highly concentrated, meaning that typically there are few sellers and they possess significant market shares. The AMA has determined that the proposed mergers are likely to create, enhance, or entrench market power in numerous markets. Commercial Health Insurance For the past 14 years, the AMA has conducted the most in-depth annual study of commercial health insurance markets in the country. From 2001 to 2010, the study was based on the 1997 U.S. Department of Justice (DOJ) and Federal Trade Commission (FTC) Horizontal Merger Guidelines. Beginning with the 2011 Update, the AMA’s study utilizes the 2010 iteration of the Merger Guidelines to classify markets based on whether mergers announced in those markets would raise anticompetitive concerns.3 The AMA’s most recently published study, Competition in Health Insurance: A Comprehensive Study of US Markets (2015 update) is intended to help researchers, policymakers, and federal and state regulators identify areas of the country where consolidation among health insurers may have harmful effects on consumers, on providers of care, and on the economy. It presents health insurance market shares and concentration levels in states and metropolitan statistical areas (MSA). The AMA’s study shows that there has been a near total collapse of competition in commercial, combined HMO + PPO + POS markets. In seven out of 10 metropolitan areas, these markets are highly concentrated. Moreover, 38 percent of metropolitan areas had a single health insurer with a commercial market share of 50 percent or more. Fourteen states have a single health insurer with at least a 50 percent share of the commercial health insurance market. Medicare Advantage The 2015 Update to its Competition in Health Insurance study does not cover the Medicare Advantage markets, which is where the merger of Humana and Aetna will be most acutely felt. However, competitive conditions in Medicare Advantage markets appear to be even more troubling than in the commercial health insurance market studied by the AMA. According to a Commonwealth Fund study published last month, 97 percent of Medicare Advantage markets (evaluated geographically at the county level) are highly concentrated and therefore characterized by a lack of competition.4 1 See Dafny, “Health Insurance Industry Consolidation: What Do We Know From the Past, Is It Relevant in Light of the ACA,

and What Should We Ask?” Testimony before the Senate Committee on the Judiciary, September 22, 2015, at 10. 2 Blue Cross Blue Shield of Michigan and Physicians Health Plan of Mid-Michigan Abandon Merger Plans | OPA | Department

of Justice, available at:http://www.justice.gov/opa/pr/blue-cross-blue-shield-michigan-and-physicians-health-plan-mid-michigan-abandon-merger-plans

3 U.S. Dep’t of Justice and Fed. Trade Comm’n, Horizontal Merger Guidelines (Aug. 19, 2010), available at: https://www.ftc.gov/sites/default/files/attachments/merger-review/100819hmg.pdf.

4 B. Biles, G. Casillas, and S. Guterman, Competition Among Medicare’s Private Health Plans: Does It Really Exist? The Commonwealth Fund, August 2015.

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The Honorable William Baer November 11, 2015 Page 4 Aetna has argued that insurer share of Medicare Advantage is of no antitrust relevance given that consumers have the option of enrolling in traditional Medicare and therefore, in Aetna’s view, traditional Medicare and Medicare Advantage plans are not separate product markets.5 This argument glosses over the many critically important differences between Medicare Advantage and traditional Medicare that explain why Medicare is not an adequate substitute for Medicare Advantage, such that the proposed mergers should be evaluated for their effects in the Medicare Advantage market separately. Medicare Advantage plans offer substantially richer benefits at lower costs than traditional Medicare.6 Moreover, in Medicare Advantage plans seniors can receive a single plan covering a variety of benefits that seniors in traditional Medicare must assemble themselves. The combination of richer benefits and one stop shopping accounts for the strong preference by many seniors for Medicare Advantage plans. Accordingly, seniors are not likely to switch away from Medicare Advantage plans to traditional Medicare in sufficient numbers to make an anticompetitive price increase or reduction in quality unprofitable to a Medicare Advantage insurer.7 The closest competition to one Medicare Advantage insurer’s plan is another insurer’s Medicare Advantage plan and the presence of many competing Medicare Advantage insurers is what keeps quality competitive. Consequently, the Medicare Advantage and traditional Medicare programs constitute separate and distinct product markets and the proposed mergers should be evaluated for their effects in a Medicare Advantage market.8 THE HEALTH INSURER MERGERS CREATE, ENHANCE, OR ENTRENCH MARKET POWER IN THE SALE OF HEALTH INSURANCE The Anthem-Cigna Merger Utilizing data obtained from HealthLeaders-Interstudy Managed Market Surveyor from January 1, 2013, the AMA has determined the commercial health insurance market concentrations and change in market concentrations that would result from the Anthem-Cigna merger. The AMA analysis shows the proposed Anthem-Cigna merger would be presumed likely, under the Merger Guidelines, to enhance market power in 85 commercial (combined HMO + PPO + POS) MSA markets. The AMA also considered the effect of the merger using states as a geographic market. The AMA found that within 10 of the 14 states (NH, IN, CT, ME, VA, GA, CO, MO, NV, and KY) in which Anthem is licensed to provide commercial coverage, the merger is likely to enhance market power. In the remaining four states (OH, CA, NY, and WI), the merger would potentially raise significant competitive concerns and warrant scrutiny under the Merger Guidelines.

5 Bertolini, “Examining Consolidation in the Health Insurance Industry and its Impact on Consumers,” Testimony before the

Senate Committee on the Judiciary, September 22, 2015, at 5. 6 See U.S. v. United Health Group and Sierra Health Services Inc., Civil No1:08 –cu-00322 (DDC2008); United States v.

Humana, No. 12-cv-00464 (D.D.C. Mar. 27, 2012), available at: www.justice.gov/atr/cases/f281600/281618.pdf). 7 See competitive impact statement, United States v. United health, supra, at 4-5. 8 See U.S. v. United Health Group and Sierra Health Services Inc., Civil No1:08 –cu-00322 (DDC2008) (the DOJ alleged that

MA is a distinct market separate from the Medicare market and obtained a consent decree requiring the divestiture of United’s MA business in the Las Vegas area as a precondition to obtaining merger approval); see also Gretchen A. Jacobson, Patricia Neuman, Anthony Damico, “At Least Half Of New Medicare Advantage Enrollees Had Switched From Traditional Medicare During 2006–11,” 34 Health Affairs (Millwood) 48, 51 (Jan. 2015), available at: http://content.healthaffairs.org/content/34/1/48.full.pdf; R. Town and S. Liu (2003), “The Welfare Impact of Medicare HMOs,” RAND Journal of Economics 34(4): 719-36; L.Dafny and D. Dranove (2008), “Do Report Cards Tell Consumers Anything They Don’t Already Know?” RAND Journal of Economics 39.

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The Honorable William Baer November 11, 2015 Page 5 Confirming the grave structural harm found by the AMA in numerous commercial health insurance markets is a slightly different market study commissioned by the American Hospital Association (AHA). That study examined MSAs and rural counties as the relevant geographic markets. The AHA reports that the transaction threatens to reduce competition in the sale of commercial health insurance in at least 817 relevant geographic markets. In 600 of these markets the transaction would be presumed to be likely to enhance market power under the Merger Guidelines. In another 217 markets the AHA found that under the Merger Guidelines the merger would potentially raise significant competitive concerns. The health insurers have asked regulators to assume, without evidence, that health insurance markets are competitive “due to numerous competitors” and “other market realities.” For example, in Anthem’s Competitive Impact Analysis that was part of its September 22, 2015, Connecticut Insurance Department application, the insurer contends:

Due to the numerous competitors, changing health care dynamics, new entrants, public and private exchanges, new distribution channels and business models, increasing transparency, sophisticated purchasers, and other marketplace realities, Anthem believes that Anthem’s acquisition of control of CIGNA will not substantially lessen competition in insurance or tend to create a monopoly in the State of Connecticut with respect to any line of business.

Notably, the Anthem “competitive analysis” provides no evidence in support of its contention that the health insurance industry in Connecticut is highly competitive and becoming more competitive. Anthem provides no data to support this opinion—no reporting of market shares, Herfindahl-Hirschman Indices (HHI), or changes in either as a result of the proposed merger. Anthem’s only mention of market shares is the motivation for why it prepared the analysis in the first place: In the commercial health insurance lines of business (as well as vision and dental standalone lines of business), the Anthem-Cigna merger does not meet the pre-acquisition notification exemption standard set forth in the Connecticut General Statutes. Instead, Anthem simply lists competitors to Anthem and Cigna in the individual, small group, large group, standalone vision and standalone dental lines of business as its primary evidence of competition, and argues that the growing use of public and private exchanges, benefit administration platforms, and other technology improvements will further ensure that “competition within the health insurance market will remain vigorous and vibrant.” In contrast, a review of data from the AMA’s 2015 Update to its Competition in Health Insurance study, the Connecticut Insurance Department, and the Government Accountability Office’s December 2014 report on private health insurance concentration, show that Connecticut’s health insurance market is already highly concentrated. Using data from its 2015 Update, a special analysis conducted by the AMA in September 2015 shows that the proposed merger between Anthem and Cigna would exceed federal antitrust guidelines in Connecticut (i.e., increase in HHI of 1,311 points for a post-merger total HHI of 3,855) and in six of its metropolitan areas (MSAs).

The Aetna-Humana Merger Turning to the proposed merger of Humana and Aetna, that merger would combine one of the two largest insurers of Medicare Advantage (Humana) with the fourth largest (Aetna) to form the largest Medicare

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The Honorable William Baer November 11, 2015 Page 6 Advantage insurer in the country.9 This would further concentrate a market that is already “highly concentrated among a small number of firms.”10 As in the case of the Anthem/Cigna merger, the Aetna/Humana merger would have a substantial impact on a staggering number of markets. According to a market study commissioned by the AHA, more than 1000 markets (defined geographically as counties) would become highly concentrated. Under the Merger Guidelines, the merger is presumed to be likely to enhance market power in 924 counties and potentially raises significant competitive concerns in another 159 counties. In addition to presumptively enhancing market power in Medicare Advantage markets, the Aetna/Humana merger will exacerbate the near total collapse of competition in commercial markets. AMA analysis shows that the merger would be presumed to enhance market power in the commercial markets of health insurance in 15 MSAs within seven states (FL, GA, IL, KY, OH, TX, and UT).

Competition for Contracts in National Market There may also be a national market in which the health insurers compete or potentially compete for the contracts of large national employers. In that market there are only five national health insurance companies remaining today: Anthem, Cigna, Aetna, Humana and United Healthcare. The proposed Anthem/Cigna and Aetna/Humana mergers would pare the number of national players to three. THE HEALTH INSURER MERGERS CREATE, ENHANCE, OR ENTRENCH MONOPSONY POWER IN MARKETS FOR THE PURCHASE OF PHYSICIAN SERVICES Just as the health insurer mergers would enhance market power on the selling side of the market, the mergers also would enhance monopsony or buyer’s power in the purchase of inputs such as physician services, eviscerating physicians’ ability to contract with alternative insurers in the face of unfavorable contract terms and ultimately inefficiently reducing the quality or quantity of services that physicians are able to offer patients. As Professor Dafny explained in her Senate testimony on these mergers, “Monopsony is the mirror image of monopoly; lower input prices are achieved by reducing the quantity or quality of services below the level that is socially optimal.”11 When as here firms can also exercise seller power, the reduced prices for inputs (physician services) cause higher, not lower, output prices (health insurance premiums). See Telecor Communications, Inc. v. S.W. Bell Tel. Co., 305 F.3d 1124, 1136 (10th Cir. 2002) (explaining that monopsony affects consumers because “there is a dead-weight loss associated with imposition of monopsony pricing restraints,” and “[s]ome producers will either produce less or cease production altogether, resulting in less-than-optimal output of the product or service, and over the long run higher consumer prices, reduced product quality, or substitution of less efficient alternative products”). In addition to producing higher insurance premiums and a reduction in the quantity and quality of physician services, the lower than competitive physician reimbursements will deny physicians the rates necessary to support delivery reforms associated with value-based care, the cost of which the physicians—not the health insurers—must bear.

9 Gretchen Jacobson, Anthony Damico, and Marsha Gold, Kaiser Family Foundation Issue Brief, Medicare Advantage 2015

Spotlight: Enrollment Market Update, (June 30, 2015), Figure 1, available at: http://kff.org/medicare/issue-brief/medicare-advantage-2015-spotlight-enrollment-market-update/.

10 Id. at 13. 11 Dafny at 10

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The Honorable William Baer November 11, 2015 Page 7 In concluding that the mergers would enhance monopsony power, the AMA has followed the analytical techniques supplied by the Merger Guidelines, which require a definition of both a product market and geographic market. The relevant product market is physician services. Insurers purchase many inputs, including physician services. There are no adequate substitutes for physician services, due to training and expertise.12 Moreover, physicians are confined to supplying services within their training and licensure and cannot do something else in response to a decrease in compensation.13 The geographic markets in which health insurers secure services from physicians roughly coincide with the localized geographic markets in which the insurer sells its services to consumers.14 Health insurers must obtain physician coverage in each locale where they sell insurance. Physicians are not mobile—they invest and develop their practices locally. Accordingly, the DOJ has embraced the notion of a localized market in which health insurers purchase physician services.15 As the DOJ explained in the Aetna/Prudential complaint:

The patient preferences that define a localized geographic market for the sale of HMO and HMO-POS products also define a localized geographic market for physician services. Moreover, for an established physician who has invested time and expense in building a practice, the costs associated with moving his or her practice to a new geographic market are considerable, including paying for new office space and equipment and building new relationships with hospitals, other physicians, employees, and patients in the area.16

A loss of competition on the buy side can occur within the localized geographic markets when the merging health insurers hold contracts with a significant number of providers who are financially dependent on contracting with the merging health plans and could not readily replace that business by dealing with other payers.17 According to Professor Dafny, the “textbook monopsony scenario…pertains when there is a large buyer and fragmented suppliers.”18 This characterizes the market in which dominant health insurers purchase the services of physicians who typically work in small practices with 10 or fewer physicians.19 Moreover, if physicians were to refuse the terms of any health insurer, they would likely suffer an irretrievable loss of revenue. That is because medical services can neither be stored nor exported. Consequently, a physician’s ability to consider realistically terminating a relationship with the merged insurers because of

12 See U.S. v. United Health Group and Sierra Health Services Inc., Civil No1: 08 –cu-00322 (DDC2008), affidavit of Professor

David Dranove, PhD (February 25, 2008). 13 Id. 14 See e.g., Capps, C. Buyer Power in Health Plan Mergers, J Comp Law and Econ. 2009; 6:375-391 15 See e.g. U.S. v. Aetna Inc., Complaint, No. 3-99CV 1398-H, ¶ 20 (June 21, 1999), available at

http://www.justice.gov/file/483516/download, (alleging that the relevant geographic markets were the MSAs in and around Houston and Dallas, Texas).

16 Id. at ¶¶ 19-20. 17 Christine White, Sarahlisa Brau, and David Marx, Antitrust and Healthcare: A Comprehensive Guide, at 163 (2013); see also

U.S. Dep’t of Justice and Fed. Trade Comm’n, Horizontal Merger Guidelines, supra 1, at page 33; Federal Trade Commission and U.S. Department of Justice, Improving Health Care: A Dose of Competition (July, 2004), at 15.

18 See Dafny, “Health Insurance Industry Consolidation: What Do We Know From the Past, Is It Relevant in Light of the ACA, and What Should We Ask?,” Testimony before the Senate Committee on the Judiciary, September 22, 2015, at 10.

19 Carol K. Kane, PhD, American Medical Association Policy Research Perspectives: Updated Data on Physician Practice Arrangements: Inching Toward Hospital Ownership, July 2015.

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The Honorable William Baer November 11, 2015 Page 8 low payment rates depends on that physician’s ability to make up lost business by immediately switching to an alternative health insurer. However, it is difficult to convince consumers (which in many cases are employers) to switch to different health insurers.20 Also, switching health insurers is a very difficult decision for physicians because it impacts their patients and disrupts their practice. The physician-patient relationship is a very important aspect to the delivery of high-quality healthcare. And it is a very serious decision both personally and professionally for physicians to disrupt this relationship by dropping a health insurer. Given the nature of physician practices, even in markets where the merged health insurers lack monopoly or market power to raise premiums for patients, the insurers still may have the power to force down physician compensation levels, raising antitrust concerns. Thus, in the UnitedHealth Group Inc./PacifiCare merger, the DOJ required a divestiture based on monopsony concerns in Boulder, Colorado, even though the merged entity would not necessarily have had market power in the sale of health insurance. The reason is straightforward: the reduction in compensation would lead to diminished service and quality of care, which harms consumers even though the direct prices paid by subscribers do not increase.21 Moreover, the reductions in the number of health insurers can create health insurer oligopolies that, through coordinated interaction, can exercise buyer power. Indeed the setting of payment rates paid to physicians is highly susceptible to the exercise of monopsony power through coordinated interaction by health insurance companies. The payment rates offered to large numbers of physicians by single health insurers are fairly uniform, and health insurance companies have a strong incentive to follow a price leader when it comes to payment rates. Some have argued that physicians who are unhappy with the fees they receive from a powerful insurer could turn away from that insurer and instead treat more Medicare and Medicaid patients. However, physicians cannot increase their revenue from Medicare and Medicaid in response to a decrease in commercial health insurer payment. Enrollment in these programs is limited to special populations, and these populations only have a fixed number of patients. Physicians switching to Medicare and Medicaid plans would have to incur substantial marketing costs to pull existing Medicare and Medicaid patients from their existing physicians. Moreover, public programs underpay providers. Thus, even if a physician dropping a commercial health insurer could attract Medicare and Medicaid, this strategy would be a losing proposition, especially at a time when value-based payment models require practice investments. Consequently, health insurers can exercise monopsony power in the commercial health insurance market.22 20 See e.g. U.S. v. UnitedHealth Group and Pacificare Health Systems, Complaint, No. 1:05CV02436, ¶ 37 (December 20, 2005),

available at http://www.justice.gov/file/514011/download. (As alleged in the United/PacifiCare complaint, physicians encouraging patients to change plans “is particularly difficult for patients employed by companies that sponsor only one plan because the patient would need to persuade the employer to sponsor an additional plan with the desired physician in the plan’s network” or the patient would have to use the physician on an out-of-network basis at a higher cost)..

21 See Gregory J. Werden, Monopsony and the Sherman Act: Consumer Welfare in a New Light, 74 ANTITRUST L.J. 707 (2007) (explaining reasons to challenge monopsony power even where there is no immediate impact on consumers); Marius Schwartz, Buyer Power Concerns and the Aetna-Prudential Merger, Address before the 5th Annual Health Care Antitrust Forum at Northwestern University School of Law 4-6 (October 20, 1999) (noting that anticompetitive effects can occur even if the conduct does not adversely affect the ultimate consumers who purchase the end-product), available at: http://www.usdoj.gov/atr/public/spceches/3924.wpd.

22 Peter J. Hammer and William M. Sage, “Monopsony as an Agency and Regulatory Problem in Health Care,” 71 Antitrust L.J. 949 (2004)

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The Honorable William Baer November 11, 2015 Page 9 Given the high market concentration levels and large commercial and MA market shares that would result from the proposed mergers in the numerous MSAs and counties identified by the AMA and AHA, the proposed Mergers would create, enhance, or entrench monopsony power.

BARRIERS TO ENTRY AND THE NEED TO PRESERVE POTENTIAL COMPETITION

The market share and concentration data do not overstate the mergers’ future competitive significance in health insurance and physician markets. This is not a case where new market entry could defeat an exercise of monopoly or monopsony power. Instead, lost competition through a merger of health insurers is likely to be permanent and acquired health insurer market power would be durable because barriers to entry prevent the higher profits often associated with concentrated markets from allowing new entrants to restore competitive pricing. These barriers include state regulatory requirements; the need for sufficient business to permit the spreading of risk; and contending with established insurance companies that have built long-term relationships with employers and other consumers.23 In addition, a DOJ study of entry and expansion in the health insurance industry found that “brokers typically are reluctant to sell new health insurance plans, even if those plans have substantially reduced premiums, unless the plan has strong brand recognition or a good reputation in the geographic area where the broker operates.”24 Perhaps the greatest obstacle is the so-called chicken and egg problem of health insurer market entry: health insurer entrants need to attract customers with competitive premiums that can only be achieved by obtaining discounts from providers. However providers usually offer the best discounts to incumbent insurers with a significant business—volume discounting that reflects a reduction in transaction costs and greater budget certainty. Hence, incumbent insurers have a durable cost advantage.25 The presence of significant entry barriers in health insurance markets was demonstrated in the 2008 hearings before the Pennsylvania Insurance Department on the competition ramifications of the proposed merger between Highmark Inc. and Independence Blue Cross. Substantial evidence was introduced in those hearings, showing that replicating the Blues’ extensive provider networks constituted a major barrier to entry. The evidence further demonstrated that there has been very little in the way of new entry that might compete with the dominant Blues Plans in the Pennsylvania health insurance markets. In a report commissioned by the Pennsylvania Insurance Department, LECG concluded that it was unlikely that any competitor would be able to step into the market after a Highmark/IBC merger:

[B]ased on our interviews of market participants and other evidence, there are a number of barriers to entry—including the provider cost advantage enjoyed by the dominant firms in those areas and the strength of the Blue brand in those areas...On balance, the evidence suggests that to the extent the proposed consolidation reduces competition, it is

23 See Robert W. McCann, Field of Dreams: Dominant Health Plans and the Search for a “Level Playing Field,” Health Law

Handbook (Thomson West 2007); Mark V. Pauly, Competition in Health Insurance Markets, 51 Law & Contemp. Probs. 237 (1988); Federal Trade Commission and U.S. Department of Justice, Improving Health Care: A Dose of Competition (July,2004); Vertical Restraints and Powerful Health Insurers: Exclusionary Conduct Masquerading as Managed Care?, 51 Law & Contemp. Probs. 195 (1988).

24 Sharis A. Pozen, Acting Assistant Att’y Gen., Dep’t of Justice Antitrust Div., Competition and Health Care: A Prescription for High-Quality, Affordable Care 7 (Mar. 19, 2012) [hereinafter Pozen, Competition and Health Care], available at http://www.justice.gov/atr/speech/competition-and-health-care-prescription-high-quality-affordable-care.

25 Id. at 7.

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The Honorable William Baer November 11, 2015 Page 10

unlikely that other health insurance firms will be able to step in and replace the loss in competition.26

The merging health insurers have argued that times have changed and the health insurance marketplaces have made entry easy. The facts however do not bear out that claim. Recent state developments only highlight the barrier to entry problem. The New York Times recently reported “tough going for health co-ops” created under the Affordable Care Act (ACA) to inject competition into health insurance markets.27 According to the Times, many co-ops “appear to be scrambling to have enough money to cover claims as well as enroll new customers as they enter their third year.” According to the Washington Post of October 10, nearly half of the 23 ACA insurance co-ops, subsidized by millions of dollars in government loans, have been told by federal regulators that their finances, enrollment, or business model need to “shape up.” One co-op has folded and four others are preparing to close in late December, including top-tier co-ops that federal officials had regarded as best poised to succeed.28 More closure announcements are expected.29 The quick death of these co-ops illustrate that even with heavy federal subsidies, health insurance is a tough business to enter. Moreover, only two for-profit companies that were not already health insurers, reports the Times, have entered the state marketplaces. One of them is Oscar, which was touted by the CEOs of Aetna and Anthem as an example of successful entry in their testimony before the Senate Judiciary Committee. (Anthem’s CEO referred to Oscar as “emblematic of the changing face of the competitive landscape in the insurance industry.”) However, according to the Times, Oscar estimated in a regulatory filing that it lost about $27.5 million last year, roughly half of its 2014 revenue. The CEO of Oscar, one of the very few new companies to even attempt entry, described the task as “quite daunting.”30 In any event, the insurers’ bold claim of new entry is not evidence and their descriptions of new entry opportunities are as consistent with the insurance markets experiencing net exit as with their assertions of net entry. The Loss of Potential Competition One of the most important implications of the barriers to entry that persist with the advent of the exchanges is the need to preserve the potential competition that would be lost if an incumbent insurer is acquired. Thus, when one of the two largest insurers of Medicare Advantage (Humana) is acquired by the fourth-largest (Aetna) to form the largest Medicare Advantage insurer in the country, the highly concentrated geographic markets where Humana faces little competition are deprived of their most likely entrant, Aetna. The foreclosure of this future market role serves to lessen competition. Professor Dafny expressed concern about this loss of potential competition in her Senate testimony: “[C]onsolidation even in non-overlapping markets reduces the number of potential entrants who might attempt to overcome price-increasing (or quality-reducing) consolidation in markets where they do not currently operate.”31

26 LECG Inc., “Economic Analyses of the Competitive Impacts From The Proposed Consolidation of Highmark and IBC.”

September 10 2008, Page 9. 27 “Tough going for Co-ops,” the New York Times, September 15, 2015, available at

http://www.nytimes.com/2015/09/16/business/health-cooperatives-find-the-going-tough.html?ref=health 28 “Financial health shaky at many Obamacare insurance co-ops,” The Washington Post, October 10, 2015, available at

https://www.washingtonpost.com/national/health-science/financial-health-shaky-at-many-obamacare-insurance-co-ops/2015/10/08/2ab8f3ec-6c66-11e5-9bfe-e59f5e244f92_story.html?postshare=3211444658813888

29 Id. 30 This $1.5 billion Startup is Making Health Insurance Suck Less, Wired, March, 20, 2015, available at

http://www.wired.com/2015/04/oscar-funding/. 31 Dafny, supra note 15, at 13.

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The Honorable William Baer November 11, 2015 Page 11 Commenting on the loss of potential competition that would accompany the proposed mergers, Professor Thomas L. Greaney, who is one of the country’s leading experts on antitrust in healthcare, observes:

An important issue…is whether the proposed mergers will lessen potential competition that was expected under the ACA (the potential entry by large insurers into each other’s markets, incidentally, was the argument advanced as to why a “public option” plan was unnecessary). At present all four of the merging companies compete on the exchanges and they overlap in a number of states. [citation omitted]. Notably, prior to the announced mergers, these insurers appear to have been considering further expanding their footprint on the exchanges by entering a number of new states. [citation omitted]. Thus reducing the array of formidable potential entrants into exchange markets from the “Big 5” to be “Remaining 3” will undermine the cost containment effects of competition in exchange markets. The lessons of oligopoly are pertinent here: consolidation that would pare the insurance sector down to less than a handful of players is likely to chill the enthusiasm for venturing into a neighbor’s market or engaging in risky innovation. One need look no further than the airline industry for a cautionary tale.32

THE PROPOSED MEGAMERGERS ARE LIKELY TO HARM CONSUMERS

The AMA has evaluated the potential effects of the proposed megamergers on both: (1) the sale of health insurance products to employers and individuals (the sell side); and (2) the purchase of health care provider (including physician) services (the buy side).33 The AMA has concluded that on the sell side the mergers are likely to result in higher premium levels to health care consumers and/or a reduction in the quality of health insurance that can take the form of a reduction in the availability of providers, a reduction in consumer service, etc. On the buy side, the mergers could enable the merged entities to lower payment rates for physicians such that there would be a reduction in the quality or quantity of the services that physicians are able to offer patients. Likely Detrimental Effects for Consumers in the Health Insurance Marketplace Price Increases A growing body of peer-reviewed literature suggests that greater consolidation leads to price increases, as opposed to greater efficiency or lower health care costs. Two studies have examined the effects of past health insurance mergers on premiums. A study of the 1999 merger between Aetna and Prudential found that the increased market concentration was associated with higher premiums.34 Most recently, a second study examined the premium impact of the 2008 merger between UnitedHealth Group Inc. and Sierra Health Services. That merger led to a large increase in concentration in Nevada health insurance markets. The study concluded that in the wake of the merger,

32 Greaney, “The State of Competition in the Health Care Marketplace: The Patient Protection and Affordable Care Act’s Impact

on Competition,” Testimony before the House Committee on the Judiciary, September 22, 2015, at 10. 33 U.S. v. Aetna Inc., supra note 12, at ¶¶ 17-18; United States v. United Health Group Inc. No. 1:05CV02436 (D.D.C., Dec. 20,

2005) (complaint), available at www.usdoj.gov/atr/cases/f213800/213815.htm. 34 Leemore Dafny et al, “Paying a Premium on your Premium? Consolidation in the US health insurance industry,” American

Economic Review 2012; 102: 1161-1185.

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The Honorable William Baer November 11, 2015 Page 12 premiums in Nevada markets increased by almost 14 percent relative to a control group. These findings suggest that the merging parties exploited their resulting market power, to the detriment of consumers. 35 Also, recent studies suggest premiums for employer sponsored fully insured plans are rising more quickly in areas where insurance market concentration is increasing.36 Consistent with the observation that the loss of competition accompanying health insurer mergers results in higher premiums is research finding that competition among insurers is associated with lower premiums.37 Research suggests that on the federal health insurance exchanges, the participation of one new carrier (i.e., UnitedHealth Group Inc.) would have reduced premiums by 5.4 percent, while the inclusion of all companies in the individual insurance markets could have lowered rates by 11.1 percent.38 Professor Dafny observes that there are a number of studies documenting lower insurance premiums in areas with more insurers, including on the state health insurance marketplaces, the large group market, and in Medicare Advantage.39

Medical Loss Ratio Does Not Protect Consumers

The health insurers claim that medical loss ratio (MLR) regulations will protect consumers from the anticompetitive merger consequences predicted by research. The MLR measures how much of the premium dollar goes to pay for medical claims and quality activities instead of administrative costs and marketing. Large group insurers must devote at least 85 percent of premium revenues-net of taxes and licensing fees to medical claims and quality improvement. (An 80 percent requirement applies to small group/individual plans). However, the MLR requirements do not apply to more than half of Americans under age 65 with health insurance coverage because the rules do not apply to privately-insured enrollees in self-insured plans. Also, as Professor Dafny has observed, for the regulations to constrain an exercise of market power “they must ‘bind:’ the statutory floors must be higher than we would otherwise see.”40 Thus, there may be substantial room for profitable merger-related price increases in the individual market in particular, notwithstanding the minimum MLR requirement. She further observes that because the MLR is calculated at the state and market level, it is conceivable that mergers can enable insurers to offset low MLRs in one geographic area or sub-segment with high MLR in another.41 In addition, the MLR does not address the level of the premium increase, only the percentage used for claims and quality activities. Finally, MLR regulation does not address non-price dimensions of health insurer competition such as product design, provider networks, and customer service. Therefore the MLR does not protect consumers from post-merger harm along “value” dimensions.

35 Jose R. Guardado, David W. Emmons, and Carol K. Kane, “The Price Effects of a Large Merger of Health Insurers: A Case

Study of UnitedHealth-Sierra” Health Management, Policy and Innovation, 2013; 1(3) 16-35. 36 Dafny, supra note 15, at 11. 37 Dafny et al., supra note 34. 38 “More Insurers, Lower Premiums? Evidence from Initial Pricing in the Health Insurance Marketplaces,” Kellogg Insight (July

7, 2014), http://insight.kellogg.northwestern.edu/article/more_insurers_lower_premiums. 39 Dafny, supra note 15, at 11. 40 Dafny, Id., at 14. 41 Id.

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The Honorable William Baer November 11, 2015 Page 13 Plan Quality The mergers can be expected to adversely affect health insurance plan quality. Insurers are already creating very narrow and restricted networks that force patients to go out-of-network to access care. A merger would reduce pressures on plans to offer broader networks to compete for members and would create fewer networks that are simultaneously under no competitive pressure to respond to patients’ access needs. As a result, it is even more likely that patients will find themselves in inadequate networks and be forced to access out-of-network care at some point. Similarly, it is very likely that patients will find themselves at in-network hospitals where, given their restricted network plans, many of the hospitals’ physicians will not have been offered a contract by the insurer. While the relationship between insurer consolidation and plan quality requires additional research, one study in the Medicare Advantage market found that more robust competition was associated with greater availability of prescription drug benefits.42 As Professor Dafny observes, “the competitive mechanisms linking diminished competition to higher prices operate similarly with respect to lower quality.”43 Merger Efficiency Claims are Unsupported and Speculative Professor Dafny noted in her Senate testimony that claims of offsetting efficiencies cannot ameliorate the competitive harm from these mergers. “Efficiencies must be merger-specific and verifiable…and there is still the question of whether benefits will be passed through to consumers in light of that diminished competition.”44 Insurers have a dismal track record of passing any savings from an acquisition on to consumers, and there is no reason to believe that this transaction would be any different. Under these circumstances, we suggest that the DOJ review the merging insurers’ efficiency claims with skepticism similar to that expressed by the Ninth Circuit Court of Appeals in the merger case of St. Alphonsus Medical Center and Federal Trade Commission v. St. Luke’s, 778 F.3d 775 (9th Cir, 2015). (“The Supreme Court has never expressly approved an efficiencies defense to a section 7 claim…We remain skeptical about the efficiencies defense in general and about its scope in particular.”)45 Turning to the health insurers’ specific efficiency claims, “[t]here is no evidence that larger insurers are more likely to implement innovative payment and care management programs…[and] there is a countervailing force offsetting this heightened incentive to invest in…reform: more dominant insurers in a given insurance market are less concerned with ceding market share.”46 In fact, “concerted delivery system reform efforts have tended to emerge from other sources, such as provider systems…and non-national payers,” according to Professor Dafny, not commercial health insurers.47 In any event, the vague “innovative payment” and “care management” claims made by the health insurers in their Congressional testimony are undermined by the studies of consummated health insurance mergers discussed above, which show that the mergers actually resulted in harm to consumers in the form of higher, not lower, insurance premiums.

42 See R. Town and S. Liu, supra note 6. 43 Dafny, supra note 15, at 11. 44 Id. at 16. 45 St. Alphonsus Medical Center and Federal Trade Commission v. St. Luke’s, 778 F.3d 775, 789-790 (9th Cir, 2015) 46 Dafny, supra note 15, at 16. 47 Id.

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The Honorable William Baer November 11, 2015 Page 14 Countervailing Power Is Not a Consumer Welfare Enhancing Efficiency Several scholars have observed that one of the motivations for the health insurer mergers is to respond to hospital consolidation by acquiring countervailing power to force hospital prices down to the benefit of consumers.48 There is, however, no economic evidence that the formation of bilateral hospital/health insurer monopolies—a battle between proverbial Sumo wrestlers—benefits consumers. Professor Greaney observes that such matches often end in a handshake and consumers get crushed.49 The better answer to hospital consolidation is to recognize that integrated care does not necessarily require hospital-led consolidation and that by encouraging entry into hospital markets, hospital markets can be made competitive. Fortunately, regulators can take steps to encourage new entry.50 Low-hanging fruit in this area would be removing barriers to health care market entry that the government itself has erected. These include strengthening and expanding program integrity exemptions for physicians participating in alternative payment and delivery models, more flexible antitrust enforcement policies to foster physician networks engaged in alternative payment models (APMs) and the elimination of state certificate of need (CON) laws and the ban placed by the ACA on physician-owned specialty hospitals (POH). This latter restriction is radically inconsistent with the general thrust of the ACA, which is to encourage competition, such as the creation of health insurance exchanges and the formation of new delivery systems.

The Health Insurer Monopsony Power Acquired Through the Mergers Would Likely Degrade the Quality and Reduce the Quantity of Physician Services

Just as the proposed mergers would enable the merged firms to raise premiums or reduce levels of service, they would also be likely to be able to lower payment rates for physicians to a degree that would reduce the quality or quantity of services that they offer to patients such that the mergers would violate section 7 of the Clayton Act.

The DOJ has successfully challenged two health insurer mergers (half of all cases brought against health insurer mergers) based in part on DOJ claims that the mergers would have anticompetitive effects in the purchase of physician services. These challenges occurred in the merger of Aetna and Prudential in Texas in 1999,51 and the merger of UnitedHealth Group Inc. and Pacific Care in Tucson, Arizona and in Boulder, Colorado in 2005.52 In a third merger matter occurring in 2010—Blue Cross Blue Shield of Michigan and Physicians Health Plan of Mid-Michigan—the health insurers abandoned their merger plans when the DOJ complained that

48 See Prof. Mark Pauly of the Wharton School at Health Care Management Professor Mark Pauly PhD Discusses Proposed

Health Care Insurance Company Mergers, available at: http://knowledge.wharton.upenn.edu/article/whats-driving-health-insurers-merger-mania/, and Prof. Thomas Greaney, “Examining Implications of Health Insurance Mergers,” available at: http://healthaffairs.org/blog/2015/07/16/examining-implications-of-health-insurance-mergers/.

49 Greaney, “Examining Implications of Health Insurance Mergers.” 50 Id. 51 U.S. v. Aetna Inc., supra note 12, at ¶¶ 17-18; see also U.S. v. Aetna, Inc., No. 3-99 CV 1398-H, at 5-6 (Aug. 3, 1999) (revised

competitive impact statement), available at http://www.usdoj.gov/atr/case/s/f2600/2648.pdf. 52 United States v. United Health Group Inc. No. 1:05CV02436 (D.D.C., Dec. 20, 2005) (complaint), available at:

www.usdoj.gov/atr/cases/f213800/213815.htm.

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The Honorable William Baer November 11, 2015 Page 15 the merger “…would have given Blue Cross Michigan the ability to control physician payment rates in a manner that could harm the quality of healthcare delivered to consumers.”53 DOJ’s monopsony challenges properly reflect the Agency’s conclusions that it is a mistake to assume that a health insurer’s negotiating leverage acquired through merger is a good thing for consumers. On the contrary, consumers can expect higher insurance premiums.”54 Health insurer monopsonists typically are also monopolists.55 Facing little if any competition, they lack the incentive to pass along cost savings to consumers. Also, the demand for health insurance is inelastic—when the price is raised, the insurer’s total revenue increases, and when price falls so do total revenues.56 Consumers do best when there is a competitive market for purchasing physician services. This was the well-documented conclusion reached in the 2008 hearings before the Pennsylvania Insurance Department on the competition ramifications of the proposed merger between Highmark, Inc. and Independence Blue Cross. Based on an extensive record of nearly 50,000 pages of expert and other commentary,57 the Pennsylvania Insurance Department was prepared to find the proposed merger to be anticompetitive in large part because it would have granted the merged health insurer undue leverage over physicians and other health care providers. This leverage would be “to the detriment of the insurance buying public” and would result in “weaker provider networks for consumers who depend on these networks for access to quality healthcare.”58 The Pennsylvania Insurance Department further concluded:

Our nationally renowned economic expert, LECG, rejected the idea that using market leverage to reduce provider reimbursements below competitive levels will translate into lower premiums, calling this an “economic fallacy” and noting that the clear weight of economic opinion is that consumers do best when there is a competitive market for purchasing provider services. LECG also found this theory to be borne out by the experience in central Pennsylvania, where competition between Highmark and Capital Blue Cross has been good for providers and good for consumers.59

For example, compensation below competitive levels hinders physicians’ ability to invest in new equipment, technology, training, staff and other practice infrastructure that could improve the access to, and quality of, patient care. It may also force physicians to spend less time with patients to meet practice expenses. Mergers may also cause even tighter provider networks, reducing patient access to physicians and effectively curtailing the quantity of their services. When one or more health insurers dominate a market, physicians can be pressured not to engage in aggressive patient advocacy, a crucial safeguard of patient care. 53 Blue Cross Blue Shield of Michigan and Physicians Health Plan of Mid-Michigan Abandon Merger Plans | OPA | Department

of Justice, available at: http://www.justice.gov/opa/pr/blue-cross-blue-shield-michigan-and-physicians-health-plan-mid-michigan-abandon-merger-plans.

54 Dafny, supra note 15, at 9.55 Peter J. Hammer and William M. Sage, Monopsony as an Agency and Regulatory Problem in Health Care, 71 ANTITRUST. L.J. 949 (2004).

55 Peter J. Hammer and William M. Sage, Monopsony as an Agency and Regulatory Problem in Health Care, 71 ANTITRUST. L.J. 949 (2004).

56 Su Liu & Deborah Chollet, supra note 39. 57 See http://www.ins.state.pa.us/ins/lib/ins/whats_new/Excerpts_from_PA_Insurance_Dept_Expert_Reports.pdf for background

information, including excerpts from the experts. 58 See Statement of Pennsylvania Insurance Commissioner Joel Ario on Highmark and IBC Consolidation (January 22, 2009). 59 Id.

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The Honorable William Baer November 11, 2015 Page 16 Verifying the threat to consumers, a consumer representative testified in the Senate Judiciary Committee hearing on the mergers that they could “force doctors and hospitals to go beyond trimming costs, to cut costs so far that it begins to degrade the care and service they provide below what consumers value and need.”60 Such reduction in service levels and quality of care causes immediate harm to consumers. In the long run, it is imperative to consider whether monopsony power will harm consumers by driving physicians from the market. Health insurer payments that are below competitive levels may reduce patient care and access by motivating physicians to retire early or seek opportunities outside of medicine that are more rewarding, financially or otherwise. According to a 2015 study released by the Association of American Medical Colleges, the U.S. will face a shortage of between 46,000-90,000 physicians by 2025. The study, which is the first comprehensive national analysis that takes into account both demographics and recent changes to care delivery and payment methods, projects shortages in both primary and specialty care.61 Recent projections by the Health Resources and Services Administration similarly suggest a significant shortage of primary care physicians in the United States.62 Moreover, according to a recent survey by Deloitte, six in 10 physicians said it was likely that many physicians would retire earlier than planned in the next one to three years, a perception that Deloitte stated is fairly uniform among all physicians, irrespective of age, gender, or medical specialty.63 According to the Deloitte survey, 57 percent of physicians also said that the practice of medicine was in jeopardy and nearly 75 percent of physicians thought that the “best and the brightest” may not consider a career in medicine. Finally, most physicians surveyed believed that physicians would retire or scale back practice hours, based on how the future of medicine is changing.64

Monopsony Anticompetitive Effects May be Especially Felt by Consumers and Physicians in The Market for Medicare Advantage

Mergers resulting in monopsony power within the MA market would likely be felt most acutely by physicians who specialize in providing services to the elderly. With limited capacity to expand their business to traditional Medicare, these physicians may be especially harmed by the exceptionally high degree of concentration in the MA market where the lack of competition enables insurers to depress fees paid to physicians for services under MA. DOJ Should Block the Mergers to Protect the Quality and Quantity of Physician Services Given that the proposed mergers would result in countless highly concentrated commercial and MA markets where the merged entities either possessed substantial market shares or could exercise buyer power through coordinated interaction, it is critical for antitrust enforcers to oppose the proposed mergers

60 Statement of George Slover, Senior Policy Counsel, Consumers Union, Hearing of the Senate Committee on the Judiciary

(September 22, 2015), available at: http://www.judiciary.senate.gov/meetings/examining-consolidation-in-the-health-insurance-industry-and-its-impact-on-consumers.

61 See IHS Inc., The Complexities of Physician Supply and Demand: Projections from 2013 to 2025. Prepared for the Association of American Medical Colleges. Washington, DC: Association of American Medical Colleges; 2015.

62 See health resources and services administration, projecting the supply and demand for primary care physicians through 2020 in brief (November 2013).

63 Deloitte 2013 Survey of U.S. Physicians: Physician perspectives about health care reform in the future of the medical profession.

64 Id.

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The Honorable William Baer November 11, 2015 Page 17 so that physicians have adequate competitive alternatives. Unless successfully opposed, the merged entities would likely be able to lower payment rates for physicians to a degree that would reduce the quality or quantity of services that physicians offer to patients. REMEDIES: DIVESTITURES WOULD BE UNWORKABLE AND INADEQUATE TO PROTECT CONSUMERS Any remedy short of blocking the mergers would not adequately protect consumers. A divestiture would not protect against the loss of potential competition that occurs when two of the five largest health insurers are eliminated. Moreover, divesture could be highly disruptive to the marketplace and cause harm to consumers, especially in Medicare Advantage markets where the elderly would be faced with a new insurer. As a practical matter, the overwhelming number of markets adversely affected by the proposed mergers, along with the barriers to entry to health insurance most recently demonstrated by the failure of the federally subsidized co-op program, makes unlikely that the DOJ could find proposed buyers of assets that could supply health insurance at a cost and quality comparable to that of the merger parties in the huge number of affected markets. Moreover, any qualified purchaser able to contract with a cost competitive network of hospitals and physicians, if found, would likely already be a market participant, and a divestiture to such an existing market participant would not likely return the market to even pre-merger levels of competition. Also troublesome is the apparent absence of a viable divestiture remedy in a national market where five national insurers compete for employer contracts. There are no would-be purchasers with the size and scope of the existing five national insurers that could replace the lost national competition. Accordingly, the AMA respectfully urges DOJ to block the mergers in order to protect consumers from premium increases, lower plan quality, and a reduction in the quantity and quality of physician services. We thank the Antitrust Division for its vigilant merger enforcement and look forward to helping augment your analysis with data and insights gleaned from our studies of health insurance markets. Sincerely,

James L. Madara, MD

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Markets where an Anthem-Cigna merger warrants antitrust scrutiny | Analysis of data from the 2015 update to Competition in Health Insurance

Markets where an Anthem-Cigna merger warrants antitrust scrutinyAnalysis of data from the 2015 update to “Competition in Health Insurance: A comprehensive study of U.S. markets”

Health Policy Group American Medical Association

This analysis provides the commercial market share and concentration (HHI) effects of a proposed merger between Anthem (WellPoint) and Cigna. Data used in this analysis are from the 2015 update to the American Medical Association’s “Competition in health insurance” study (i.e., 2013 HealthLeaders-InterStudy data). Using the 2010 Department of Justice (DOJ)/Federal Trade Commission (FTC) Horizontal Merger Guidelines, it presents the state and metropolitan statistical area (MSA) level markets where the merger would raise competitive concerns based on how the Guidelines classify markets. Under the DOJ/FTC merger guidelines:

• MSAs with HHI less than 1500 are unconcentrated; mergers are unlikely to raise competitive concerns.

• MSAs with HHI between 1500 and 2500 are moderately concentrated; mergers that increase the HHI by more than 100 points potentially raise significant competitive concerns and often warrant scrutiny.

• MSAs with an HHI of more than 2500 are highly concentrated; mergers that increase the HHI by 100 to 200 points potentially raise significant competitive concerns and often warrant scrutiny, and those that increase it by more than 200 points will be presumed likely to enhance market power.

The following set of tables report those markets’ pre- and post-merger HHIs and the change in HHIs resulting from the proposed merger. The results are presented for commercial, combined (HMO+PPO+POS) product markets, as well as for PPO and POS markets separately.1 For each product market, they are reported at the state-level and then by MSA.

Tables 1, 3, 5, 7, 9 and 10 list those states and MSAs where such a merger would be presumed likely to enhance market power according to the guidelines above (i.e., combination of a highly concentrated market with a significant increase in the HHI). Those are the markets that would be expected to be most adversely affected by the merger.

Tables 2, 4, 6, 8 and 11 list those states and MSAs where such a merger potentially raises significant competitive concerns and often warrants scrutiny (i.e., combination of moderately to highly concentrated market with a meaningful increase in the HHI).

Results for the combined (HMO+PPO+POS) product market The results of the analysis in Table 1 conclude that an Anthem-Cigna merger would be presumed likely to enhance market power in the commercial, combined (HMO+PPO+POS) markets in 10 of the 14 states (NH, IN, CT, ME, VA, GA, CO, MO, NV, KY) in which Anthem is licensed to provide commercial coverage.

1. The analysis did not suggest any increased anticompetitive effects in the HMO product market.

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Also focusing on the commercial, combined (HMO+PPO+POS) markets, the results of the analysis in Table 2 conclude that an Anthem-Cigna merger potentially raises significant competitive concerns and often warrants scrutiny in the other four states where Anthem operates (OH, CA, NY, WI).

Although Table 1 and Table 2 show that the merger would cause important changes in the HHI (concentration), it should be noted that in the states of Kentucky and Wisconsin, Cigna’s pre-merger market shares were only 4 percent and 3 percent respectively. The significant increases in the HHI would be the result of Anthem’s high shares in those states.

Turning to the results by MSA, the results of the analysis in Table 3 conclude that an Anthem-Cigna merger would be presumed likely to enhance market power in the commercial, combined (HMO+PPO+POS) markets in MSAs located in 13 of the 14 states (CA, CO, CT, GA, IN, KY, ME, MO, NH, NV, NY, OH, VA) in which Anthem is licensed to provide commercial coverage.

Also focusing on the commercial, combined (HMO+PPO+POS) markets, the results of the analysis in Table 4 conclude that an Anthem-Cigna merger potentially raises significant competitive concerns and often warrants scrutiny in MSAs located in CA, CT, KY, MO, NH, NV, NY, OH, VA and WI.

Results for separate PPO and POS product markets Table 5 shows the three states (IN, CO, GA) in which the merger will be presumed likely to enhance market power in the PPO market, and Table 9 shows that in all 14 “Anthem states” (CA, CO, CT, GA, IN, KY, ME, MO, NV, NH, NY,

OH, VA, WI), the merger will be presumed likely to enhance market power in the POS market.

Table 6 shows that in one additional state (NV), the merger potentially raises significant competitive concerns and often warrants scrutiny in the PPO market.

Turning to the results by MSA, Table 7 shows the MSAs, which are located across nine states (CA, CO, IN, GA, ME, MO, NH, OH, VA), where the merger is presumed likely to enhance market power in the PPO market, and Table 10 shows that MSAs meeting those criteria in the POS market are located in all 14 “Anthem states” (CA, CO, CT, GA, IN, KY, ME, MO, NV, NH, NY, OH, VA, WI).

Table 8 shows one additional MSA (in NV) where the merger potentially raises significant competitive concerns and often warrants scrutiny in the PPO market, and Table 11 shows MSAs classified in that way—located in OH and WI—for the POS market.

It is uncertain, however, whether separate product markets would be considered as constituting separate antitrust markets (i.e., not clear they are substitutes for each other).

Finally, it should be noted that although all MSA-level results show that the merger would cause important changes in the HHI (concentration), in some MSAs Cigna’s pre-merger shares were small, particularly when the change in the HHI was not very large. For example, that would generally be the case in combined (HMO+PPO+POS) and PPO markets in California and Ohio MSAs. The significant increase in the HHI in these two states would be the result of Anthem’s high shares in those MSAs.

©2015 American Medical Association. All rights reserved. 15-0382:PDF:9/15:DF

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Combined (HMO+PPO+POS) marketsTable 1. States where an Anthem-Cigna merger will be presumed likely to enhance

market power

State Total HHITotal HHI post-merger Change in HHI

New Hampshire 2769 4452 1682

Indiana 3385 4999 1614

Connecticut 2544 3855 1311

Maine 2921 4089 1169

Virginia 2545 3439 894

Georgia 2127 2976 848

Colorado 1893 2734 841

Missouri 2074 2576 502

Nevada 2459 2906 447

Kentucky 2992 3323 331

Table 2. States where an Anthem-Cigna merger potentially raises significant competitive

concerns and often warrants scrutiny

State Total HHITotal HHI post-merger Change in HHI

Ohio 2043 2354 311

California 2108 2399 291

New York 1712 1921 210

Wisconsin 1482 1592 109

Table 3. MSAs where an Anthem-Cigna merger will be presumed likely to enhance market

power, by state

MSA name Total HHITotal HHI post-merger Change in HHI

California

Santa Cruz-Watsonville, CA 2934 3530 596

Santa Ana-Anaheim-Irvine, CA 1986 2514 528

Santa Barbara-Santa Maria, CA 3371 3849 478

Salinas, CA 4446 4888 442

Oxnard-Thousand Oaks-Ventura, CA 2471 2838 367

Los Angeles-Long Beach-Glendale, CA 2256 2575 319

Bakersfield, CA 2664 2969 305

El Centro, CA 3125 3416 291

Modesto, CA 2453 2668 215

Colorado

Grand Junction, CO 2040 3371 1331

Fort Collins-Loveland, CO 2457 3711 1253

Greeley, CO 2055 3180 1125

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MSA name Total HHITotal HHI post-merger Change in HHI

Pueblo, CO 1990 2939 949

Colorado Springs, CO 1725 2671 947

Boulder, CO 1999 2899 900

Denver-Aurora, CO 2000 2631 631

Connecticut

Hartford-West Hartford-East Hartford, CT 2426 3783 1357

New Haven-Milford, CT 3139 4440 1300

Waterbury, CT 3108 4403 1295

Bridgeport-Stamford-Norwalk, CT 2442 3723 1282

Danbury, CT 2355 3591 1236

Norwich-New London-Westerley, CT-RI 3121 3921 800

Georgia

Dalton, GA 3340 5924 2584

Columbus, GA-AL 2780 3998 1218

Valdosta, GA 3113 4291 1178

Savannah, GA 2389 3549 1160

Hinesville-Fort Stewart, GA 3543 4695 1152

Rome, GA 1982 3090 1107

Albany, GA 3142 4203 1061

Brunswick, GA 2935 3880 944

Warner Robins, GA 3701 4587 886

Atlanta-Sandy Springs-Marietta, GA 2032 2758 726

Athens-Clarke County, GA 2265 2946 681

Gainesville, GA 1889 2545 656

Macon, GA 2215 2720 505

Augusta-Richmond County, GA-SC 1996 2500 505

Indiana

Indianapolis, IN 3299 5716 2417

Lafayette, IN 2780 4762 1982

Terre Haute, IN 5436 7047 1611

Kokomo, IN 3764 5191 1427

Anderson, IN 4803 6073 1270

Gary, IN 3059 4274 1215

Evansville, IN-KY 3419 4621 1202

Fort Wayne, IN 3595 4762 1167

Michigan City-La Porte, IN 4064 5135 1071

Elkhart-Goshen, IN 4328 5161 833

Muncie, IN 3771 4299 528

South Bend-Mishawaka, IN-MI 2813 3295 482

Bloomington, IN 3748 4189 440

Kentucky

Bowling Green, KY 3986 4895 909

Owensboro, KY 4993 5589 596

Louisville, KY-IN 2726 3166 441

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Markets where an Anthem-Cigna merger warrants antitrust scrutiny | Analysis of data from the 2015 update to Competition in Health Insurance

MSA name Total HHITotal HHI post-merger Change in HHI

Maine

Bangor, ME 2884 4427 1543

Lewiston-Auburn, ME 3234 4597 1362

Portland-South Portland, ME 2872 3870 998

Missouri

Joplin, MO 2117 2676 559

St. Louis, MO-IL 2571 3100 529

Jefferson City, MO 2779 3165 386

Springfield, MO 2281 2553 272

Kansas City, MO-KS 2307 2548 241

Columbia, MO 3405 3612 207

New Hampshire

Rochester-Dover, NH 2808 4354 1546

Manchester, NH 2683 4215 1531

Nashua, NH-MA 2384 3640 1256

Portsmouth, NH-ME 2733 3940 1207

Nevada

Carson City, NV 2092 2503 411

Las Vegas-Paradise, NV 3138 3491 352

New York

Suffolk County-Nassau County, NY 2928 3162 233

Ohio

Weirton-Steubenville, WV-OH 2458 2966 508

Cincinnati-Middletown, OH-KY-IN 2591 3027 435

Columbus, OH 2363 2716 353

Lima, OH 2320 2661 342

Dayton, OH 2786 3112 326

Sandusky, OH 2677 3002 324

Tennessee

Kingsport-Bristol, TN-VA 2345 3085 739

Chattanooga, TN-GA 2623 3157 533

Virginia

Richmond, VA 3514 5241 1727

Winchester, VA-WV 3663 4851 1188

Lynchburg, VA 4484 5436 952

Roanoke, VA 4358 5069 710

Virginia Beach-Norfolk-Newport News, VA-NC 3333 3977 644

Blacksburg-Christiansburg-Radford, VA 4902 5528 626

Danville, VA 7177 7724 548

Harrisonburg, VA 5473 5987 514

Charlottesville, VA 3212 3545 333

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Table 4. MSAs where an Anthem-Cigna merger potentially raises significant competitive concerns and often warrants scrutiny, by state

MSA name Total HHITotal HHI post-merger Change in HHI

California

San Jose-Sunnyvale-Santa Clara, CA 2112 2453 341

San Diego-Carlsbad-San Marcos, CA 1622 1890 267

San Francisco-San Mateo-Redwood City, CA 2063 2305 242

Riverside-San Bernardino-Ontario, CA 2162 2375 213

Oakland-Fremont-Hayward, CA 2859 3031 172

Sacramento-Arden-Arcade-Roseville, CA 2466 2578 112

District of Columbia

Washington-Arlington-Alexandria, DC-VA-MD-WV 1760 2086 326

Massachusettes

Haverhill-Newburyport-Amesbury Town, MA-NH 1760 2107 347

Lawrence-Methuen-Salem, MA-NH 2023 2205 182

Springfield, MA-CT 1966 2106 140

Missouri

St. Joseph, MO-KS 3221 3359 138

Nevada

Reno-Sparks, NV 1913 2416 503

New York

New York-White Plains-Wayne, NY-NJ 1987 2319 332

Poughkeepsie-Newburgh-Middletown, NY 1781 2009 228

Ohio

Canton-Massillon, OH 1904 2143 239

Youngstown-Warren-Boardman, OH-PA 1978 2214 236

Akron, OH 2197 2425 227

Toledo, OH 2247 2449 201

Cleveland-Elyria-Mentor, OH 2658 2843 185

Mansfield, OH 2911 3034 123

Tennessee

Clarksville, TN-KY 2034 2413 379

Wisconsin

Racine, WI 3683 3848 165

Milwaukee-Waukesha-West Allis, WI 3548 3683 135

Janesville, WI 1487 1605 118

West Virginia

Huntington-Ashland, WV-KY-OH 1971 2257 286

Wheeling, WV-OH 1899 2153 254

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Markets where an Anthem-Cigna merger warrants antitrust scrutiny | Analysis of data from the 2015 update to Competition in Health Insurance

PPO marketsTable 5. States where an Anthem-Cigna merger will be presumed likely to enhance

market power

State PPO HHIPPO HHI post-merger

Change in PPO HHI

Indiana 4771 6509 1737

Colorado 2810 3820 1010

Georgia 3214 3592 379

Table 6. States where an Anthem-Cigna merger potentially raises significant competitive

concerns and often warrants scrutiny

State PPO HHIPPO HHI post-merger

Change in PPO HHI

Nevada 1901 2450 549

Table 7. MSAs where an Anthem-Cigna merger will be presumed likely to enhance market

power, by state

MSA name PPO HHIPPO HHI post-merger

Change in PPO HHI

California

Santa Cruz-Watsonville, CA 4403 4975 572

El Centro, CA 3377 3724 347

Colorado

Greeley, CO 2834 4324 1491

Pueblo, CO 3531 4767 1235

Fort Collins-Loveland, CO 4030 5106 1076

Denver-Aurora, CO 2770 3657 887

Colorado Springs, CO 2720 3592 872

Grand Junction, CO 2518 3342 824

Boulder, CO 2867 3608 742

District of Columbia

Washington-Arlington-Alexandria, DC-VA-MD-WV 2535 2788 253

Georgia

Dalton, GA 3110 5668 2558

Valdosta, GA 2184 3892 1707

Hinesville-Fort Stewart, GA 2277 3127 850

Brunswick, GA 2423 3269 846

Albany, GA 2474 3231 757

Rome, GA 3646 4239 593

Warner Robins, GA 2601 3131 530

Savannah, GA 2221 2747 526

Athens-Clarke County, GA 2890 3398 508

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Markets where an Anthem-Cigna merger warrants antitrust scrutiny | Analysis of data from the 2015 update to Competition in Health Insurance

MSA name PPO HHIPPO HHI post-merger

Change in PPO HHI

Macon, GA 2741 3153 411

Columbus, GA-AL 2222 2592 370

Atlanta-Sandy Springs-Marietta, GA 4059 4300 241

Augusta-Richmond County, GA-SC 2716 2921 205

Indiana

Indianapolis, IN 4188 7423 3234

Gary, IN 4721 5571 850

Elkhart-Goshen, IN 6013 6660 647

Terre Haute, IN 6949 7563 614

Evansville, IN-KY 4634 5127 493

Maine

Bangor, ME 3568 3943 375

Missouri

Jefferson City, MO 3148 3539 391

Joplin, MO 2476 2781 306

New Hampshire

Rochester-Dover, NH 3467 4052 585

Ohio

Lima, OH 3330 3583 253

Columbus, OH 2803 3053 250

Table 8. MSAs where an Anthem-Cigna merger potentially raises significant competitive

concerns and often warrants scrutiny, by state

MSA name PPO HHIPPO HHI post-merger

Change in PPO HHI

Nevada

Las Vegas-Paradise, NV 1864 2331 467

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POS marketsTable 9. States where an Anthem-Cigna merger will be presumed likely to enhance

market power

State POS HHITotal POS HHI post-merger

Change in POS HHI

Maine 4200 7684 3483

New Hampshire 3595 6477 2882

Connecticut 2884 4858 1974

Indiana 2855 4337 1482

Virginia 2352 3715 1363

Georgia 2988 4244 1256

California 3037 4228 1191

Nevada 3857 4842 985

Kentucky 3363 4235 872

Colorado 4196 4875 680

Missouri 4153 4768 615

Ohio 4197 4712 515

New York 3994 4401 407

Wisconsin 5123 5332 208

Table 10. MSAs where an Anthem-Cigna merger will be presumed likely to enhance market

power, by state

MSA name POS HHITotal POS HHI post-merger

Change in POS HHI

California

Santa Barbara-Santa Maria, CA 3025 5236 2212

Salinas, CA 3599 5663 2064

Visalia-Porterville, CA 3478 5386 1907

Madera, CA 3655 5560 1904

Modesto, CA 3184 5065 1881

San Luis Obispo-Paso Robles, CA 3850 5651 1801

Napa, CA 3453 5241 1788

Merced, CA 3308 5077 1769

Fresno, CA 3410 5068 1658

Redding, CA 4004 5559 1555

Oxnard-Thousand Oaks-Ventura, CA 3034 4587 1553

Santa Cruz-Watsonville, CA 3062 4614 1552

Bakersfield, CA 3269 4753 1485

Santa Ana-Anaheim-Irvine, CA 3130 4527 1397

Stockton, CA 3360 4716 1356

Los Angeles-Long Beach-Glendale, CA 2669 3952 1283

Yuba City-Marysville, CA 4159 5353 1194

Sacramento-Arden-Arcade-Roseville, CA 3613 4705 1092

Chico, CA 4020 5098 1078

Vallejo-Fairfield, CA 3813 4755 942

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Markets where an Anthem-Cigna merger warrants antitrust scrutiny | Analysis of data from the 2015 update to Competition in Health Insurance

MSA name POS HHITotal POS HHI post-merger

Change in POS HHI

Santa Rosa-Petaluma, CA 3892 4831 939

San Diego-Carlsbad-San Marcos, CA 3531 4455 924

Oakland-Fremont-Hayward, CA 3878 4715 837

San Francisco-San Mateo-Redwood City, CA 3970 4747 777

Riverside-San Bernardino-Ontario, CA 2391 3165 774

San Jose-Sunnyvale-Santa Clara, CA 3854 4535 681

Colorado

Grand Junction, CO 3875 4724 850

Colorado Springs, CO 3921 4741 819

Fort Collins-Loveland, CO 4111 4920 809

Pueblo, CO 4000 4807 806

Boulder, CO 4176 4888 711

Greeley, CO 4140 4842 701

Denver-Aurora, CO 4406 4938 531

Connecticut

Waterbury, CT 2953 5442 2489

New Haven-Milford, CT 2967 5454 2488

Hartford-West Hartford-East Hartford, CT 2866 4755 1888

Bridgeport-Stamford-Norwalk, CT 3201 4982 1780

Danbury, CT 3153 4831 1678

Norwich-New London-Westerley, CT-RI 3244 4326 1082

District of Columbia

Washington-Arlington-Alexandria, DC-VA-MD-WV 2944 3327 383

Georgia

Dalton, GA 5271 8764 3493

Columbus, GA-AL 3546 5296 1751

Rome, GA 2571 4093 1522

Savannah, GA 2916 4357 1441

Athens-Clarke County, GA 3554 4914 1360

Hinesville-Fort Stewart, GA 4193 5536 1343

Atlanta-Sandy Springs-Marietta, GA 2899 4086 1186

Warner Robins, GA 4331 5506 1175

Albany, GA 3900 5052 1152

Gainesville, GA 2664 3694 1030

Brunswick, GA 3815 4845 1030

Valdosta, GA 3777 4571 793

Augusta-Richmond County, GA-SC 3256 4010 755

Macon, GA 2615 3338 723

Indiana

Kokomo, IN 3296 6036 2740

Terre Haute, IN 3560 6142 2582

Anderson, IN 3328 5565 2237

Lafayette, IN 4053 6046 1993

Fort Wayne, IN 3261 5123 1862

Evansville, IN-KY 2984 4649 1665

Indianapolis, IN 3166 4821 1655

Michigan City-La Porte, IN 3377 4938 1561

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Markets where an Anthem-Cigna merger warrants antitrust scrutiny | Analysis of data from the 2015 update to Competition in Health Insurance

MSA name POS HHITotal POS HHI post-merger

Change in POS HHI

Elkhart-Goshen, IN 3742 4971 1229

Gary, IN 3470 4640 1170

South Bend-Mishawaka, IN-MI 3669 4835 1166

Muncie, IN 2747 3453 706

Bloomington, IN 3121 3621 500

Kentucky

Bowling Green, KY 2937 4836 1898

Owensboro, KY 3573 4802 1229

Elizabethtown, KY 3140 4187 1046

Lexington-Fayette, KY 3359 4175 816

Louisville, KY-IN 3983 4658 675

Massachusettes

Haverhill-Newburyport-Amesbury Town, MA-NH 3220 4863 1643

Lawrence-Methuen-Salem, MA-NH 3256 4514 1258

Springfield, MA-CT 3046 4286 1240

Worcester, MA-CT 3339 4238 899

Lowell-Billerica-Chelmsford, MA-NH 3538 4337 799

Maine

Lewiston-Auburn, ME 4479 8454 3975

Bangor, ME 4089 7950 3861

Portland-South Portland, ME 4135 7204 3069

Minnesota

Duluth, MN-WI 4710 5067 357

Minneapolis-St. Paul-Bloomington, MN-WI 3845 4093 249

Missouri

St. Joseph, MO-KS 3648 4959 1311

Joplin, MO 4289 5097 808

Springfield, MO 4465 5018 553

Columbia, MO 5086 5532 446

Kansas City, MO-KS 4183 4618 435

St. Louis, MO-IL 4540 4955 415

Jefferson City, MO 5704 5993 289

New Hampshire

Rochester-Dover, NH 3562 6681 3119

Manchester, NH 3481 6066 2585

Portsmouth, NH-ME 3372 5939 2567

Nashua, NH-MA 3401 5799 2398

Nevada

Reno-Sparks, NV 3862 4757 896

Las Vegas-Paradise, NV 4125 4965 839

New York

Glens Falls, NY 2799 4210 1411

Albany-Schenectady-Troy, NY 3098 3985 887

Kingston, NY 4051 4792 742

Poughkeepsie-Newburgh-Middletown, NY 4147 4875 729

Suffolk County-Nassau County, NY 5418 5783 365

New York-White Plains-Wayne, NY-NJ 3792 4135 343

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Markets where an Anthem-Cigna merger warrants antitrust scrutiny | Analysis of data from the 2015 update to Competition in Health Insurance

MSA name POS HHITotal POS HHI post-merger

Change in POS HHI

Ohio

Weirton-Steubenville, WV-OH 2668 4266 1598

Sandusky, OH 3340 4729 1389

Lima, OH 3647 4976 1330

Canton-Massillon, OH 3194 3996 802

Youngstown-Warren-Boardman, OH-PA 3811 4606 795

Cleveland-Elyria-Mentor, OH 3488 4199 711

Akron, OH 2670 3364 694

Toledo, OH 2875 3463 588

Cincinnati-Middletown, OH-KY-IN 4105 4628 524

Mansfield, OH 4869 5344 474

Dayton, OH 4828 5124 296

Columbus, OH 6039 6327 288

Tennessee

Chattanooga, TN-GA 3889 5367 1478

Clarksville, TN-KY 2652 3811 1159

Kingsport-Bristol, TN-VA 4993 6033 1041

Virginia

Winchester, VA-WV 3381 6088 2707

Richmond, VA 3177 5294 2117

Blacksburg-Christiansburg-Radford, VA 3600 5559 1959

Roanoke, VA 3364 5242 1878

Lynchburg, VA 2541 4301 1760

Danville, VA 4377 6011 1634

Harrisonburg, VA 3015 4342 1327

Virginia Beach-Norfolk-Newport News, VA-NC 2553 3828 1275

Charlottesville, VA 2269 2853 583

Wisconsin

Madison, WI 2318 3596 1278

Janesville, WI 2246 3048 802

La Crosse, WI-MN 3323 3971 648

West Virginia

Wheeling, WV-OH 2741 3551 810

Huntington-Ashland, WV-KY-OH 3513 4321 808

Table 11. MSAs where an Anthem-Cigna merger potentially raises significant competitive

concerns and often warrants scrutiny, by state

MSA name POS HHIPOS HHI post-merger

Change in POS HHI

Ohio

Springfield, OH 4877 5027 150

Wisconsin

Racine, WI 6766 6895 129

Milwaukee-Waukesha-West Allis, WI 6813 6923 110

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The Trial

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FOR IMMEDIATE RELEASE Thursday, July 21, 2016

JUSTICE NEWS

Department of Justice

Office of Public Affairs

Justice Department and State Attorneys General Sue to Block Anthem’sAcquisition of Cigna, Aetna’s Acquisition of Humana

Lawsuits Challenge Unprecedented Consolidation in the Health Insurance Industry

The U.S. Department of Justice and attorneys general from multiple states and the District of Columbia sued todayto block Anthem’s proposed acquisition of Cigna and Aetna’s proposed acquisition of Humana, alleging that thetransactions would increase concentration and harm competition across the country, reducing from five to three thenumber of large, national health insurers in the nation.

The department and state attorneys general filed these two merger challenges in the U.S. District Court for theDistrict of Columbia. The complaints allege that the two mergers – valued at $54 billion and $37 billion – wouldharm seniors, working families and individuals, employers and doctors and other healthcare providers by limitingprice competition, reducing benefits, decreasing incentives to provide innovative wellness programs and loweringthe quality of care.

“Competitive insurance markets are essential to providing Americans the affordable and high-quality healthcare theydeserve,” said Attorney General Loretta E. Lynch. “These mergers would restrict competition for health insuranceproducts sold in markets across the country and would give tremendous power over the nation’s health insuranceindustry to just three large companies. Our actions seek to preserve competition that keeps premiums down anddrives insurers to collaborate with doctors and hospitals to provide better healthcare for all Americans.”

“We all, including seniors, everyday workers and the previously uninsured and underinsured deserve affordablehealth insurance options,” said Principal Deputy Associate Attorney General Bill Baer. “Competition today drivesthese four successful firms to fight to give us affordable options. There is no reason to put that dynamic at risk andthat is why we are asking the court to stop these mergers and keep competition working for the benefit of theAmerican consumer.”

“The proposed mergers would eliminate two innovative competitors – Cigna and Humana – at a time whencompetition has been pressuring insurers to develop new models of care designed to keep Americans healthier, todeliver healthcare more efficiently and to control the costs of providing care,” said Deputy Assistant AttorneyGeneral Sonia Pfaffenroth of the Justice Department’s Antitrust Division. “The department will continue to work withour state colleagues to protect competition and innovation in this vitally important industry.”

Eleven states – California, Colorado, Connecticut, Georgia, Iowa, Maine, Maryland, New Hampshire, New York,Tennessee and Virginia – and the District of Columbia joined the department’s challenge of Anthem’s $54 billionacquisition of Cigna. Eight states –Delaware, Florida, Georgia, Iowa, Illinois, Ohio, Pennsylvania and Virginia – andthe District of Columbia joined the department’s challenge of Aetna’s $37 billion acquisition of Humana.

The suit against Anthem and Cigna alleges that their merger would substantially reduce competition for millions ofconsumers who receive commercial health insurance coverage from national employers throughout the United

Justice Department and State Attorneys General Sue to Block Anthem’s... https://www.justice.gov/opa/pr/justice-department-and-state-attorneys-ge...

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16-849 Antitrust DivisionOffice of the Attorney GeneralTopic:

Antitrust Updated December 30, 2016

States; from large-group employers in at least 35 metropolitan areas, including New York, Los Angeles, SanFrancisco, Denver and Indianapolis; and from public exchanges created by the Affordable Care Act in St. Louis andDenver. The complaint also alleges that the elimination of Cigna threatens competition among commercial insurersfor the purchase of healthcare services from hospitals, physicians and other healthcare providers. The mergerwould eliminate substantial head-to-head competition in all these markets, and it would remove the independentcompetitive force of Cigna, which has been a leader in the industry’s transition to value-based care.

The lawsuit against Aetna and Humana alleges that their merger would substantially reduce Medicare Advantagecompetition in more than 350 counties in 21 states, affecting more than 1.5 million Medicare Advantage customersin those counties. Before seeking to acquire Humana, Aetna had pursued aggressive expansion in MedicareAdvantage. Aetna, the nation’s fourth-largest Medicare Advantage insurer by membership, has nearly doubled itsMedicare Advantage footprint over the past four years. Humana is the nation’s second-largest Medicare Advantageinsurer by membership. The lawsuit also alleges that Aetna’s purchase of Humana would substantially reducecompetition to sell commercial health insurance to individuals and families on the public exchanges in 17 counties inFlorida, Georgia and Missouri, affecting more than 700,000 people in those counties. The lawsuit alleges that bybuying Humana, Aetna would eliminate one of its strongest and most capable competitors in these markets.

Anthem, Inc. is headquartered in Indianapolis, Indiana. It is the nation’s second-largest health insurer and thelargest member of the Blue Cross and Blue Shield Association. It holds the Blue Cross license in 14 states andprovides health insurance to 39 million people. In 2015, Anthem reported over $79 billion in revenues.

Cigna Corp. is headquartered in Hartford, Connecticut. It is the nation’s fourth-largest health insurer. It operates inevery state and the District of Columbia and provides health insurance to 15 million people. In 2015, Cigna reported$38 billion in revenues.

Aetna Inc. is headquartered in Hartford, Connecticut. It is the nation’s third-largest health insurer. It operates inevery state and the District of Columbiaand provides health insurance to 23 million people. In 2015, Aetna reported$60 billion in revenues.

Humana Inc. is headquartered in Louisville, Kentucky. It is the nation’s fifth-largest health insurer, operates in everystate and the District of Columbia and provides health insurance to 14 million people. In 2015, Humana reported$54 billion in revenues.

Aetna-Humana Complaint

Anthem-Cigna Complaint

Justice Department and State Attorneys General Sue to Block Anthem’s... https://www.justice.gov/opa/pr/justice-department-and-state-attorneys-ge...

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Case 1:16-cv-01493 Document 1 Filed 07/21/16 Page 1 of 43

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLUMBIA

UNITED STATES OF AMERICA 450 5th Street, NW, Suite 4100 Washington, DC 20530 STATE OF CALIFORNIA 300 South Spring Street, Suite 1720 Los Angeles, CA 90013 STATE OF COLORADO 1300 Broadway, 7th Floor Denver, CO 80203 STATE OF CONNECTICUT 55 Elm Street, P.O. Box 120 Hartford, CT 06141-0120 DISTRICT OF COLUMBIA 441 4th Street, NW Washington, DC 20001 STATE OF GEORGIA 40 Capitol Square, SW Atlanta, GA 30334-1300 STATE OF IOWA 1305 East Walnut Street, 2nd Floor Des Moines, IA 50319 STATE OF MAINE 6 State House Station Augusta, ME 04333-0006

STATE OF MARYLAND 200 Saint Paul Place Baltimore, MD 21202 STATE OF NEW HAMPSHIRE 33 Capitol Street Concord, NH 03301

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STATE OF NEW YORK 120 Broadway New York, NY 10271-0332 STATE OF TENNESSEE 500 Charlotte Avenue Nashville, TN 37202 and COMMONWEALTH OF VIRGINIA 202 North 9th Street Richmond, VA 23219

Plaintiffs, v. ANTHEM, INC. 120 Monument Circle Indianapolis, IN 46204 and CIGNA CORP. 900 Cottage Grove Road Bloomfield, CT 06002

Defendants.

COMPLAINT

The United States of America, acting under the direction of the Attorney General of the

United States, and 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 (“Plaintiff States”), acting by and through their respective Attorneys

General, bring this civil antitrust action to prevent Anthem, Inc. from acquiring Cigna Corp.

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I. INTRODUCTION

1. Anthem’s proposed $54 billion acquisition of Cigna would be the largest merger

in the history of the health-insurance industry. It would combine two of the few remaining

commercial health-insurance options for businesses and individuals in markets throughout the

country. And in doing so, it would substantially lessen competition, harming millions of

American consumers, as well as doctors and hospitals.

2. The U.S. healthcare system—including commercial health insurance—affects the

lives and pocketbooks of virtually every citizen. Each year, Americans visit the doctor or hospital

more than a billion times and spend more than $3 trillion on healthcare. Half of all Americans

obtain healthcare through their employers, which purchase plans from insurance companies such

as Anthem and Cigna. Millions more citizens purchase health insurance on public exchanges

established by the Affordable Care Act.

3. Competition among insurance companies like Anthem and Cigna ensures that

employers and individuals can purchase high-quality policies at affordable prices. Employers

seek competitive bids when selecting plans to offer their employees. Individuals choose among

competing insurers when purchasing policies on the public exchanges. And competition is

critical for doctors and hospitals who obtain access to most of their commercial health-insurance

patients by contracting with insurers to be “in-network” providers.

4. This competition is now at risk. Today, the industry is dominated by five large

insurers commonly referred to as “the big five.” In a scramble to become even bigger, four of the

big five now propose to merge: Anthem seeks to buy Cigna for $54 billion, and Aetna seeks to

acquire Humana for $37 billion. These mergers would reshape the industry, eliminating two

innovative competitors—Cigna and Humana—at a time when the industry is experimenting with

new ways to lower healthcare costs. Other insurers lack the scope and scale to fill this

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competitive void. As one Anthem executive vice president explained in 2015, this “very

consolidated” industry is “really down to a big five and then, it gets much more smaller in terms

of players that are available after that.” After the mergers, the big five would become the big

three, each of which would have almost twice the revenue of the next largest insurer.

5. Today, the United States and a number of states have filed lawsuits in this Court

to enjoin both mergers. This complaint seeks to block Anthem’s attempt to buy Cigna. If allowed

to proceed, this merger would enhance Anthem’s power to profit at the expense of both

consumers and the doctors and hospitals providing their medical care.

6. Anthem is the largest member of the Blue Cross and Blue Shield Association. It

competes in 14 states as the Blue licensee and partners with other Blue plans to compete

throughout the country. Anthem admits in business documents that its share is already “dominant

in most of [its] markets,” a position that gives it “a clear advantage and provides opportunities to

drive margin growth.” But Anthem has also earned a reputation in many markets for having poor

customer service, being slow to innovate, and being difficult to work with for doctors and

hospitals. The president of Anthem’s Indiana business conceded, “There are some customers,

some prospects who loathe us.”

7. Cigna increasingly competes head to head with Anthem by finding innovative

ways to lower its customers’ medical costs. Cigna offers sophisticated wellness programs that

improve the health of its members, provides highly-regarded customer service, and works closely

with doctors and hospitals to improve the quality and lower the cost of care. These efforts have

been well received by consumers and healthcare providers, pressuring Anthem to respond.

Without the merger, Cigna expects to double in size in the next seven to eight years.

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8. Anthem’s purchase of Cigna would eliminate it as a competitive threat and

substantially lessen competition in numerous markets around the country. The harm to

competition in any one of these markets is sufficient to enjoin the transaction.

(a) National accounts. Of the big five, only four insurers offer a nationwide commercial network sufficient to serve the country’s largest employers, known as “national accounts.” Anthem, working together with its fellow Blues, is one; Cigna is another. Anthem and Cigna view each other as close competitors for these accounts and have adopted strategies for winning national business from each other.

(b) Local commercial markets. Anthem and Cigna are often two of few remaining options for large-group employers in at least 35 metropolitan areas, including New York, Los Angeles, San Francisco, Atlanta, and Indianapolis. In some of these areas, Cigna has won most of its new accounts from Anthem, and Anthem has described Cigna as “aggressive” and “our number one competitor.”

(c) Individual exchanges. In at least two metropolitan areas—St. Louis and

Denver—Anthem and Cigna are key competitors selling policies to individuals and families on the public exchanges. Cigna has grown rapidly in these markets. For example, in the two years Cigna has participated on the exchange in St. Louis, it has captured nearly 25 percent of the market—with much of that growth coming at Anthem’s expense. Without the merger, Cigna plans to continue to expand on the exchanges.

(d) Purchase of healthcare services by commercial health insurers. Anthem’s high

market shares already give it significant bargaining leverage with doctors and hospitals. In the same 35 metropolitan areas referenced above, this merger would substantially increase Anthem’s ability to dictate the reimbursement rates it pays providers, threatening the availability and quality of medical care. The merger also would deprive both providers and consumers of Cigna’s innovative efforts to work cooperatively with providers and enter into “value-based” contracts that reward them for improving patient health and lowering cost.

9. If permitted to proceed, Anthem’s purchase of Cigna likely would lead to higher

prices and reduced benefits, and would deprive consumers and healthcare providers of the

innovation and collaboration necessary to improve care outcomes. Because this merger threatens

to reduce competition across the country, it violates Section 7 of the Clayton Act. To prevent this

unlawful harm, the Court should enjoin this merger.

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II. THE DEFENDANTS AND THE MERGER

10. Anthem competes in all 50 states and the District of Columbia either directly or

through the Blue Cross and Blue Shield Association, a joint venture of insurance companies that

partner to offer their members access to a nationwide network of healthcare providers. Anthem

controls the Blue license in all or part of 14 states, covering 39 percent of the U.S. population:

California, Colorado, Connecticut, Georgia, Indiana, Kentucky, Maine, most of Missouri,

Nevada, New Hampshire, parts of New York, Ohio, Virginia (except the DC suburbs), and

Wisconsin. In all these states but California and New York, Anthem has the exclusive right to bid

for new business under both the Blue Cross and Blue Shield brands. In 2015, Anthem had

approximately 39 million members nationwide and earned $78 billion in revenue.

11. Cigna also competes in all 50 states and the District of Columbia. In 2015, it had

approximately 13 million U.S. members and earned $38 billion in revenue. Cigna has earned a

reputation as an innovator in the industry by developing wellness programs to improve the health

of its members and by collaborating with healthcare providers to improve patient health and

lower the overall cost of medical care. Cigna has enjoyed compound revenue growth of

13 percent annually over the last six years.

12. In early 2014, Anthem’s leadership reflected on a decade of consolidation in the

health-insurance industry and determined that there was “perhaps a single significant transaction

remaining.” Soon after, Anthem began talks to acquire Cigna. The companies were well aware of

the competitive problems the deal would create: In October 2014, Cigna’s chief financial officer

warned the CEO to stop using words like “dominant” and “market share” when analyzing the

potential deal because they are “both sensitive words from a post deal review perspective.”

Anthem and Cigna also realized that the value of their combined company would be limited by

the Blue Cross and Blue Shield Association’s “best-efforts” rules, which cap the proportion of

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revenue that Anthem can earn from brands not affiliated with the Blue network, including Cigna.

In February 2015, Anthem’s board of directors called off the deal.

13. But just a few months later, Anthem’s interest in acquiring Cigna was renewed

when Humana began seeking a buyer. This sparked a bidding frenzy in the industry. In a two-

month period, Anthem made several bids for Cigna; Cigna made two bids for Humana;

UnitedHealthcare made bids for Aetna and Cigna; and Aetna made a bid for Humana, which after

only weeks of negotiation resulted in an agreement on July 2, 2015. Just a few weeks later, on

July 23, 2015, Anthem agreed to acquire Cigna for $54 billion.

14. Anthem’s acquisition of Cigna was contentious from the start. In mid-June 2015,

Cigna’s board of directors rejected an offer from Anthem in a letter pointing to “a number of

major issues,” including complications relating to Anthem’s membership in the Blue Cross and

Blue Shield Association. The insurers also fought publicly about which CEO would lead the

combined company. In the months since the agreement was signed, Anthem and Cigna have

continued to quarrel over how they should integrate their two companies.

15. Anthem has also been unable to explain how the combined company would

address problems created by Anthem’s membership in the Blue Cross and Blue Shield

Association. For example, Anthem calls other Blue plans “comrades in arms” and works closely

with them to win national accounts from Cigna and other insurers. But after this merger, Anthem

would also own Cigna. Anthem would thus be competing with—and against—its fellow “Blues

brethren” for the same national accounts. Anthem’s CEO testified that he did not know how the

company would resolve this conflict of interest.

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III. BACKGROUND ON COMMERCIAL HEALTH INSURANCE

16. Anthem and Cigna compete vigorously in the sale of both “large group” and

“individual” commercial health insurance. Group insurance sold to employers with more than 50

employees (or in four states, more than 100 employees) is called “large group” insurance. Within

large groups, the industry recognizes a subset of the largest employers with employees in more

than one state called “national accounts.” Most large employers buy self-insured plans (also

known as administrative-services-only or “ASO” contracts), under which the employer retains

most of the risk of its employees’ healthcare costs and pays the insurer an administrative fee for

access to the insurer’s network of doctors and hospitals and for processing medical claims. For

employers of any size, health-insurance costs are a significant expense, and even large employers

are increasingly shifting more of the costs of healthcare to their employees. Anthem and Cigna

also sell “individual” insurance, which individuals and their families most commonly purchase

on the public exchanges.

17. To sell plans to employers and individuals, commercial health insurers compete

on price, customer service, care management, wellness programs, and reputation. Insurers also

compete on the breadth of their network of healthcare providers, including doctors and hospitals,

as most people seek medical care close to where they live or work.

18. Traditionally, insurance companies reimburse providers on a “fee-for-service”

basis whereby providers receive compensation for all, or almost all, services provided. But

insurers are increasingly experimenting with—and competing with each other to create—

contractual arrangements that reward doctors and hospitals for better health outcomes and lower

total costs. Instead of reimbursing providers based solely on the quantity of services they

perform, this value-focused movement gives providers incentives to improve their patients’

overall health and perform fewer, but more effective, services. Industry participants call these

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arrangements “provider collaborations” or “value-based arrangements,” and refer to this shift in

approach as the “volume-to-value” movement. Competition is a key ingredient to the volume-to-

value movement’s continued success, and Cigna has been particularly innovative in advancing

these provider collaborations.

IV. THIS MERGER LIKELY WOULD SUBSTANTIALLY LESSEN COMPETITION FOR THE SALE OF HEALTH INSURANCE TO NATIONAL ACCOUNTS

19. Anthem and Cigna vigorously compete against each other to sell commercial

health insurance to national accounts. The proposed merger would eliminate that competition and

leave national accounts with only three meaningful options.

A. The sale of health insurance to national accounts is a relevant product market.

20. The typical starting point for merger analysis is defining the relevant market.

Courts define relevant product markets to help determine which customers are most likely to be

affected by the merger. The sale of commercial health insurance to national accounts is one such

relevant product market and line of commerce under Section 7 of the Clayton Act.

21. National accounts are distinct customers with unique characteristics. They

typically require a provider network covering multiple states; undergo a lengthier, more

resource-intensive purchasing process involving requests for proposals; are more likely to hire a

large consulting firm to aid them in evaluating and selecting an insurer or insurers; and are more

likely to want flexible and customized benefit designs. Anthem and Cigna have dedicated

business units focused on selling and marketing to national accounts, and each insurer is able to

charge those accounts different prices and offer different plan benefits than they do for other

types of accounts.

22. The sale of commercial health insurance to national accounts satisfies the well-

accepted “hypothetical monopolist” test set forth in the U.S. Department of Justice and Federal

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Trade Commission 2010 Horizontal Merger Guidelines. Under the Guidelines, relevant markets

may be defined as a group of customers that could be profitably targeted for price increases. A

hypothetical monopolist of commercial health insurance sold to national accounts likely would

impose a small but significant and non-transitory price increase because an insufficient number

of national accounts would stop purchasing commercial health insurance to make that price

increase unprofitable. Because health insurance is a significant employment benefit, and national

accounts offer it to recruit and retain highly qualified employees, very few national accounts will

stop buying health insurance for their employees in the event of a small but significant price

increase. Nor are a sufficient number of national accounts likely to build their own provider

networks by contracting directly with doctors and hospitals or attempt to process all of their

employees’ healthcare claims themselves. And arbitrage (the reselling of a product from one

customer to another) is impossible, so national employers could not avoid a price increase by

buying health insurance from other employers.

B. This merger would harm national accounts in two relevant geographic markets.

23. The proposed merger would harm national accounts in (1) the parts of the 14

states where Anthem sells under a Blue license; and (2) the United States generally.

(1) The 14 Anthem states are a relevant geographic market.

24. Anthem and Cigna compete directly for national accounts headquartered in the

Anthem states, and national accounts headquartered in those states have similar options for

health insurance. Therefore, it is appropriate to consider these 14 states together as a single

relevant geographic market and section of the country under Section 7 of the Clayton Act.

25. This geographic market satisfies the hypothetical monopolist test. National

accounts headquartered in the Anthem states do not have reasonable substitutes to purchasing

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commercial health insurance from insurers doing business in these states. National accounts

would not close their headquarters and move them to different states in response to a small but

significant and non-transitory price increase.

(2) The United States is a relevant geographic market.

26. It is also appropriate to consider the United States as a single relevant geographic

market and section of the country under Section 7 of the Clayton Act. National accounts

headquartered throughout the United States have similar options for health insurance. And, in

addition to competing in the 14 Anthem states, Anthem and Cigna compete for national accounts

headquartered throughout the rest of the country. Cigna has a nationwide provider network and

competes throughout the United States, and Anthem competes for national accounts

headquartered in the 36 states in which it does not have a Blue license in at least two ways.

27. First, Anthem bids directly for national accounts headquartered outside its 14

states when other Blue plans “cede” that right to Anthem. The Association’s rules generally

permit only one Blue plan to bid on an account—the plan holding the license in the territory

where the national account is headquartered. For example, only BlueCross BlueShield of

Tennessee can submit a bid for a national account based in Tennessee. But Blue plans can cede

that right to each other on an account-by-account basis. Anthem has received hundreds of cedes

from its fellow Blue plans.

28. Second, even when Anthem is not ceded an account, it competes indirectly as part

of the bid submitted by the local Blue plan. For example, when BlueCross BlueShield of

Tennessee bids for a national account based in Nashville, that account evaluates the strength of

the Blues’ provider network in other states where it has employees, including the 14 states that

Anthem’s network covers. And Anthem profits when the Tennessee Blue wins the account

because Anthem receives “BlueCard fees” when any of that account’s employees obtain medical

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care in Anthem’s territories. Because almost 40 percent of the U.S. population lives in the 14

Anthem states, Anthem earns significant BlueCard revenue—$450 million in 2014 alone, much

of it from national accounts.

29. This geographic market satisfies the hypothetical monopolist test, as national

accounts headquartered in the United States do not have reasonable substitutes to purchasing

commercial health insurance from insurers doing business in this country. National accounts

would not close their offices and move their companies to different countries in response to a

small but significant and non-transitory increase in the price of commercial health insurance.

C. This merger is presumptively unlawful in both the 14 Anthem states and across the entire United States.

30. The Supreme Court has held that mergers that significantly increase concentration

in already concentrated markets are presumptively anticompetitive and therefore presumptively

unlawful. To measure market concentration, courts often use the Herfindahl–Hirschman Index

(“HHI”) as described in the Merger Guidelines. HHIs range from 0 in markets with no

concentration to 10,000 in markets where one firm has a 100 percent market share. According to

the Guidelines, mergers that increase the HHI by more than 200 and result in an HHI above

2,500 in any market are presumed to be anticompetitive.

31. For national accounts headquartered in the 14 Anthem states, Anthem and Cigna

have a combined market share of at least 40 percent. For national accounts in the United States

as a whole, Anthem (together with the other Blues) and Cigna have a combined market share of

at least 30 percent. In these markets, the merger is presumptively unlawful under Supreme Court

precedent and the Merger Guidelines.

32. These measures of market concentration understate the competitive harm likely to

result from the proposed merger, in part, because they include so-called “slice” insurers—local

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insurers that compete for only a portion of a national account’s business. Such “slice” insurers

cannot compete to fully replace Anthem, Cigna, Aetna, or UnitedHealthcare nationwide. Among

national accounts in the 14 Anthem states seeking to buy a nationwide plan from one of these

four insurers, Anthem and Cigna would have a combined market share of at least 50 percent.

Among national accounts across the country seeking a nationwide plan from one of these four

insurers, Anthem (together with the other Blues) and Cigna would similarly have a combined

market share of at least 50 percent.

D. This merger likely would harm national accounts in the Anthem states and throughout the country.

33. In the 14 Anthem states, the proposed merger would combine Anthem and Cigna

and thus eliminate Cigna as a competitor for national accounts. Anthem and Cigna have

frequently been the two finalists when these national accounts seek competitive bids for

commercial health insurance, and those accounts have been able to use the competition between

Anthem and Cigna to obtain lower prices and better terms. This merger would end that

competition.

34. For example, in a 2013 bid, Anthem feared that Cigna would aggressively market

the benefits of its clinical programs, and Anthem ended up lowering its fees to the customer to

ward off a competitive bid. In another bid that year, Cigna won what its executives called a

“dogfight with Anthem” by offering better overall value to the customer. In 2014, Anthem

targeted a longtime Cigna customer as a “good opportunity to continue to pick off Cigna

accounts.” Anthem made a competitive offer and won the account.

35. Anthem has introduced strategies specifically designed to win national accounts

from Cigna and Aetna, another national rival. For example, Anthem has offered flexible renewal

pricing, which allows its sales teams to adjust pricing for accounts in which “Aetna or Cigna is

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an incumbent for at least one-third of the [account]”; trend guarantees, which cap the rate of

increase of medical costs for national customers “where Aetna or Cigna is the alternate carrier

and/or the account is significantly increasing [its] clinical offering”; and a “bounty” program that

compensated Anthem sales agents who won new accounts from Cigna or Aetna. These and other

initiatives reflect Anthem’s view that Cigna and Aetna “should not exist.”

36. In the 36 non-Anthem states, the proposed merger would also substantially harm

competition in at least three ways. First, as explained above, Anthem often competes directly

with Cigna for national accounts that other Blue plans have ceded to Anthem. That competition

would be lost. Second, after the merger, Cigna would not compete as hard against other Blue

plans for national accounts because Cigna (through its owner, Anthem) would likely receive

significant BlueCard fees if a Blue plan won the account. Third, Anthem would have a reduced

incentive to compete aggressively with the Cigna brand because the Blue Cross and Blue Shield

Association’s best-efforts rules would limit Cigna’s growth relative to Anthem’s. Anthem has

already conceded that it would violate one of the best-efforts rules if it acquires Cigna’s

substantial commercial membership, meaning Anthem may have to limit Cigna’s

competitiveness throughout the country.

37. In both the Anthem states and in the United States as a whole, the merger also

would enhance coordination among insurers competing for national accounts. For example, after

the merger, Anthem, the biggest of the Blue plans, would also own Cigna—one of the Blues’

most formidable competitors—making coordination among the Blue plans and Cigna

significantly more likely.

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V. THIS MERGER LIKELY WOULD SUBSTANTIALLY LESSEN COMPETITION FOR THE SALE OF HEALTH INSURANCE TO LARGE-GROUP EMPLOYERS

38. In local markets throughout the country, head-to-head competition between

Anthem and Cigna has created substantial benefits for large-group employers. In many of these

markets, Anthem and Cigna are two of very few competitive options. The proposed merger

would eliminate the valuable benefits of this competition and leave large groups with even fewer

options.

A. The sale of health insurance to large groups is a relevant product market.

39. The sale of commercial health insurance to large groups (employers with more

than 50 employees or, in four states, more than 100 employees) is a relevant product market and

line of commerce under Section 7 of the Clayton Act. Large-group employers are distinct

customers, and insurers that sell to them do not need to follow various regulatory requirements

applicable to small groups, including limitations on the factors that can be used in determining

rates and other licensing and rate-filing requirements. Anthem, Cigna, and other insurers have

dedicated business units focused on selling and marketing to large groups, charge those accounts

different prices, and offer them different plan benefits than they do for other types of accounts.

40. Large-group employers are a relevant market for assessing the competitive effects

of this merger because an insufficient number of large groups would stop buying commercial

health insurance to make a small but significant and non-transitory price increase unprofitable.

Nor are large groups likely to build their own provider networks and administer their health plans

themselves. And, as with national accounts, large-group employers cannot avoid a price increase

by purchasing commercial health insurance from other employers.

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B. This merger would harm large groups in 35 relevant geographic markets.

41. The proposed merger would harm large-group employers in at least the 35

metropolitan areas listed on the map below. More than 65 million people live in these areas. Each

area is a relevant geographic market and section of the country under Section 7 of the Clayton

Act.

42. Patients typically seek medical care close to where they live or work, so they

strongly prefer health plans offering a network of doctors and hospitals in those same areas.

Thus, when purchasing commercial health insurance, large-group employers want insurers to

provide access to healthcare provider networks in the areas where their employees are located. In

each of the 35 metropolitan areas listed above, large groups do not view insurance companies

that lack a meaningful provider network in that area as reasonable substitutes for those that offer

such a network.

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43. Each of these markets satisfies the hypothetical monopolist test. In each area,

large groups are unlikely to move their offices to a different area in response to a small but

significant and non-transitory increase in the price of commercial health insurance.

C. This merger is presumptively unlawful in most of the relevant geographic markets.

44. Anthem already has a large share in many of these local markets, which would

increase further if it acquired Cigna. Even when treating each Blue plan as a separate competitor

and including all other insurers in these markets, the proposed merger is presumptively unlawful

under Supreme Court precedent and the Merger Guidelines in at least 20 of the relevant markets.

But that understates the merger’s effect on concentration for two reasons. First, the Blue plans

effectively compete as a single entity; with very few exceptions, only one Blue plan at a time

competes for an employer’s business. When accounting for this market reality, the merger is

presumptively unlawful in nearly all of the 35 markets listed above. Second, some insurers

included in these market-share calculations are not close competitors to Anthem and Cigna. For

example, in California, Kaiser’s share is significant but its integrated business model and its

“closed network” of providers is very different from Anthem’s and Cigna’s. One Cigna executive

in California testified that he did not believe Cigna had “ever lost an ASO customer to Kaiser.”

D. This merger likely would harm large-group employers by eliminating competition between Anthem and Cigna.

45. For some large groups in local markets, Anthem and Cigna are the only two

competitive options. For many others, Anthem and Cigna are two of very few competitive

options. In each of the 35 relevant markets, Anthem and Cigna are close competitors. In each

market, Anthem has a substantial market share and competes using its well-known Blue brand

and low provider reimbursement rates. Cigna is able in some of these markets to compete with

Anthem on the basis of reimbursement rates. But even where its reimbursement rates are not as

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attractive, Cigna competes vigorously with Anthem for large groups by offering exceptional

customer service, innovative wellness programs that lower its members’ utilization of healthcare,

and provider-collaboration programs with hospitals and doctors. By contrast, many large-group

employers believe that Anthem provides poor customer service and is far less innovative. Soon

after the merger was announced, two prospective customers complained to Cigna: “We hate

Anthem and you guys are about to become them.”

46. In company documents, Anthem has frequently viewed Cigna as a close

competitor in these 35 markets:

• In 2015, Anthem’s Georgia sales force described Cigna as “aggressive” and “ourtoughest competition in a number of situations.”

• In 2014, an Anthem sales executive wrote, “Cigna continues to present a verystrong clinical/care management story, coupled with a great deal of financialflexibility. They remain our number one competitor in the 1,000+ arena.”

• In a 2015 strategy document for its New Hampshire business, Anthem statedthat it “remains the dominant carrier in New Hampshire, with among the highesttotal market shares [of any region] in the company.” Despite that dominance,one of its points of strategic focus for the large-group business was to “focus onCigna groups.”

• A 2014 presentation to investors noted that in Indiana, Anthem held “a 42% to12% [market-share] advantage over our closest competitor (FYI—Cigna).”

47. Cigna has similar views of Anthem in these same markets:

• In 2015, a Cigna executive referring to Maine, New Hampshire, and Connecticutwrote, “we have Anthem in 3 of the New England states. Over the past 4 years40% of our new business growth has come from these Anthem plans. Thosecompanies primarily chose Cigna, to move away from the Anthem servicemodel, to reduce plan spend and to become more engaged consumers.”

• In 2015, a Cigna executive in California estimated that “60% of our 1/1/16regional pre sale opportunities are coming from Anthem.”

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48. Cigna has been particularly effective in using its innovative wellness programs to

compete with Anthem. For example, in September 2015, an Anthem sales account executive

noted that Cigna was offering a large municipal account in New Hampshire up to $70,000 in

wellness dollars, compared to Anthem’s $6,000. In response, his boss replied, “What? That’s

absurd. What are their current admin rates?” Around that same time, Anthem learned that Cigna

was competing hard for a bid in California by selling its care management and wellness

programs. An Anthem executive complained to the broker handling the bid, asking: “Does [the

client] realize we are going to own Cigna in about a year anyways?”

49. Competition between Anthem and Cigna has also spurred innovation and led both

companies to develop new products for large-group employers. For example, Cigna has

expanded its popular “level funded” product. This product allows smaller large-group employers

to pay fixed monthly installments with a chance to get money back at the end of year if claims

costs fall below the anticipated level. A survey of brokers conducted by Anthem confirmed that

“Cigna is the strongest competitor in this space” with “the most robust alternative funding

options.” Anthem further noted that, in California, Cigna was “[d]ominating the down-market

ASO product sales, taking 31 clients from Anthem.” To respond to Cigna, Anthem introduced its

own similar product, which it made a strategic priority in California. In 2015, as Anthem rolled

out several enhancements to that product, Cigna recognized that Anthem had “created a product

that is a much greater threat.”

50. Anthem and Cigna also compete to offer customers value-based programs and

provider collaborations. An Anthem executive explained that “since we tend to have the best

overall discount position in the market…our competitors have a strong incentive to be more

aggressive and flexible with their [value-based] programs than Anthem.” Indeed, Cigna has been

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particularly focused on investing time and resources in value-based arrangements as a way to

gain share against Anthem and other larger competitors. Cigna’s internal plans show that absent

the merger it would continue to aggressively develop its provider collaborations. The proposed

merger, however, would eliminate Cigna as a competitor against Anthem and significantly

reduce the incentives of the combined Anthem–Cigna to develop these innovative and beneficial

programs.

VI. THIS MERGER LIKELY WOULD SUBSTANTIALLY LESSEN COMPETITION INTHE SALE OF HEALTH INSURANCE ON THE PUBLIC EXCHANGES

51. Anthem and Cigna compete head to head in the sale of individual health insurance

on the public exchanges. Anthem’s CEO has testified that the company is “committed to

expanding our presence in the exchange marketplace.” Likewise, Cigna’s CEO has testified that

the company is “committed to the public exchanges” and is expanding into at least three new

states next year. Anthem and Cigna are close competitors on the exchange in local areas in

Colorado and Missouri. The proposed merger would eliminate that competition and the

important benefits it offers for individuals and families seeking affordable health insurance.

A. The sale of health insurance on the public exchanges is a relevant product market.

52. The sale of commercial health insurance on the public exchanges is a relevant

product market and line of commerce under Section 7 of the Clayton Act. The majority of

consumers who purchase individual health-insurance plans purchase them through the public

exchanges. Through these exchanges, consumers can learn about their coverage options,

compare health plans, and enroll in one. Financial assistance in the form of tax credits and

cost-sharing reductions is available for many individuals and families who purchase through the

public exchanges.

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53. Anthem, Cigna, and other insurers recognize individuals purchasing health

insurance on the public exchanges as a separate group of customers. These customers have

distinct characteristics, and insurers may offer them different provider networks and different

sets of benefits than other customers. Insurers consider different factors when setting prices for

the public exchanges, both because most consumers receive financial assistance and because

insurers selling on public exchanges incur additional fees and costs, such as user fees and the

cost of technology required to connect with the exchange platform.

54. The sale of health insurance on the public exchanges satisfies the hypothetical

monopolist test because consumers who use the exchanges have no reasonable substitutes that

they could turn to in response to a small but significant and non-transitory increase in price.

Individuals below certain income thresholds are eligible for tax credits and cost-sharing

reductions, but only if they purchase their health insurance through a public exchange.

Approximately 85 percent of consumers who purchase health insurance on the public exchanges

receive some financial assistance. And purchasing healthcare directly from doctors and hospitals

is prohibitively expensive for individuals and their families.

B. This merger would harm individuals and families in 22 relevant geographic markets.

55. Individuals may only enroll in exchange plans that have been approved for sale in

their county. Therefore, competition in each county is limited to the insurers that have been

approved to operate in that county, and individuals cannot practicably switch to a plan offered in

another county. Likewise, the amount of any financial assistance is calculated based on the plans

available to a consumer in their county. Each of the following counties is a relevant geographic

market and section of the country under Section 7 of the Clayton Act:

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(a) Colorado: Adams, Arapahoe, Boulder, Broomfield, Denver, Douglas, Eagle, Jefferson, La Plata, Lake, Montezuma, and Summit counties; and

(b) Missouri: Franklin, Jefferson, Lincoln, Saint Charles, Saint Francois, Saint Louis, Saint Louis City, Sainte Genevieve, Warren, and Washington counties.

C. This merger is presumptively unlawful in each of the relevant geographic markets.

(1) Colorado

56. Anthem and Cigna are the second- and third-largest insurers on the Colorado

public exchange. Combined, they insure almost 55,000 lives—more than one-third of all

enrollees on the exchange.

57. In 12 counties in Colorado, in which more than 95,000 people rely on the public

exchange for health insurance, the proposed merger is presumptively unlawful under Supreme

Court precedent and the Merger Guidelines. Notably, current market concentration levels

understate the competitive harm likely to result from the proposed merger because both Humana

and UnitedHealthcare—the fourth- and fifth-largest insurers in the Denver area—have

announced that they will not offer individual health-insurance plans in Colorado in 2017, leaving

Kaiser as Anthem and Cigna’s only significant competitor.

(2) Missouri

58. In the counties surrounding St. Louis, Cigna and Anthem are the second- and

third-largest insurers on the public exchange. Combined, they insure over 81,000 lives on the

Missouri public exchange—over 25 percent of all enrollees on the exchange.

59. In 10 counties in Missouri, in which more than 112,000 people rely on the public

exchanges for health insurance, the proposed merger is presumptively unlawful. As in Colorado,

current market concentration levels understate the competitive harm likely to result from the

proposed merger because UnitedHealthcare—the fourth-largest insurer on the exchange in the St.

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Louis area—has announced that it will withdraw from the Missouri public exchange next year,

leaving Aetna as Anthem and Cigna’s only significant competitor.

D. This merger would harm individuals and families who buy health insurance on the public exchanges.

60. Anthem and Cigna compete head to head to sell insurance to individuals and

families who use public exchanges. Anthem competes on public exchanges in all 14 states where

it controls the Blue license. Cigna has begun expanding its sale of individual insurance by

focusing first on certain markets, including the relevant counties. More than 200,000 people buy

their health insurance on the public exchanges in these 22 counties. These consumers have

benefited from Cigna’s efforts to compete with Anthem; consumers in other markets would

similarly benefit as Cigna follows through on its plans to aggressively expand in the next few

years. The proposed merger harms these individuals and families who depend on competition to

keep the price of their health insurance affordable.

61. As with other types of commercial health insurance, Cigna competes effectively

for enrollment from individuals and families through its innovative products and customer

service, helping to offset Anthem’s bargaining leverage with providers. For example, Cigna’s

approach in Colorado has been to “leverage the strength of its provider relationships” to “drive

superior products & manage risk.” In 2016, Cigna introduced two new provider networks in the

Denver area that built on its relationships with doctors and hospitals to provide prices

competitive with Anthem’s. As a result, Cigna’s market share increased substantially.

62. In Missouri, Anthem planned to “dominate the [exchange] marketplace for a long

time” by creating “a competitive advantage around network, pricing, marketing, and

distribution.” But since entering the Missouri public exchange in 2015, Cigna has been an

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important competitive constraint on Anthem’s dominance. Cigna considers its success in St.

Louis a “success recipe” for future growth in other public-exchange markets across the country.

63. Anthem and Cigna are likely to be even stronger competitors on the public

exchanges in the future. Absent the merger, both companies would continue to compete on the

public exchanges in Colorado and Missouri, as well as to grow their business on the public

exchanges in other states. The proposed merger would eliminate that competition, to the

detriment of individuals and their families that rely on health insurance purchased on the public

exchanges. It likely would also lead to increases in the amount of financial assistance offered

through the public exchanges, harming taxpayers as well.

VII. THIS MERGER LIKELY WOULD SUBSTANTIALLY LESSEN COMPETITIONFOR THE PURCHASE OF HEALTHCARE SERVICES

64. Anthem and Cigna, like other commercial health insurers, compete to sign up

doctors, hospitals, and other healthcare providers for their networks. Competition in this market

is the mirror image of competition in the markets discussed above. Insurers compete by offering

healthcare providers access to greater numbers of patients, more generous reimbursement terms,

better service, and more innovative collaborations. The proposed merger will eliminate this

competition between Anthem and Cigna and likely lead to lower reimbursement rates, less access

to medical care, reduced quality, and fewer value-based provider collaborations.

A. The purchase of healthcare services by commercial health insurers is a relevant product market.

65. The purchase of healthcare services by commercial health insurers is a relevant

product market and line of commerce under Section 7 of the Clayton Act. Because healthcare

providers in each relevant market face similar competitive conditions when selling services to

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commercial insurers, it is appropriate to aggregate these services into a single relevant product

market for analytical convenience.

66. Anthem, Cigna, and other insurers view the purchase of healthcare services for

commercial patients as a distinct line of business. They have separate business units for

negotiating such purchases, employ staff dedicated to those negotiations, and develop provider-

specific reimbursement strategies.

67. This market satisfies the hypothetical monopsonist test (a “monopsonist” is a

buyer that controls the purchases in a given market), the buyer-side counterpart to the

hypothetical monopolist test. For doctors, hospitals, and other healthcare providers, there are no

reasonable substitutes for the sale of their services to commercial health insurers. In response to a

reduction in reimbursement rates from those insurers, few providers would be able to

compensate for the loss of revenue by selling more services to government programs such as

Medicare Advantage, Medicare, or Medicaid. Those government programs generally reimburse

providers at far lower rates than do commercial health insurers, and it is difficult for providers to

greatly increase the number of their Medicare Advantage, Medicare, or Medicaid patients

because the total number of enrollees in those programs is relatively fixed. Most people also

cannot afford to pay for many healthcare services directly, making direct sales to patients a poor

substitute for sales to commercial health insurers. In response to a small but significant and non-

transitory reduction in reimbursement rates, an insufficient number of providers would start

selling their services to other purchasers to make that rate reduction unprofitable.

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B. The relevant geographic markets for identifying harm to competition for the purchase of healthcare services are the same 35 markets in which large groups would be harmed.

68. The purchase of healthcare services by commercial health insurers in each of the

35 metropolitan areas identified in the map in paragraph 41 above satisfies the hypothetical

monopsonist test and constitutes a relevant geographic market and section of the country under

Section 7 of the Clayton Act. The markets for the purchase of these services are local because in

the vast majority of cases patients seek care from doctors and hospitals in the same area where

they live and work. In response to lower reimbursement rates by local insurers, very few

healthcare providers would move their practice or facilities to a different metropolitan area.

C. This merger is presumptively unlawful in most of the relevant geographic markets.

69. The proposed merger would substantially increase concentration for the purchase

of healthcare services by commercial health insurers in each of the relevant markets. In at least

25 of these markets, the merger is presumptively unlawful under Supreme Court precedent and

the Merger Guidelines.

D. This merger would harm doctors, hospitals, and their patients by eliminating competition between Anthem and Cigna.

70. Anthem already has substantial bargaining leverage when negotiating with

doctors and hospitals because it represents a large share of their commercial patients and

revenue. As one Anthem executive put it: “[T]he more patients doctors and hospitals see from

[an insurance] carrier, the more leverage that carrier has to negotiate the best arrangements in the

market.” Noting that in California more than half of consumers “have an Anthem logo on their

ID card,” the executive added: “I hope this data helps support the argument about the leverage

we have in the market.”

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71. The proposed merger would enhance Anthem’s leverage—both over physician

practices that receive “take-it-or-leave-it” terms (without any negotiation) and over hospitals and

physician groups that individually negotiate their contracts and rates with Anthem. As a result of

the merger, Anthem likely would reduce the rates that both types of providers earn by providing

medical care to their patients.

72. This reduction in reimbursement rates likely would lead to a reduction in

consumers’ access to medical care. For example, lower reimbursement rates likely would cause

some physician practices to limit their hours of operation or reduce their staff. It may become

more difficult to recruit new physicians to many of these markets. Other more experienced

doctors may decide to retire early. This would exacerbate the shortage of certain doctors—such

as those providing primary care—that plagues many of these markets.

73. As Anthem has recognized, these rate reductions would not result from any

additional efficiencies or potentially procompetitive volume discounts. Rather, as noted by

Anthem’s head of provider contracting, the rate reductions from this merger would be perceived

by many providers as “an incremental discount with no corresponding incremental value (no new

members).”

74. The merger also likely would slow down the much-needed transition to value-

based contracting. Historically, with its larger market share and lower reimbursement rates,

Anthem has had fewer incentives to collaborate with providers. In many markets, it has

acknowledged that it has lagged behind its competition—particularly Cigna, which it identified

as “our closest competitor” for value-based contracts—and that providers view it as being “slow

to respond, cumbersome, and not nimble.” The merger would make that situation worse,

eliminating Cigna and further reducing Anthem’s incentives to enter into value-based contracts.

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75. The merger would also jeopardize Cigna’s existing provider collaborations.

Anthem plans to lower reimbursement rates by applying its generally lower rates to the Cigna

membership it acquires, which would threaten Cigna’s value-based contracts with doctors and

hospitals. As Cigna’s executive in charge of provider contracting testified, “if you’re going to

have mostly a discount-based discussion with the hospital, you’re not going to have [] provider

collaboration coming out of that discussion.” Even Anthem recognizes this tension. One of its

top executives alerted Anthem’s CEO that the company may “have two, conflicting strategies—

collaborate in new models on the one hand, and ‘drop the hammer’ on the other.”

VIII. ABSENCE OF COUNTERVAILING FACTORS

76. Entry of new commercial health insurers or expansion of existing commercial

health insurers is unlikely to prevent or remedy the proposed merger’s likely anticompetitive

effects.

77. The proposed merger would be unlikely to generate verifiable, merger-specific

efficiencies sufficient to reverse or outweigh the anticompetitive effects that are likely to occur.

To the extent the merging parties anticipate cutting the reimbursement rates paid to doctors and

hospitals for their services as a result of the merger, these reductions stem from a reduction in

competition and may not be treated as efficiencies.

IX. THE DEFENDANTS HAVE NOT PROPOSED A REMEDY THATWOULD FIX THE MERGER’S ANTICOMPETITIVE EFFECTS

78. Restoring competition is the key to any effective antitrust remedy. The only

acceptable remedy for an anticompetitive merger is one that completely resolves the competitive

problems created by the merger. Proposed remedies including divestitures must give the buyer

both the means and the incentive to effectively compete. Defendants bear the burden of showing

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that any remedy they propose meets these standards. The Defendants have not proposed any

remedy that would negate the anticompetitive effects of this merger.

X. VIOLATION ALLEGED

79. The United States brings this action, and this Court has subject-matter jurisdiction

over this action, under Section 15 of the Clayton Act, 15 U.S.C. § 25, to prevent and restrain the

Defendants from violating Section 7 of the Clayton Act, 15 U.S.C. § 18.

80. The Plaintiff States bring this action under Section 16 of the Clayton Act,

15 U.S.C. § 26, to prevent and restrain the Defendants from violating Section 7 of the Clayton

Act, 15 U.S.C. § 18. The Plaintiff States, by and through their respective Attorneys General,

bring this action as parens patriae on behalf of and to protect the health and welfare of their

citizens and the general economy of each of their states.

81. The Defendants are engaged in, and their activities substantially affect, interstate

commerce. Anthem and Cigna sell commercial health insurance to national accounts with a

substantial number of employees located in several different states, and that insurance covers

enrollees when they travel across state lines. Anthem and Cigna also purchase healthcare services

in several different states, as well as healthcare products and services (such as pharmaceuticals)

in interstate commerce.

82. This Court has personal jurisdiction over each Defendant under Section 12 of the

Clayton Act, 15 U.S.C. § 22. Anthem and Cigna both transact business in this district.

83. Venue is proper under Section 12 of the Clayton Act, 15 U.S.C. § 22, and under

28 U.S.C. §§ 1391(b) and (c).

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84. The effect of the proposed merger, if approved, likely would be to lessen

competition substantially, and to tend to create monopoly, in interstate trade and commerce in

each of the relevant markets, in violation of Section 7 of the Clayton Act, 15 U.S.C. § 18.

85. Among other things, the transaction would likely have the following effects:

(a) eliminating significant present and future head-to-head competition between

Anthem and Cigna in the relevant markets;

(b) reducing competition generally in the relevant markets;

(c) causing prices to rise for customers in the relevant markets;

(d) causing reimbursements to drop for healthcare providers in the relevant

markets;

(e) causing a reduction in quality in the relevant markets; and

(f) reducing competition over innovation and new product development.

XI. REQUEST FOR RELIEF

86. Plaintiffs request:

(a) that Anthem’s proposed acquisition of Cigna be adjudged to violate Section 7

of the Clayton Act, 15 U.S.C. § 18;

(b) that the Defendants be permanently enjoined and restrained from carrying out

the planned acquisition or any other transaction that would combine the two

companies;

(c) that Plaintiffs be awarded their costs of this action, including attorneys’ fees to

Plaintiff States; and

(d) that Plaintiffs be awarded such other relief as the Court may deem just and

proper.

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Dated: July 21, 2016

Respectfully submitted,

FOR PLAINTIFF UNITED STATES OF AMERICA:

SONIA K. PFAFFENROTH (D.C. Bar #467946)Deputy Assistant Attorney General

PATRICIA A. BRINK Director of Civil Enforcement

ERIC MAHR (D.C. Bar #459350) Director of Litigation

PETER J. MUCCHETTI (D.C. Bar #463202) Chief, Litigation I

RYAN M. KANTOR Assistant Chief, Litigation I

SCOTT I. FITZGERALD JESUS M. ALVARADO-RIVERA BRYSON L. BACHMAN (D.C. Bar #988125) SHOBITHA BHAT DANDO CELLINI AARON COMENETZ (D.C. Bar #479572) ALVIN H. CHU BARRY L. CREECH (D.C. Bar #421070) JENNIFER HANE HENRY J. HAUSER JON B. JACOBS (D.C. Bar #412249) KATHLEEN KIERNAN (D.C. Bar #1003748) LAUREN G.S. RIKER NATALIE ROSENFELT DEBORAH A. ROY (D.C. Bar #452573) PETER SCHWINGLER ADAM T. SEVERT DAVID L. SNYDER JULIE A. TENNEY

U.S. Department of Justice, Antitrust Division Litigation I Section 450 Fifth Street, NW, Suite 4100 Washington, DC 20530 Phone: (202) 353-3863 Facsimile: (202) 307-5802 E-mail: scott.fitzgeraldgusdoj.gov

Attorneys for the United States

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FOR PLAINTIFF STATE OF CALIFORNIA:

KAMALA D. HARRIS Attorney General

KATHLEEN E. FOOTE Senior Assistant Attorney General

NATALIE S. MANZO Supervising Deputy Attorney General

PAULA LAUREN GIBSON PATRICIA L. NAGLER Deputy Attorneys General

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PAULA LAUREN GIBSON Deputy Attorney General California State Bar No. 100780 300 South Spring Street, Suite 1702 Los Angeles, California 90013 Phone:213-897-0014 Facsimile: 213-897-2801 E-mail: [email protected]

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FOR PLAINTIFF STATE OF COLORADO:

CYNTHIA H. COFFMAN Attorney General

___________________________ DEVIN LAIHO Senior Assistant Attorney General Colorado Department of Law Consumer Protection Section Ralph L. Carr Colorado Judicial Center 1300 Broadway, 7th Floor Denver, Colorado 80203 Phone: 720-508-6219 Facsimile: 720-508-6040 E-mail: [email protected]

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FOR PLAINTIFF STATE OF CONNECTICUT

GEORGE JEPSEN Attorned General

MICHAEL E. COLE Chief, Antitrust and Government Program Fraud Department RACHEL O. DAVIS Assistant Attorney General CHRISTOPHER M. HADDAD Assistant Attorney General 55 Elm Street, P.O. Box 120 Hartford, CT 06141-0120 Tel: (860) 808-5040 Fax: (860) 808-5033 Rachel. Davis@ct. gov

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FOR PLAINTIFF DISTRICT OF COLUMBIA:

KARL A. RACINE Attorney General for the District of Columbia

ELIZABETH SARAH GERE (D.C. Bar #186585) Deputy Attorney General Public Interest Division

CATHERINE A. JACKSON (D.C. Bar # 1005415) Assistant Attorney General 441 Fourth Street, N.W., Suite 630-South Washington, DC 20001 Phone: (202) 442-9864 Facsimile: (202) 741-0655 Email: [email protected]

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FOR PLAINTIFF STATE OF GEORGIA:

SAMUEL S. OLENS

Attorney General

DANIEL WALSH Georgia Bar No. 735040 Senior Assistant Attorney General Office of the Attorney General 40 Capitol Square, SW Atlanta, Georgia 30334-1300 Phone:404-657-2204 Facsimile: 404-656-0677 E-mail: [email protected]

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FOR PLAINTIFF STA TE OF IOWA

THOMAS J. MILLER Attorney General

LAYNE M LINDEBAK

Assistant Attorney General

Iowa Department of Justice Special Litigation Division 1305 East Walnut Street, 2nd Floor Des Moines, Iowa 50319 Ph: 515-281-7054 Fax: 515-281-4902 [email protected]

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FOR PLAINTIFF STATE OF MAINE

JANETT. MILLS Attorney General

CHRISTINA M. MOYLAN Assistant Attorney General Office of Maine Attorney General Consumer Protection Division 6 State House Station Augusta, ME 04333-0006 Ph: 207-626-8800 Fax:207-624-7730 [email protected]

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FOR PLAINTIFF STATE OF MARYLAND:

BRIAN E. FROSH Attorney General

ELLEN S. COOPER Assistant Attorney General Chief, Antitrust Division 200 Saint Paul Place Baltimore, Maryland 21202 Phone:410-576-6470 Facsimile: 410-576-7830 E-mail: [email protected]

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FOR PLAINTIFF STATE OF NEW HAMPSHIRE:

JOSEPH A. FOSTER

Attorney General

ANN RICE Deputy Attorney GeneralNew Hampshire Department of Justice33 Capitol StreetConcord, New Hampshire 03301Phone: 603-271-1202Facsimile: 603 27 I-2110E-mail: [email protected]

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FOR PLAINTIFF STA TE OF NEW YORK:

ERIC T. SCHNEIDERMAN Attorney General

MANISHA M. SHETH Executive Deputy Attorney General Division of Economic Justice

ELINOR R. HOFFMANN Deputy Chief, Antitrust Bureau

INA C. RODRIGUEZ Assistant Attorney General Antitrust Bureau Office of the New York State Attorney General 120 Broadway New York, New York 10271-0332 Telephone: (212) 416-8288 Facsimile: (212) 416-6015 E-mail: [email protected]

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FOR PLAINTIFF STATE OF TENNESSEE:

HERBERT H. SLATERY IIIAttorney General and Reporter

CYNTHIA KINSERDeputy Attorney General

IVICTOR DOMEN, JJ. Senior CounselERIN MERRICKAssistant Attorney GeneralTennessee Attorney General's Office500 Charlotte AvenueNashville, Tennessee 37202Phone: 615-253-3327Facsimile: 61 5 -532-69 5lE-mail :Vic,[email protected]. sov

Cynthia. [email protected]. [email protected]. gov

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FOR PLAINTIFF COMMONWEALTH OF VIRGINIA:

MARK R. HERRING Attorney General

CYNTHIA E. HUDSON Chief Deputy Attorney General

RHODES B. RITENOUR Deputy Attorney General Civil Litigation Division

RICHARD S. SCHWEIKER, JR. Senior Assistant Attorney General and Chief Consumer Protection Section SARAH EXENHAM ALLEN Senior Assistant Attorney General and Unit Manager Antitrust Unit Consumer Protection Section Virginia State Bar No. 33217 Phone: 804-786-6557 Facsimile: 804-786-0122E-Mail: [email protected]

TYLE R T. HENRY Assistant Attorney General Antitrust Unit Consumer Protection Section Virginia State Bar No. 87621 202 North 9th Street Richmond, Virginia 232 19 Phone: 804-692-0485 Facsimile: 804-786-0122 E-mail: [email protected]

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July 21, 2016 10:25 AM Eastern Daylight Time

INDIANAPOLIS--(BUSINESS WIRE)--Today’s action by the Department of Justice (DOJ) is an unfortunate and misguidedstep backwards for access to affordable healthcare for America. Access to health insurance saves lives, improves healthand reduces the cost of care for all Americans. The DOJ’s action is based on a flawed analysis and misunderstanding ofthe dynamic, competitive and highly regulated healthcare landscape and is inconsistent with the way that the DOJ hasreviewed past healthcare transactions. Anthem has an unwavering commitment to enhancing access to affordablehealthcare and the benefits and efficiencies from its merger with Cigna is one way that Anthem will continue its mission ofimproving consumer choice, quality and affordability. Anthem is fully committed to challenging the DOJ’s decision in courtbut will remain receptive to any efforts to reach a settlement with the DOJ that will allow us to complete the transaction anddeliver its benefits at a critical time when American consumers are seeking high quality healthcare services with greatervalue at less cost.

About Anthem, Inc.

Anthem (NYSE: ANTM) is working to transform health care with trusted and caring solutions. Our health plan companiesdeliver quality products and services that give their members access to the care they need. With over 72 million peopleserved by its affiliated companies, including more than 39 million enrolled in its family of health plans, Anthem is one of thenation’s leading health benefits companies. For more information about Anthem’s family of companies, please visitwww.antheminc.com/companies.

IMPORTANT INFORMATION FOR INVESTORS AND SHAREHOLDERS

NO OFFER OR SOLICITATION

This communication does not constitute an offer to sell or a solicitation of an offer to sell or a solicitation of an offer to buyany securities or a solicitation of any vote or approval, nor shall there be any sale of securities in any jurisdiction in whichsuch offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any suchjurisdiction. No offering of securities shall be made except by means of a prospectus meeting the requirements ofSection 10 of the Securities Act of 1933, as amended, and otherwise in accordance with applicable law.

ADDITIONAL INFORMATION AND WHERE TO FIND IT

In connection with the proposed transaction between Anthem, Inc. (“Anthem”) and Cigna Corporation (“Cigna”), Anthemhas filed with the U.S. Securities and Exchange Commission (the “SEC”) a registration statement on Form S-4, includingAmendment No. 1 thereto, containing a joint proxy statement of Anthem and Cigna that also constitutes a prospectus ofAnthem. The registration statement was declared effective by the SEC on October 26, 2015. This communication is not asubstitute for the registration statement, definitive joint proxy statement/prospectus or any other document that Anthem

Anthem Statement Regarding Action by the Department of Justice

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and/or Cigna have filed or may file with the SEC in connection with the proposed transaction.

INVESTORS AND SECURITY HOLDERS OF ANTHEM AND CIGNA ARE URGED TO READ THE DEFINITIVE JOINTPROXY STATEMENT/PROSPECTUS AND OTHER DOCUMENTS FILED WITH THE SEC CAREFULLY IN THEIRENTIRETY AS THEY CONTAIN OR WILL CONTAIN IMPORTANT INFORMATION ABOUT THE PROPOSEDTRANSACTION. Investors and security holders may obtain free copies of the registration statement containing thedefinitive joint proxy statement/prospectus and other documents filed with the SEC by Anthem or Cigna through the website maintained by the SEC at http://www.sec.gov. Copies of the documents filed with the SEC by Anthem are availablefree of charge on Anthem’s internet website at http://www.antheminc.com or by contacting Anthem’s Investor RelationsDepartment at (317) 488-6390. Copies of the documents filed with the SEC by Cigna are available free of charge onCigna’s internet website at http://www.cigna.com or by contacting Cigna’s Investor Relations Department at(215) 761-4198.

Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995

This document, and oral statements made with respect to information contained in this communication, contain certainforward-looking information about Anthem, Inc. (“Anthem”), Cigna Corporation (“Cigna”) and the combined businesses ofAnthem and Cigna that is intended to be covered by the safe harbor for “forward-looking statements” provided by thePrivate Securities Litigation Reform Act of 1995. Forward-looking statements are statements that are not generallyhistorical facts. Words such as “expect(s),” “feel(s),” “believe(s),” “will,” “may,” “anticipate(s),” “intend,” “estimate,” “project”and similar expressions (including the negative thereof) are intended to identify forward-looking statements, whichgenerally are not historical in nature. Such statements are subject to certain known and unknown risks and uncertainties,many of which are difficult to predict and generally beyond Anthem’s and Cigna’s control, that could cause actual resultsand other future events to differ materially from those expressed in, or implied or projected by, the forward-lookinginformation and statements. These risks and uncertainties include: those discussed and identified in Anthem’s and Cigna’spublic filings with the U.S. Securities and Exchange Commission (the “SEC”). Important factors that could cause actualresults and other future events to differ materially from the forward-looking statements made in this communication are setforth in other reports or documents that Anthem and/or Cigna may file from time to time with the SEC, and include, but arenot limited to: (i) the ultimate outcome of the proposed transaction, including the ability to achieve the synergies and valuecreation contemplated by the proposed transaction, (ii) the ultimate outcome and results of integrating the operations ofAnthem and Cigna, (iii) disruption from the merger making it more difficult to maintain businesses and operationalrelationships, (iv) the risk that unexpected costs will be incurred in connection with the proposed transaction, (v) the timingto consummate the proposed transaction and (vi) the possibility that the proposed transaction does not close, including,but not limited to, due to the failure to satisfy the closing conditions, including the receipt of required regulatory approvals.All forward-looking statements attributable to Anthem, Cigna or any person acting on behalf of Anthem and/or Cigna areexpressly qualified in their entirety by this cautionary statement. Readers are cautioned not to place undue reliance onthese forward-looking statements that speak only as of the date hereof. Except to the extent otherwise required by federalsecurities law, neither Anthem nor Cigna undertake any obligation to republish revised forward-looking statements toreflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events or the receipt ofnew information. Readers are also urged to carefully review and consider the various disclosures in Anthem’s andCigna’s SEC reports.

ContactsAnthem, Inc.

Investor Relations

Douglas Simpson, 317-488-6181

or

Media

Jill Becher, 414-234-1573

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EX-99.1 2 ex99-1.htm EXHIBIT 99.1

Contact: Matt [email protected]

Cigna Comments on DOJ Position Regarding Proposed Transaction with AnthemBloomfield, Conn. – July 21, 2016 – Cigna Corporation (NYSE: CI) today issued the following response to the decision by theU.S. Department of Justice (DOJ) to challenge its proposed merger with Anthem, Inc. (NYSE: ANTM).

"Today, the Department of Justice announced that it will challenge our proposed merger with Anthem. Given the nature of theconcerns raised by the DOJ and the overall status of the regulatory process, which under the terms of the merger agreement was ledby Anthem, Cigna is currently evaluating its options consistent with its obligations under the agreement.

In light of the DOJ's decision, we do not believe the transaction will close in 2016 and the earliest it could close is 2017, if at all.

Since announcing the transaction, Cigna has remained focused on delivering value to our clients and customers, building on ourtrack record of strong financial results and growing our businesses in the U.S. and abroad. Cigna has remained strong bycontinuing to invest in innovative solutions to advance the goals of better health, affordability and personalized experience for ourclients and customers and continuing to advance innovative approaches to care management, including expansion in collaborativevalue-based care arrangements with health care professionals across the care delivery spectrum, and designing effective health,wellness and engagement programs for our customers."

# # # #

About Cigna

Cigna Corporation (NYSE: CI) is a global health service company dedicated to helping people improve their health, well-being andsense of security. All products and services are provided exclusively by or through operating subsidiaries of Cigna Corporation,including Connecticut General Life Insurance Company, Cigna Health and Life Insurance Company, Life Insurance Company ofNorth America and Cigna Life Insurance Company of New York. Such products and services include an integrated suite of healthservices, such as medical, dental, behavioral health, pharmacy, vision, supplemental benefits, and other related products includinggroup life, accident and disability insurance. Cigna maintains sales capability in 30 countries and jurisdictions, and has more than90 million customer relationships throughout the world. To learn more about Cigna®, including links to follow us on Facebook orTwitter, visit www.cigna.com.

IMPORTANT INFORMATION FOR INVESTORS AND SHAREHOLDERS

NO OFFER OR SOLICITATION

This communication is neither an offer to buy, nor a solicitation of an offer to sell, subscribe for or buy any securities or thesolicitation of any vote or approval in any jurisdiction pursuant to or in connection with the proposed transactions or otherwise, norshall there be any sale, issuance or transfer of securities in any jurisdiction in contravention of applicable law. No offer of securitiesshall be made except by means of a prospectus meeting the requirements of Section 10 of the Securities Act of 1933, as amended,and otherwise in accordance with applicable law.

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ADDITIONAL INFORMATION AND WHERE TO FIND IT

In connection with the proposed transaction, Anthem has filed with the U.S. Securities and Exchange Commission (the "SEC") aregistration statement on Form S-4, including Amendment No. 1 thereto, containing a preliminary joint proxy statement of Anthemand Cigna that also constitutes a preliminary prospectus of Anthem. The registration statement was declared effective by the SECon October 26, 2015. Each of Anthem and Cigna commenced mailing a definitive joint proxy statement/prospectus to itsshareholders on or about October 28, 2015. This communication is not a substitute for the registration statement, definitive jointproxy statement/prospectus or any other document that Anthem and/or Cigna have filed or may file with the SEC in connectionwith the proposed transaction. SECURITY HOLDERS ARE URGED TO READ ALL RELEVANT DOCUMENTS FILED ORTHAT WILL BE FILED WITH THE SEC, INCLUDING THE REGISTRATION STATEMENT ON FORM S-4 AND THEDEFINITIVE JOINT PROXY STATEMENT/PROSPECTUS, CAREFULLY BECAUSE THEY CONTAIN OR WILL CONTAINIMPORTANT INFORMATION. The registration statement, the definitive joint proxy statement/prospectus and other relevantmaterials and any other documents filed or furnished by Cigna or Anthem with the SEC may be obtained free of charge at theSEC's web site at www.sec.gov. In addition, security holders may obtain free copies of the registration statement and the definitivejoint proxy statement/prospectus from Cigna by going to its investor relations page on its corporate web site at www.cigna.com orby contacting Cigna's investor relations department at 215-761-4198 and from Anthem by going to its investor relations page on itscorporate web site at www.antheminc.com or by contacting Anthem's investor relations department at 317-488-6181.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This communication, and oral statements made with respect to information contained in this communication, may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements arebased on Cigna's current expectations and projections about future trends, events and uncertainties. These statements are nothistorical facts. Forward-looking statements may include, among others, statements regarding the proposed merger between Cignaand Anthem; our beliefs relating to value creation as a result of a potential combination with Anthem; the expected timetable forcompleting the transaction; benefits and synergies of the transaction; future opportunities for the combined company; and any otherstatements regarding Cigna's and Anthem's future beliefs, expectations, plans, intentions, financial condition or performance. Youmay identify forward-looking statements by the use of words such as "believe", "expect", "plan", "intend", "anticipate", "estimate","predict", "potential", "may", "should", "will" or other words or expressions of similar meaning, although not all forward-lookingstatements contain such terms.

Forward-looking statements are subject to risks and uncertainties, both known and unknown, that could cause actual results todiffer materially from those expressed or implied in forward-looking statements. Such risks and uncertainties include, but are notlimited to the timing and likelihood of completion of the proposed merger, including the timing, receipt and terms and conditions ofany required governmental and regulatory approvals for the proposed merger that could reduce anticipated benefits or cause theparties to abandon the transaction; the possibility that the expected synergies and value creation from the proposed merger will notbe realized or will not be realized within the expected time period; the risk that the businesses of Cigna and Anthem will not beintegrated successfully; disruption from the proposed merger making it more difficult to maintain business and operationalrelationships; the risk that unexpected costs will be incurred; the possibility that the proposed merger does not close, including dueto the failure to satisfy the closing conditions; the risk that financing for the proposed merger may not be available on favorableterms; our ability to achieve our financial, strategic and operational plans or initiatives; our ability to predict and manage medicalcosts and price effectively and develop and maintain good relationships with physicians, hospitals and other health care providers;our ability to identify potential strategic acquisitions or transactions and realize the expected benefits of such transactions; thesubstantial level of government regulation over our business and the potential effects of new laws or regulations, or changes inexisting laws or regulations; the outcome of litigation, regulatory audits, investigations and actions and/or guaranty fundassessments; uncertainties surrounding participation in government-sponsored programs such as Medicare; the effectiveness andsecurity of our information technology and other business systems; and unfavorable industry, economic or political conditions, aswell as more specific risks and uncertainties. Such other risks and uncertainties are discussed in our most recent report on Form10-K and subsequent reports on Forms 10-Q and 8-K available on the Investor Relations section of www.cigna.com or bycontacting Cigna's investor relations department at 215-761-4198 as well as on Anthem's most recent report on Form 10-K andsubsequent reports on Forms 10-Q and 8-K available on the Investor Relations section of www.antheminc.com or by contactingAnthem's investor relations department at 317-488-6181. You should not place undue reliance on forward-looking statements,which speak only as of the date they are made, are not guarantees of future performance or results, and are subject to risks,uncertainties and assumptions that are difficult to predict or quantify. Cigna undertakes no obligation to update or revise anyforward-looking statement, whether as a result of new information, future events or otherwise, except as may be required by law.

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8-K 1 d331024d8k.htm 8-K

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT Pursuant to Section 13 or 15(d)

of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): January 19, 2017 (January 18, 2017)

ANTHEM, INC. (Exact name of registrant as specified in its charter)

Indiana 001-16751 35-2145715(State or other jurisdiction

of incorporation)(CommissionFile Number)

(IRS EmployerIdentification No.)

120 Monument Circle Indianapolis, IN 46204

(Address of principal executive offices) (Zip Code)

Registrant’s telephone number, including area code: (317) 488-6000

N/A (Former name or former address, if changed since last report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

☐ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

☐ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

☐ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

☐ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

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Section 8—Other Events

Item 8.01—Other Events.

On January 18, 2017, in accordance with the terms of the Agreement and Plan of Merger (the “Merger Agreement”) dated as of July 23, 2015, among Anthem, Inc. (the “Company”), Anthem Merger Sub Corp. and Cigna Corporation (“Cigna”), the Company delivered written notice to Cigna that Anthem has elected to extend the “Termination Date” (as defined in the Merger Agreement) through and including April 30, 2017.

Anthem’s election to extend the Termination Date is based on its determination that additional time will be needed to consummate the merger contemplated by the Merger Agreement, regardless of the outcome of the District Court’s proceeding in United States, et al. v. Anthem, Inc. and Cigna Corp.

The foregoing description of the Merger Agreement is subject to, and is qualified in its entirety by, the full text of the Merger Agreement, which was filed as Exhibit 2.1 to the Current Report filed by Anthem on July 27, 2015, and which is incorporated herein by reference.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

Dated: January 19, 2017

ANTHEM, INC.

By: /s/ Kathleen S. KieferName: Kathleen S. KieferTitle: Corporate Secretary

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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. ) ____________________________________)

ORDER

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

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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 Court’s opinion and its order in the case. 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 the Memorandum Opinion

docketed separately, the Court is persuaded that the merger should not take place.

Upon consideration of the applicable law, the evidence presented at trial, the argument of

the parties, and the entire record before the Court, the Court concludes that the effect of the

proposed merger of Anthem, Inc. and Cigna Corp. may be “substantially to lessen competition” in

violation of section 7 of the Clayton Act, 15 U.S.C. § 18. Specifically, the proposed merger is

likely to lessen competition substantially in the market for the sale of commercial health insurance

to national account customers in the fourteen Anthem territories and in the market for the sale of

commercial health insurance to large group customers in the Richmond, Virginia market.

It is therefore

ORDERED that the merger of Anthem Inc. and Cigna Corp., as reflected in their merger

agreement dated July 23, 2015, is ENJOINED.

The Memorandum Opinion accompanying this Order contains references to materials that

were discussed in open court but remain sealed at the request of one of the parties or third parties

providing information. For this reason, the full opinion is being docketed under seal at this time.

In drafting the opinion, the Court has endeavored to avoid the disclosure of the substance of any

business sensitive material, and it is the Court’s strong preference to place the entire opinion on

the public record as soon as possible. Therefore, it is

FURTHER ORDERED that each party shall file notice with the Court by close of

business February 9, 2017 of whether it has any objection to the Court unsealing the Memorandum

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Opinion docketed on this date in its entirety and if so, specifying what portions it believes should

remain under seal and why.

AMY BERMAN JACKSON

United States District Judge DATE: February 8, 2017

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IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLUMBIA

UNITED STATES OF AMERICA, et al.,

Plaintiffs,

v.

ANTHEM, INC. and CIGNA CORP.,

Defendants.

Case No. 1:16-cv-01493-ABJ

NOTICE OF APPEAL

Notice is hereby given that Anthem, Inc. appeals to the United States Court of Appeals

for the District of Columbia Circuit from this Court’s Order dated February 8, 2017, enjoining

the proposed merger of Anthem, Inc. and Cigna Corporation.

Dated: February 9, 2017 Respectfully submitted,

/s/ Christopher M. Curran Christopher M. Curran (D.C. Bar No. 408561)

J. Mark Gidley (D.C. Bar No. 417280) George L. Paul (D.C. Bar No. 440957) Noah Brumfield (D.C. Bar No. 488967) Matthew S. Leddicotte (D.C. Bar. No. 487612)

701 Thirteenth Street, NW Washington, DC 20005 Tel: +1 202 626 3600 Fax: +1 202 639 9355 [email protected]@whitecase.com [email protected] [email protected] [email protected]

Robert A. Milne, pro hac vice Jack E. Pace III, pro hac vice

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The Appeal

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February 09, 2017 06:00 AM Eastern Standard Time

INDIANAPOLIS--(BUSINESS WIRE)--Anthem, Inc. (NYSE: ANTM) today commented on the decision by the U.S. DistrictCourt for the District of Columbia granting the Department of Justice’s request to block Anthem’s proposed acquisition ofCigna Corporation (NYSE: CI). The company promptly intends to file a notice of appeal and request an expedited hearingof its appeal to reverse the Court’s decision so that Anthem may move forward with the merger, which was approved byover 99% of the votes cast by the shareholders of both companies.

“Anthem is significantly disappointed by the decision as combining Anthem and Cigna would positively impact the healthand well-being of millions of Americans - saving them more than $2 billion in medical costs annually,” said Joseph R.Swedish, Chairman, President and Chief Executive Officer, Anthem. “Anthem has been a leader in providing individualswith access to high quality, affordable healthcare. Our decision to acquire Cigna is grounded in our commitment to thisgoal and to leading our industry during this period of dynamic change. If not overturned, the consequences of the decisionare far-reaching and will hurt American consumers by limiting their access to high quality affordable care, slowing theindustry’s shift to value based care and improved outcomes for patients, and restricting innovation which is critical tomeeting the evolving needs of healthcare consumers. Moving forward, Anthem will continue to work aggressively tocomplete the transaction while remaining focused on serving as America’s valued health partner, delivering superior healthcare services to our approximately 40 million members with greater value at less cost.”

About Anthem, Inc.

Anthem is working to transform health care with trusted and caring solutions. Our health plan companies deliver qualityproducts and services that give their members access to the care they need. With over 73 million people served by itsaffiliated companies, including approximately 40 million within its family of health plans, Anthem is one of the nation’sleading health benefits companies. For more information about Anthem’s family of companies, please visitwww.antheminc.com/companies.

IMPORTANT INFORMATION FOR INVESTORS AND SHAREHOLDERS

NO OFFER OR SOLICITATION

This communication does not constitute an offer to sell or a solicitation of an offer to sell or a solicitation of an offer to buyany securities or a solicitation of any vote or approval, nor shall there be any sale of securities in any jurisdiction in whichsuch offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any suchjurisdiction. No offering of securities shall be made except by means of a prospectus meeting the requirements ofSection 10 of the Securities Act of 1933, as amended, and otherwise in accordance with applicable law.

Anthem Responds to U.S. District Court’s Decision on Acquisition ofCigna

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ADDITIONAL INFORMATION AND WHERE TO FIND IT

In connection with the proposed transaction between Anthem, Inc. (“Anthem”) and Cigna Corporation (“Cigna”), Anthemhas filed with the U.S. Securities and Exchange Commission (the “SEC”) a registration statement on Form S-4, includingAmendment No. 1 thereto, containing a joint proxy statement of Anthem and Cigna that also constitutes a prospectus ofAnthem. The registration statement was declared effective by the SEC on October 26, 2015. This communication is not asubstitute for the registration statement, definitive joint proxy statement/prospectus or any other document that Anthemand/or Cigna have filed or may file with the SEC in connection with the proposed transaction.

INVESTORS AND SECURITY HOLDERS OF ANTHEM AND CIGNA ARE URGED TO READ THE DEFINITIVE JOINTPROXY STATEMENT/PROSPECTUS AND OTHER DOCUMENTS FILED WITH THE SEC CAREFULLY IN THEIRENTIRETY AS THEY CONTAIN OR WILL CONTAIN IMPORTANT INFORMATION ABOUT THE PROPOSEDTRANSACTION. Investors and security holders may obtain free copies of the registration statement containing thedefinitive joint proxy statement/prospectus and other documents filed with the SEC by Anthem or Cigna through the website maintained by the SEC at http://www.sec.gov. Copies of the documents filed with the SEC by Anthem are availablefree of charge on Anthem’s internet website at http://www.antheminc.com or by contacting Anthem’s Investor RelationsDepartment at (317) 488-6390. Copies of the documents filed with the SEC by Cigna are available free of charge onCigna’s internet website at http://www.cigna.com or by contacting Cigna’s Investor Relations Department at(215) 761-4198.

Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995

This document, and oral statements made with respect to information contained in this communication, contain certainforward-looking information about Anthem, Inc. (“Anthem”), Cigna Corporation (“Cigna”) and the combined businesses ofAnthem and Cigna that is intended to be covered by the safe harbor for “forward-looking statements” provided by thePrivate Securities Litigation Reform Act of 1995. Forward-looking statements are statements that are not generallyhistorical facts. Words such as “expect(s),” “feel(s),” “believe(s),” “will,” “may,” “anticipate(s),” “intend,” “estimate,” “project”and similar expressions (including the negative thereof) are intended to identify forward-looking statements, whichgenerally are not historical in nature. Such statements are subject to certain known and unknown risks and uncertainties,many of which are difficult to predict and generally beyond Anthem’s and Cigna’s control, that could cause actual resultsand other future events to differ materially from those expressed in, or implied or projected by, the forward-lookinginformation and statements. These risks and uncertainties include those discussed and identified in Anthem’s and Cigna’spublic filings with the SEC. Important factors that could cause actual results and other future events to differ materiallyfrom the forward-looking statements made in this communication are set forth in other reports or documents that Anthemand/or Cigna may file from time to time with the SEC, and include, but are not limited to: (i) the ultimate outcome of theproposed transaction, including the ability to achieve the synergies and value creation contemplated by the proposedtransaction, (ii) the ultimate outcome and results of integrating the operations of Anthem and Cigna, (iii) disruption from themerger making it more difficult to maintain businesses and operational relationships, (iv) the risk that unexpected costs willbe incurred in connection with the proposed transaction, (v) the timing to consummate the proposed transaction and(vi) the possibility that the proposed transaction does not close, including, but not limited to, due to the failure to satisfy theclosing conditions, including the receipt of all required regulatory approvals. All forward-looking statements attributable toAnthem, Cigna or any person acting on behalf of Anthem and/or Cigna are expressly qualified in their entirety by thiscautionary statement. Readers are cautioned not to place undue reliance on these forward-looking statements that speakonly as of the date hereof. Except to the extent otherwise required by federal securities law, neither Anthemnor Cigna undertake any obligation to republish revised forward-looking statements to reflect events or circumstances afterthe date hereof or to reflect the occurrence of unanticipated events or the receipt of new information. Readers are alsourged to carefully review and consider the various disclosures in Anthem’s and Cigna’s SEC reports.

ContactsAnthem, Inc.

Investor Relations

Doug Simpson, 317-488-6181

[email protected]

or

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UNITED STATES COURT OF APPEALS FOR THE DISTRICT OF COLUMBIA CIRCUIT

UNITED STATES OF AMERICA, et al.,

Plaintiffs-Appellees,

v.

ANTHEM, INC.,

Defendant-Appellant.

Appeal No. 17-5024

District Ct. No. 1:16-cv-01493-ABJ

District Judge: Hon. Amy Berman Jackson

EMERGENCY MOTION OF APPELLANT

ANTHEM, INC. FOR EXPEDITED CONSIDERATION OF APPEAL (PUBLIC COPY – SEALED MATERIAL DELETED)

Under Circuit Rule 27(f), Anthem, Inc. (“Anthem”) respectfully moves this

Court to expedite this appeal, which arises from an Order by the District Court

permanently enjoining Anthem from merging with Cigna Corporation (“Cigna”).

That Order, a final judgment under 28 U.S.C. § 1291, was issued by the District

Court under section 7 of the Clayton Act, 15 U.S.C. § 18, on February 8, 2017.

Anthem requests that the briefing of this appeal be expedited to enable this

Court to issue a decision on the merits by April 30, 2017, the “Termination Date”

under the Merger Agreement. Anthem and its counsel appreciate that this is an

extraordinary request and are willing to make substantial sacrifices to minimize the

inconvenience to the Appellees and the Court. Anthem therefore is submitting its

merits brief with this Motion (even though the District Court’s Order was issued

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less than five days ago). Anthem proposes that the opposition merits brief be filed

by March 6, 2017, and the reply brief by March 10. If necessary, Anthem will

forgo oral argument.

The United States has stated that it intends to oppose expedition (and will

consult with the other Appellees). In order to provide sufficient notice for

Appellees to prepare their brief if expedition is granted, Anthem respectfully

requests expedited consideration of this Motion.

BACKGROUND

This case concerns the largest merger in the history of the healthcare

industry. On July 23, 2015, Anthem and Cigna entered into an Agreement and

Plan of Merger (the “Merger Agreement”) to create a combined company designed

to transform healthcare for consumers by enhancing healthcare access, quality, and

affordability (the “Merger”). Under the Merger Agreement, Anthem agreed to pay

consideration of approximately $54 billion, providing Cigna’s shareholders with a

premium of 38.4%, or $13.4 billion.

The Merger Agreement had an initial “Termination Date” of

January 31, 2017. Anthem has exercised its unilateral right to extend the

“Termination Date” through April 30, 2017, the latest date to which it may

unilaterally extend. District Court Order at 14 (

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). Anthem has asked Cigna to

agree to extend the “Termination Date” further, but Cigna has not agreed to do so.

The Antitrust Division of the United States Department of Justice

investigated the Merger for approximately a year. Then, on July 21, 2016, the

Antitrust Division, joined by State Attorneys General from 11 states and the

District of Columbia, commenced this action in the District Court, seeking a

permanent injunction under section 7 of the Clayton Act.

The District Court expedited proceedings to allow the Merger to be

consummated by April 30, 2017. United States v. Anthem No. 1:16-cv-01493,

ECF Nos. 68 (Aug. 12, 2016), 74 (Aug. 15, 2016), 91 (Aug. 31, 2016). See 15

U.S.C. § 25 (providing that, in actions seeking injunctions under the Clayton Act,

the district court “shall proceed, as soon as may be, to the hearing and

determination of the case”). Extensive discovery and other pretrial proceedings

were conducted in a compressed timeframe. A bench trial was held from

November 21, 2016, until January 4, 2017. On February 8, 2017, the District

Court issued its Order (accompanied by a Memorandum Opinion) permanently

enjoining the Merger.

In enjoining the Merger, the District Court rejected Anthem’s principal

defense that the Merger would enable employers (and their employees) to save

$2.4 billion annually in medical expenses through the synergistic combination of

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Anthem’s and Cigna’s medical provider networks and discounts. The District

Court embraced a theory not advocated by any party: that the discounts were not

part of the product being sold by the health insurers and, therefore, the medical

cost savings were not cognizable as efficiencies.

Op. at 127

see also id. at 102

On Thursday, February 9, 2017, the day after the Order was issued, Anthem

filed a notice of appeal. On Friday, February 10, 2017, the appeal was docketed in

this Court and Anthem conferred with the Antitrust Division about expediting the

appeal. The Antitrust Division stated that it opposes expedition. On Monday,

February 13, 2017, Anthem filed this Motion and its opening appeal brief.

ARGUMENT

This Court may expedite review of an appeal when delay will cause

irreparable injury and the decision under review is subject to substantial challenge.

D.C. Cir. Handbook, § VIII.B. This Court also may expedite cases in which

members of the public generally, or other persons not before the Court, have an

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unusual interest in prompt disposition. D.C. Cir. Handbook, § VIII.B. Each of

these bases applies here.

I. Anthem Will Suffer Irreparable Harm Without Expedited Review

Expedited appeals are warranted when a delay would cause irreparable

injury and the prompt disposition of the case is compelling. See Handbook of

Prac. & Internal Proc.: U.S. Ct. App. D.C. Circ. 33-34 (2017); 28 U.S.C.A. § 1657;

D.C. Cir. Rule 2. Thus, expedition is appropriate in cases where deadlines would

otherwise render the challenged action moot or otherwise prejudice the parties.

See Mahoney v. Babbitt, 113 F.3d 219, 220 (D.C. Cir. 1997).

A delay here will cause irreparable injury for three reasons. First, absent the

expedition, the Merger could terminate before any resolution of this appeal, due to

circumstances beyond Anthem’s control. Termination would destroy the

enormous value of the transformative Merger to Anthem and consumers, and

eliminate billions of dollars in deal premium to Cigna’s shareholders. The loss of a

unique and transformative $54 billion transaction constitutes irreparable harm. See

True N. Commc’ns v. Publicis S.A., 711 A.2d 34, 44-45 (Del. Ch. 1997)

(describing the loss of a “unique acquisition opportunity” as “a loss that cannot be

quantified” and “the essence of irreparable harm”); see also Oracle Corp. v.

Peoplesoft, Inc., 2003 Del. Ch. LEXIS 223, at *14 (Del. Ch. Nov. 10, 2003)

(“Oracle’s loss of the unique opportunity to make an acceptable bid to

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PeopleSoft’s stockholders constitutes irreparable injury.”); Hollinger Int’l v. Black,

844 A.2d 1022, 1090 (Del. Ch. 2004) (“Losses of strategic opportunities are often

found to pose a threat of irreparable injury.”). Recognizing that merger cases face

unusual exigencies, this Court has previously granted expedited appeals in such

cases. See, e.g., F.T.C. v. H.J. Heinz, 246 F.3d 708, 712-13 (D.C. Cir. 2001);

United States v. Baker Hughes, Inc., 908 F.2d 981, 982 (D.C. Cir. 1990).

Second, delay would otherwise prejudice Anthem. The “Termination Date”

under the Merger Agreement has been extended to April 30, 2017. (The

“Termination Date” is the date after which a merger party may terminate the

Merger Agreement subject to certain conditions.) Anthem disputes that Cigna has

a right to terminate at all, but Cigna disagrees. Having the appeal decided in time

to close by April 30, 2017, will avoid risk and litigation on that subject. Moreover,

expedition is necessary in any case because the length of a normal appeal will also

place a closing at risk. The Merger Agreement was signed on July 23, 2015, and

the companies have spent more than eighteen months awaiting its fate. Alternative

strategies and initiatives have been sidelined or mothballed. Hundreds of millions

of dollars of financing fees have been incurred just to extend to April 30, 2017.

Indeed, Anthem’s financing commitments expire on that date, and, while any delay

past such date will impose additional financing costs on Anthem, it has no

guarantee that it can obtain replacement financing after April 30, 2017. An

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expedited decision on appeal, within the period contemplated by the April 30, 2017

“Termination Date,” would permit the merger to proceed and makes it much more

likely that Anthem will be able to obtain new financing.

Of course, even with expedition and a ruling that allowed the Merger to

proceed, there is no guarantee that the Merger would be consummated. Anthem

still requires certain state insurance regulatory clearances. Nonetheless, Anthem

believes that a favorable ruling by this Court prior to the “Termination Date” of

April 30, 2017, will allow the clearances to be obtained and the Merger to close.

Third, absent expedition, Anthem could be denied its appeal rights. The loss

of an ability to appeal an adverse ruling is irreparable harm. See Ctr. for Int’l

Envtl. Law v. Office of the U.S. Trade Rep., 240 F. Supp. 2d 21, 23 (D.D.C. 2003)

(“This strong showing of irreparable harm — de facto deprivation of the basic right

to appeal — further strengthens defendant’s argument for a stay pending appeal.”);

In re Adelphia Commc’ns Corp., 361 B.R. 337, 347-48 (S.D.N.Y. 2007) (finding

irreparable harm requirement to issue stay pending appeal satisfied because the

“loss of appellate rights is a quintessential form of prejudice” and denial of stay

“risks mooting any appeal of significant claims of error”).

II. The Order Is Subject To Substantial Challenge

The substantial grounds for challenging the District Court’s injunction are

set forth in Anthem’s appeal brief, which is also being filed today. In short, the

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District Court made serious errors of law, fact, and logic by enjoining the Merger

based on a standard that ignored the relevant consideration of consumer welfare in

assessing the efficiencies promised by the Merger. The District Court’s rejection

of the consumer-welfare standard was contrary to this Court’s decision in the

leading case of United States v. Baker Hughes that, in merger cases under section 7

of the Clayton Act, the district court must determine “whether the challenged

acquisition is likely to hurt consumers.” 908 F.2d 981, 990-91 & n.12 (D.C. Cir.

1990) (quotation marks and citation omitted). The District Court’s errors threaten

to unnecessarily deprive employers and employees of billions of dollars in medical

cost savings annually.

While Anthem believes that the District Court made various other errors in

its ruling, Anthem has chosen to focus its merits brief on the medical cost savings

to facilitate expedited consideration of this appeal.

III. An Expedited Appeal Is In The Public Interest

Consideration of this matter on an expedited briefing schedule is in the

public interest because the Merger holds the prospect of substantial benefits for

members of the public.

First, Anthem believes the Merger would benefit the public by creating $2.4

billion in medical cost savings annually, the vast majority of which would be

passed through to consumers. And the Merger would provide healthcare access to

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a significant number of uninsured individuals by expanding the merged company

into new Affordable Care Act exchanges in nine states, where neither Anthem nor

Cigna currently offers individual coverages on-exchange.

Second, the Merger would provide Cigna’s shareholders with a premium of

38.4%, or $13.4 billion.

Third, the public has a strong interest in the proper application of the

antitrust laws to promote lower prices and consumer welfare. Mergers are

frequently litigated in district courts, but “meaningful appellate review on the

merits” is rare. F.T.C v. Staples, Inc., Civ. Action No. 15-2115 (EGS), 2016 WL

2899222, at *2 n.3 (D.D.C. May 17, 2016) (lamenting that “the lack of meaningful

appellate review on the merits is an unfortunate reality of antitrust statutes”);

accord F.T.C. v. Sysco Corp., 113 F. Supp. 3d 1, 15 (D.D.C. 2015) (“Sysco and

USF have announced that they will not proceed with the merger if the [trial] court

grants the requested injunction”); F.T.C. v. CCC Holdings Inc., 605 F. Supp. 2d

26, 31 (D.D.C. 2009) (observing that the merging parties will abandon the merger

and not seek appellate review). This case presents the opportunity for appellate

review of the important issue of the consumer-welfare standard in merger law,

particularly here where the largest merger in the history of the healthcare

industry — impacting millions of Americans — is at stake.

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Fourth, the Appellees will not be seriously harmed by an expedited appeal

as they will have sufficient time to prepare their opposition brief and have no

protectable interests in avoiding appellate review of such an important decision.

CONCLUSION

Anthem respectfully requests that this Court rules on this Motion on an

expedited basis and enter an expedited briefing schedule for this matter as

described herein.

Dated: February 13, 2017 Respectfully submitted,

/s/ Christopher M. Curran Christopher M. Curran (D.C. Bar No. 408561)

J. Mark Gidley (D.C. Bar No. 417280)

701 Thirteenth Street, NW Washington, DC 20005 Tel: +1 202 626 3600 Fax: +1 202 639 9355 [email protected] [email protected] Counsel for Defendant-Appellant Anthem, Inc.

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ADDENDUM

Certificate of Parties and Disclosure Statement

In accordance with Rule 27(a)(4) of the Circuit Rules of the United States

Court of Appeal for the District of Columbia Circuit, Anthem certifies as follows:

A. Parties

Appellant Anthem, Inc. is a health-benefits company based in Indianapolis,

Indiana. It has no parent companies, and there are no publicly-held companies that

presently hold a 10% or greater interest in Anthem, Inc.

Defendants in the District Court were Anthem, Inc. (Anthem) and Cigna

Corporation (Cigna). Anthem is the only Appellant in this Court.

Plaintiffs in the District Court and Appellees in this Court are the United

States of America, the State of California, the State of Colorado, the State of

Connecticut, the District of Columbia, the State of Georgia, the State of Iowa, the

State of Maine, the State of Maryland, the State of New Hampshire, the State of

New York, the State of Tennessee, and the Commonwealth of Virginia.

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CERTIFICATE OF COMPLIANCE

Pursuant to Rule 27(d)(2) of the Federal Rules of Appellate Procedure, the

undersigned hereby certifies that:

1. This document complies with the word limit of Fed. R. App. P. 27(d)(2)

because this document contains 2,053 words.

2. This document complies with the typeface requirements of Fed. R. App. P.

32(a)(5) and the type-style requirements of Fed. R. App. P. 32(a)(6) because this

document has been prepared in a proportionally spaced typeface using Microsoft

Word 2010 in Times New Roman font, size 14.

/s/ Christopher M. Curran Christopher M. Curran

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CERTIFICATE OF SERVICE

I hereby certify that on February 13, 2017, I caused to be served an

electronic copy of the foregoing Emergency Motion of Appellant Anthem, Inc. for

Expedited Consideration of Appeal via the CM/ECF system, under Circuit Rule

25(f), upon all counsel of record.

/s/ Christopher M. Curran Christopher M. Curran

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Cigna Terminates Merger Agreement with Anthem

BLOOMFIELD, Conn., 14 February, 2017 - Cigna Corporation (NYSE: CI) today announced it hasexercised its right to terminate the proposed merger agreement with Anthem, Inc. following the orderon February 8, 2017 from the U.S. District Court for the District of Columbia enjoining the transaction.In light of the Court’s ruling, Cigna believes that the transaction cannot and will not achieve regulatoryapproval and that terminating the agreement is in the best interest of Cigna’s shareholders.

To effect this termination, Cigna has filed suit against Anthem in the Delaware Court of Chancery. Thesuit seeks declaratory judgment that Cigna has lawfully terminated the merger agreement and thatAnthem is not permitted to extend the termination date. The complaint seeks payment by Anthem ofthe $1.85 billion reverse termination fee contemplated in the merger agreement, as well as additionaldamages in an amount exceeding $13 billion. These additional damages include the amount of premiumthat Cigna shareholders did not realize as a result of the failed merger process. This action is necessaryto enforce and preserve Cigna’s rights and protect the interests of its shareholders. The companybelieves strongly in the merits of its case and hopes that this matter is rapidly resolved.

The decision to terminate the transaction and seek damages follows the District Court’s findings that themerger would decrease competition and lessen choice in the “national accounts” market, in part becausethe members of the Blue Cross Blue Shield network work together to win national business, and that thecompetitive harm could not be offset by claimed efficiencies.

Cigna is disappointed in the outcome of this process. Cigna believed from the outset that the mergerof the two companies had the potential to expand choice, improve affordability and quality and furtheraccelerate value-based care. Anthem contracted for and assumed full responsibility to lead the federaland state regulatory approval process, as well as the litigation strategy, under the merger agreement.Cigna fulfilled all of its contractual obligations and fully cooperated with Anthem throughout the approvalprocess.

Future Growth

Cigna will continue to invest in innovative solutions and programs to engage and support customers intheir health and life journeys and partner with health care professionals on leading value-based careprograms. The company will continue to expand its proven footprint and capabilities across the globe forIndividual and Employer customers. Cigna’s approach of focusing on health care services over sick carefinancing has never been more critical.

Cigna’s 2017 growth outlook for adjusted income from operations of 12%-18% will be further aided bythe company’s significant capital available for deployment.

Cigna is also announcing that its Board of Directors has expanded the company’s share repurchaseauthority to an aggregate amount of $3.7 billion. Management has determined that it is prudent to capthe amount of the repurchase to $250 million per quarter until there is more clarity with respect to thelitigation with Anthem. This amount is equivalent to the amount which would have been permitted if themerger agreement were still in effect.

The company looks forward to discussing its strategic growth plan, as well as its plans for future capitaldeployment, during an Investor Day to be held on March 29, 2017 in New York City.

About Cigna

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Cigna Corporation (NYSE: CI) is a global health service company dedicated to helping people improvetheir health, well-being and sense of security. All products and services are provided exclusively byor through operating subsidiaries of Cigna Corporation, including Connecticut General Life InsuranceCompany, Cigna Health and Life Insurance Company, Life Insurance Company of North America andCigna Life Insurance Company of New York. Such products and services include an integrated suite ofhealth services, such as medical, dental, behavioral health, pharmacy, vision, supplemental benefits,and other related products including group life, accident and disability insurance. Cigna maintainssales capability in 30 countries and jurisdictions, and has more than 90 million customer relationships

throughout the world. To learn more about Cigna®, including links to follow us on Facebook or Twitter,visit www.cigna.com.

Note regarding share repurchases. The timing and actual number of shares repurchased will dependon a variety of factors, including price, general business and market conditions, and alternate uses ofcapital. The share repurchase program may be effected through open market purchases or privatelynegotiated transactions in compliance with Rule 10b-18 under the Securities Exchange Act of 1934, asamended, including through Rule 10b5-1 trading plans. The program may be suspended or discontinuedat any time.

Note regarding Non-GAAP Measures. Adjusted income (loss) from operations is defined asshareholders' net income (loss) excluding the following after-tax adjustments: net realized investmentresults, net amortization of other acquired intangible assets and special items. Net amortization ofother acquired intangible assets in 2015 included the one-time benefit of an acquisition in which the fairvalue of acquired net assets exceeded the purchase price. Adjusted income (loss) from operations isa measure of profitability used by Cigna's management because it presents the underlying results ofoperations of Cigna's businesses and permits analysis of trends in underlying revenue, expenses andshareholders' net income. This consolidated measure is not determined in accordance with accountingprinciples generally accepted in the United States (GAAP) and should not be viewed as a substitutefor the most directly comparable GAAP measure, shareholders' net income. Management is not ableto provide a reconciliation to shareholders' net income (loss) on a forward-looking basis because weare unable to predict, without unreasonable effort, certain components thereof including (i) future netrealized investment results and (ii) future special items. These items are inherently uncertain and dependon various factors, many of which are beyond our control. As such, any associated estimate and itsimpact on shareholders' net income could vary materially. The Company believes it is reasonably likelythat a guaranty fund assessment related to Penn Treaty Network America Insurance Company andits subsidiary American Network Insurance Company will be finalized in 2017. Due to uncertaintiessurrounding this matter, the Company's share of this guaranty fund assessment is uncertain, but basedon current information, is estimated to be approximately $85 million after tax. The Company expects totreat this guaranty fund assessment as a special item.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

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This press release and oral statements made with respect to information contained in this press releasemay contain forward looking information within the meaning of the Private Securities Litigation ReformAct of 1995. Forward looking statements may include statements regarding the merger agreement andthe transactions and litigation related thereto, future financial or operating performance, including ourability to deliver personalized and innovative value based solutions for our customers and clients; futuregrowth, business strategy, or strategic or operational initiatives; economic, regulatory or competitiveenvironments, particularly with respect to the pace and extent of change in these areas; financing orcapital deployment plans and amounts available for future deployment; our prospects for growth in thecoming years; and other statements regarding our future beliefs, expectations, plans intentions, financialcondition or performance. You may identify forward-looking statements by the use of words such as“believe,” “expect,” “plan,” “intend,” “anticipate,” “estimate,” “predict,” “potential,” “may,” “should,” “will” orother words or expressions of similar meaning, although not all forward-looking statements contain suchterms.

Forward-looking statements are subject to risks and uncertainties, both known and unknown, that couldcause actual results to differ materially from those expressed or implied in forward-looking statements.Such risks and uncertainties include, but are not limited to: ongoing litigation with respect to the ruling,including Anthem’s appeal of the ruling; potential adverse reactions or changes to business or employeerelationships, including those resulting from the announcement of the ruling; uncertainty as to litigationwith respect to the termination of the merger agreement, the reverse termination fee, declaratoryjudgments with respect to the foregoing and/or contract and non-contract damages for claims filedagainst Anthem; the risk that a government entity or court of competent jurisdiction, in any litigation,arbitration or other forum, finds in any binding or non-binding decision that Cigna has not complied, in fullor in part, with its obligations under the merger agreement or that Cigna is liable for any breach, willfulor otherwise, of the merger agreement; uncertainty as to whether and, if so, when Anthem will pay thereverse termination fee; uncertainty as to litigation with respect to any suit initiated by Anthem againstCigna, including for damages with respect to the transactions contemplated in the merger agreement;competitive responses to the ruling; the inability to retain key personnel; our ability to achieve ourfinancial, strategic and operational plans or initiatives; our ability to predict and manage medical costsand price effectively and develop and maintain good relationships with physicians, hospitals and otherhealth care providers; the impact of modifications to our operations and processes, including those inour disability business; our ability to identify potential strategic acquisitions or transactions and realizethe expected benefits of such transactions; the substantial level of government regulation over ourbusiness and the potential effects of new laws or regulations, or changes in existing laws or regulations;the outcome of litigation, regulatory audits, including the CMS review and sanctions, investigationsand actions and/or guaranty fund assessments; uncertainties surrounding participation in government-sponsored programs such as Medicare; the effectiveness and security of our information technologyand other business systems; and unfavorable industry, economic or political conditions, including foreigncurrency movements; any changes in general economic and/or industry specific conditions, as well asmore specific risks and uncertainties discussed in our most recent report on Form 10-K and subsequentreports on Forms 10-Q and 8-K available on the Investor Relations section of www.cigna.com. Youshould not place undue reliance on forward-looking statements, which speak only as of the date theyare made, are not guarantees of future performance or results, and are subject to risks, uncertaintiesand assumptions that are difficult to predict or quantify. Cigna undertakes no obligation to update orrevise any forward-looking statement, whether as a result of new information, future events or otherwise,except as may be required by law.

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February 15, 2017 06:00 AM Eastern Standard Time

INDIANAPOLIS--(BUSINESS WIRE)--Anthem, Inc. (NYSE:ANTM) today announced that it has filed a lawsuit in the Delaware Court of Chancery seeking a temporary restraining order to enjoin Cigna from terminating, and taking any action contrary to the terms of, the Merger Agreement, specific performance compelling Cigna to comply with the Merger Agreement and damages.

On January 18, 2017, Anthem extended its Merger Agreement with Cigna through April 30, 2017. In addition to the fact that Anthem extended the termination date in the Merger Agreement, Cigna does not have a right to terminate the Merger Agreement at all because it has failed to perform fully its obligations in a manner that has proximately caused or resulted in the failure of the merger to have been consummated.

Anthem believes that there is still sufficient time and a viable path forward potentially to complete the transaction that will save millions of Americans more than $2 billion in annual medical costs and deliver significant value to shareholders. In addition to filing this lawsuit, Anthem is pursuing an

Anthem Files Suit Against Cigna Seeking a Temporary Restraining Order to Enjoin Cigna from Terminating the Merger Agreement, Specific Performance Compelling Cigna to Comply with the Merger Agreement and Damages

Anthem Action is in Response to Cigna’s Wrongful Purported Termination and Lawsuit and Ongoing Campaign to Sabotage the Merger and Deflect Attention from its Repeated Willful Breaches of the Merger Agreement Anthem Reaffirms Commitment to Value-Creating Merger

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expedited appeal of the District Court’s decision and is committed to completing this value-creating merger either through a successful appeal or through settlement with the new leadership at the Department of Justice.

Cigna’s lawsuit and purported termination is the next step in Cigna’s campaign to sabotage the merger and to try to deflect attention from its repeated willful breaches of the Merger Agreement in support of such effort.

Cigna’s obvious efforts to sabotage the merger have been recognized by both the District Court and the national media. As the District Court noted, it could not ignore the “elephant in the courtroom,” and the fact that Cigna was “actively warning against” the merger and that “Cigna officials provided compelling testimony undermining” Anthem’s defense. In addition, the District Court noted that it could not overlook “the doubt sown into the record by Cigna itself.”

Anthem’s interests in consummating the merger, and Cigna’s interest in avoiding it, are demonstrated by Anthem’s intense efforts to obtain regulatory clearance and Cigna’s matching efforts to sabotage that goal, as outlined below:

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Integration Efforts

Anthem Cigna

Anthem retains a team of 165 professionals

at McKinsey & Company to integrate the

companies.

Cigna refuses to allow meetings with its

senior management team, a necessary step

to integration. Cigna also consistently delays

producing data, preventing completion of an

integration plan.

Anthem and McKinsey work to implement a

key component of integration known as

“Value Capture,” which was the process by

which the synergies and efficiencies for the

newly formed company would be identified

and realized, the centerpiece defense for the

Merger.

Cigna refuses to engage in the “Value

Capture” work to identify synergies and

efficiencies after March 2016 due to alleged

“deal uncertainty.” By July, Cigna refuses to

participate in any integration work at all,

severely damaging the centerpiece defense

for the Merger.

Advocacy Efforts To Discourage DOJ Challenge

Anthem Cigna

Anthem prepares and submits 22

substantive “white papers” to the DOJ

defending the Merger.

After January 2016, Cigna refuses to provide

any substantive assistance to Anthem’s

white paper efforts, and refuses to sign

several of them.

Anthem contacts nearly 200 customers and

brokers, explaining the substantial benefits

of the Merger and encouraging them to

contact the DOJ in support of the Merger.

Anthem obtains 60 customer declarations in

support of the Merger plus 10 statements of

support from customers and brokers.

Cigna fails to obtain any meaningful

customer support, providing only two

declarations. Cigna also prevents Anthem

from seeking support from Cigna’s

customers.

The DOJ expresses concern about the

Merger’s effect in certain geographic areas,

so Anthem identifies buyers with serious

interest in acquiring Cigna assets to

remediate the concern and allow the Merger

to clear.

Cigna blocks remediation by refusing to sign

customary non-disclosure agreements or

provide the potential buyers with information

to conduct necessary due diligence of the

assets.

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Mediation Efforts

Anthem Cigna

The Court and Special Master suggest

mediation numerous times. Anthem agrees

to mediation and repeatedly asks Cigna to

also agree to participate in mediation with

the DOJ.

Cigna refuses to agree to mediation.

Pre-Trial Efforts

Anthem Cigna

After the DOJ commences litigation, Anthem

issues a press release stating that it “is fully

committed to challenging the DOJ’s decision

in court,” as required under the Agreement.

Cigna refuses to join Anthem’s press release

and instead issues its own press release

stating that it is “evaluating its options” and

questioning whether the transaction “could

close . . . at all.”

Anthem files its answer on July 26, 2016,

five days after DOJ filed the complaint, and

asks Cigna to file an answer to help expedite

discovery.

Cigna rejects Anthem’s request, and then

does not file its answer for nearly two

months.

Anthem takes the lead on over 100

depositions, prepares all of the substantive

pleadings and briefs defending the Merger,

and arranges the submission of non-party

witness declarations and 10 expert reports in

support of the Merger.

Cigna refuses to provide any comments or

suggestions on draft litigation materials, fails

to offer comments on the DOJ’s expert

reports, and fails to ask any questions in all

but 3 of the over 100 depositions in the

case, and those questions were not

supportive of the Merger.

Anthem asserts the common interest

privilege to protect sensitive Merger-related

documents from discovery.

Cigna sends letters to Anthem

manufacturing a false record of breach, and

then helps the DOJ obtain those letters and

communications during discovery, including

by disavowing the Merger parties’ common

interest privilege.

Anthem prepares a pre-trial brief outlining

facts and law in support of Merger and

requests Cigna’s input.

Cigna refuses to comment on the pre-trial

brief, refuses to sign the brief and refuses to

offer any support for the Merger.

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Trial Efforts

Anthem Cigna

Anthem presents an opening statement for

the two phases of trial.

Cigna asks for permission to object to

Anthem’s questions, which the District Court

finds “completely extraordinary.”

Anthem conducts direct examinations of 15

witnesses and cross-examines 21 DOJ

witnesses.

Cigna does not cross a single DOJ witness

objecting to the Merger, but remarkably

crosses Anthem’s witnesses supporting the

Merger.

Anthem spends an average of sixteen to

twenty hours preparing each of its

witnesses.

Cigna grants Anthem only one hour to help

prepare key witnesses, including Cigna’s

CEO, who Anthem is putting on at trial.

Anthem presents substantial testimonial and

documentary evidence at trial to support the

key defense that the Merger would create

efficiencies that would generate significant

medical cost savings, the vast majority of

which ultimately would be passed along to

consumers.

Cigna’s CEO provides testimony attacking

the ability of the combined companies to

achieve medical cost savings.

Anthem requests Cigna’s input on its

proposed findings of fact and conclusions of

law.

Cigna not only refuses to comment on the

proposed findings of fact and conclusions of

law, but also refuses to sign these key

documents, in effect opposing the factual

and legal basis for the Merger.

Post-Trial Efforts

Anthem Cigna

Anthem exercises its right to extend the

Termination Date to April 30, 2017 to allow

sufficient time to obtain the necessary

governmental approvals to consummate the

Merger through potential settlement or

appeal.

Cigna refuses to acknowledge the extension

and ignores Anthem’s requests for

assurances that Cigna will help secure

regulatory approval through potential

settlement and appeal.

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Appeal Efforts

Anthem Cigna

Anthem files a notice of appeal, a motion to

expedite and an appeal brief.

Cigna refuses to agree to appeal the

decision as required under the Merger

Agreement.

Cigna severely damages the opportunity to

obtain expedited appellate review by

wrongfully purporting to terminate the

Merger Agreement before the DOJ’s

opposition to Anthem’s motion to expedite

the appeal is due.

About Anthem, Inc.

Anthem is working to transform health care with trusted and caring solutions. Our health plan companies deliver quality products and services that give their members access to the care they need. With over 73 million people served by its affiliated companies, including approximately 40 million within its family of health plans, Anthem is one of the nation’s leading health benefits companies. For more information about Anthem’s family of companies, please visit www.antheminc.com/companies.

IMPORTANT INFORMATION FOR INVESTORS AND SHAREHOLDERS

NO OFFER OR SOLICITATION

This communication does not constitute an offer to sell or a solicitation of an offer to sell or a solicitation of an offer to buy any securities or a solicitation of any vote or approval, nor shall there be any sale of securities in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such jurisdiction. No offering of securities shall be made except by means of a prospectus meeting the requirements of Section 10 of the Securities Act of 1933, as amended, and otherwise in accordance with applicable law.

ADDITIONAL INFORMATION AND WHERE TO FIND IT

In connection with the proposed transaction between Anthem, Inc. (“Anthem”) and Cigna Corporation (“Cigna”), Anthem has filed with the U.S. Securities and Exchange Commission (the “SEC”) a registration statement on Form S-4, including Amendment No. 1 thereto, containing a joint proxy statement of Anthem and Cigna that also constitutes a prospectus of Anthem. The registration statement was declared effective by the SEC on October 26, 2015. This communication is not a substitute for the registration statement, definitive joint proxy statement/prospectus or any other document that Anthem and/or Cigna have filed or may file with the SEC in connection with the proposed transaction.

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INVESTORS AND SECURITY HOLDERS OF ANTHEM AND CIGNA ARE URGED TO READ THE DEFINITIVE JOINT PROXY STATEMENT/PROSPECTUS AND OTHER DOCUMENTS FILED WITH THE SEC CAREFULLY IN THEIR ENTIRETY AS THEY CONTAIN OR WILL CONTAIN IMPORTANT INFORMATION ABOUT THE PROPOSED TRANSACTION. Investors and security holders may obtain free copies of the registration statement containing the definitive joint proxy statement/prospectus and other documents filed with the SEC by Anthem or Cigna through the web site maintained by the SEC at http://www.sec.gov. Copies of the documents filed with the SEC by Anthem are available free of charge on Anthem’s internet website at http://www.antheminc.com or by contacting Anthem’s Investor Relations Department at (317) 488-6390. Copies of the documents filed with the SEC by Cigna are available free of charge on Cigna’s internet website at http://www.cigna.com or by contacting Cigna’s Investor Relations Department at (215) 761-4198.

Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995

This document, and oral statements made with respect to information contained in this communication, contain certain forward-looking information about Anthem, Inc. (“Anthem”), Cigna Corporation (“Cigna”) and the combined businesses of Anthem and Cigna that is intended to be covered by the safe harbor for “forward-looking statements” provided by the Private Securities Litigation Reform Act of 1995. Forward-looking statements are statements that are not generally historical facts. Words such as “expect(s),” “feel(s),” “believe(s),” “will,” “may,” “anticipate(s),” “intend,” “estimate,” “project” and similar expressions (including the negative thereof) are intended to identify forward-looking statements, which generally are not historical in nature. Such statements are subject to certain known and unknown risks and uncertainties, many of which are difficult to predict and generally beyond Anthem’s and Cigna’s control, that could cause actual results and other future events to differ materially from those expressed in, or implied or projected by, the forward-looking information and statements. These risks and uncertainties include those discussed and identified in Anthem’s and Cigna’s public filings with the SEC. Important factors that could cause actual results and other future events to differ materially from the forward-looking statements made in this communication are set forth in other reports or documents that Anthem and/or Cigna may file from time to time with the SEC, and include, but are not limited to: (i) the ultimate outcome of the proposed transaction, including the ability to achieve the synergies and value creation contemplated by the proposed transaction, (ii) the ultimate outcome and results of integrating the operations of Anthem and Cigna, (iii) disruption from the merger making it more difficult to maintain businesses and operational relationships, (iv) the risk that unexpected costs will be incurred in connection with the proposed transaction, (v) the timing to consummate the proposed transaction and (vi) the possibility that the proposed transaction does not close, including, but not limited to, due to the failure to satisfy the closing conditions, including the receipt of all required regulatory approvals. All forward-looking statements attributable to Anthem, Cigna or any person acting on behalf of Anthem and/or Cigna are expressly qualified in their entirety by this cautionary statement. Readers are cautioned not to place undue reliance on these forward-looking statements that speak only as of the date hereof. Except to the extent otherwise required by federal securities law, neither Anthem nor Cigna undertake any obligation to republish revised forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events or the receipt of new information. Readers are also urged to carefully review and consider the various disclosures in Anthem’s and Cigna’s SEC reports.

Contacts

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Anthem, Inc.Investor RelationsDouglas Simpson, 317-488-6181orMediaJill Becher, 262-523-4764

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IN THE COURT OF CHANCERY OF THE STATE OF DELA WARE

ANTHEM, INC.,

Plaintiff,

v.

CIGNA CORPORATION,

Defendant.

) ) ) ) ) ) ) ) )

C.A. No. 2017-0114-JTL

ORDER GRANTING MOTION FOR TEMPORARY RESTRAINING ORDER

Effective immediately, pending further order of this court, defendant Cigna

Corporation is subject to a temporary restraining order and is enjoined from

terminating the Agreement and Plan of Merger dated as of July 23, 2015, among

Anthem, Inc., Anthem Merger Sub Corp., and Cigna Corporation.

17

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ORAL ARGUMENT NOT YET SCHEDULED

IN THE UNITED STATES COURT OF APPEALS FOR THE DISTRICT OF COLUMBIA CIRCUIT

UNITED STATES OF AMERICA, ET AL.,

Plaintiffs-Appellees,

v.

ANTHEM, INC.,

Defendant-Appellant,

and

CIGNA CORP.,

Defendant-Appellee.

No. 17-5024 PUBLIC COPY—SEALED MATERIAL DELETED

RESPONSE OF THE UNITED STATES AND PLAINTIFF STATES IN OPPOSITION TO DEFENDANT-APPELLANT’S MOTION TO EXPEDITE

Anthem, Inc. has filed an emergency motion asking this Court to expedite

consideration of this appeal from the district court’s order enjoining Anthem’s

merger with Cigna Corp.

In the last 24 hours, however, Cigna has filed a lawsuit against Anthem,

seeking to “confirm that the merger agreement [between Anthem and Cigna] has

been lawfully terminated.” Cigna 8-K at 1 (Feb. 14, 2017) (attached as Exhibit A).

According to Cigna, “there is no feasible path to ever completing the merger, let

alone by April 30, 2017, and therefore it would be in the best interests of our

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2

clients, customers and shareholders to move forward with a sovereign growth

strategy.” Id. at 1. Anthem disagrees and announced earlier this morning that it

has filed a counter-suit against Cigna.1

These developments gut Anthem’s arguments for expedited review, all of

which are based on harms that would purportedly befall Anthem, Cigna, and the

public if this Court did not review the district court’s decision enjoining the

Anthem-Cigna merger before the merger agreement’s closing deadline—which

Anthem argues is April 30, and Cigna believes has already passed. See id. at 2.

Anthem argues that expedited review is necessary because Cigna would likely

terminate the agreement if the merger is not closed by that date. But since Cigna

has already terminated the agreement, expedited review—and perhaps any

appellate review—would be futile. Moreover, even putting these developments

aside, expedited review would still not prevent Anthem’s asserted injuries because

the merger cannot close until approved by state insurance regulators, which by

Anthem’s own representation below would take at least 120 days from the

conclusion of this litigation. If this appeal nevertheless goes forward, the public

interest strongly weighs in favor of a careful and thorough review of “the largest

1 See http://ir.antheminc.com/phoenix.zhtml?c=130104&p=irol-newsArticle&ID=2246154.

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merger in the history of the healthcare industry.” Mot. 2. For these and additional

reasons detailed below, Anthem’s motion should be denied.

BACKGROUND

At the outset of the litigation, Anthem represented to the district court that,

“Anthem’s ability to close its acquisition of Cigna depends upon this action

concluding (without an injunction) before the end of 2016.” Anthem’s

Explanation of Its Positions as to Timing 3 (Dist. Ct. Dkt. No. 28).2 Anthem

explained that it had to secure approval of its acquisition of Cigna from insurance

regulators in 26 states before it could close the merger, and Anthem stated “that it

will need at least 120 days to secure the remaining approvals by State insurance

regulators.” Id.

2 Citations to “Dist. Ct. Dkt. No.” reference the docket entries in United States v. Anthem, Inc., No. 1:16-cv-1493 (D.D.C.).

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Following extensive post-trial briefing, the court

entered its final decision enjoining the merger on February 8, 2017. Joint

Appendix (JA) 208. In its order, which was accompanied by a 140-page opinion,

the district court concluded that "the proposed merger is likely to lessen

competition substantially in the market for the sale of commercial health insurance

to national account customers in the fourteen Anthem territories and in the market

for the sale of commercial health insurance to large group customers in the

Richmond, Virginia market," "in violation of section 7 of the Clayton Act, 15

U.S.C. § 18." Id. 3

4

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Anthem has appealed from the district court’s decision. It now asks this

Court to expedite briefing, argument, and consideration of this case.

Yesterday, Cigna notified the Securities Exchange Commission that it has

terminated its merger agreement with Anthem. Ex. A at 2. Cigna also filed suit

against Anthem in the Delaware Court of Chancery, seeking declaratory judgment

to confirm the agreement was lawfully terminated, to collect a break-up fee, and to

seek additional damages. Id.

Just this morning, Anthem announced that it has filed counter-suit against

Cigna regarding Cigna’s termination of the agreement. It claims that Cigna has not

terminated the agreement and cannot do so at all.4

LEGAL STANDARD

Absent the existence of certain statutorily enumerated circumstances—none

of which is present here—a court will not expedite consideration of a matter unless

“good cause” is shown. 28 U.S.C. § 1657(a). In this Circuit, motions to expedite

are “very rarely” granted. D.C. Circuit Handbook of Practice and Internal

Procedures 33 (2017). To establish the requisite good cause,

[t]he movant must demonstrate that the delay will cause irreparable injury and that the decision under review is subject to substantial challenge. The Court also may expedite cases in which the public generally, or in which persons not before the Court, have an unusual

4 See http://ir.antheminc.com/phoenix.zhtml?c=130104&p=irol-newsArticle&ID=2246154.

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interest in prompt disposition. The reasons must be strongly compelling. [Id.]

ARGUMENT

Anthem argues that (1) absent expedited briefing, argument, and

consideration, Anthem will suffer irreparable harm, (2) the district court’s order is

subject to substantial challenge, and (3) the public interest supports expedited

review. Anthem is wrong on all counts.

A. Anthem Has Not Demonstrated It Will Suffer Irreparable Harm Absent Expedited Consideration.

1. Expedited Review Would Be Futile. Anthem asserts that absent

expedition, the merger could terminate, Cigna and Anthem might become

embroiled in litigation over termination, and this appeal would be rendered

practically moot. Mot. 5-7. But all of this has already come to pass. Cigna has

terminated the merger agreement, and litigation over the termination has

commenced. See Ex. A at 2. Whether the consummation of the proposed merger

would violate the Clayton Act, as the district court concluded, is beside the point if

there is no merger. Expedited review will do nothing to change these facts and

thus will do nothing to prevent the harm that Anthem has identified in its motion.

Even before this latest and dispositive development, however, expedited

review was futile because it would not have prevented Anthem’s asserted injuries.

If Anthem got everything it wanted and the Court were to issue a decision

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favorable to Anthem before April 30, 2017, there would remain a major obstacle

preventing the merger from closing: “Anthem still requires certain state insurance

regulatory clearances” before it can close. Mot. 7. As Anthem explained to the

district court, state regulatory review is currently on hold pending the final

resolution of this litigation. Anthem’s Explanation of Its Positions as to Timing 2-

3 (Dist. Ct. Dkt. No. 28). By Anthem’s own estimation, then, renewal of state

regulatory review is likely to continue only following a final judgment on the

merits—but that is something that even a decision from this Court in favor of

Anthem will not provide.

At best, Anthem is looking at a remand to the district court for further

proceedings because the district court has not resolved all the claims that the

government asserted below. The court held that the proposed merger should be

enjoined because it “is likely to lessen competition substantially in the market for

the sale of commercial health insurance to national account customers in the

fourteen Anthem territories and in the market for the sale of commercial health

insurance to large group customers in the Richmond, Virginia market.” JA208.

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Therefore, even

if Anthem succeeds in this appeal, “there should be a remand for further

proceedings to permit the trial court to make the missing findings” as to the

government’s other theories for relief. Pullman-Standard v. Swint, 456 U.S. 273,

291 (1982); see, e.g., Corrigan v. D.C., 841 F.3d 1022, 1039 (D.C. Cir. 2016);

United States v. TDC Mgmt. Corp., 827 F.3d 1127, 1132 (D.C. Cir. 2016).

Then, after remand, assuming the district court entered judgment in favor of

Anthem (and there were no appeals or Anthem won all appeals), Anthem would

still need to obtain state regulatory clearances before closing. Anthem baldly

declares that “a favorable ruling by this Court prior to . . . April 30, 2017, will

allow the clearances to be obtained and the Merger to close.” Mot. 7. But Anthem

provides no support for this declaration, which is flatly contradicted by Anthem’s

representations in the district court.

Before the district court, Anthem represented that, “[a]s a practical matter,

. . . Anthem’s ability to close its acquisition of Cigna depends upon this action

concluding (without an injunction) before the end of 2016” because “Anthem

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expects that it will need at least 120 days to secure the remaining approvals by

State insurance regulators.” Anthem’s Explanation of Its Positions as to Timing 3

(Dist. Ct. Dkt. No. 28). And Anthem backed this up with six sworn declarations

by expert counsel assisting Anthem in securing approvals from the state insurance

regulatory bodies. Decl. of Jared R. Danilson (Dist. Ct. Dkt. No. 28-1) (generally);

Decl. of Kathleen D. Monnes (Dist. Ct. Dkt. No. 28-3) (Connecticut); Decl. of Joel

A. Glover (Dist. Ct. Dkt. No. 28-6) (Colorado); Decl. of Julie March Pomerantz

(Dist. Ct. Dkt. No. 28-8) (Georgia); Decl. of Steven J. Lauwers (Dist. Ct. Dkt.

No. 28-10) (New Hampshire); Decl. of Richard B. Walsh Jr. (Dist. Ct. Dkt.

No. 28-12) (Missouri).

Declarant Danilson, for example, explained that the 120-day timeline was

“driven largely by statutory requirements for public hearings” in the states for

which review is currently suspended. Danilson Decl. ¶ 5; id. ¶ 8 (“Some state

regulations also require public hearings preceded by notice periods.”). “In these

public hearing states, . . . the timeline from [the Form A filing] to public hearing

and decision is typically 60 to 120 days in a non-politicized environment.” Id.

¶ 15. Thus, Danilson explained, “the state insurance regulators must re-start their

review no later than January 1, 2017 so that Anthem can obtain the remaining

approvals by the April 30, 2017 deadline.” Id. ¶ 6. As Anthem explained to the

district court, state regulatory review is currently on hold pending the final

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resolution of this litigation. Anthem’s Explanation of Its Positions as to Timing 2-

3 (Dist. Ct. Dkt. No. 28). And although Anthem has purported to “make every

effort to urge the states to continue their review in parallel with the federal lawsuit,

. . . this effort is extremely unlikely to succeed where a state has already expressly

suspended consideration pending litigation as Connecticut, Colorado, Georgia, and

New Hampshire have done here.” Decl. of Jared R. Danilson ¶ 7 (Dist. Ct. Dkt.

No. 28-1).

Having suspended regulatory review in light of the government’s lawsuit,

the states are highly unlikely to restart that review now, after the district court has

enjoined the transaction and Cigna has terminated the merger agreement. We are

already well past the point that Anthem’s own declarant represented was the “no

later than” date for renewal of state regulatory reviews, and Anthem is further than

ever from securing those approvals. Accordingly, expedited review will do

nothing to prevent Anthem’s alleged harms.

2. Anthem’s Asserted Injuries Are Not Irreparable. The injuries that

Anthem identifies also are not irreparable. They are all caused by the agreed-upon

closing deadline in the Anthem-Cigna merger agreement.5 If the parties had

5 Anthem’s representation about the significance of that closing deadline in its motion to this Court is inconsistent with Anthem’s statement in this morning’s press release, which contends that Cigna cannot terminate the agreement, at all. See http://ir.antheminc.com/phoenix.zhtml?c=130104&p=irol-newsArticle&ID=2246154.

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wished to extend the closing deadline for the agreement, they certainly could

have.6 As this Court recognized in FTC v. H.J. Heinz Co., 246 F.3d 708 (D.C. Cir.

2001), “[i]f the merger makes economic sense now,” it should likewise “do so

later.” Id. at 726. Any harm arising from the failure to close the merger is

therefore not a function of the pace of appellate review; it is instead a result of the

parties’ actions under their merger agreement.

Harm resulting from the operation of “a freely negotiated contractual

arrangement” is not irreparable because it is “self-inflicted.” Fish v. Kobach, 840

F.3d 710, 753 (10th Cir. 2016) (discussing Salt Lake Tribune Publ’g Co. v. AT&T

Corp., 320 F.3d 1081, 1106 (10th Cir. 2003), and Davis v. Mineta, 302 F.3d 1104,

1116 (10th Cir. 2002), abrogated on other grounds as explained in Diné Citizens

Against Ruining Our Env’t v. Jewell, 839 F.3d 1276, 1281-82 (10th Cir. 2016)).

This rule is widely recognized.7 Indeed, a contrary rule would allow parties to

6 See, e.g., Aetna 8-K at 2 (June 24, 2016) (parties to Aetna-Humana merger agreement “elected to extend the ‘End Date’ (as defined in the Merger Agreement) from June 30, 2016 to December 31, 2016”); Aetna 8-K at 2 (Dec. 22, 2016) (parties to Aetna-Humana merger agreement “each agreed, in order to extend the ‘End Date’ . . . to waive until . . . February 15, 2017 its right to terminate the Merger Agreement due to a failure of the Mergers to have been completed on or before December 31, 2016”). 7 See, e.g., Livonia Props. Holdings, LLC v. 12840-12976 Farmington Rd. Holdings, LLC, 399 F. App’x 97, 104 (6th Cir. 2010); Second City Music, Inc. v. Chicago, 333 F.3d 846, 850 (7th Cir. 2003); Caplan v. Fellheimer Eichen Braverman & Kaskey, 68 F.3d 828, 839 (3d Cir. 1995); Hirschfeld v. Bd. of Elections in City of N.Y., 984 F.2d 35, 40 (2d Cir. 1993); San Francisco Real

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force preliminary relief or expedited review in every case by virtue of a voluntarily

adopted deadline.

In Davis, for example, the Tenth Circuit applied a similar analysis to

conclude that certain state defendants would not be irreparably harmed by a

preliminary injunction against a highway project that had received insufficient

environmental review. 302 F.3d at 1109-10. The state defendants had argued

against the injunction by pointing to “costs that will be incurred . . . based on the

delays experienced and anticipated by this litigation.” Id. at 1116. The court

rejected that harm as “self-inflicted.” Id. The state defendants had “‘jumped the

gun’” when they “enter[ed] into contractual obligations that anticipated a pro

forma result” in the environmental-review process. Id. They would not be heard

to complain that the process took longer than they expected because “the state

defendants are largely responsible for their own harm.” Id. Likewise, Anthem

assumed the risk that the merger would not be approved by the contractual

deadline—and the consequences of that assumption are of its own making.

Estate Inv’rs v. Real Estate Inv. Trust of Am., 692 F.2d 814, 818 (1st Cir. 1982); Lee v. Christian Coal. of Am., Inc., 160 F. Supp. 2d 14, 33 (D.D.C. 2001). Cf. Grocery Mfrs. Ass’n v. EPA, 693 F.3d 169, 177 (D.C. Cir. 2012) (where petitioners take action made available by challenged regulation “voluntarily, any injury they incur as a result is a ‘self-inflicted harm’ not fairly traceable to the challenged government conduct”).

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B. The District Court’s Order Is Not Subject To Substantial Challenge.

Anthem challenges the district court’s finding that the alleged efficiencies of

the merger (supposed medical cost savings) do not outweigh the anticompetitive

effects of the merger. See Mot. 7-8; . No court has ever held that

efficiencies justified an otherwise anti-competitive merger. Cf. Saint Alphonsus

Med. Ctr.-Nampa Inc. v. St. Luke’s Health Sys., Ltd., 778 F.3d 775, 789 (9th Cir.

2015) (“none of the reported appellate decisions have actually held that a § 7

defendant has rebutted a prima facie case with an efficiencies defense”). And the

district court had good reason to reject that defense here.

8 See U.S. Dep’t of Justice & Fed. Trade Comm’n, Horizontal Merger Guidelines § 4 (2010) (explaining that “merger-specific efficiencies” are “only those efficiencies likely to be accomplished with the proposed merger and unlikely to be accomplished in the absence of either the proposed merger or another means having comparable anticompetitive effects”).

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To prevail on appeal, therefore, Anthem would

need to demonstrate that these findings were “clearly erroneous,” Fed. R. Civ. P.

52(a)(6)—something Anthem is simply unable to do. Even Cigna agrees. See

Ex. A at 1 (“Judge Jackson’s decision to block the merger was based on numerous

factual determinations—and does not decide certain of the government’s

arguments—all of which make a swift and successful appeal highly unlikely.”).

Thus, Anthem does not raise a substantial challenge to the district court’s order.

C. Expedited Review Is Not In The Public Interest.

Anthem separately argues that expedited review is warranted because the

merger is in the public interest. Mot. 8-10. But Anthem conflates public interest

in expedited review with the supposed public interest in approval of the merger. It

does not offer a single reason why the public has any interest in expedited

consideration of the case, nor could it, for the public interest weighs against

rushing this case through the appellate process.9

As Anthem observes, “[t]his case concerns the largest merger in the history

of the healthcare industry.” Mot. 2. Both the merger and this lawsuit have

received substantial attention throughout the healthcare industry and in the press.

9 Anthem touts the public benefit that the merger affords to Cigna’s shareholders as a reason to expedite review. See Mot. 9. Cigna, of course, has terminated the merger agreement and sued Anthem to confirm the legality of that termination. Cigna’s board, which represents Cigna’s shareholders, thus has a contrary view of the merger’s benefits for those shareholders.

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The district court’s days-old injunction order has already attracted the attention of

organizations in the healthcare industry who have indicated an interest in

participating in the appeal as amici. The public interest, therefore, supports a

review schedule that accommodates the widespread interest in this litigation.

Anthem’s proposed schedule does not. It sets a break-neck pace for briefing,

leaves no room for amici filings, suggests that the Court forgo oral argument

(Mot. 2), and does not allow for the careful deliberation that a case of this

magnitude and complexity demands. Anthem’s proposed schedule is antithetical

to the public interest and should be rejected. The Court should enter an order

setting forth the usual schedule for merits briefing, subject to the modification

requested below (at 16-17).

The Court should also schedule the case for oral argument because this is not

the type of case for which argument “is not needed.” Cir. R. 34(j)(1). Anthem’s

appeal asks the Court to decide, among other things, whether so-called medical

cost savings in the form of lower reimbursement rates forced on providers through

the proposed merger of Anthem and Cigna can justify an otherwise anticompetitive

merger. See Br. 2. Were the Court to reach that question (and the government

believes it should not), the answer could affect all healthcare-industry merger

litigation in the District going forward—and a case of that potential significance

demands oral argument. Moreover, Anthem asks the Court to reverse the district

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court’s order in full and “rule for Anthem, permitting the proposed merger of

Anthem and Cigna to proceed.” Id. at 57. Before entertaining a request for such

sweeping relief against a merger challenge brought by the United States, eleven

states, and the District of Columbia, the Court should allow the government to

present oral argument.

* * *

Whether or not this Court grants Anthem’s motion to expedite, the

government requests at least 45 days from this Court’s entry of a Scheduling Order

to file its merits brief.10 This is longer than the usual 30-day period allocated for

an appellee brief—but in the usual case, there is substantially more time following

the decision on review before the appellant notices an appeal, before the record is

filed, and before the appellant files its opening brief. Anthem’s filing of its

opening brief five days after the district court entered its order has severely

truncated the period of time that parties usually have to review the record prior to

the commencement of briefing (40 days from the date that the record is filed). See

Fed. R. App. P. 31(a)(1).

10 The government continues to assess developments in the dispute and litigation between Anthem and Cigna over the merger agreement and whether those developments warrant a stay of briefing in this Court or dismissal of this appeal as moot.

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The government requests 45 days because that is the amount of the time it

will need to review the massive trial record, which includes 4,500-plus pages of

trial testimony, over 100 deposition transcripts, and more than 1,400 exhibits. That

period of time is also necessary to allow the United States and twelve different

state attorneys general to endeavor to file a joint brief, coordinate their approach,

and secure the appropriate approvals for the final brief. This is less time than the

appellees were given in the FTC v. H.J. Heinz case that Anthem cites (Mot. 6) as

being decided on an expedited basis. See Per Curiam Order, FTC v. H.J. Heinz,

No. 00-5362 (Nov. 9, 2000) (appellees’ brief due 50 days after scheduling order

and 72 days after the decision under review). The government also requests that

the Court’s schedule build in time for the filing of amici briefs.

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CONCLUSION

For the foregoing reasons, the Court should deny Anthem's motion in full.

Separately, the government request at least 45 days from the date of the Scheduling

Order, to file their brief.

Dated: February 15, 2017

SCOTT I. FITZGERALD Attorney U.S. Department of Justice Antitrust Division

Respectfully submitted,

/s/ Scott A. Westrich

KRISTEN C. LIMARZI JAMES J. FREDRICKS SCOTT A. WESTRICH MARY HELEN WIMBERLY

Attorneys U.S. Department of Justice Antitrust Division 950 Pennsylvania Ave. , NW Room 3224 Washington, DC 20530-0001 (202) 532-4398 scott. [email protected]

Counsel for the United States

PAULA LAUREN GIBSON California Deputy Attorney General

300 S. Spring Street, Suite 1720 Los Angeles, CA 90013 (213) 897 0014 paula. [email protected]. gov

RACHEL 0. DA VIS Connecticut Assistant Attorney General

55 Elm Street, P.O. Box 120 Hartford, CT 06141-0120 (860) 808-5040 rachel. [email protected]

Counsel on behalf of Plaintiff-States

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CERTIFICATE OF COMPLIANCE

I certify that the foregoing complies with the type-volume limitation of Fed.

R. App. P. 27(d)(2)(A) because it contains 3,907 words, excluding the portions

exempted by Fed. R. App. P. 32(f).

/s/ Scott A. Westrich Scott A. Westrich

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CERTIFICATE OF SERVICE

I certify that on February 15, 2017, I caused the public, redacted version of

the foregoing to be filed through this Court’s appellate CM/ECF filer system,

which will serve a notice of electronic filing on all registered counsel.

In addition, I caused two paper copies of the sealed, unredacted version of

the foregoing and two paper copies of the public, redacted version to be served by

hand delivery on:

Christopher M. Curran White & Case LLP 701 13th Street, NW (202) 626-3600 [email protected] Counsel for Anthem, Inc. Charles F. Rule Paul, Weiss, Rifkind, Wharton & Garrison LLP 2001 K Street, NW Washington, DC 20006 (202) 223 7300 [email protected] Counsel for Cigna Corp.

/s/ Scott A. Westrich Scott A. Westrich

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Exhibit A

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EX-99.2 3 ex99-2 htm EXHIBIT 99.2

Exhibit 99.2

Q & AFebruary 14, 2017

1. What did the District Court decide?

On February 8, 2017, the U.S. District Court for the District of Columbia issued an order enjoining the proposed merger between Cigna Corporation and Anthem, Inc. Judge Jackson's decision to block the merger was based on numerous factual determinations, including:

National Accounts: Judge Jackson found that the merger would result in a level of market concentration that would be presumptively unlawful in the market for national accounts in the 14 states where Anthem is the Blue Cross Blue Shield licensee. She also concluded that the merger would result in higher prices for the ASO insurance that Anthem and Cigna sell and that it would have other anticompetitive effects, including eliminating the two firms' vigorous competition against each other for national accounts and diminishing the prospects for innovation in the market.

Blue Cross Blue Shield Association: Judge Jackson found that the entities organized under the Blue Cross Blue Shield Association, including Anthem "work together to win national business" and that Anthem's intention to "rebrand" Cigna customers as Blue customers – to ensure that Anthem did not violate restrictive rules imposed by the Blues association – could adversely impact competition. The Court additionally found that the rules of the Blue Cross Blue Shield Association give rise to "an inherent conflict of interest" vis-a-vis the transaction.

Efficiencies: The district court rejected Anthem's principal defense: that the anticompetitive effects of the transaction would be outweighed by efficiencies that would benefit consumers. Judge Jackson noted in her opinion that Anthem had "not pointed the Court to a single litigated case in which the merging parties were successful in overcoming the government's case by presenting evidence of efficiencies."

Judge Jackson did not reach the government's other principal theories against the merger - including that the merger would unlawfully harm competition in 35 local markets and unlawfully harm providers.

2. Why did Cigna not join Anthem to pursue an appeal of the district court's decision to enjoin the merger?

There are a number of reasons that Cigna did not join in Anthem's appeal:

Anthem has repeatedly and willfully breached the merger agreement in a manner that: (1) makes it highly unlikely that regulatory approval for the transaction will be obtained and (2) has harmed and will continue to harm Cigna's interest and those of its shareholders.

Judge Jackson's decision to block the merger was based on numerous factual determinations – and does not decide certain of the government's arguments – all of which make a swift and successful appeal highly unlikely. It's also worth noting that we are not aware of a recent example where the D.C. Circuit Court of Appeals has overturned an antitrust injunction against a merger.

Because Judge Jackson enjoined the merger on the basis of the national account market, we do not believe that a credible remediation plan (i.e., divestiture package that would address the national account market issue) is possible. As Joe Swedish, Anthem's CEO reportedly stated at a Credit Suisse investor conference on November 8, 2016, an adverse ruling as to the national accounts phase of the trial would mean "game over – end of story…"

In light of the foregoing, Cigna has determined that there is no feasible path to ever completing the merger, let alone by April 30, 2017, and therefore it would be in the best interests of our clients, customers and shareholders to move forward with a sovereign growth strategy.

Page 1 of 4

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3. Why is termination in the best interests of Cigna shareholders? Couldn't an extension of the agreement lead to a better outcome?

Anthem has not complied with the merger agreement. As described above, there is no feasible path to ever completing the merger, as a result, extending the merger agreement is not only futile but it also exposes Cigna to additional harm from Anthem's breaches.

4. How did Anthem breach the merger agreement and what are the "additional damages" for which Cigna is suing Anthem?

Cigna entered into the deal in order to create a combined company that would expand choice, improve affordability and quality, and further accelerate value-based care. Not only was this good for the combined entity and the consumer, it was the only viable path to regulatory approval. However, Anthem abandoned this agreed-upon plan and instead pursued a unilateral strategy that heavily favored the Blue Cross Blue Shield Association, members and rules over the transaction and its obligations under the merger agreement. As a result, the path for regulatory approval of the transaction was fatally compromised and Cigna and its shareholders were harmed.

In pursuing this course, Anthem willfully violated a number of provisions in the Merger Agreement, including (but not limited to) its obligation to use its reasonable best efforts to secure regulatory approval for the transaction and its obligation to refrain from misappropriating Cigna's confidential information.

Under the merger agreement, Cigna is entitled to recover damages in excess of the reverse termination fee that the company and its shareholders have suffered as a result of Anthem's willful breaches. The additional damages, exceeding $13 billion, include the lost premium value to Cigna's stockholders caused by Anthem's willful breaches of the merger agreement.

5. Why is a lawsuit necessary to terminate the merger agreement? Why couldn't Cigna and Anthem agree on the next steps without a lawsuit?

There are fundamental disagreements between Cigna and Anthem with respect to the Merger Agreement that require a legal determination.

Anthem has sought to extend the termination date to April 30 – and to do so would require that it is fully compliant with the agreement. As outlined in our complaint, we do not believe that Anthem has complied with the Merger Agreement and, therefore, has no right to extend the merger agreement.

Conversely, Anthem does not believe that Cigna has the right to terminate the Merger Agreement at any time, including on or after April 30. We vigorously disagree with Anthem's position.

We reached out to Anthem to discuss our options and to try to resolve these issues without litigation, but were unsuccessful. As a result, we initiated legal action to: (1) confirm that the merger agreement has been lawfully terminated; (2) collect our break-up fee; and (3) seek additional damages exceeding $13 billion that we believe we are owed as a result of Anthem's numerous breaches under the agreement.

We believe strongly in the merits of our case and hope that this matter is rapidly resolved.

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6. Did any of Cigna's actions put any of the break-up fee at risk?

Cigna has maintained full compliance with the merger agreement and has fully cooperated with Anthem throughout the process. While Anthem led the regulatory approval process, Cigna committed its full support – which included work by hundreds of associates and hundreds of millions of dollars in expenditures. Anthem itself has publicly acknowledged on multiple occasions that Cigna has been a helpful and cooperative partner. At a May 2016 investor conference, for example, Anthem's General Counsel, Thomas Zielinski, stated that working with Cigna on the transaction "had been a very collaborative process and maybe more so than other transactions I have been involved with." Mr. Swedish further declared that "the teams are working very, very well together" and that "we have been very collaborative." Mr. Swedish also testified in open court that the parties had "work[ed] very well together," describing the cooperation as "inspirational."

The only contractual basis on which Anthem can seek to avoid paying the reverse termination fee after a termination is if the failure to obtain regulatory approval is caused by Cigna's "Willful Breach."

Showing "Willful Breach" is a high bar to meet. Anthem can seek to deprive Cigna of the reverse break fee only if it can show that Cigna committed a "material breach" with "actual knowledge" that its actions would constitute a material breach of the Merger Agreement.

Even if Anthem can meet that high standard, it also needs to show that the breach caused the deal not to be approved.

Anthem has no grounds for establishing a "Willful Breach" by Cigna. Cigna has satisfied all of its contractual obligations and is entitled to the entirety of the $1.85 reverse termination fee in accordance with the Merger Agreement, as well as the other damages discussed above.

7. Are you subject to any restrictions related to the merger agreement while the litigation is pending?

We are not subject to any restrictions that would materially impede us from achieving our strategic priorities.

Cigna has a clear path forward to create value in the market place and we will continue to lead the healthcare industry in consumer engagement and in providing support to our customers through their diverse life and health stages.

Additionally, due to our focused value creation strategy and well performing businesses, we have amassed a significant amount of capital available for deployment and leverage capacity for future growth, innovation, and customer value creation.

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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

Statements in this document regarding the merger agreement and the transactions and litigation related thereto, future growth, business strategy, strategic or operational initiatives, and any other statements about the Company's future expectations, beliefs, goals, plans or prospects constitute forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. You may identify forward-looking statements by the use of words

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such as "believe," "expect," "plan," "intend," "anticipate," "estimate," "predict," "potential," "may," "should," "will" or other words or expressions of similar meaning, although not all forward-looking statements contain such terms.

There are a number of important factors that could cause actual results or events to differ materially from those indicated by such forward looking statements, including: ongoing litigation with respect to the ruling, including Anthem's appeal of the ruling; litigation with respect to the merger agreement; potential adverse reactions or changes to business or employee relationships, including those resulting from the announcement of the ruling or the result of the ongoing litigation; competitive responses to the ruling or the ongoing litigation; uncertainty as to litigation with respect to the termination of the merger agreement, the reverse termination fee, declaratory judgments with respect to the foregoing and/or contract and non-contract damages for claims filed against Anthem; the risk that a government entity or court of competent jurisdiction, in any litigation, arbitration or other forum, finds in any binding or non-binding decision that Cigna has not complied, in full or in part, with its obligations under the merger agreement or that Cigna is liable for any breach, willful or otherwise, of the merger agreement; uncertainty as to whether and, if so, when Anthem will pay the reverse termination fee; uncertainty as to litigation with respect to any suit initiated by Anthem against Cigna, including for damages with respect to the transactions contemplated in the merger agreement; competitive responses to the ruling; the inability to retain key personnel; our ability to achieve our financial, strategic and operational plans or initiatives; our ability to predict and manage medical costs and price effectively and develop and maintain good relationships with physicians, hospitals and other health care providers; the impact of modifications to our operations and processes, including those in our disability business; our ability to identify potential strategic acquisitions or transactions and realize the expected benefits of such transactions; the substantial level of government regulation over our business and the potential effects of new laws or regulations, or changes in existing laws or regulations; the outcome of litigation, regulatory audits, including the CMS review and sanctions, investigations and actions and/or guaranty fund assessments; uncertainties surrounding participation in government-sponsored programs such as Medicare; the effectiveness and security of our information technology and other business systems; and unfavorable industry, economic or political conditions, including foreign currency movements; any changes in general economic and/or industry specific conditions, as well as more specific risks and uncertainties. Such other risks and uncertainties are discussed in our most recent report on Form 10-K and subsequent reports on Forms 10-Q and 8-K available on the Investor Relations section of www.cigna.com You should not place undue reliance on forward-looking statements, which speak only as of the date they are made, are not guarantees of future performance or results, and are subject to risks, uncertainties and assumptions that are difficult to predict or quantify. Cigna undertakes no obligation to update or revise any forward-looking statement, whether as a result of new information, future events or otherwise, except as may be required by law.

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UNITED STATES COURT OF APPEALS FOR THE DISTRICT OF COLUMBIA CIRCUIT

UNITED STATES OF AMERICA, et al.,

Plaintiffs-Appellees,

v.

ANTHEM, INC.,

Defendant-Appellant.

Appeal No. 17-5024

District Ct. No. 1:16-cv-01493-ABJ

District Judge: Hon. Amy Berman Jackson

APPELLANT ANTHEM, INC.’S

REPLY IN FURTHER SUPPORT OF ITS EMERGENCY MOTION FOR EXPEDITED CONSIDERATION OF APPEAL

Yesterday, the Delaware Court of Chancery (“Delaware Court”) issued a

temporary restraining order enjoining Cigna from terminating the Merger

Agreement, thereby preserving the largest merger in the history of the healthcare

industry that is poised to create $2.4 billion in medical cost savings annually. See

Exh. A hereto (Order and Transcript). In doing so, the Delaware Court found that

(i) Anthem has a colorable claim that Cigna cannot terminate, (ii) consummation of

the Merger is still possible, and (iii) Anthem would be irreparably injured by

termination. Tr. 37-48. The Delaware Court advised Cigna and Anthem to

proceed with a preliminary injunction hearing the week of April 10, 2017, where

the court will address whether or not Cigna can terminate the Merger Agreement

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after April 30, 2017. Tr. 48. Contrary to Appellees’ assertion to this Court, then,

Cigna’s purported termination did not “gut” Anthem’s arguments for expedition.

Rather, the developments in the Delaware Court only confirm that expedition by

this Court is warranted.

ARGUMENT

Appellees do not dispute that expedited review is warranted where delay will

cause irreparable injury, the decision under review is subject to substantial

challenge, and the public has an interest in prompt disposition. Opp’n at 5-6. Each

of those factors are satisfied here.

I. ANTHEM WILL SUFFER IRREPARABLE HARM WITHOUT EXPEDITED REVIEW

Appellees’ lead argument is that Anthem will not suffer irreparable harm

from delay because Cigna had purported to terminate the Merger Agreement.

Opp’n at 6 (calling Cigna’s step a “dispositive development”). But, yesterday, the

Delaware Court enjoined Cigna from terminating the Merger Agreement. And the

irreparable harm the Delaware Court found Anthem faced from Cigna’s purported

termination is the same irreparable harm Anthem faces if it is denied expedited

review by this Court: the loss of a transformative $54 billion Merger and appeal

rights. Mot. 5-7; Tr. 46 (“[c]learly, the loss of the transaction” and loss of

“opportunity to pursue appeal” are irreparable harm).

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Appellees also incorrectly argue lack of irreparable harm because expedited

review is futile. Appellees rely upon declarations Anthem submitted to the District

Court in August 2016, at the outset of this action, estimating the timeframe needed

for state regulatory approvals at that point. Opp’n at 8-10. Appellees neglect to

mention that the District Court questioned those estimates at that time, in setting

the trial schedule: “I think establishing a schedule based on the assumption that we

have to accord the state regulators 120 days to decide after I’ve already approved

the deal, if I approve the deal, that seems excessive, especially since we could be

filing position papers and factual information with the state regulators in the

interim.” United States v. Anthem, No. 1:16-cv-01493, ECF No. 71 (Aug. 21,

2016) at 22:4-9. In the six months since then, Anthem has indeed pushed forward

with the state regulators wherever possible and has substantially advanced its

position in several states, such that Anthem does not expect to need anything near

120 days for completion. See Exh. B hereto (Danilson Decl.). Appellees must

appreciate as much because at no time between January 1, 2017 (120 days prior to

April 30), and the District Court’s decision on February 8 did they move for a

directed verdict or otherwise raise this supposed mootness to the District Court.

Moreover, estimating the speed of state regulatory proceedings is

demonstrably an uncertain exercise. As Anthem acknowledged in its Motion

(at 7), Anthem may not be able to secure all the state regulatory clearances by

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April 30. There is, however, a path forward after April 30 if certain state

regulatory approvals are still outstanding because Anthem believes that Cigna

cannot terminate even after April 30, 2017, in light of its breaches of the Merger

Agreement.1 The Delaware Court will determine whether Cigna can terminate

after April 30, 2017, during the week of April 10. Nonetheless, even with

additional time after April 30 for closing, expedition is necessary because a lengthy

delay will prejudice the ability to pursue regulatory approvals and impact the

Parties’ alternative strategies and initiatives for a longer period of time. See, e.g.,

Danilson Decl. ¶ 3.

II. THE ORDER IS SUBJECT TO SUBSTANTIAL CHALLENGE

Appellees make no serious effort to address Anthem’s substantive arguments

which show that the District Court’s decision is subject to substantial challenge.

First, Appellees do not even mention the District Court’s rejection of 50

years of antitrust law that establishes the consumer welfare standard as the

touchstone of antitrust analysis. The Supreme Court has recognized that antitrust

laws are a “consumer welfare prescription.” NCAA v. Bd. of Regents, 468 U.S. 85,

107 (1984); see also Atl. Richfield, Co. v. USA Petr. Co., 495 U.S. 328, 340 (1990)

1 Appellees wrongly claim that Anthem’s Motion is inconsistent with Anthem’s February 15, 2016 press release about its lawsuit against Cigna which alleges that Cigna cannot terminate the Merger Agreement at all. Opp’n at 10 n.5. In fact, Anthem’s Motion could not have been more clear in making that point: “Anthem disputes that Cigna has a right to terminate at all, but Cigna disagrees.” Mot. at 6.

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(“[L]ow prices benefit consumers regardless of how those prices are set.”);

Weyerhaeuser Co. v. Ross-Simmons Hardwood Lumber Co., 549 U.S. 312, 319

(2007) (“[D]epriving consumers of the benefits of lower prices . . . does not

constitute sound antitrust policy.”). In the face of this controlling precedent, the

District Court tossed aside $2.4 billion in medical cost savings for American

consumers because it concluded that an antitrust court should not consider benefits

to consumers. See SA102. This was an error of law that is reviewed de novo by

this Court, not by a clearly erroneous standard as Appellees suggest (Opp’n at 13-

14). United States v. Baker Hughes, Inc., 908 F.2d 981, 983 (D.C. Cir. 1990).

Moreover, that “[e]ven Cigna agrees” is hardly noteworthy in light of the District

Court’s finding that “the elephant in courtroom” was that both the Appellees and

Cigna were “raising questions about Anthem’s characterization of the outcome of

the merger” and that Cigna was “actively warning against it.” JA206.

Second, although the Opposition cites to the Antitrust Division’s own

definition of “merger-specific efficiencies” — “merger-specific efficiencies are

only those efficiencies likely to be accomplished with the proposed merger and

unlikely to be accomplished in the absence of . . . the proposed merger . . .” (U.S.

Dep’t of Justice & Fed. Trade Comm’n, Horizontal Merger Guidelines § 4 (2010))

— the Opposition ignores the District Court’s application of the incorrect legal

standard. The District Court’s Opinion changed the examination of efficiencies

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from whether they are “unlikely” absent the merger to whether they are impossible

absent the merger. See SA103. And this change ignored the “unlikely” standard

applied by courts in this Circuit. See FTC v. Cardinal Health, 12 F. Supp. 2d 34,

62 (D.D.C. 1998) (“The Guidelines also contend that the efficiencies must be

‘merger specific,’ in other words ‘likely to be accomplished with the proposed

merger and unlikely to be accomplished in the absence of either the proposed

merger or another means having comparable anti-competitive effects.’”) (quoting

1997 HMG § 4); see also FTC v. Staples, 970 F. Supp. 1066, 1089 (D.D.C. 1997)

(finding that defendants need not perform “the nearly impossible task of rebutting

a possibility with a certainty,” and must merely provide a “prediction backed by

sound business judgment” to weigh when plaintiffs’ asserted harms are

speculative). This, too, is legal error subject to de novo review.

Appellees mistakenly suggest that this action has a long tail left, stating that

Anthem “at best” is “looking at a remand to the District Court.” Opp’n at 7. In

fact, Anthem demonstrates in its merits brief that the appropriate crediting of the

medical cost savings would offset all of the claimed anticompetitive effects of the

Merger (and that Appellees have otherwise failed to carry their burden). Thus, a

ruling in Anthem’s favor on this appeal may end this action without any need for

remand. See League of Women Voters of the United States v. Newby, 838 F.3d 1,

6-7 (D.C. Cir. 2016) (finding “no reason to remand to the district court” where

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“this court has a full record, both in the district court and on appeal” and where

“the parties amply and ably briefed and litigated” the issues). Furthermore, if a

remand really would be necessary, then expedition is all the more necessary to

speed this action to its ultimate conclusion.

III. EXPEDITED APPEAL IS IN THE PUBLIC INTEREST

Finally, Appellees incorrectly assert that an expedited appeal is not in the

public interest because it would prevent members of the healthcare industry from

weighing in on a case of “potential significance” and would “not allow for the

careful deliberation that a case of this magnitude and complexity demands.”

Opp’n at 15.

First, the appeal of a decision that impacts a $54 billion transformative

Merger should not be jeopardized to accommodate unidentified third parties with

no prior involvement in this case who did not themselves object to Anthem’s

Motion. Appellees do not, and cannot, offer any reason that such additional input

is suddenly critical on appeal. Nor do Appellees assert that these submissions

cannot be provided on an expedited schedule.

Second, Appellees’ argument that the “the magnitude and complexity” of the

case demands a longer period for appellate review contradicts their argument that

the District Court’s decision is not subject to substantial challenge, because the

issues here are straightforward and amenable to resolution without much

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consideration. See Opp’n at 13 (arguing that Anthem is unable to show that the

District Court’s decision is “clearly erroneous”). In any event, Appellees offer no

support for their argument that expedited review will impact this Court’s ability to

carefully deliberate this case, which is more than capable of deciding appeals on an

expedited basis.

Third, Appellees’ argument that “no court has ever held that efficiencies

justified an otherwise anti-competitive merger” (Opp’n at 13) does not support

potentially mooting an appeal in this case, where Anthem presented efficiencies

that, unlike other cases, overwhelm the purported anticompetitive impact.

Moreover, the relative paucity of the judicial treatment of the efficiencies defense

— together with the District Court’s profound skepticism of the efficiencies

defense — only underscores the need for authoritative appellate guidance.

Fourth, Appellees conspicuously fail to consider that, if Anthem’s claimed

efficiencies are valid, consumers will be deprived of those efficiencies if this

merger dies on the vine. Opp’n at 14-15. Expedition will help ensure that

consumers will not be so deprived.

* * *

Lastly, giving Appellees three weeks to submit their brief is sufficient and

reasonable given Anthem took five days after the District Court Opinion to submit

its appeal brief. Appellees are fully conversant with the facts and law having just

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tried and briefed them in the District Court. Appellees strain credulity in

suggesting that they need more time than normal — “at least 45 days” — to

respond to the brief that Anthem was able to submit in five days. Opp’n at 16.

CONCLUSION

For these reasons and the reasons set forth above and in its Motion, Anthem

respectfully requests that this Court enter an expedited briefing schedule for this

matter as described in the Motion.

Dated: February 16, 2017 Respectfully submitted,

/s/ Christopher M. Curran Christopher M. Curran (D.C. Bar No. 408561)

J. Mark Gidley (D.C. Bar No. 417280)

701 Thirteenth Street, NW Washington, DC 20005 Tel: +1 202 626 3600 Fax: +1 202 639 9355 [email protected] [email protected] Counsel for Defendant-Appellant Anthem, Inc.

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CERTIFICATE OF COMPLIANCE

Pursuant to Rule 27(d)(2) of the Federal Rules of Appellate Procedure, the

undersigned hereby certifies that:

1. This document complies with the word limit of Fed. R. App. P. 27(d)(2)

because this document contains 1852 words.

2. This document complies with the typeface requirements of Fed. R. App. P.

32(a)(5) and the type-style requirements of Fed. R. App. P. 32(a)(6) because this

document has been prepared in a proportionally spaced typeface using Microsoft

Word 2010 in Times New Roman font, size 14.

/s/ Matthew S. Leddicotte Matthew S. Leddicotte

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CERTIFICATE OF SERVICE

I hereby certify that on February 16, 2017, I caused to be served an

electronic copy of the foregoing Anthem, Inc.’s Reply in Further Support of its

Emergency Motion for Expedited Consideration of Appeal via the CM/ECF

system, under Circuit Rule 25(f), upon all counsel of record.

/s/ Christopher M. Curran Christopher M. Curran

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United States Court of AppealsFOR THE DISTRICT OF COLUMBIA CIRCUIT

____________

No. 17-5024 September Term, 2016

1:16-cv-01493-ABJ

Filed On: February 17, 2017

United States of America, et al.,

Appellees

v.

Anthem, Inc.,

Appellant

Cigna Corporation,

Appellee

BEFORE: Rogers, Kavanaugh, and Millett, Circuit Judges

O R D E R

Upon consideration of the emergency motion to expedite, the response thereto,the reply, and appellant’s brief, it is

ORDERED that the emergency motion to expedite be granted. It is

FURTHER ORDERED that the following briefing schedule will apply:

Briefs for Amici Curiaesupporting Appellant February 24, 2017

Briefs for Appellees(up to two briefs, one for governmentalentities and one for Cigna Corp.) March 13, 2017

Briefs for Amici Curiaesupporting Appellees March 17, 2017

Reply Brief for Appellant March 20, 2017

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United States Court of AppealsFOR THE DISTRICT OF COLUMBIA CIRCUIT

____________

No. 17-5024 September Term, 2016

It is FURTHER ORDERED that oral argument be scheduled before this panel onFriday, March 24, 2017, commencing at 9:30 a.m.

In view of the expedited nature of the appeal, no requests for extensions of timewill be considered and standard word limitations will apply. Appellees are urged tocoordinate the preparation of their briefs in an effort to limit any duplication.

To enhance the clarity of their briefs, the parties are urged to limit the use ofabbreviations, including acronyms. While acronyms may be used for entities andstatutes with widely recognized initials, briefs should not contain acronyms that are notwidely known. See D.C. Circuit Handbook of Practice and Internal Procedures 41(2017); Notice Regarding Use of Acronyms (D.C. Cir. Jan. 26, 2010).

The parties are directed to hand-deliver the paper copies of their submissions tothe court by 12:00 noon on the date due.

A separate order will be issued regarding the allocation of time for argument.

Per Curiam

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United States Court of AppealsFOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued March 24, 2017 Decided April 28, 2017

No. 17-5024

UNITED STATES OF AMERICA, ET AL.,APPELLEES

v.

ANTHEM, INC.,APPELLANT

CIGNA CORPORATION,APPELLANT

Consolidated with 17-5028

Appeals from the United States District Courtfor the District of Columbia

(No. 1:16-cv-01493)

Christopher M. Curran argued the cause for appellantAnthem, Inc. With him on the briefs was J. Mark Gidley. Noah

A. Brumfield, Matthew S. Leddicotte, and George L. Paul

entered appearances.

Charles F. Rule was on the brief for appellant CignaCorporation. Craig A. Benson entered an appearance.

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Paul T. Denis and Steven G. Bradbury were on the brief foramici curiae Antitrust Economists and Business Professors insupport of appellant.

Scott A. Westrich, Attorney, U.S. Department of Justice,argued the cause for appellees. With him on the brief wereKristen C. Limarzi, James J. Fredricks, Mary Helen Wimberly,and Daniel E. Haar, Attorneys, Rachel O. Davis, AssistantAttorney General, Office of the Attorney General for the Stateof Connecticut, and Paula Lauren Gibson, Deputy AttorneyGeneral, Office of the Attorney General for the State ofCalifornia. Loren L. AliKhan, Deputy Solicitor General, Officeof the Attorney General for the District of Columbia, Sarah O.

Allen and Tyler T. Henry, Assistant Attorneys General, Officeof the Attorney General for the Commonwealth of Virginia,Ellen S. Cooper, Assistant Attorney General, Office of theAttorney General for the State of Maryland, Victor J. Domen Jr.,Senior Counsel, Cynthia E. Kinser, Deputy Attorney General,and Erin Merrick, Assistant Attorney General, Office of theAttorney General for the State of Tennessee, Jennifer L. Foley,Assistant Attorney General, Office of the Attorney General forthe State of New Hampshire, Devin Laiho, Senior AssistantAttorney General, Office of the Attorney General for the Stateof Colorado, Layne M. Lindebak, Assistant Attorney General,Office of the Attorney General for the State of Iowa, Christina

M. Moylan, Assistant Attorney General, Office of the AttorneyGeneral for the State of Maine, Irina C. Rodriguez, AssistantAttorney General, Office of the Attorney General for the Stateof New York, and Daniel S. Walsh, Assistant Attorney General,Office of the Attorney General for the State of Georgia, enteredappearances.

David A. Balto was on the brief for amici curiae AmericanAntitrust Institute, et al. in support of plaintiffs-appellees.

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Edith M. Kallas, Joe R. Whatley, Jr., and Henry C. Quillen

were on the brief for amici curiae The American MedicalAssociation and The Medical Society of the District ofColumbia in support of appellees.

Douglas C. Ross, David A. Maas, and Melinda Reid Hatton

were on the brief for amicus curiae American HospitalAssociation in support of appellees.

Richard P. Rouco was on the brief for amici curiae

Professors in support of appellees.

Before: ROGERS, KAVANAUGH and MILLETT, Circuit

Judges.

Opinion for the Court filed by Circuit Judge ROGERS.

Concurring opinion filed by Circuit Judge MILLETT.

Dissenting opinion filed by Circuit Judge KAVANAUGH.

ROGERS, Circuit Judge: This expedited appeal arises fromthe government’s successful challenge to “the largest proposedmerger in the history of the health insurance industry, betweentwo of the four national carriers,” Anthem, Inc. and CignaCorporation. Appellees Br. 1. In July 2015, Anthem, which islicensed to operate under the Blue Cross Blue Shield brand infourteen states, reached an agreement to merge with Cigna, withwhich Anthem competes largely in those fourteen states. TheU.S. Department of Justice, along with eleven States and theDistrict of Columbia (together, the “government”), filed suit topermanently enjoin the merger on the ground it was likely tosubstantially lessen competition in at least two markets inviolation of Section 7 of the Clayton Act. Following a benchtrial, the district court enjoined the merger, rejecting the factual

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basis of the centerpiece of Anthem’s defense, and focus of itscurrent appeal, that the merger’s anticompetitive effects wouldbe outweighed by its efficiencies because the merger wouldyield a superior Cigna product at Anthem’s lower rates. Thedistrict court found that Anthem had failed to demonstrate thatits plan is achievable and that the merger will benefit consumersas claimed in the market for the sale of medical health insuranceto national accounts in the fourteen Anthem states, as well as tolarge group employers in Richmond, Virginia.

Anthem and Cigna (hereinafter, Anthem) challenge thedistrict court’s decision and order permanently enjoining themerger on the principal ground that the court improperlydeclined to consider the claimed billions of dollars in medicalsavings. See Appellant Br. 10. Specifically, Anthem maintains1

the district court improperly rejected a consumer welfarestandard — what it calls “the benchmark of modern antitrustlaw,” id. — and generally abdicated its responsibility to balancelikely benefits against any potential harm. According toAnthem, the merger’s efficiencies would benefit customersdirectly by reducing the costs of customer medical claimsthrough lower provider rates, without harm to the providers. The government has not challenged Anthem’s reliance on an

Cigna has become a reluctant supporter of the merger,1

stating in its appellate brief that “[i]n accordance with the mergeragreement, Cigna has appealed and defers to Anthem.” Cigna Br. 3. Indeed, the district court noted the “elephant in the courtroom,” for attrial Cigna executives dismissed various of Anthem’s claims ofsavings, cross-examined the merging parties’ expert witness, andrefused to sign Anthem’s proposed findings of fact and conclusions oflaw. United States v. Anthem, Inc., No. CV 16-1493 (ABJ), 2017 WL685563, at *4 (D.D.C. Feb. 21, 2017). Anthem suggested this is a“‘side issue,’ a mere ‘rift between CEOs.’” Id. That their relationshipmay have deteriorated has little to do with the anticompetitive effectsof the proposed merger.

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efficiencies defense per se. Rather, it points out that Anthemneither disputes that the merger would be anticompetitive but forthe claimed medical cost savings, nor challenges the districtcourt’s findings on the relevant market definition, ease of entry,the effect of sophisticated buyers, or innovation. Instead,Anthem’s appeal focuses principally on factual disputesconcerning the claimed medical cost savings, which thegovernment maintains were not verified, not specific to themerger, and not even real efficiencies.

For the following reasons, we hold that the district court didnot abuse its discretion in enjoining the merger based onAnthem’s failure to show the kind of extraordinary efficienciesnecessary to offset the conceded anticompetitive effect of themerger in the fourteen Anthem states: the loss of Cigna, aninnovative competitor in a highly concentrated market. Additionally, we hold that the district court did not abuse itsdiscretion in enjoining the merger based on its separate andindependent determination that the merger would have asubstantial anticompetitive effect in the Richmond, Virginialarge group employer market. Accordingly, we affirm theissuance of the permanent injunction on alternative andindependent grounds.

I.

Under Section 7 of the Clayton Act, a merger between twocompanies may not proceed if “in any line of commerce or inany activity affecting commerce in any section of the country,the effect of such [merger] may be substantially to lessencompetition.” 15 U.S.C. § 18.

A burden-shifting analysis applies to consider the merger’seffect on competition. United States v. Baker Hughes Inc., 908F.2d 981, 982 (D.C. Cir. 1990). First, the plaintiff must

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establish a presumption of anticompetitive effect by showingthat the “transaction will lead to undue concentration in themarket for a particular product in a particular geographic area.” Id. The most common way to make this showing is through aformula called the Herfindahl-Hirschman Index (“HHI”), whichcompares a market’s concentration before and after the proposedmerger. See id. at 983 n.3. By squaring the market sharepercentage of each market participant and adding them together,a market’s HHI can range from >0 to 10,000 (i.e., a puremonopoly, or 100²). Dept. of Justice & Fed. Trade Comm’n,Horizontal Merger Guidelines § 5.3 & n.9 (Aug. 19, 2010) (the“Guidelines”). Under the Guidelines, a market will beconsidered highly concentrated if it has an HHI above 2500, andif the merger increases HHI by more than 200 points and resultsin a highly concentrated market, it “will be presumed to belikely to enhance market power.” Id. § 5.3. Although, as theJustice Department acknowledges, the court is not bound by,and owes no particular deference to, the Guidelines, this courtconsiders them a helpful tool, in view of the many years ofthoughtful analysis they represent, for analyzing proposedmergers. See Baker Hughes, 908 F.2d at 985–86.

The burden shifts, once the prima facie case is made, to thedefendant to rebut the presumption. Id. at 982. To do so, itmust provide sufficient evidence that the prima facie case“inaccurately predicts the relevant transaction’s probable effecton future competition,” or it must sufficiently discredit theevidence underlying the initial presumption. Id. at 991. “Themore compelling the prima facie case, the more evidence thedefendant must present to rebut it successfully,” but because theburden of persuasion ultimately lies with the plaintiff, theburden to rebut must not be “unduly onerous.” Id.

Upon rebuttal by the defendant, “the burden of producingadditional evidence of anticompetitive effect shifts to the

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[plaintiff], and merges with the ultimate burden of persuasion,which remains with the [plaintiff] at all times.” Id. at 983.

II.

Anthem is the second-largest seller of medical healthinsurance to large companies in the United States, and it servesapproximately 38.6 million medical members. It is a member ofthe Blue Cross Blue Shield Association, a group of thirty-sixhealth insurance companies licensed to do business under theBlue Cross and/or Blue Shield brands. Anthem holds anexclusive license to the Blue brands in all or part of fourteenstates (the “Anthem states”), and it may also compete forbusiness outside those states if it receives permission from theBlue licensee in the relevant area. Anthem also owns non-Bluesubsidiaries through which it may operate both in and outside ofthe Anthem states, subject to Anthem’s “Best Efforts”obligations in its licensing agreement with the Blue CrossAssociation. Under these “Best Efforts” provisions, at least80% of Anthem’s revenue within the Anthem states must comefrom Blue-branded products, as must at least 66.67% of itsrevenue nationwide. Failure to comply could result intermination of Anthem’s license, which would trigger a $2.9billion fee to the Association.

Cigna, the third-largest seller of health insurance to largecompanies in the United States, serves approximately 13 millionmedical members nationwide and in more than 30 countries, inaddition to offering other specialty products such as dental andvision insurance. Unlike Anthem, which has historically beenable to leverage its size to negotiate steep discounts fromproviders, Cigna’s provider discounts have generally not beenas good, so Cigna has developed a different and innovativevalue proposition in order to compete for customers. Under itsmore collaborative arrangements with providers, and through the

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integrated, customized wellness programs it offers itscustomers’ employees, Cigna’s focus is on reducing employees’utilization of expensive medical procedures and promotingwellness through behavioral supports and lifestyle changes. This offers customers a different means of lowering health carecosts than the traditional model relying heavily on providerdiscounts.

On July 23, 2015, Anthem reached an agreement to mergewith Cigna. The merger would leave Anthem as the survivingcompany, with a controlling share of the merged company’sstock and a majority of seats on the merged company’s board ofdirectors. Within the Anthem states, Cigna customers would bepermitted to remain with Cigna, at least for the time being, butAnthem and Cigna would otherwise no longer compete with oneanother in those states. Outside the Anthem states, Cigna’sexisting business would allow Anthem a bigger foothold tocompete, subject to Anthem’s “Best Efforts” obligations. Themerger agreement extends until April 30, 2017.

On July 21, 2016, the United States, along with California,Colorado, Connecticut, Georgia, Iowa, Maine, Maryland, NewHampshire, New York, Tennessee, Virginia, and the District ofColumbia, sued to enjoin the merger. Relying on Section 7 ofthe Clayton Act, 15 U.S.C. § 18, plaintiffs alleged that themerger would substantially lessen competition in the market forthe sale of health insurance to national accounts in both theAnthem states and the United States as a whole, as well as in themarket for the sale of health insurance to large group employersin 35 local markets. Plaintiffs also alleged that the mergerwould substantially lessen competition for the purchase ofservices from healthcare providers in the 35 local markets bygiving the combined company anticompetitive buying power.

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Following a six-week bench trial, the district courtpermanently enjoined the merger on the basis of its likelysubstantial anticompetitive effect in the market for the sale ofhealth insurance to national accounts in the Anthem states, aswell as in the market for the sale of health insurance to largegroup employers in Richmond, Virginia. United States v.

Anthem, Inc., No. CV 16-1493 (ABJ), 2017 WL 685563, at *68(D.D.C. Feb. 21, 2017). It first defined the relevant nationalaccounts market, accepting the government’s proposeddefinition of “national account” as an employer purchasinghealth insurance for more than 5,000 employees across morethan one state. It also found that the market properly includedboth fully insured and “administrative services only” (“ASO”)plans. Under a fully-insured plan, the employer pays for claimsadjudication, access to the insurer’s provider network (includingwhatever discounted rates the insurer has negotiated), andcoverage of the employees’ medical costs. Under an ASO plan,the employer pays for claims adjudication and network access,but the employer self-insures and thus takes on the risk of itsemployees’ medical costs. Finally, the district court found thatthe relevant geographic market for national accounts was thefourteen Anthem states, because that is where Anthem andCigna currently compete most prominently, given thegeographical restrictions imposed on Anthem under its BlueCross license.

With the national accounts market so defined, the districtcourt then found a presumption of anticompetitive effect basedon the combined company’s market share. It determined thatthe merger would increase HHI by 537 to 3000, while theGuidelines threshold is an increase of 200 to 2500, resulting ina highly concentrated market. Guidelines § 10. It also notedthat under any variation performed by plaintiffs’ expert theresulting numbers were still well over the presumptiveGuidelines limits: considering only national accounts where 5%

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of employees reside in another state, HHI would increase 641 to3124; considering only ASO customers with 5% out-of-stateemployees, HHI would increase 880 to 3675; and considering allASO national accounts, HHI would increase 771 to 3663. Anthem objected that these calculations overstated Anthem’smarket share by including all Blue customers even if they werenot Anthem’s, but the district court found that this wasappropriate. Anthem’s own internal calculations include thesecustomers, and a key part of Anthem’s value proposition tocustomers is that they can access all non-Anthem Blue networksnationwide.

Next, the district court found that Anthem had providedsufficient evidence to rebut the government’s prima facie case. It relied on evidence that Anthem’s primary competitor fornational accounts is United Healthcare, not Cigna; that nationalaccounts tend to be sophisticated, well-informed customers andthus better able to thwart an attempted price increase; that newentrants to the market will constrain pricing; and that thecombined company would have incentives to innovate in itscollaborative care arrangements with healthcare providers.

Finally, the district court found that the merger’s overalleffect in the Anthem states would be anticompetitive byreducing the number of national health insurance carriers fromfour to three. It rejected Anthem’s efficiencies defense, whichposited the combined company would realize $2.4 billion inmedical cost savings through its ability to (1) “rebrand” Cignacustomers as Anthem in order for them to access Anthem’sexisting lower rates; (2) exercise an affiliate clause in some ofits provider agreements to allow Cigna customers access toAnthem rates; and (3) renegotiate lower rates with providers. First, it found that the claimed savings were not merger-specificbecause they were based on the application of rates that eithercompany was already able to attain, and thus presumably each

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company could attain the other’s superior rates on its own. Italso found that for Cigna customers that would be rebranded toAnthem, any related savings would not be merger-specificbecause Cigna customers could simply purchase the Anthemproduct today. It rejected the notion that the merger wasnecessary to allow Anthem customers access to Cigna’s popularproduct offerings because Anthem had failed to show that itcould not develop and offer these products on its own. Second,the district court found that the claimed savings also failedbecause they were not sufficiently verifiable. It found thatAnthem’s plan to exercise the affiliate clause in its providercontracts was unlikely to work as Anthem suggested. That is,exercise of the affiliate clause would likely give rise to providerresistance because the providers were unlikely to accept lowerrates and provide more services without getting anything inreturn. The district court also found, as a matter of fact, thatattempts to achieve the claimed savings through renegotiation ofprovider contracts would run into similar problems. It foundthat any savings would take time to be realized, and thatAnthem’s expert failed to account for utilization, i.e., theamount of medical services that would be consumed by a givencustomer. In sum, it found the claimed savings wereaspirational inasmuch as every proffered strategy eitherfloundered in the face of business reality or was achievablewithout the merger, or both. The district court also expresseddoubt as to whether the type of efficiencies claimed by Anthem,which merely redistribute wealth from providers to Anthem andits customers rather than creating new value, are evencognizable under Section 7.

Additionally, with regard to the Richmond market for largegroup employers, the district court found a presumption ofanticompetitive effect based on the fact that Anthem and Cignawere the city’s first- and second-largest competitors, with acombined market share of between 64% and 78%. It found that

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Anthem rebutted the presumption by challenging thegovernment’s calculations, pointing to additional competitorsoutside the Richmond area and claiming that Anthem customersin the Federal Employee Program skewed its Richmond marketshare. Overall, however, the district court credited the testimonyof the government’s expert that even accepting all of Anthem’sclaimed efficiencies, the merger would still have a netanticompetitive effect. Because Anthem had not shown that theremaining competition (or potential market entrants) couldlikely constrain a price increase by the combined company, itfound that the merger should be enjoined on that additional basisas well.

III.

Our review of the district court’s decision whether to issuea permanent injunction under the Clayton Act is limited todetermining whether there was an abuse of discretion. United

States v. Borden Co., 347 U.S. 514, 518 (1954); see FTC v. H.J.

Heinz Co., 246 F.3d 708, 713 (D.C. Cir. 2001) (“Heinz”). Thedistrict court’s conclusions of law are reviewed de novo, and itsfindings of fact must be affirmed unless clearly erroneous. Heinz, 246 F.3d at 713. If a finding of fact rests on an erroneouslegal premise, then the court “must examine the decision in lightof the legal principles [it] believe[s] proper and sound.” Id.

(quoting Ambach v. Bell, 686 F.2d 974, 979 (D.C. Cir. 1982)).

A.

It is undisputed that the government met its burden todemonstrate a highly concentrated post-merger market, whichwould be reduced from four to just three competing companies. Anthem also does not dispute the definition of the nationalaccounts market, nor that such a market will be even morehighly concentrated post-merger. Anthem’s appeal insteadhinges on the district court’s treatment of its efficiencies

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defense. The premise of its defense was explained by its expert,Mark Israel, Ph.D. According to Anthem, Dr. Israel quantifiedthe medical cost savings that the combined company couldachieve post-merger using a “best of best” methodology, basedon the economic theory that the combined company, with itsgreater volume, would be able to obtain discount rates that areno worse than either of the companies could achieve separately. Using claims data from Anthem and Cigna, he calculated thatthe merger would generate $2.4 billion in medical cost savingsthrough improved discount rates, 98% of which he predictedwould be passed through to customers, the large nationalemployers with which Anthem and Cigna contract. Of the $2.4billion in claimed savings, Dr. Israel projected that $1.517billion would result from Cigna customers accessing Anthem’slower rates, while $874.6 million would result from Anthemcustomers accessing Cigna’s lower rates; when viewed in termsof self-insured versus fully-insured customers, the former wouldpurportedly see $1.772 billion of the claimed $2.4 billion, whilethe latter would see $619.8 million. Using merger simulationmodels, he balanced these projected savings against potentialanticompetitive effects from the loss of the rivalry between thetwo companies and found the savings easily outweighed anypotential harm. See Appellant Br. 5–6. But, as Anthem tends toignore, the government offered its own evidence and experts tochallenge these conclusions, as we discuss below.

Despite, however, widespread acceptance of the potentialbenefit of efficiencies as an economic matter, see, e.g.,Guidelines § 10, it is not at all clear that they offer a viable legaldefense to illegality under Section 7. In FTC v. Procter &

Gamble Co., 386 U.S. 568 (1967), the Supreme Court enjoineda merger without any consideration of evidence that thecombined company could purchase advertising at a lower rate. It held that “[p]ossible economies cannot be used as a defense toillegality. Congress was aware that some mergers which lessen

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competition may also result in economies but it struck thebalance in favor of protecting competition.” Id. at 580. In hisconcurrence, Justice Harlan criticized this attempt to “brush thequestion aside,” and he “accept[ed] the idea that economiescould be used to defend a merger.” Id. at 597, 603 (Harlan, J.,concurring). No matter that Justice Harlan’s view may be themore accepted today, the Supreme Court held otherwise, id. at580, and no party points to any subsequent step back by theCourt.

Nor does our dissenting colleague, despite his wishfulassertion that Procter & Gamble can be disregarded by thiscourt because it preceded the “modern approach” adopted incases like United States v. General Dynamics Corp., 415 U.S.486 (1974), and Continental T. V., Inc. v. GTE Sylvania Inc.,433 U.S. 36 (1977). See Dis. Op. 9–11, 14–15. The SupremeCourt made no mention of Procter & Gamble in General

Dynamics, 415 U.S. 486, and it cannot be read to have implicitlyoverruled the earlier decision because it did not involveefficiencies. See id. at 494–504; see also 4A PHILLIP E. AREEDA

& HERBERT HOVENKAMP, ANTITRUST LAW ¶ 976c2, at 115(2016) (“AREEDA & HOVENKAMP”) (distinguishing between anefficiencies defense and General Dynamics’ “competitivesignificance” defense). And whatever significance Continental

T. V. may have in the area of vertical restraints on trade, 433U.S. at 54–59, it did not do the yeoman’s work that the dissentapparently ascribes to it here, for it did not involve efficiencies,mergers, or Section 7 of the Clayton Act. Even stranger is thedissent’s suggestion that our decision in Baker Hughes, 908 F.2dat 986, blessed an efficiencies defense, see Dis. Op. 10–11,because Baker Hughes did not concern efficiencies and, likeHeinz, 246 F.3d at 720, it could not overrule Supreme Courtprecedent. Nor has this court even hinted, as the dissentproclaims, that General Dynamics overruled Procter &

Gamble’s efficiencies holding. See Baker Hughes, 908 F.2d at

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988 (citing Procter & Gamble favorably); Heinz, 246 F.3d at720 & n.18 (interpreting Procter & Gamble’s efficienciesholding). Put differently, our dissenting colleague applies thelaw as he wishes it were, not as it currently is. Even if “theSupreme Court has not decided a case assessing the lawfulnessof a horizontal merger under Section 7 of the Clayton Act” since1975, Dis. Op. 10, it still is not a lower court’s role to ignore on-point precedent so as to adhere to what might someday becomeSupreme Court precedent.

Despite the clear holding of Procter & Gamble, 386 U.S. at580, two circuit courts, and our own, have subsequentlyrecognized the use of efficiencies evidence in rebutting a primafacie case. Heinz, 246 F.3d at 720 (citing, inter alia, FTC v.

Tenet Health Care Corp., 186 F.3d 1045 (8th Cir. 1999); FTC

v. Univ. Health, Inc., 938 F.2d 1206 (11th Cir. 1991)); see also

ProMedica Health Sys., Inc. v. FTC, 749 F.3d 559, 571 (6th Cir.2014). The Eighth Circuit, in holding that the government hadproduced insufficient evidence of a well-defined market,acknowledged that the district court may have properly rejectedthe efficiencies defense, while observing evidence of enhancedefficiencies should be considered in the context of thecompetitive effects of the merger. Tenet Health Care Corp.,186 F.3d at 1053–55. The Eleventh Circuit similarly concludedthat whether an acquisition would yield significant efficienciesin the relevant market is “an important consideration inpredicting whether the acquisition would substantially lessencompetition,” University Health, Inc., 938 F.2d at 1222, whilenoting both that “[i]t is unnecessary . . . to define the parametersof this defense now,” and that “it may further the goals ofantitrust law to limit the availability of an efficiency defense,”id. at 1222 n.30. Other circuits have remained skeptical andsimply assumed efficiencies can rebut a prima facie case, beforefinding that the merging parties had not clearly shown themerger would enhance rather than hinder competition. See, e.g.,

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FTC v. Penn State Hershey Med. Ctr., 838 F.3d 327, 348 (3dCir. 2016); Saint Alphonsus Med. Ctr.–Nampa, Inc. v. St. Luke’s

Health Sys., Ltd., 778 F.3d 775, 790 (9th Cir. 2015). These veryrecent decisions put to rest the dissent’s notion that “no moderncourt” recognizes the continued viability of Procter & Gamble,see Penn State Hershey Med. Ctr., 838 F.3d at 348; Saint

Alphonsus Med. Ctr., 778 F.3d at 789, while even a cursoryreading of the court’s opinion today puts to rest any suggestionthat it “espouses the old . . . position that efficiencies might bereason to condemn a merger.” Dis. Op. 15 (emphasis added)(quoting ERNEST GELLHORN ET AL., ANTITRUST LAW AND

ECONOMICS IN A NUTSHELL 463 (5th ed. 2004)).

“Of course, once it is determinated that a merger would

substantially lessen competition, expected economies, howevergreat, will not insulate the merger from a [S]ection 7 challenge.” Univ. Health, 938 F.2d at 1222 n.29. Notably, ProfessorsAreeda and Hovenkamp have observed that “Congress may nothave wanted anything to do with an efficiencies defense assertedby a firm that was already large or low cost within the marketand to whom the efficiencies would give an even greateradvantage over rivals.” AREEDA & HOVENKAMP, supra, ¶ 950f,at 42; id. ¶ 970c, at 31. As our subsequent analysis shows, thiscourt, like our sister circuits, can simply assume the availabilityof an efficiencies defense to Section 7 illegality because Anthemfails to show that the district court clearly erred in rejectingAnthem’s efficiencies defense.

This court was satisfied in Heinz, in view of the trendamong lower courts and secondary authority, that the SupremeCourt can be understood only to have rejected “possible”efficiencies, while efficiencies that are verifiable can becredited. 246 F.3d at 720 & n.18 (discussing 4 PHILLIP AREEDA

& DONALD TURNER, ANTITRUST LAW ¶ 941b, at 154 (1980)). The issue in Heinz was whether under Section 13(b) of the

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Federal Trade Commission Act, 15 U.S.C. § 53(b), preliminaryinjunctive relief would be in the public interest. 246 F.3d at727. The court held that the district court “failed to make thekind of factual findings required to render that defensesufficiently concrete to rebut the government’s prima facieshowing,” id. at 725, and, upon weighing the equities, remandedfor entry of a preliminary injunction. Id. at 726–27. The courtexpressly stated however: “It is important to emphasize theposture of this case. We do not decide whether . . . thedefendants’ claimed efficiencies will carry the day.” Id. at 727. These are not the issues in Anthem’s appeal from the grant of apermanent injunction. See LaShawn A. v. Barry, 87 F.3d 1389,1393 (D.C. Cir. 1996) (en banc).

Consequently, the circuit precedent that binds us allowedthat evidence of efficiencies could rebut a prima facie showing,Heinz, 246 F.3d at 720–22, which is not invariably the same asan ultimate defense to Section 7 illegality. Cf. generally Saint

Alphonsus Med. Ctr., 778 F.3d at 789–90 (and authorities citedtherein). In this expedited appeal, prudence counsels that thecourt should leave for another day whether efficiencies can be an ultimate defense to Section 7 illegality. We will proceed onthe assumption that efficiencies as presented by Anthem couldbe such a defense under a totality of the circumstances approach,see Baker Hughes, 908 F.2d at 984–85 (citing General

Dynamics, 415 U.S. at 498), because Anthem has failed to showthe district court clearly erred in rejecting Anthem’s purportedmedical cost savings as an offsetting efficiency. Guidelines§ 10; cf. Heinz, 246 F.3d at 720–22. Additionally, because thedistrict court could permissibly conclude that the efficienciesdefense failed, because the amount of cost saving that is bothmerger-specific and verifiable would be insufficient to offset thelikely harm to competition, this court has no occasion to decidewhether the type of redistributional savings claimed here arecognizable at all under Section 7. It bears noting, though, that

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all of those other issues pose potentially substantial additionalobstacles to this merger.

One further preliminary analytical point. Amici supportingAnthem invite the court to disregard the merger-specificity andverifiability requirements on the ground they place anasymmetric burden on merging parties that could doombeneficial mergers. See Br. for Antitrust Economists andBusiness Professors as Amicus Curiae in Support of Appellantand Reversal (“Amici Economists”) at 5–7. Anthem itself hasnot adopted this argument. See Burwell v. Hobby Lobby Stores,

Inc., 134 S. Ct. 2751, 2776 (2014); Eldred v. Reno, 239 F.3d372, 378 (D.C. Cir. 2001). We note, however, that AmiciEconomists misapprehend the nature of Anthem’s claimedefficiencies as “direct price reductions,” id. at 6–7, rather thanas potential price reductions subject to a number ofuncertainties. For customers to realize any price reduction,Anthem would first have to succeed in reducing providers’ rates,and to that extent the purported reductions would not be a directeffect of the merger. By contrast, the merger wouldimmediately give rise to upward pricing pressure by eliminatinga competitor, see, e.g., Tr. 960:12–18, and Anthem couldunilaterally raise its prices in response. Further, AmiciEconomists ignore that fully-insured customers, and potentiallyself-insured customers depending on the terms of their contractswith Anthem, will not see any savings until Anthem takes asecond action, renegotiating the customers’ contracts to passthrough the savings. This illustrates the reason for theverifiability requirement: Perhaps Anthem is certain to takethose actions, and there will be no impediments to the savings’realization, but that showing is still necessary for a court toconclude that the merger’s direct effect (upward pricingpressure) is likely to be offset by an indirect effect (potentialdownward pricing pressure). See Guidelines § 10. As formerger-specificity, Amici Economists point to no logical flaw

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in the policy that consumers should not bear the loss of acompetitor if the offsetting benefit could be achieved without amerger. See Heinz, 246 F.3d at 722.

B.

Any claimed efficiency must be shown to be merger-specific, meaning that it “cannot be achieved by either companyalone because, if [it] can, the merger’s asserted benefits can beachieved without the concomitant loss of a competitor.” Heinz,246 F.3d at 722. The Guidelines frame the issue slightlydifferently: an efficiency is said to be merger-specific if it is“likely to be accomplished with the proposed merger andunlikely to be accomplished in the absence of either theproposed merger or another means having comparableanticompetitive effects.” Guidelines § 10. Anthem faults thedistrict court for considering whether the efficiencies “could” beachieved absent the merger, without regard to likelihood,Appellant Br. 24, even though in Heinz, 246 F.3d at 722, thiscourt spoke repeatedly in terms of possibility (“can” or “could”).

Heinz, 246 F.3d at 721–22, cited the Guidelines withapproval in describing the standard for merger-specificity. Boththe current and then-current Guidelines refer to “practical”alternatives to achieving the efficiency short of merger,alternatives that are more than “merely theoretical.” Guidelines§ 10 (2010); Guidelines § 4 (1997). Similarly, in Heinz, 246F.3d at 722, the court considered whether it was practical for thecompany to obtain better baby food recipes by investing moremoney in product development, or whether that would cost moremoney than the merger itself. The real question is whether thealternatives to merger are practical and more than merelytheoretical, see id.; Guidelines § 10. Even assuming there is anydifference between the two standards, it would not affect theoutcome here on this factual record. Viewed under eitherarticulation, certain of Anthem’s claimed efficiencies fall away.

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The crux of Anthem’s argument regarding merger-specificity is the theory that the combined company will allowAnthem to create a “new product” that is “unavailable on themarket today”: a product that features both “Cigna’s customer-facing programs” and Anthem’s “generally lower . . . rates.” Appellant Br. 26. One way Anthem maintains the merger willresult in this new product is through rebranding. According toAnthem, “rebranding means [the combined company] retain[s]the Cigna product but brand[s] it under the Anthem name withAnthem’s negotiated provider rates.” Appellant Br. 34. Therecord, however, refutes rather than substantiates Anthem’sproposed rebranding approach. In fact, the record evidenceAnthem cites for its rebranding plan is the testimony of AnthemSenior Vice President Dennis Matheis. But in that testimony,Matheis confirmed that, at least “[i]n the short term,” rebrandingwould simply involve Anthem “offer[ing] Cigna customersAnthem products,” in a manner that is “no different” thanAnthem “selling new business in the market.” Tr. 1599:20–25. In other words, when a Cigna customer rebrands, the immediateeffect is that the customer gives up a Cigna contract and Cignaproduct in favor of an Anthem contract and Anthem product. Indeed, it is only “[o]ver the long haul,” Matheis testified, thatAnthem could actualize its “vision . . . [to] combine Cignafeatures . . . with Anthem features,” Tr. 1606:17–21, and thenrebranding might result in a former Cigna customer obtainingsome semblance of the former Cigna product at the new Anthemrate. But rebranding in the immediate aftermath of the mergerwould involve a Cigna customer switching to the extant Anthemproduct, and that is not a merger-specific outcome; that is justmore successful marketing of the existing Anthem product. AndAnthem expressly “does not contend that . . . a customer simplyswitching from a Cigna product to an existing Anthem product[]results in merger-specific efficiencies.” Appellant Reply Br. 21.

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Instead, Anthem claims only that rebranding over the longhaul, once it has successfully rolled out an improved, Cigna-likeproduct, will result in a merger-specific benefit, and maintainsthat the district court clearly erred in finding Anthem couldsimply develop and offer an improved product on its own. Justas in Heinz, 246 F.3d at 722, the evidence offered by Anthem iswoefully insufficient to show that it cannot develop bettercustomer-facing programs. Anthem points to testimony fromtwo witnesses that Anthem has failed to replicate Cigna’sproducts, for reasons unknown. In particular, Anthem’sPresident of Specialty Business Pam Kehaly testified that Cignaoffers a “packaged integrated wellness approach where [Anthemoffers] disparate pieces that employers kind of have to piecetogether on their own.” Kehaly Depo. Tr. 87:12–15 (Apr. 28,2016). According to Kehaly, Anthem has been trying to solvethe problem for “probably a decade” but for whatever reason itjust has “not been able to crack this nut.” Id. at 88:3–13. Shedid not indicate how intensive the effort has been, how manyhours were devoted to it, or how much money Anthem hasallocated toward it. Anthem’s Regional Vice President of SalesBrian Fetherston also testified that Cigna has “done a reallygood job of building wellness programs” and that Anthem hastried but failed to catch up. Fetherston Depo. Tr. 170:14–19(May 6, 2016). The district court could properly find that failurelikely results more from Anthem’s own no-frills culture orflawed marketing strategies than from any inherent difficultiesin pulling together an integrated wellness program. Forinstance, Fetherston testified that Cigna is “significantly betterat marketing” its wellness program, while by contrast Anthem“just [was not] actively promoting” its own, and indeed, Anthemrecently decided to “dial back some of [its] disease managementprograms,” which Fetherston believed was a mistake. Id.

169:1–170:6, 323:1–23. To the extent Anthem has failed todevote the resources needed to improve its product, it is in noposition to claim that consumers will benefit from it swallowing

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up Cigna’s superior product.

Put differently, rebranding does not create a merger-specificbenefit in either the short- or long-term. Perhaps Anthem couldcreate some brief, interim benefit in the mid-term by integratingCigna’s product faster than it could develop a comparableproduct of its own. Guidelines § 10 n.13 (“If a merger affectsnot whether but only when an efficiency would be achieved,only the timing advantage is a merger-specific efficiency.”). But Anthem made no sufficient factual showing in the districtcourt on this point. It has offered no evidence to show how longit would take, once the necessary resources were allocated, todevelop an improved product. Nor has it shown how long itwould take to roll out a hybrid Anthem-Cigna product. At oralargument, Anthem claimed that it could do so in six months, butat trial, Anthem’s Senior Vice President Matheis allowed that itmight not be able to do so within two-and-a-half years.

To the extent Anthem also maintains that none of Dr.Israel’s claimed savings are dependent on rebranding, it ignoresthe reality of his economic model. Without one of itsmechanisms to get current Cigna customers access to Anthemrates, none of the $1.517 billion in claimed Cigna savings couldbe realized. Although Dr. Israel may have been agnostic as towhich mechanism is used to achieve those savings, heacknowledged that rebranding would achieve a portion of them:“If there was rebranding as a way to get the discounts . . . thatwould just be another way to get them faster.” Tr. 2108:9–11. Given that rebranding is the linchpin of Anthem’s post-mergerstrategy, because it is the only option that helps Anthem complywith its “Best Efforts” obligations, the inability to creditrebranding savings seriously undermines Anthem’s efficienciesdefense.

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The district court further found that none of the medicalcost savings are merger-specific because they are based on anapplication of rates that each of the companies has alreadyachieved on its own. Anthem, quite reasonably, challenges thisfinding with regard to Cigna’s rates on the ground that “there isno dispute that [Cigna] has generally secured less favorableprovider rates than Anthem for years and has been unable toclose that gap despite its best efforts.” Appellant Br. 27. Therecord shows that, by its own account, Cigna has been unable tomatch Anthem’s volume-based discounts and instead has had tocompete on quality and innovation. Even the government’sexpert, Dr. David Dranove, agreed that a true Cigna product atAnthem rates would not be achievable absent the merger. Thatthe district court clearly erred in finding that the application ofAnthem rates to customers that choose to remain with Cigna isnot merger-specific, however, is immaterial to the districtcourt’s ultimate conclusion that the merger would be unlawfulbecause these claimed efficiencies are not sufficiently verifiable.

C.

Under the Guidelines, projected efficiencies will not becredited “if they are vague, speculative, or otherwise cannot beverified by reasonable means.” Guidelines § 10. Anthemmaintains that the district court clearly erred because the $2.4billion in projected post-merger savings was verified by twoindependent sources (Dr. Israel and an integration planning teamfrom McKinsey & Company, which had access to eachcompany’s internal files). In Anthem’s view, the district courtalso erred as a matter of law by imposing a “virtuallyinsurmountable burden” of persuasion, Appellant Br. 38, whenall that is required is to show “probabilities, not certainties,”Baker Hughes, 908 F.2d at 984.

As discussed, Anthem plans to achieve the claimed savingsthrough a combination of three mechanisms: rebranding,

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renegotiating provider contracts, and exercising Anthem’saffiliate clause. The district court found that practical businessrealities would undermine the execution of that plan, makingachievement of the savings speculative, and thereforeunverifiable. With regard to the affiliate clause, the districtcourt focused on evidence of the potential for providerdiscontent if the lower Anthem rates are forced on providers thatmust expend extra effort and resources to deliver the Cignaproduct, without any corresponding increase in value forproviders. This evidence included testimony by both Anthemand Cigna witnesses as well as documents from Anthem andCigna that acknowledged the likely “abrasi[on].” E.g., Pls.’ Ex.89. The record indicates that physician contracts can beterminated by either party with only 90 days’ notice, so theaffiliate clause would accomplish little if the contract isterminated or renegotiated soon after the clause is exercised. Hospital contracts tend to involve three-year commitments, sothe affiliate clause may bind them to offer lower rates for alonger period. Still, when those hospital contracts expire, largedelivery systems with greater leverage “could push back hard”in renegotiation. Pls.’ Ex. 717. In either event, it is probable, asCigna CEO David Cordani testified, that some providers willeventually “react [by] renegotiating . . . and putting upwardpressure on rates, which has been a market force to date.” Tr.443:17–23. That “very few” Anthem providers havepreemptively sought to renegotiate proves little, see Tr.1686:15–25, because the feared abrasion would not occur untilAnthem invokes the affiliate clause, assuming it ever does so.

This raises another practical difficulty with the affiliateclause: although it is theoretically useful to Anthem, in realityit is unlikely to be widely exercised because it works counter toAnthem’s contractual obligations. Under the “Best Efforts”clause in Anthem’s licensing agreement with the Blue CrossBlue Shield Association, 80% of Anthem’s revenue within the

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Anthem states must be Blue-branded, as must 66.67% of itsrevenue nationwide. The merger would immediately throwAnthem out of compliance and so Anthem intends to rebrand a“lion’s share” of current Cigna customers in order to count thatrevenue as Blue-branded. Tr. 1600:17–21 (Anthem Sr. VPMatheis). By contrast, widespread exercise of the affiliateclause would remove any incentive for Cigna customers toconvert to Anthem because those customers would then bereceiving the Cigna product at Anthem prices, Dr. Israel’smuch-touted “best of both worlds” scenario. Anthem fails toaddress this reality when it maintains that 80% of the savings toCigna customers could be achieved rapidly using the affiliateclause. See Appellant Br. 40. Because doing so would workcontrary to Anthem’s own contractual obligations, its witnessesconceded that it will instead rely heavily on rebranding, which,as discussed, gives rise to no merger-specific benefits.

As for renegotiation, the short answer is that if Anthemcannot persuade providers to extend lower rates to Cigna underits affiliate clauses — where it has apparent contractual recourseto do so — then it is speculative that Anthem could get them toagree to do the same thing through negotiations absentcompulsion. Anthem assumes, as did Dr. Israel’s model, that inall instances renegotiation would result in providers acceptingthe lower Anthem rates. That assumption appears questionablein the case of a provider that has just terminated a contractbecause Anthem mandated, through an affiliate clause, theacceptance of those very rates. Instead, Cigna’s CEO Cordanipredicted such renegotiation would put upward pressure on theAnthem rate, and to the extent Anthem were to adopt a take-it-or-leave-it approach, the provider could simply choose to walkaway. See Br. for Amici Am. Med. Ass’n. & Med. Soc’y of D.C. (“AMA Br.”) 11–12. This is especially true for largehospital networks with significant bargaining power.

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To the extent that some medical savings would be achievedfor Cigna customers at the bargaining table due to the combinedcompany’s volume, the district court expressed concern overhow long such savings would take to be realized. Anthem’sCEO Swedish testified that capturing medical savings requiresa “long gestation period,” in part because existing hospitalcontracts span three to five years and would not be subject torenegotiation “for a considerable period of time.” Tr.337:21–338:16. He also rejected the idea that Anthem wouldsimply “drop[] the hammer” on providers by insisting onmaximum discounts across-the-board because Anthem insteadrelies upon “customized relationship-driven contract[s]” thatseek to optimize performance on a case-by-case basis, ratherthan focusing solely on discounts. Tr. 294:20–295:11. Anthem’s expert agreed that renegotiations in the ordinarycourse of business will take place over time. The longer it takesfor an efficiency to materialize, the more speculative it can be,see Guidelines § 10 & n.15, so the district court was on solidground to give less weight to the claimed renegotiation savings.

In sum, although renegotiation will lead to a decrease inCigna’s rates, the assumption that it will in every instance leadto the Anthem rate is farfetched. See Tenet Health Care Corp.,186 F.3d at 1054. Indeed, as the district court observed, “theDepartment of Justice is not the only party raising questionsabout Anthem’s characterization of the outcome of the merger”because Cigna itself had “provided compelling testimonyundermining the projections of future savings.” Anthem, Inc.,2017 WL 685563, at *4; see also Pls.’ Ex. 722.

Whatever mechanism is employed to achieve the savings,the district court had “reason to question . . . whether the qualityof the Cigna offering will in fact degrade” as a result of themerger, Anthem, 2017 WL 685563, at *61, which furtherundermines the purported efficiency claims. Guidelines § 10.

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For those that choose to stay with Cigna post-merger — andthus would access lower rates through renegotiation or exerciseof the affiliate clause — the abrasion problem arises becauseproviders would be asked to continue offering the high-touch,collaborative Cigna service, with its added behavioral, wellness,and lifestyle programs, for less money. See AMA Br. 10–11. It was perfectly reasonable for the district court to find that someproviders, even if they are willing to accept less money, willsimply respond by offering customers less in the way of Cignahigh-touch service. Furthermore, according to Cigna’s CEOCordani, the value of the Cigna offering will be diminishedbecause Anthem’s rebranding strategy will siphon businessaway from Cigna, leaving behind an atrophied Cigna customerbase that is less attractive to providers. This will in turndiminish Cigna’s capacity for further innovation with itscollaborative model. And for Cigna customers that agree tomigrate to Anthem (or are pushed into doing so because thecompany refuses to extend their expiring Cigna contracts),provider abrasion again rears its head, this time with providersbeing asked to offer Anthem customers better, and moreresource-intensive, collaborative service for the same rates theyhave historically received. Anthem does not respondmeaningfully to these concerns, simply labeling them“speculation.” Appellant Reply Br. 10. In light of the numerousAnthem witnesses who acknowledged the abrasion problem, thedistrict court did not err in finding it “dubious” that Anthemwould be able to offer a true Cigna-like product, or that legacyCigna would be able to maintain the quality of its own product. Anthem, 2017 WL 685563, at *59, *61.

The fact is, it is widely accepted that customers value theexisting Cigna product, and that Cigna is a leading innovator incollaborative patient care. That threat to innovation isanticompetitive in its own right. Cf. United States v. Cont’l Can

Co., 378 U.S. 441, 465 (1964). And the problem is neither

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answered by Anthem’s evidence nor offset by its purportedefficiency of offering a degraded Cigna product at a lower rate.

In addition to claimed savings to current Cigna customers, Dr. Israel also projected that $874.6 million in savings would berealized if Anthem’s customers were able to access superiorrates that Cigna has already negotiated. In focusing almostentirely on the other side of the ledger, Anthem offers littlereason to think that the district court clearly erred in rejectingthe claimed savings to existing Anthem customers. See

Appellant Br. 41–42. To the extent Anthem argues on appealthat Anthem customers could access Cigna’s superior ratesthrough rebranding or exercise of an affiliate clause, the onlywitness it cites was actually discussing the affiliate clause inAnthem’s contracts that would apply to Cigna’s customers. Andeven assuming that Cigna’s contracts contain an affiliate clause,Blue Cross Association rules would prohibit Anthem fromexercising it. Further, rebranding Anthem customers to Cignawould only exacerbate Anthem’s “Best Efforts” problem, whichindicates why Anthem Senior VP Matheis testified that Anthemwould rebrand a lion’s share of Cigna customers to Anthem, notthe other way around. Renegotiation would be the only viableoption for realizing the projected savings to Anthem customers.

Moreover, Anthem has not explained why these projectedsavings would even exist. The record is clear that Anthem,unlike Cigna, has already achieved whatever economies of scaleare available. According to Anthem’s expert Dr. Robert Willig,in the 35 local markets identified in the government’s complaint,the data did not show that Anthem’s size correlated with itsprovider discounts. To the contrary, Dr. Willig testified thatAnthem is “already past the threshold of having enough size todo what it needs to do in terms of offering volume to providers.” Tr. 2231:9–12. Similarly, Anthem’s CEO Joseph Swedishdenied that Anthem would seek to negotiate even greater

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volume-based discounts after the merger because post-mergerAnthem would “certainly not [pay] less than what [it is] nowpaying as Anthem.” Tr. 294:10–19. The evidence indicatesthat where Cigna has better discounts than Anthem, that is aresult of factors other than volume, and the district courtreasonably questioned whether those atypical discounts wouldremain available post-merger. In the absence of an additionalvolume-based discount, then, Anthem makes no effort to showhow its current customers would see lower prices as a result ofthe merger, and certainly not to the tune of $874.6 million. Consequently, the district court did not clearly err in rejectingthese alleged medical cost savings as unverifiable.

Next, the claimed medical cost savings only improveconsumer welfare to the extent that they are actually passedthrough to consumers, rather than simply bolstering Anthem’sprofit margin. See Univ. Health, Inc., 938 F.2d at 1223. Afterall, the merger potentially harms consumers by creating upwardpricing pressure due to the loss of a competitor, and so onlyefficiencies that create an equivalent downward pricing pressurecan be viewed as “sufficient to reverse the merger’s potential toharm consumers . . . , e.g., by preventing price increases.” Guidelines § 10; see also AREEDA & HOVENKAMP, supra,¶ 971a, at 48 (“[A] sufficient amount of any efficiencies [must]be passed on that the post-merger price is no higher than the pre-merger price.”). Dr. Israel testified that absent monopsony (i.e.,the exercise of market power to gain subcompetitive prices fromproviders), any cost savings will create downward pricingpressure, and while this is unobjectionable, the amount passedthrough to consumers indicates the strength of that pressure. See

Br. of Professors as Amici Curiae in Support of Appellee and forAffirmance 7–8 (“Amici Professors”). The district court rightlycast doubt on Dr. Israel’s estimated pass-through rate of 98%,which was unsupported by the evidence and treated self-insuredand fully-insured customers identically.

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Because ASO customers pay their employees’ medical costsdirectly, any reduction in medical rates would result in savingsthat automatically pass through to the customer, absent somecorresponding ASO price increase by Anthem. This wouldimprove the quality of one aspect of the ASO product (i.e.,access to more deeply discounted network rates), and it couldthus be procompetitive even if it did not immediately result inan ASO price decrease. See Guidelines § 10. Dr. Israel’sanalysis rested on the assumption that rather than raising ASOprices to capture the medical cost savings, Anthem wouldattempt to increase its market share by providing a muchsuperior product at only a slightly higher price, therebymaximizing its profits through increased sales. The districtcourt highlighted internal Anthem documents that discussedways to keep those savings for itself, in particular whereAnthem listed seven alternatives with 100% pass-through toASO customers considered last. Contrary to Dr. Israel’sassumption, then, Anthem apparently concluded that total pass-through was not the profit-maximizing, “optimal solution tocapture the most value from [the] deal,” and that it couldactually lose business if customers initially saw savings thatwere not sustained over the long term. Pls.’ Ex. 727. AmiciProfessors offer another reason why Anthem might have cometo this conclusion: in highly concentrated markets, already-largeinsurers are less constrained by competition and thus tend to findit more profitable to capture medical savings and increasepremiums. Amici Professors Br. 6–9; see also AREEDA &HOVENKAMP, supra, ¶ 971f, at 56 (in highly concentratedmarkets “there is less competition present to ensure that thebenefit of efficiencies will flow to consumers”). Thatcorroborates rather than remediates anticompetitive concerns.

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As for fully insured customers, which comprise $619.8million of the projected savings, the estimated pass-through iseven less likely given that the savings would automatically inureto Anthem’s benefit absent some corresponding price decreaseto its customers. Dr. Israel recognized this dynamic at trial, andyet his model takes no account of it, applying a pass-throughrate of 98% to both ASO and fully insured accounts. The recordindicates that ASO customers, which pay medical costs directlyto providers, are keenly attuned to fee transparency, but it isunclear fully-insured customers are afforded the sametransparency. That is, if Anthem negotiates provider rates andpays providers directly, how would a customer be aware thatAnthem had achieved medical savings, in order to be able toseek a pass-through in the form of a lower negotiated price? Further, when would fully-insured customers realize thatrenegotiated price, given that their existing contracts would notpass though any savings? See Tr. 2107:17–21 (Dr. Israel:ordinary-course renegotiation of employers’ contracts “will takeplace over time”). Neither Anthem nor Dr. Israel answers (oraddresses) these problems.

Finally, the district court did not clearly err when itcriticized Anthem’s failure to account in its projected savingsfor utilization, which is a signature aspect of the Cigna product. Dr. Israel’s model was based on discounts that either companywas able to achieve on its own multiplied by the total claimsvalue, but as Anthem’s CEO Swedish testified, “We don’t livein a discount world any longer.” Tr. 295:11. Cigna’s CEOCordani agreed: “If you’re looking [only at] a discountcalculation, if [Anthem] has a 2 percent lower discount for theemergency room service, you would assume that that’s asavings,” unless Cigna’s wellness program helps the patientavoid that emergency room visit altogether. Tr. 443:10–16. Anthem maintains that Dr. Israel and the McKinsey & Co. teamdid account for utilization, because Dr. Israel testified that lower

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utilization would result in a lower total claims value, a value thatfactored into both his and the McKinsey & Co. models. But thisignores that on cross-examination, Dr. Israel conceded that hedid not control for the different risks and features of eachcompany’s population at a particular provider, which would benecessary to compare utilization, and so his model did notaccount for whether one company’s utilization was better thanthe other’s. And although Anthem nevertheless maintains thatno evidence shows accounting for utilization would materiallyreduce the claimed savings, Dr. Dranove testified that any erroror incorrect assumption would have a significant effect on theoverall projected savings. See Tr. 2327:15–2329:11. Thus, theproblem is less that the failure to account for utilization wouldnecessarily reduce the projected savings, and more that itundermined the district court’s confidence in the reliability andfactual credibility of those savings calculations.

Both sets of projections suffered from additional, basicanalytic flaws. For instance, Dr. Israel did not agree with thedistrict court’s national accounts market definition (employerswith 5,000+ employees), so his savings projection was based onthe broader market definition that he believed appropriate (large-group employers with either 50+ or 100+ employees). In otherwords, Dr. Israel’s claimed $2.4 billion in savings is unmooredfrom the actual market at issue, and there is no indication ofwhat portion is properly derived from the national accountsmarket. Similarly, the McKinsey & Co. analysts based some oftheir savings on a comparison of Cigna and Anthem rates whereonly one of the companies had negotiated a discount with thatparticular provider. This apples-to-oranges comparison of in-network versus out-of-network rates overstated the true disparitybetween the companies’ existing discounts and thus necessarilyinflated McKinsey & Co.’s projected savings. Even Dr. Israelacknowledged as much: his model only compared in-networkrates because he concluded that “that’s what the economics tells

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you you need to do to get the answer right.” Tr. 1855:2–22. This could help to explain why Dr. Israel’s otherwise similarmethodology resulted in a projection that was almost a billion

dollars less than McKinsey & Co.’s.

The savings projected by McKinsey & Co. and Dr. Israel —uncritically relied on by the dissent, e.g., Dis. Op. 4–8, 18 —were without a doubt enormous. The problem is, thoseprojections fall to pieces in a stiff breeze. If merging companiescould defeat a Clayton Act challenge merely by offering experttestimony of fantastical cost savings, Section 7 would be deadletter.

D.

Having considered the totality of circumstances, see Baker

Hughes, 908 F.2d at 984, we hold that the district courtreasonably determined Anthem failed to show the kind of“extraordinary efficiencies” that would be needed to constrainlikely price increases in this highly concentrated market, and tomitigate the threatened loss of innovation. Cf. Heinz, 246 F.3dat 720. Given the record evidence, Anthem’s objection that thedistrict court “abdicated its responsibility” to balance themerger’s likely benefits against its potential harm, Appellant Br.46, rings hollow. Anthem seems to insist upon a dollar-for-dollar comparison after discounting whatever claimedefficiencies were properly rejected, in responding that “so longas at least one-third of the $2.4 billion of savings are likely to beachieved, the merger is procompetitive.” Appellant Reply Br.10. This would apparently require the court to calculate, forinstance, a more realistic pass-through rate than the rejected98% figure, or to estimate what percentage of the claimed $2.4billion was attributable to customers with fewer than 5,000employees and thus outside of the relevant market. Anthem haspointed to no relevant expert economic evidence on which tobase such an imprecise calculation, and Anthem, not the district

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court, has the burden of showing what portion of the claimedefficiencies will result from the merger itself. Even assuming itwere possible on this record, see University Health, 938 F.2d at1223, “[e]conomies cannot be premised solely on dollar figures,lest accounting controversies dominate § 7 proceedings,”Procter & Gamble, 386 U.S. at 604 (Harlan, J., concurring). Because “the state of the science does not permit such refinedshowings,” commentators have recommended simply giving thegovernment the benefit of the doubt in a close case. See

AREEDA & HOVENKAMP, supra, ¶ 971f, at 56. In any event, thisis not a close case.

The dissent’s critique of the court’s opinion is not wellfounded. Its fundamental flaw is the failure to engage with thefacts shown in the record as they pertain to merger-specificityand verifiability. Repeated references to unspecified evidence, see, e.g., Dis. Op. 3, 12, 14, 17, on which the dissent basessweeping conclusions, speak volumes. Rather than engage withthe record, much less adhere to our standard for reviewingfindings of fact by the district court, the dissent offers a series ofbald conclusions and mischaracterizes the court’s opinion. Forinstance, the dissent repeatedly claims that the court “does notfully accept the fact . . . that providers rates would actually belower,” Dis. Op. 17; id. at 15, when in fact the court accepts thatrates would be lower for some existing Cigna (but not Anthem)customers post-merger. Those who rebrand with Anthem,however, will see no merger-specific savings, Op. 20–21, andthe few that Anthem fails to rebrand will see far fewer savingsthan Anthem claims, due in large part to provider abrasion andbig hospital systems that will stand their ground in renegotiation,Op. 24–27. The dissent baldly asserts that the efficiencies “aremerger-specific by definition,” Dis. Op. 6–7, without addressingthe paucity of evidence that Anthem would be unable to developa Cigna-like product without merging. So too, it baldly assertsthat the savings were “sufficiently verified,” while admitting

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that it is not clear “just how much the employers would benefitfrom this merger.” Id. at 7 (emphasis omitted). In other words,Anthem estimated an astronomical amount of savings, so evenif that amount were wildly overstated, the dissent expects thecourt to trust that, as an unknown fraction of a large number, theresult “would be large.” Id.

To the extent the dissent notes any of the major factualproblems with Anthem’s depiction of the merger, it brushesthem aside. It dismisses as “highly speculative” the providerabrasion problem that was conceded by both Anthem and Cigna

witnesses, Dis. Op. 17, a problem that undermines Anthem’splans for realizing the savings through the affiliate clause andrenegotiation. It characterizes record evidence that squarelycontradicts Anthem’s pass-through estimates — Anthem’s owninternal PowerPoint presentation — as “secret Anthem plans todramatically raise [its] fees,” id., which is precisely what theevidence reflects. It attacks straw men like supposed reliance on“friction between the Anthem and Cigna CEOs,” id., when thecourt does not so rely, noting indeed the limited probative valueof that evidence. Op. 4 n.1. It fails entirely to address Anthem’s“Best Efforts” obligations, which make it likely that Anthemwill rely predominantly on rebranding, a strategy that gives riseto no merger-specific benefit. Op. 24–25. The “Best Efforts”clause also creates a verifiability problem with regard toAnthem’s other savings strategies, for instance undercuttingAnthem’s assertion that 80% of the savings to Cigna customers“could be achieved simply [and rapidly] by invoking the affiliateclause.” Appellant Br. 40. Again, pulling at any one loosethread quickly unravels Anthem’s narrative, but the dissent issimply unwilling to do so.

Ultimately, the dissent concludes that “[o]n this record,there is little basis to doubt that the cost savings for employersas a result of the merger would be large,” without evincing any

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real awareness of the record beyond the testimony of Anthem’sexpert and consultants. See Dis. Op. 7. To wit, the dissentsuggests that Anthem’s savings estimates went unrebutted attrial, Dis. Op. 6, when the record shows Dr. Dranove not onlyoffered his own estimate of $100 million to $500 million butexplained why those savings were unlikely to be realized,essentially for the reasons discussed in this opinion. See, e.g.,Tr. 3802:25–3803:11. Similarly, it recognizes no distinctionbetween savings to existing Cigna customers (some of which thegovernment concedes will materialize) and savings to existingAnthem customers (the existence of which even Anthem cannotexplain in light of the testimony of both its CEO and expert, see

supra Part III.C). Likewise, in concluding that the quality ofthe Cigna product (its wellness programs and the high-touchservice that providers offer in support of the programs) will notdegrade post-merger, the dissent does not go so far as to saythere is no evidence to support the district court’s contraryfinding, Anthem, 2017 WL 685563, at *59, *61; rather, it assertsit does not consider this evidence “persuasive” or “convincing.” Dis. Op. 18. Such de novo analysis throughout the dissentbetrays no meaningful effort to engage with the district court’sfactual findings, which are subject only to review for clear error.

Furthermore, the dissent’s assumption that the prices paidby consumers (regardless of the quality of the resulting product)are the sole focus of antitrust law is flawed. “The principalobjective of antitrust policy is to maximize consumer welfare by

encouraging firms to behave competitively.” Kirtsaeng v. John

Wiley & Sons, Inc., 133 S. Ct. 1351, 1363 (2013) (emphasisadded) (quoting 1 P. AREEDA & H. HOVENKAMP, ANTITRUST

LAW ¶ 100, at 4 (2006)). This single-minded focus on priceignores that in highly concentrated markets like this one, lowerprices, if they occur at all, may be transitory. Owing to thelower level of competition in highly concentrated markets, whenpresented with lower supply input prices, companies have a

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greater ability to retain for themselves the input savings ratherthan pass them on to consumers. The Clayton Act, as theSupreme Court “ha[s] observed many times, [is] a prophylacticmeasure, intended primarily to arrest apprehended consequencesof intercorporate relationships before those relationships couldwork their evil.” Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc.,429 U.S. 477, 485 (1977) (internal quotation marks and citationomitted). The ability of a firm to obtain lower prices for inputsfor its product (here, provider services) should, especially inlight of the prophylactic nature of the Clayton Act, be viewedskeptically when high market concentrations may have thefuture effect of permitting capture of those savings. The dissentuncritically accepts Dr. Israel’s rosy testimony to the effect thatASO savings “will be passed through to employers,” Dis. Op.15, but fails to address contrary Anthem documents and thehistorical tendencies of large companies in highly concentratedmarkets to capture savings. E.g., AREEDA & HOVENKAMP,supra, ¶ 971f, at 56. The dissent also ignores the district court’snumerous and not clearly erroneous findings, as previouslydiscussed, that total or nearly total pass-through is unlikely. See,

e.g., Anthem, 2017 WL 685563, at *4, *62. Even if ASOsavings would pass through in the short term, that does not“practically guarantee[]” that Anthem would not then raise itsprices correspondingly. But see Dis. Op. 16.

Additionally, the dissent fails to recognize that lower pricesmay arise due to, or ultimately lead to, a decrease in productquality. Everyone would agree that rock-bottom provider ratesseem beneficial to consumers, but when those rock-bottomprices lead to inferior medical services, any benefit to theconsumers’ wallets is diminished by the harm to their health. Asthe Guidelines state, if merging firms “would withdraw aproduct that a significant number of customers strongly preferto those products that would remain available, this can constitutea harm to customers over and above any effects on the price or

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quality of any given product.” Guidelines § 6.4; see also id.

§ 10 (“[P]urported efficiency claims based on lower prices canbe undermined if they rest on reductions in product quality orvariety that customers value.”). And a decrease in productquality is not merely speculative here — every dollar of medicalcost savings realized by consumers will come at the expense ofproviders. It thus is quite plausible that paid less, the medicalproviders will provide less. These inconvenient facts do not jibewith the dissent’s superficial, thirty-thousand-foot view of thiscase, and it is thus unsurprising that they are addressed inpassing, if at all.

IV.

Anthem fares no better in its challenge to the district court’sindependent and alternative determination that the mergershould be enjoined on the basis of its anticompetitive effect inthe Richmond, Virginia market for the sale of health insuranceto “large group” employers with more than fifty employees. There, the government’s prima facie case was even stronger thanin the market for national accounts in the fourteen Anthemstates. Depending on how market share was calculated (i.e.,including all Blue customers as Anthem or not, including fullyinsured customers or just ASO), the companies’ combinedmarket share ranged from 64% to 78%. Even under thecalculation most favorable to Anthem (ASO-only, disregardingnon-Anthem Blue customers), the merger would raise anoverwhelming presumption of anticompetitive effect: HHIwould rise 1511 to a post-merger total of 4350, where theGuidelines presumption threshold is an increase of 200 to a post-merger total of 2500. As the President of Anthem Virginiaacknowledged, Anthem has the biggest share of the large groupemployer market across all of Virginia, and in Richmond, Cignais its strongest competitor.

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Anthem principally challenges the district court’s relianceon a chart prepared by Dr. Dranove, the government’s expertwitness, showing the merger would have an anticompetitiveeffect in Richmond even crediting all of Dr. Israel’s claimedefficiencies. The chart included an asterisk next to theRichmond entry signifying that “no amount of cost savingscould offset employer harm due to decreased competition.” Pls.’ Ex. 760. On cross examination, Dr. Dranove was askedwhether that meant even a savings of $10 billion or $20 billionwould not offset the merger’s harm, and he acknowledged thathe could not recall the foundation for his statement. Given thisinability to address that extreme hypothetical, Anthem maintainsthat the district court should not have relied on the statement oreven on the chart as a whole.

The record shows that the district court did not rely on the“asterisk” statement and explained at trial that it would not do sobecause it was unnecessary to finding a substantialanticompetitive effect. As to the broader question whether Dr.Dranove’s inability to explain the asterisk meant that the districtcourt should have disregarded his chart (and related testimony)altogether, the district court did not abuse its discretion. See

Heller v. District of Columbia, 801 F.3d 264, 272 (D.C. Cir.2015). Leaving the asterisk statement aside, Anthem raises noreal objection to the substance of the chart, only urging that Dr.Dranove’s inability to explain the asterisk was so damaging thatit called into doubt the reliability of his overall analysis. Thedistrict court, which heard extensive testimony from Dr.Dranove about the anticompetitive effects revealed by hiseconomic models and relied on it heavily throughout its opinion,clearly concluded otherwise. The district court had“considerable leeway” to do so in determining that all otheraspects of the chart and his testimony were reliable. Kumho Tire

Co. v. Carmichael, 526 U.S. 137, 152 (1999); cf. Snyder v.

Louisiana, 552 U.S. 472, 477 (2008).

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Anthem’s remaining challenges amount to an ineffectual

attack on the district court’s weighing of rebuttal evidence. Itincorrectly states that the district court relied solely on Dr.Dranove’s chart to find anticompetitive harm while ignoringevidence of “enormous” medical savings, Appellant Br. 53,when in fact Dr. Dranove testified that his chart credited 100%of Anthem’s claimed savings and still found a netanticompetitive effect. Anthem posits that there would still befive or more competitive insurers in Richmond post-merger, buteven assuming that is true (one of the two witnesses it citesidentified only four, including the combined company), the mereexistence of competitors may not be sufficient to constrain alarger Anthem that would control 64% to 78% of the market. See Guidelines § 5. Indeed, one of those competitors, Optima,was said to have struggled in the Richmond market, and Anthemshows no clear error in the district court’s finding that Optima“does not appear able to compete on the same field as themerged company.” Anthem, 2017 WL 685563, at *68. Nordoes Anthem show clear error in the finding that othercompanies do not appear interested in entering the Richmondmarket, or that even if they did, their entry would be insufficientto constrain the combined company. The evidence cited byAnthem shows only that other companies may intend to enterRichmond (Innovation), or may have the ability to enterRichmond (Piedmont, VCU), or may have a marginal orembryonic presence in Richmond (Kaiser, Bon Secours), notthat entry by these companies would offset the merger’santicompetitive potential.

Tellingly, our dissenting colleague offers a single mentionof the district court’s Richmond holding (in a parenthetical, noless), which itself is a sufficient basis for enjoining the merger.Any suggestion that the claimed savings would make the mergerprocompetitive in Richmond ignores the record evidence,

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namely that even crediting all of the claimed savings, the mergerof Richmond’s two biggest large-group insurers would give thecombined company such a vast market share that the overalleffect of the merger would still be anticompetitive. As Dr.Dranove testified at trial, his analysis “still predicts a priceincrease” in the Richmond market “even [after] crediting everypenny of th[e] efficiencies” estimated by Dr. Israel. That is,even ignoring Anthem’s failure to show that the savings weremerger-specific and sufficiently verifiable, see supra PartIII.B–C, the proposed merger would cause an already highlyconcentrated market to become overwhelmingly so, withAnthem controlling as much as 78% of the market and two orthree other companies fighting to maintain relevance. Althoughthe dissent recognizes this appeal raises “fact-intensivequestion[s],” Dis. Op. 13, it has persistently failed to engagewith the facts.

In conclusion, the district court did not clearly err in itsfactual findings that the merger would have anticompetitiveeffects in the Richmond market, and importantly, Anthem doesnot allege any error of law with respect to that determination.Thus, the district court did not abuse its discretion in enjoiningthe merger on the basis of the merger’s anticompetitive effectsin the Richmond market. And, as previously noted, this holdingprovides an independent basis for the injunction, even absent afinding of anticompetitive harm in the fourteen-state nationalaccounts market.

Accordingly, we affirm the issuance of the permanentinjunction on alternative and independent grounds.

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Circuit Judge

Sturm und Drang

United States v. Anthem

see also

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See

See

preventing

Comparewith e.g. Anthem

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see also

Anthem

id. id.

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e.g.

Anthem

future savingsId

See

See also Rebel Oil Co. v. Atlantic Richfield Co.

interalia National Gerimedical Hosp. & Gerontology Ctr. v. Blue Cross of Kansas City

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IdSee United States v. Socony-

Vacuum Oil Co.

depressing

supra

Id.

See also Knevelbaard Dairies v. Kraft Foods, Inc.

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id.

United States v. Baker Hughes

evidentiary burden-shiftingrebut prima facie

standing alone

See Federal Trade Comm’n v. University Health, Inc.

would

supra

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KAVANAUGH, Circuit Judge, dissenting: This important antitrust case involves a multi-billion dollar merger between two health insurers, Anthem and Cigna. As relevant to this case, those two insurers sell insurance services to large national businesses. There are four national insurers in that market: Anthem, Cigna, United, and Aetna. Anthem and United are the two major insurers in this market, whereas Cigna is a fairly small player. In the 14 States where Anthem and Cigna sell insurance services to large national businesses, Anthem has a 41% share of the market, and Cigna has a 6% share.

The U.S. Government sued under Section 7 of the Clayton Act to block the Anthem-Cigna merger. See 15 U.S.C. §§ 18, 25. The Government alleged that the merger would unlawfully lessen competition in the market for insurance services sold to large national businesses. The District Court agreed with the Government and enjoined the merger. The majority opinion affirms. I respectfully dissent.

At the outset, it is important to stress that this is an unusual horizontal merger case because of the nature of this particular slice of the insurance industry. To properly analyze this case,it is essential to understand precisely how these markets work.

There are three main players: (i) large employers, (ii) insurers, and (iii) healthcare providers, namely hospitals and doctors. Under the standard contracts that apply in this particular segment of the insurance industry, the employers do not pay premiums to the insurers. And the insurers do not pay the hospitals and doctors for healthcare services provided to the employers’ employees. Instead, the employers pay insurers a fee for obtaining access to the insurers’ provider network.Insurers in turn contract with healthcare providers – hospitals and doctors – to develop that provider network. In thatupstream market, the insurers negotiate rates in advance with the hospitals and doctors.

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As a result, when the employers’ employees need healthcare, the employers pay those negotiated rates to the healthcare providers. Importantly, therefore, employers in this market areself-insured. They pay the insurers a fee simply to obtain access to the provider networks arranged by the insurers, as well as for certain administrative services performed by the insurers.

To summarize in simple terms: The employers pay the insurers a fee, and the insurers then act as the employers’ purchasing agents for healthcare services. In that upstream market, the insurers negotiate in advance with hospitals and doctors over the rates that will be charged to employers for their employees’ health care. When insurers negotiate lower provider rates, employers save money on health care.

Here, two insurers (Anthem and Cigna) want to merge. The majority opinion sees this as a classic horizontal merger case where the high concentration of this market and the merged insurer’s high market share would mean increased prices for the employer-customers. But that understandingmisses what I believe is the critical feature of this case. Here, these insurance companies act as purchasing agents on behalf of their employer-customers in the upstream market where the insurers negotiate provider rates for the employer-customers. When the insurers negotiate lower provider rates, those savingsgo directly to the employer-customers. The merged Anthem-Cigna would be a more powerful purchasing agent than Anthem and Cigna operating independently. The merged Anthem-Cigna would therefore be able to negotiate lowerprovider rates on behalf of its employer-customers. Those lower provider rates would mean cost savings that would be passed through directly to the employer-customers. To be sure, the merged company may charge its employer-customers an increased fee for obtaining those savings. But the record

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overwhelmingly demonstrates that the cost savings to employers would far exceed any increased fees paid by employers.

In short, the record decisively demonstrates that this merger would be beneficial to the employer-customers who obtain insurance services from Anthem and Cigna. That is the core of my respectful disagreement with the majority opinion.(As I will explain in Part I-C below, if there is a problem with this merger, the problem lies in the merger’s effects on hospitals and doctors in the upstream market, not in the merger’s effects on employers in the downstream market.)

In Part I of this dissent, I will outline my approach to this case. In Part II, I will briefly summarize some of my concerns about the majority opinion and the concurrence.

I

A

The Government contends that this merger between Anthem and Cigna would cause undue market concentration in the market for the sale of insurance services to large employers,and would increase the merged company’s market share to an anti-competitive level. The Government argues that, as a result, the merged Anthem-Cigna would be able to use its market power to raise the fees it charges to large employers forthose insurance services. How much? The evidence in the record suggests that large employers would pay Anthem-Cignaincreased fees of about $48 million annually by one estimate,up to $220 million annually by another estimate, and up to $930 million annually by yet another estimate.

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But that is not the end of the antitrust analysis under the law governing horizontal mergers. The case law of the Supreme Court and this Court, as well as the Government’s own Merger Guidelines, establish that we must consider the efficiencies and consumer benefits of a merger together with its anti-competitive effects. See United States v. General Dynamics Corp., 415 U.S. 486, 498-500 (1974); FTC v. H.J. Heinz Co., 246 F.3d 708, 720 (D.C. Cir. 2001); United States v. Baker Hughes Inc., 908 F.2d 981, 990-91 (D.C. Cir. 1990);U.S. Department of Justice & Federal Trade Commission, Horizontal Merger Guidelines § 10, at 29-31 (2010).

Here, as I will explain, the analysis of the overall effects of this merger shows that the merger would not substantially lessen competition in the market for the sale of insurance services to large employers. The record demonstrates that those large employers would save an amount ranging from $1.7to $3.3 billion annually due to reduced rates charged by healthcare providers. For large employers, therefore, the savings from the merger would far exceed the increased fees they would pay to Anthem-Cigna as a result of the merger.

To begin with, the record evidence overwhelmingly demonstrates that the merged Anthem-Cigna, with its additional market strength and negotiating power in the upstream market, would be able to negotiate lower provider rates from hospitals and doctors for healthcare services.Indeed, the Government itself agrees that this merger wouldallow Anthem-Cigna to obtain lower provider rates. Linger on that point for a moment: The Government concedes that Anthem-Cigna would be able to negotiate lower provider rates that employers would pay for their employees’ health care. On top of that, in light of the “affiliate clause” in many of Anthem’s existing contracts, the merger would allow at least some of the businesses that currently purchase insurance

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services from Cigna to obtain lower rates that Anthem has previously negotiated with providers.

How much would provider rates be reduced? Anthem-Cigna’s integration planning team, working in consultation with McKinsey, an independent consulting firm, calculated $2.6 to $3.3 billion in projected annual savings for Anthem-Cigna’s employer-customers as a result of the merger. Anthem-Cigna’s expert, Dr. Israel, worked independently of the integration team, but he came to a similar conclusion. He determined that the merger would yield $2.4 billion in annual medical cost savings.

The record evidence also overwhelmingly demonstrates that the medical cost savings from the lower provider rates negotiated by Anthem-Cigna would be largely if not entirely passed through to the large employers that contract with Anthem-Cigna. The savings are passed through to employers because, under the contractual arrangements that apply in that market, the employers pay healthcare providers for the healthcare services provided to employees. So if the price of healthcare services is lower, the employers would directly benefit because the employers would then pay those lowerprices.

The Government critiques those estimates in part by noting that the estimates include cost savings that will accrue to the fully insured employers. It is true that a slice of this large employer market is fully insured, not self-insured. For those large employers, there would not necessarily be automatic pass-through. Even taking the fully insured employers out ofthe equation, however, the annual savings to self-insured employers would still be at least $1.7 billion annually.

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By contrast, the Government’s expert, Dr. Dranove, never did a merger simulation that calculated the amount of the savings that would result from the lower provider rates and be passed through to employers. Even though the Government admitted that the merger would lead to a reduction in provider reimbursement rates, Dr. Dranove built an assumption into all of his models that there would be zero medical cost savings. See Trial Tr. 1159, 1867. So we are left with Anthem-Cigna’s evidence showing $1.7 to $3.3 billion annually in passed-through savings for employers.1

Under the law, those efficiencies and consumer benefits identified by Anthem-Cigna must be both merger-specific and verified. See U.S. Department of Justice & Federal Trade Commission, Horizontal Merger Guidelines § 10, at 30. Both requirements are satisfied here.

The efficiencies and consumer benefits in this case are merger-specific by definition. As even the Government

1 To be sure, if a price decrease were accompanied by a substantial reduction in quality, that fact would raise a separate concern about this merger. But here, the record does not contain sufficient evidence, beyond some speculation and guesswork by the Government, that the merger would cause an actual decrease in the quality of medical service provided to employers by hospitals and doctors, or in the quality of customer service provided to employers by insurers.

Relatedly, the Government suggests that the current Cigna employer-customers, once switched over to Anthem after the merger, would utilize healthcare services more often. The Government argues that the higher utilization would cancel out some of the cost savings that the employer-customers would otherwise achieve. That suggestion is likewise highly speculative and does not square with the record, which shows that current Anthem employer-customers have lower utilization rates than the current Cigna employer-customers. See J.A. 480.

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admits, Anthem-Cigna’s enhanced bargaining power would come from the merger. And that enhanced bargaining power is a large part of what would enable Anthem-Cigna to negotiate the lower provider rates that in turn would lead to cost savings for employers. So, too, Anthem’s ability to rely on its existing contracts to offer lower rates to Cigna customers is a direct result of the merger. There is little if any evidence to support the made-up notion that Anthem and Cigna could obtain lower provider rates even absent the merger. The claimed savings are merger-specific.

Moreover, the efficiencies and benefits were sufficiently verified (i) by Anthem-Cigna’s expert witness Dr. Israel, (ii) by the merger integration planning team, working with McKinsey, the independent consulting firm, and (iii) by various healthcare providers who testified at trial. To be verified, the efficiencies and consumer benefits must be “more than mere speculation and promises about post-merger behavior.” Heinz, 246 F.3d at 721. But they need not be certain. They merely must be probable. See Baker Hughes,908 F.2d at 984 (“Section 7 involves probabilities, not certainties or possibilities.”). Here, that bar is cleared because there is no doubt that the merger would reduce provider rates (as the Government concedes) and no doubt that the savings from those lower provider rates would be largely passed through to employers (as the contracts and basic structure of this self-insured market require). To be sure, one can debate just how much the employers would benefit from this merger. But Anthem-Cigna’s expert and integration planning team calculated savings of $1.7 to $3.3 billion annually. On this record, there is little basis to doubt that the cost savings for employers as a result of the merger would be large – and far larger than the increased fees charged by insurers to employers as a result of the merger.

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In short, the record overwhelmingly establishes that the merger would generate significant medical cost savings for employers in all of the geographic markets at issue here –overall, approximately $1.7 to $3.3 billion annually – and employers would therefore spend significantly less on healthcare costs. (As noted, the increased fees for employers, on the other hand, would amount to $48 to $930 million.) And because the employers would spend less on health care for employees, they would have more to spend on employees’ salaries, thereby benefitting their employees. Some of the ultimate beneficiaries of this merger would be the rank-and-file workers who are employed by the businesses that obtain insurance services from Anthem and Cigna.

I of course recognize that the District Court’s factual findings are reviewed only for clear error. But we are not a rubber stamp. And here, the record convincingly demonstrates that this merger would significantly reduce healthcare costs for the large employers that purchase insurance services from Anthem and Cigna. That is true across the 14 states in which Anthem and Cigna both operate, including Virginia (and the Richmond market). The District Court clearly erred, therefore, in concluding that the merger would substantially lessen competition in the market in which insurance services are sold to large employers.

B

In a separate discussion, however, the District Court also relied on 1960s Supreme Court cases and suggested that antitrust law may not allow consideration of the efficiencies and consumer benefits in the first place. If that were true, this would be an easy case for the Government given the

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concentration of the market and the market share of the merged company. But that description of the law is not correct.

In landmark decisions in the 1970s – including United States v. General Dynamics Corp., 415 U.S. 486 (1974), and Continental T. V., Inc. v. GTE Sylvania Inc., 433 U.S. 36 (1977)– the Supreme Court indicated that modern antitrust analysisfocuses on the effects on the consumers of the product or service, not the effects on competitors. In the horizontal merger context, the Supreme Court in the 1970s thereforeshifted away from the strict anti-merger approach that the Court had employed in the 1960s in cases such as Brown Shoe Co. v. United States, 370 U.S. 294 (1962), and United States v. Philadelphia National Bank, 374 U.S. 321 (1963).

As this Court has previously noted, in “the mid-1960s, the Supreme Court construed section 7 to prohibit virtually any horizontal merger or acquisition,” but the Supreme Court subsequently “cut” those precedents “back sharply,” beginning with its 1974 decision in General Dynamics. Baker Hughes,908 F.2d at 989-90. In General Dynamics, the Supreme Court made clear that the merger analysis must take account not just of market concentration and market shares, but also of the “structure, history and probable future” of the market. 415 U.S. at 498 (quoting Brown Shoe, 370 U.S. at 322 n.38); see also E.THOMAS SULLIVAN & JEFFREY L. HARRISON, UNDERSTANDING ANTITRUST AND ITS ECONOMIC IMPLICATIONS 369 (6th ed. 2014) (“General Dynamics signaled a major shift in § 7interpretation.”); Note, Horizontal Mergers After United States v. General Dynamics Corp., 92 HARV. L. REV. 491, 499, 502(1978) (The General Dynamics case “signaled a new judicial approach to section 7 cases. . . . By endorsing an inquiry into such factors – the structure, history and probable future of the relevant market – General Dynamics brought antitrust analysis back into line with current economic thought.”) (internal

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quotation marks omitted); cf. ROBERT H. BORK, THE ANTITRUST PARADOX 210 (1978) (“It would be overhasty to say that the Brown Shoe opinion is the worst antitrust essay ever written. . . . Still, all things considered, Brown Shoe has considerable claim to the title.”).

Applying that broader analysis, the General DynamicsCourt rejected the Government’s assertion in that case that a proposed merger between two leading coal producers would violate Section 7 of the Clayton Act. In subsequent cases, the Supreme Court has adhered to General Dynamics. See, e.g.,United States v. Marine Bancorporation, Inc., 418 U.S. 602,631 (1974); United States v. Citizens & Southern NationalBank, 422 U.S. 86, 120 (1975). Notably, since 1975, the Supreme Court has not decided a case assessing the lawfulness of a horizontal merger under Section 7 of the Clayton Act. So General Dynamics remains the last relevant word from the Supreme Court.

This Court has already concluded that we are bound by General Dynamics, not by the earlier 1960s Supreme Court cases. In Baker Hughes, we explained that “General Dynamicsbegan a line of decisions differing markedly in emphasis from the Court’s antitrust cases of the 1960s. Instead of accepting a firm’s market share as virtually conclusive proof of its market power, the Court carefully analyzed defendants’ rebuttal evidence.” Baker Hughes, 908 F.2d at 990.2 In Baker Hughes,we thus cited General Dynamics for the proposition that the Section 7 analysis is “comprehensive” and focuses on a “variety of factors,” including “efficiencies.” Id. at 984, 986.As Baker Hughes recognized, and as this Court reaffirmed in its later decision in Heinz, modern merger analysis must

2 Baker Hughes was authored by Judge Clarence Thomas and joined by Judge Ruth Bader Ginsburg and Judge David Sentelle.

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consider the efficiencies and consumer benefits of the merger. See Baker Hughes, 908 F.2d at 984-86; Heinz, 246 F.3d at 720(“[E]fficiencies can enhance the merged firm’s ability and incentive to compete, which may result in lower prices, improved quality, or new products.”) (internal quotation marks omitted). Importantly, even the Government’s own Merger Guidelines now recognize that the merger analysis must consider the efficiencies and consumer benefits of the merger. See U.S. Department of Justice & Federal Trade Commission, Horizontal Merger Guidelines § 10, at 29-31; see also Baker Hughes, 908 F.2d at 985-86 (“It is not surprising” that “the Department of Justice’s own Merger Guidelines contain a detailed discussion of non-entry factors that can overcome a presumption of illegality established by market share statistics.” Those “factors include . . . efficiencies.”).

We are bound by the modern approach taken by the Supreme Court and by this Court. See generally BRYAN A.GARNER ET AL., THE LAW OF JUDICIAL PRECEDENT 31 (2016)(“[W]hen the Supreme Court overturns the standard that it had previously used to resolve a particular class of cases,” federal courts “must apply the new standard and reach the result dictated under that new standard.” The “results reached under the old standard” are no longer “binding precedent.”). Under the modern approach reflected in cases such as General Dynamics, Baker Hughes, and Heinz, the fact that a merger such as this one would produce heightened market concentration and increased market shares (and thereby potentially harm other insurers that are competitors of Anthem and Cigna) is not the end of the legal analysis. Under current antitrust law, we must take account of the efficiencies and consumer benefits that would result from this merger. Anysuggestion to the contrary is not the law.

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C

That said, on my view of the case, the Government could still ultimately block this merger based on the merger’s effects on hospitals and doctors in the upstream provider market. Attrial, the Government asserted an alternative ground for blocking the merger: The Government claimed that the merger between Anthem and Cigna would give Anthem-Cigna monopsony power in the upstream market where Anthem-Cigna negotiates provider rates with hospitals and doctors. The District Court did not decide that separate claim. I would remand for the District Court to decide it in the first instance.

Monopsony power describes a scenario in which Anthem-Cigna would be able to wield its enhanced negotiating power to unlawfully push healthcare providers to accept rates that arebelow competitive levels. That may be an antitrust problem in and of itself. Moreover, the exercise of monopsony power to temporarily reduce consumer prices does not qualify as an efficiency that can justify an otherwise anti-competitive merger. The consumer welfare implications (and consequently, the antitrust law implications) of monopsony power and ordinary bargaining power are very different. Although both monopsony and bargaining power result in lower input prices, ordinary bargaining power usually results in lower prices for consumers, whereas monopsony power usually does not, at least over the long term. See 4A PHILLIP E. AREEDA & HERBERT HOVENKAMP, ANTITRUST LAW ¶ 980, at 108 (3d ed. 2009); HERBERT HOVENKAMP, FEDERAL ANTITRUST POLICY § 1.2b, at 15 (4th ed. 2011). Therefore, the exercise of bargaining power by Anthem-Cigna is pro-competitive because it usually results in lower prices for Anthem-Cigna’s employer-customers. By contrast, the exercise of monopsony power by Anthem-Cigna may be anti-competitive because it may result in higher prices for Anthem-

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Cigna’s employer-customers. Cf. U.S. Department of Justice & Federal Trade Commission, Horizontal Merger Guidelines§ 10, at 30 (“Cognizable efficiencies . . . do not arise from anticompetitive reductions in output or service.”).

Notably, even Anthem-Cigna concedes that the merger would be unlawful if the merger would give Anthem-Cigna monopsony power in the upstream market. See Tr. of Oral Arg. at 85 (Defense Counsel: “If it was an exercise of market power on the buy-side, monopsony, we are not claiming that it’s acognizable efficiency. We’re accepting the rule in the merger guidelines that if it really is the exercise of market power, which means a constraint in output, bringing the price away from the competitive level, yes, we’re not claiming that that’s a cognizable efficiency.”).

To be clear, if Anthem-Cigna would obtain lower provider rates merely because of its enhanced ability to negotiate lower prices with providers, that alone would not necessarily be an antitrust problem. But if Anthem-Cigna would obtain provider rates that are below competitive levels because of its exercise of unlawful monopsony power against providers, that could be a problem, and perhaps a fatal one for this merger. In other words, if the lower provider rates from this merger turn out to be the fruit of a poisonous tree – namely, the fruit of Anthem-Cigna’s exercise of unlawful monopsony power against hospitals and doctors in the upstream market – then the merger may be unlawful. See U.S. Department of Justice & Federal Trade Commission, Horizontal Merger Guidelines § 10, at 30.

As a result, the legality of the merger should turn on the answer to the following fact-intensive question: Would Anthem-Cigna obtain lower provider rates from hospitals and doctors because of its exercise of unlawful monopsony power in the upstream market where it negotiates rates with healthcare

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providers? Given the way it resolved the case, the District Court never reached that critical question. Therefore, I would remand for the District Court to expeditiously decide that question in the first instance.

II

The majority opinion portrays this as an easy case for blocking the merger. If the law and the facts were as described by the majority opinion, I would agree with it. But in my view,the law and the facts are not as described by the majority opinion. Indeed, the majority opinion outflanks even the Government’s position on the law and the facts.

First, the Government accepts as a given that a defendant in a Section 7 case may rely on a merger’s efficiencies to show that a merger would not be anti-competitive despite the increased market concentration and market shares that would result from the merger. But the majority opinion – echoing the District Court – does not accept that legal principle as a given. On the contrary, the majority opinion casts doubt on this Court’s opinions in Baker Hughes and Heinz, and on whether Section 7 analysis allows a court to take account of a merger’s efficiencies as a defense in a merger case. The majority opinion says that the Supreme Court’s 1967 decision in FTC v. Procter & Gamble Co., 386 U.S. 568 (1967), is the essentialprecedent on this question. For the majority opinion, we are apparently stuck in 1967. The antitrust clock has stopped. No General Dynamics. No Continental T. V. v. GTE Sylvania. No Baker Hughes. No Heinz. No updated Merger Guidelines.3

To reiterate, not even the Government makes that far-reaching argument. For good reason. As one hornbook aptly puts it, the

3 The concurrence goes so far as to say that even if “prices will go down,” that “proves nothing by itself.” Concurring Op. at 1.

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“truly important point is that no modern observer, and no modern court, espouses the old FTC v. Procter & Gamble Co.(1967) position that efficiencies might be reason to condemn a merger.” ERNEST GELLHORN, WILLIAM E. KOVACIC &STEPHEN CALKINS, ANTITRUST LAW AND ECONOMICS IN A NUTSHELL 463 (5th ed. 2004); see also Baker Hughes, 908 F.2d at 985 (“Indeed, that a variety of factors other than ease of entry can rebut a prima facie case has become hornbook law. . . .[O]ther factors include industry structure, weakness of data underlying prima facie case, elasticity of industry demand,inter-industry cross-elasticities of demand and supply, product differentiation, and efficiency.”) (emphasis added).

Fortunately, the majority opinion in the end does notactually hold that there is no efficiencies defense available in Section 7 cases. The majority opinion merely suggests as muchin dicta – perhaps portending a return to 1960s antitrust law in some future merger case. For purposes of this case, however, the majority opinion simply says that even assuming such adefense exists under the law, the defense would not be satisfied here. The majority opinion’s lack of a square holding on the role of efficiencies in merger cases is some measure of good news because it means that future district courts and future panels of this Court still must follow General Dynamics, Baker Hughes, and Heinz, not the ahistorical drive-by dicta in today’s majority opinion.

Second, on the facts, the majority opinion never fullyaccepts the two key facts in this case: First, provider rates will be lower; and second, the savings from those lower rates will be passed through to employers. The first fact is conceded by the Government, and the second fact is undeniable given the nature of this market and the contractual relationships between employers and insurers.

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As mentioned above, the key difference between this horizontal merger and some horizontal mergers is that the increased savings obtained by the merged company in the upstream supply market in this case would be passed through directly to consumers. That one fact makes this merger unusual. In the ordinary case of a merger where the merged firm would have market power, it can be difficult for the merged firm to demonstrate that a substantial portion of the efficiencies resulting from the merger would actually be passed through to consumers instead of being retained by the merging companies. See, e.g., FTC v. Staples, Inc., 970 F. Supp. 1066, 1090 (D.D.C. 1997) (“Staples and Office Depot have a proven track record of achieving cost savings through efficiencies, and then passing those savings to customers in the form of lower prices. However, in this case the defendants have projected a pass through rate of two-thirds of the savings while the evidence shows that, historically, Staples has passed through only 15-17%.”); see also U.S. Department of Justice & Federal Trade Commission, Horizontal Merger Guidelines § 10, at 31 (“The greater the potential adverse competitive effect of a merger, the greater must be the cognizable efficiencies, and the more they must be passed through to customers.”). However, in this case, a high pass-through rate is practically guaranteed because, under the contractual arrangements that apply in the relevant market, the employers pay healthcare providers for the healthcare services provided to employees. So if the price of healthcare services is lower, the employers directly benefit because Anthem-Cigna’s employer-customers pay those lower prices.

The only real factual question concerning the effects of the merger on large employers should be whether the savings to employers from lower provider rates would exceed the increased fees employers would pay to Anthem-Cigna for the insurance services. As I have explained, the record evidence

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overwhelmingly indicates that the savings to employers from lower provider rates would greatly exceed the increased fees they would pay to Anthem-Cigna for the insurance services.

But the majority opinion does not conduct that key inquiry.That is because the majority opinion does not fully accept the fact, undisputed by the parties, that provider rates would actually be lower as a result of this merger. And the majorityopinion likewise does not accept that any possible cost savings would actually be passed through. So for the majority opinion,there are no cognizable efficiencies to consider in the first place and no need to assess whether the cost savings for employers are greater than the increased fees paid by employers.

The majority opinion offers up a smorgasbord of reasons to think that provider rates would not be lower or would notreally be passed through, ranging from provider “abrasion,” to secret Anthem plans to dramatically raise the fees it charges employers, to Anthem’s supposed inability to force or negotiate with providers to obtain Anthem rates for Cigna customers, to friction between the Anthem and Cigna CEOs.All of that seems at best highly speculative. The plural of anecdote is not data. Of course, lots of bad things could happenafter the merger. But the courts have to assess what is likely.See Baker Hughes, 908 F.2d at 984 (“Section 7 involves probabilities, not certainties or possibilities.”). The majority opinion seems to be accepting the worst-case possibility rather than determining what is likely. And the overwhelming evidence of what is likely is that provider rates would go down, that the savings would be passed through to employers, and that the savings to employers would greatly exceed any increase in fees paid by employers.

To the extent the majority opinion acknowledges even obliquely that prices possibly could go down after the merger,

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the majority opinion retorts that quality will also go down after the merger. But quality of what? As noted earlier, there is no persuasive evidence that the quality of medical care provided by hospitals and doctors would decrease. Nor is there any convincing evidence that the quality of services provided to employers by insurers would meaningfully decrease. Not to mention, does any supposed decrease in quality really rise to the level of $1.7 to $3.3 billion annually? The record discloses no meaningful effort to quantify or calculate the supposed decrease in quality.

The majority opinion also says that Cigna provides programs that help reduce utilization and that those could be jettisoned after the merger. But there is no good reason to think that those programs would be jettisoned rather than adopted by the merged company. Moreover, this speculation does not account for the fact that Anthem already has lower utilization rates than Cigna. So is it not likely that Cigna customers would utilize health care more after the merger than they do now.

* * *

The analysis of a merger’s effects necessarily entails a predictive judgment. Courts are often ill-equipped to render those predictive judgments in cases of this sort. But here, we have a far clearer picture of what will unfold than we often do. We know that Anthem-Cigna would be able to negotiate lower provider rates; indeed, even the Government admits as much.And we know that those savings will be largely passed throughto employers because that is the way the market and contracts are structured. After all, the whole point of the provider rates negotiated by insurers is to establish the prices that theemployers will pay. If the prices are lower, the employers will pay less. And we know, furthermore, that any cost savings to

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employers likely would greatly exceed any increase in fees paid by employers.

On this record, this horizontal merger therefore would not substantially lessen competition in the market for the sale of insurance services to large employers. The District Court clearly erred in concluding otherwise, and I disagree with the majority opinion’s affirmance of the District Court’s judgment.

The problem for this merger, if there is one, is in its effects in the upstream market – namely, in its effects on hospitals and doctors as a result of Anthem-Cigna’s enhanced negotiating power. Therefore, my approach to this case would requireDistrict Court resolution of one remaining question: Would Anthem-Cigna obtain lower provider rates from hospitals and doctors because of its exercise of unlawful monopsony power in the upstream market where it negotiates rates with providers? If yes, then Anthem-Cigna concedes that the merger is unlawful and should be enjoined. If no, then the merger is lawful and should be able to go forward. I wouldvacate the District Court’s judgment and remand for the District Court to expeditiously resolve that fact-intensive question in the first instance.

I respectfully dissent.

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Breach of Contract Action

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IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE

CIGNA CORPORATION,

Plaintiff,

v.

ANTHEM, INC. and ANTHEM MERGER SUB CORP.,

Defendants.

))))))))))

C.A. No. 2017-____-___

VERIFIED COMPLAINT

Introduction

1. This is a case arising under a merger agreement between two leading

health insurance companies, plaintiff Cigna Corporation and defendant Anthem,

Inc., pursuant to which Anthem intended to acquire its innovative competitor

Cigna. The parties knew from the outset that this combination of large competitors

would draw regulatory scrutiny, and Cigna only entered into the contract upon

Anthem’s loud assurances that regulatory approval could be readily obtained

without jeopardizing either party’s business. Anthem bargained for the contractual

responsibility to lead the regulatory process, and the merger agreement obligated

Anthem to pay Cigna a $1.85 billion reverse termination fee if regulators failed to

clear the transaction. The $1.85 billion fee is guaranteed if the transaction is

blocked on regulatory grounds: that was the bargained-for minimum payment due

Cigna if Anthem could not deliver on its obligation to secure regulatory approval.

PUBLIC VERSION FILED:February 17, 2017

0109 JTL

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The merger agreement also permits Cigna to recover additional amounts in the

event Anthem otherwise breaches its contractual obligations.

2. The transaction has now failed to receive regulatory approval. The

U.S. Department of Justice and eleven states sued to block the deal, citing its

anticompetitive effects, and a federal district judge permanently enjoined the

merger in a 140-page post-trial opinion finding that the “proposed combination is

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

concentrated market.” After more than eighteen months of limbo, the deal is dead.

This is precisely the scenario anticipated by the reverse termination fee provision

of the merger agreement. Anthem is therefore obligated to pay Cigna $1.85

billion.

3. What Cigna did not anticipate is that Anthem would put its own

interests ahead of its contractual obligations and act with the intent to harm Cigna’s

business. This conduct constitutes a willful breach that gives rise to damages

beyond the guaranteed $1.85 billion termination fee. The evidence of such breach

is overwhelming.

4. When the parties signed the merger agreement, they discussed and

conveyed to the market a clear vision for the combined company: it would bring

together the complementary strengths of both Cigna and Anthem to create a

leading healthcare company that would expand the choices available to consumers

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and deliver greater value. Cigna has been an innovative company, pioneering,

among other things, “value-based” care arrangements, in which providers are paid

not just for seeing more patients and performing more procedures, but also for

improving outcomes—a goal that benefits both Cigna’s members and the

employers who fund their health coverage. As Anthem’s CEO, Joseph Swedish,

testified to Congress shortly after the deal was announced, Cigna’s “distinctive

strengths” have yielded “results [that] speak for themselves.”

5. Anthem, by contrast, is a traditional health insurer. As the largest

member of the Blue Cross Blue Shield Association (the “Blues”), an association of

insurance companies that hold exclusive licenses to use the venerable Blue Cross

and Blue Shield brands, Anthem negotiates large discounts off the reimbursements

it pays to healthcare providers and uses those lower rates to attract business.

6. Combining Cigna’s innovation with Anthem’s lower rates would

create a company offering the best products in the market at competitive prices.

The combination would be an important step in generating value for the nation’s

healthcare system, leveraging the power of the companies’ complementary

platforms to drive the transformation toward value-based care. This model was

key not only to the success of the combined company, but also to convincing

regulators to approve the merger of two of the nation’s four largest health insurers.

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7. Also of critical importance to achieving regulatory approval was

resolving the unique issues posed by Anthem’s Blues membership. The Blues

work together in various ways to gain a competitive advantage over non-Blue

insurers, imposing restrictive rules on the association’s members to ensure that

they actively promote the “Blue” brand. This coordination creates significant

antitrust risk in its own right—Anthem and the other Blues are already subject to a

federal antitrust class action—and a merger that expanded the Blues’ market power

would only exacerbate these concerns. Anthem’s obligation to lead the regulatory

process required it to develop a plan for resolving these impediments to the

transaction. Anthem told both Cigna and the market that it could do so, with Mr.

Swedish publicly declaring that the Blues issues were “fully vetted” and that

Anthem had “resoundingly concluded” that they could be overcome.

8. But Anthem’s incentive to remain loyal to the Blues was strong, as it

faced a penalty of nearly $3 billion if the other Blues determined that it was no

longer in compliance with the association’s rules. Tellingly, Mr. Swedish admitted

to the DOJ in testimony, contrary to his earlier public statements, that he did not

know how his company could square its loyalty to the Blues with the Cigna deal.

After the merger was signed, Anthem developed no plan for resolving the Blues

issues. Instead, Anthem pursued a strategy that favored the interests of the Blues

(itself included) at the expense of complying with its contractual obligation to

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facilitate the consummation of the Cigna merger. Among other things, Anthem

unveiled what it called a “bias to Blue” strategy: rather than promoting consumer

choice and fostering the Cigna brand as a competitor to the Blues, Anthem would

seek to herd Cigna customers under the Blue umbrella. This was a recipe for

regulatory failure. The DOJ seized on Anthem’s bias-to-Blue strategy as powerful

evidence of the anticompetitive effects of the proposed merger.

9. As Anthem failed to implement any strategy that could have obtained

regulatory approval, completing the Cigna merger became secondary to Anthem’s

goal of leveraging the pendency of the merger agreement to benefit itself and the

other Blues while undermining Cigna as a competitor—breaches that were willful

in every sense. Thus, although the merger agreement assigned Anthem

responsibility to manage the antitrust approval process, Anthem did next to nothing

to engage with the DOJ or anticipate its inevitable objections. Cigna repeatedly

urged Anthem to develop such a strategy, identifying key areas—including the

need to devise a coherent plan for divestitures—that were plainly necessary to earn

regulatory approval. But Anthem ignored Cigna’s input, proceeding down a

unilateral path with no realistic prospect of getting the deal approved, and which

collapsed when the DOJ began to raise some of the very issues that Cigna had

flagged.

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10. Throughout the eighteen-month pendency of the merger agreement,

Anthem also consistently acted to diminish Cigna’s competitive threat and

strengthen its ever-expanding Blues network. Among other examples of Anthem

acting intentionally to harm Cigna, Anthem misappropriated Cigna’s confidential

information; touted to the market that it would copy innovative components of

Cigna’s business if the deal did not close; unilaterally and in violation of the

merger agreement contacted Cigna’s customers; and used discovery as a pretense

to harass Cigna’s customers. Anthem also adopted a “secret” integration team

designed to cut Cigna out of merger planning and to ensure that the post-merger

company, if there ever was one, would faithfully execute the “bias to Blue”

strategy. Anthem further sought to damage Cigna’s standing in the market by

eliciting false and disparaging testimony about Cigna at trial, then used these

misstatements in the marketplace to try to win business away from Cigna. This

conduct undermined the deal, as Anthem’s false testimony necessarily clashed with

the truthful testimony of Cigna’s witnesses and the documentary record, while

making it impossible for Cigna to stand behind Anthem’s misleading and

damaging positions.

11. Anthem’s failures culminated in the district court’s opinion enjoining

the transaction. That opinion makes clear that, instead of relying on a sound legal

strategy supported by the facts, Anthem “ask[ed] the Court to go beyond what any

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court ha[d] done before”; offered economic theories that to

what Anthem executives themselves testified; and was undercut time and time

again by Anthem’s own business records

The district court also seized on Anthem’s conduct designed to favor

the Blues, finding that its plan to “rebrand” Cigna customers—which Anthem

made the centerpiece of its defense—did not improve the competitive impact of the

transaction at all. As the court concluded, Anthem was unable to “demonstrate that

its plan [was] achievable or that it [would] benefit consumers as advertised.”

12. With the merger enjoined and the January 31, 2017 termination date

of the merger agreement now passed, Anthem’s destructive conduct must come to

an end. Anthem has no right to extend the termination date because it is in

material breach of its contractual obligations. Any extension, which cannot go past

April 30 under the merger agreement, would also be futile: the federal injunction

against the deal would alone take months or more to appeal, with no viable

prospect of success, and additional proceedings would likely then be needed in the

district court to clear the transaction. Numerous other regulatory hurdles remain

on the state and international levels, which Anthem has admitted would alone take

at least four months even after a favorable federal ruling. Yet Anthem has

informed Cigna that it wants to extend the termination date to pursue an appeal and

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has stated in a court filing that it “disputes that Cigna has a right to terminate at

all”—ever—even after the purportedly extended termination date.

13. Cigna therefore needs this Court’s intervention. The merger

agreement should be declared terminated and Anthem should be ordered to pay the

$1.85 billion reverse termination fee and further damages, including over $13

billion of lost premium value to Cigna’s stockholders, caused by Anthem’s willful

breaches.

Parties

14. Cigna is a Delaware corporation with its principal executive offices in

Bloomfield, Connecticut. Cigna is a global healthcare services company and one

of the nation’s largest health insurance carriers. For years, Cigna has been a key

driver of innovation in the healthcare market. In addition to its groundbreaking

work in value-based care, Cigna has leading consumer-centric technology

platforms and highly regarded behavioral, pharmacy, vision, dental, and other

specialty offerings. Cigna has a broad geographic presence, with 15 million global

medical customers located throughout the United States and Canada, Europe, the

Middle East, and Asia. Cigna’s reputation as an innovator, as well as its leading

client service and collaborative approach, has positioned the company as one of the

strongest competitors in the industry, on a trajectory for long-term growth. The

company generated $38 billion in revenue in 2015 and has seen growth in both

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revenue and earnings per share at a compound annual growth rate of 13% over the

last seven years—far outstripping its peer companies in these growth metrics.

15. Anthem is an Indiana corporation with its principal executive offices

in Indianapolis. It is the nation’s second-largest health insurance company, with

38 million members. Anthem has an exclusive license to sell under a “Blue” brand

in fourteen states; it obtains significant market share in these states and uses its

power to negotiate steep discounts off the reimbursements it pays to health

providers. Anthem has been less successful in developing the types of innovative

programs that have driven Cigna’s growth. Anthem also lacks the specialty

products and international presence that are important components of Cigna’s

business. Given its more traditional approach, Anthem does not have the growth

prospects as a standalone company that Cigna has.

16. Anthem Merger Sub Corp. (“Merger Sub”) is a Delaware corporation

and a direct and wholly owned subsidiary of Anthem. Merger Sub is a party to the

merger agreement, pursuant to which Merger Sub was intended to merge with and

into Cigna in accordance with Delaware law.

Jurisdiction, Venue, and Governing Law

17. This Court has subject matter jurisdiction pursuant to 8 Del. C.

§ 111(a)(6). Under Section 8.11 of the merger agreement, Anthem and Cigna

expressly agreed that (i) “any legal action or proceeding with respect to this

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Agreement . . . shall be brought and determined exclusively in the Delaware Court

of Chancery” and (ii) they would “irrevocably consent[] to the jurisdiction and

venue in the Delaware Court of Chancery.”

18. Under Section 8.6(a) of the merger agreement, the agreement is

governed by, and must be construed in accordance with, Delaware law.

Background

A. The parties negotiate a transaction and identify key regulatory hurdles.

19. Beginning in May 2014, Anthem and Cigna engaged in discussions

concerning a potential business combination. From the outset, regulatory

obstacles, particularly those relating to Anthem’s Blues membership, were a focus

for Cigna as it considered the possibility of a transaction with Anthem. Among

other things, Cigna pressed Anthem to explain how the combined company could

meet the Blues’ “best efforts” rules, which require Anthem to derive at least two-

thirds of its healthcare revenue across the country from its Blue-branded business.

These preliminary discussions ended in February 2015 due to Anthem’s view of

the Blues issues, as well as its need to focus on a recent data-security breach.

20. Anthem reengaged Cigna in mid-2015. Anthem made four

unsuccessful bids for Cigna in June 2015 alone, eventually sending a public “bear

hug” letter on June 21, 2015. In response to Anthem’s overtures, Cigna pushed to

get more value for its stockholders while again raising questions about the Blues-

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related issues. Although Cigna conducted its own thorough diligence on the Blues

rules, Cigna was largely reliant on Anthem—as the party that was a member of the

Blues—to provide complete and accurate information that was within Anthem’s

exclusive control. Anthem repeatedly assured Cigna that the Blues issues could be

solved. In fact, Anthem represented in the course of negotiations that there was a

clear path to ensuring that the combined company would be compliant with the

Blues rules: either the antitrust litigation against the Blues would relax the

constrictive best efforts rules, or Anthem, as the largest member of the Blues,

would aggressively petition and push back on the Blues to make sure that the rules

were changed to accommodate the merger.

21. During this time, Anthem’s CEO, Joseph Swedish, made bullish

statements to the market attempting to minimize any concerns about Blues issues.

He told the Wall Street Journal, for example, that the Blues requirements would

not stand in the way of regulatory clearance and that he was “optimistic” that “we

will meet the test and be in full compliance with the rules.” Mr. Swedish also told

the market that the Blues issues were “fully vetted” and represented to Cigna,

including in a letter to Cigna’s board, that Anthem’s board, senior management

team, and advisors had “resoundingly concluded” that the Blues rules would not

interfere with the proposed merger.

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22. Following Cigna’s due diligence and additional negotiations,

including an increase in the price that Anthem was offering—to a combination of

cash and stock worth about $188 per Cigna share, representing a 38% premium—

the Cigna board determined to accept the improved offer, and the parties entered

into a merger agreement on July 23, 2015.

B. The merger agreement gives Anthem control over the regulatory process and puts the risk of regulatory failure on Anthem.

23. As the acquiring company, Anthem bargained in the merger

agreement to take the lead in the regulatory process. Section 5.3(e) of the merger

agreement (attached hereto as Exhibit A) specifies that Anthem “shall take the lead

in coordinating communications with any Governmental Entity and developing

strategy for responding to any investigation or other inquiry by any Governmental

Entity related to any of the Necessary Consents.” Section 5.3 of the merger

agreement further requires Anthem to use “reasonable best efforts to take, or cause

to be taken, all actions, to do, or cause to be done, all things reasonably necessary

to satisfy the conditions to Closing” and “to avoid each and every impediment” to

the transaction under applicable law, including obtaining necessary regulatory

consents and opposing any objections or litigation by the government.

24. Anthem’s contractual duty to lead the regulatory process, however,

must be carried out “in consultation with Cigna.” Merger Agreement § 5.3(e).

This obligation to consult applies to developing regulatory strategy, to

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communications with any governmental entity, and to making regulatory filings

and meeting with the government.

25. Anthem’s successful performance of its regulatory obligations is

necessary to complete the merger. Under the express terms of the merger

agreement, closing cannot occur if there are any “Legal Restraints” in place (e.g.,

any judicial order enjoining the merger) or if any government action seeking to

block the merger remains pending. Id. § 6.1(a). In addition, all “Necessary

Consents” must be obtained. Id. § 6.1(b). These Necessary Consents include

approvals by 26 state departments of insurance who, under applicable state law,

must approve the merger.

26. Closing is also explicitly conditioned on Anthem’s compliance with

all of its covenants and agreements under the merger agreement. Section 6.3(b) of

the merger agreement provides that Cigna’s obligation to effect the merger is

subject to the condition that “Anthem and Merger Sub shall have performed or

complied in all material respects with all agreements and covenants required to be

performed by them under this Agreement at or prior to the Closing Date.”

27. Section 7.1(b) of the merger agreement provides that the merger

agreement may be terminated “[b]y either Anthem or Cigna, if the Merger shall not

have been consummated on or before January 31, 2017 (the ‘Termination Date’).”

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28. The Termination Date may be extended by no more than three

months, to April 30, 2017, only if all conditions to Closing other than regulatory

approval are satisfied:

if all of the conditions to Closing shall have been satisfied or shall be then capable of being satisfied, other than the conditions set forth in Section 6.1(a) [“No Injunction or Restraints; Illegality”] (but only if the applicable Legal Restraint constitutes a Regulatory Restraint) and Section 6.1(b) [“Government Consents”], the Termination Date may be extended by Anthem or Cigna, by written notice to the other party, to a date not later than April 30, 2017.

Id. § 7.1(b). As noted, Anthem’s compliance in all material respects with its

covenants under the merger agreement is a condition to closing. Id. § 6.3(b). If

that condition under Section 6.3(b) is not satisfied because Anthem is in material

breach of any covenant, it is not true that all of the conditions to closing other than

those in Sections 6.1(a) and 6.1(b) are satisfied, and extension of the Termination

Date is not available under the express terms of the merger agreement.

29. In the event the transaction fails to be consummated by the

Termination Date due to the failure to obtain regulatory approval, Anthem is

obligated to pay Cigna a $1.85 billion Reverse Termination Fee by the second

business day following termination of the merger agreement. Id. § 7.3(e). The

Reverse Termination Fee can also become payable before the Termination Date if

a regulatory restraint on closing becomes final and non-appealable. Id.

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30. Cigna is not required to show any breach by Anthem to be entitled to

the Reverse Termination Fee. To the contrary, Anthem can deprive Cigna of the

Reverse Termination Fee (in relevant part) only if the failure of the regulatory

conditions to be satisfied was “caused by Cigna’s Willful Breach of Section 5.3,”

which section contains Cigna’s obligation to use reasonable best efforts. Id. The

merger agreement defines a “Willful Breach” as a “material breach” by a party

with “actual knowledge” that its act or omission would constitute a material breach

of the merger agreement. Id. § 8.13.

31. Although the $1.85 billion Reverse Termination Fee is payable

without regard to whether Anthem has breached the merger agreement, if Anthem

has “Willfully Breached” the agreement, Cigna is entitled to additional damages

over and above the Reverse Termination Fee. Id. §§ 7.2, 7.3(e), 8.5(b)(iii).

32. The merger agreement thus places on Anthem not only the obligation

to lead the process of seeking regulatory approval, in consultation with Cigna, but

also the risk—carrying an obligation to pay at least $1.85 billion to Cigna—that

Anthem will fail to obtain such approval within the contractually specified

timeframe and thus cannot consummate the transaction.

C. Anthem commits numerous breaches of its contractual obligations.

33. At the time the merger agreement was signed, Anthem led Cigna to

believe that it would pursue a regulatory strategy that would highlight the pro-

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competitive features of the transaction. In particular, leveraging the parties’

complementary strengths—including Cigna’s innovative, collaborative approach

and Anthem’s leading provider discounts—would drive value for consumers,

create a leader in the evolving healthcare market, and expand consumer choice. As

Anthem touted to the market at the time, the transaction would “combine[] two

companies with complementary consumer solutions and a differentiated mix of

products and services that will enhance our combined ability to lead change in the

healthcare experience as a trusted partner for consumers.” Likewise, in the

companies’ joint proxy statement, Anthem asserted that the combination “could

yield immediate value through the realization of synergies and expand consumer

choice.” And in other public statements, Mr. Swedish repeatedly stressed the

benefits of the companies’ “complementary platforms,” praised Cigna’s

“strengths,” including its “highly regarded wellness programs and strong client

reporting capabilities,” and affirmed that the Cigna brand would be used “as a

competitive element against all payers” in the marketplace.

34. Critically, Cigna believed that if Anthem adhered to this strategy, the

transaction could obtain regulatory approval. After the merger agreement was

signed, however, Anthem failed to execute this strategy. While Anthem had told

the market that it was “confident in [its] ability to obtain regulatory approval”

because the companies’ strengths were “highly complementary” and would

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“provide greater choice” for consumers, Anthem set out on a course directly

opposed to this deal rationale. Anthem sought to protect its own interests above all

else, building a bigger more powerful version of itself and strengthening the Blues

network while eliminating Cigna as a competitor. Anthem’s willful and malicious

conduct was evidenced in numerous ways, as set forth below.

(i) Anthem fails to develop any coherent regulatory strategy.

35. Despite having the contractual obligation to lead the regulatory

approval process, Anthem repeatedly refused to develop a strategy for moving the

deal through that complex process. After the deal was signed, Anthem elected not

to engage at all with the substantive regulatory issues the transaction faced. Other

than a preliminary meeting in early September 2015, the one substantive meeting

Anthem had with the DOJ in 2015 took place only because the government issued

Anthem a deposition notice and raised concerns about the Blues rules—concerns

that Anthem had done nothing to address proactively.

36. Despite Anthem’s failures, Cigna did its part to support regulatory

approval. Cigna diligently responded to the DOJ’s information requests,

expending massive resources and submitting its response to the government’s

second request before Anthem did. Cigna also took affirmative steps to clear the

path towards regulatory approval, including successfully soliciting customer

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support letters and a favorable op-ed in The Hill authored by a prominent

physician. Anthem took no such affirmative steps to Cigna’s knowledge.

37. Cigna also pressed Anthem to address regulatory issues. For example,

Cigna provided Anthem with input on the legal challenges that Anthem would

need to address, including Blues-related issues and national market antitrust

theories (i.e., that there is a nationwide market for the sale of insurance to large

employers). Cigna also urged from the outset that Anthem would need to come up

with a strategy in the event that the DOJ required divestitures as a condition to

approving the deal. Anthem met Cigna’s efforts with resistance and refused to

take Cigna’s views into account. Indeed, Anthem chose instead to ignore the

problems the deal may face: before Anthem had done anything to even discern the

government’s position, Anthem’s CEO told the press that Anthem was “not

expecting divestitures” and that Anthem had not made a divestiture proposal to the

DOJ.

38. A February 16, 2016 meeting between the Cigna directors who would

continue on the board of the combined company and the Anthem board was

emblematic of Anthem’s utter failure to follow through on its contractual

responsibility to lead the regulatory process, even in the face of constructive input

from Cigna. At the meeting, Cigna highlighted the numerous issues at play—chief

among these, the DOJ’s concerns about the Blues and the need to develop a

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divestiture strategy. Anthem’s directors and top executives, including its CEO and

General Counsel, heard Cigna’s message but failed to do anything to implement

that advice.

39. When Anthem was finally forced to tackle the regulatory hurdles in

the face of the government’s coming attack on the deal, it still decided to forego

meaningful engagement with the DOJ. Despite Cigna’s urging to do so, Anthem

did not attempt to have meetings with the government and present the parties’

affirmative case. Instead, Anthem decided to make written white papers the

centerpiece of its advocacy efforts, but then failed to approach them with any sense

of urgency or discipline. Anthem would commit to provide papers to the DOJ on

certain dates, then blow through those deadlines with no valid excuse. At one

point when it became clear that Anthem would not even have all of the papers done

before a key meeting with the government, Anthem’s General Counsel

dismissively said that they would have been “nice to have.”

40. Although Anthem’s white paper drafts were regularly delayed,

missing key arguments, and in some cases in conflict with one another, Cigna

remained fully engaged in providing constructive feedback. But Anthem refused

to address many of the concerns Cigna raised on particular issues, instead insisting

that it alone was managing the regulatory strategy. Anthem was unwilling to vet or

even share with Cigna the regulatory arguments that it planned to pursue or explain

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how it intended to address fundamental issues that were holding up regulatory

approval, such as the Blues rules and a remediation strategy. Ultimately, Cigna

was never given the whole picture—or even a meaningful slice—of what

Anthem’s regulatory strategy was.

41. Anthem also committed other breaches of its obligation to consult

with Cigna throughout the regulatory process. Among other things, it unilaterally

pursued meetings with multiple governmental entities, including the Virginia

Bureau of Insurance, and proceeded to attend these meetings with minimal, if any,

notice to Cigna and no coordination about the substance of what would be

discussed. Anthem also failed to provide Cigna with notice when it unilaterally

chose to place misguided advertisements in national publications maligning the

DOJ after it filed litigation.

42. All the while, Anthem continued to insist to Cigna and the market that

it had the regulatory strategy under control. But the reality of the situation could

not have been more stark: Anthem in fact had no viable regulatory strategy to

offer. It had failed to develop arguments that were reasonably likely to succeed

under the antitrust laws; failed to develop any proof points to demonstrate the pro-

competitive nature of the transaction; failed to garner any third-party support for

the transaction; refused to meaningfully engage with the DOJ; and failed to

develop a remediation strategy altogether.

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(ii) Anthem attempts to undercut Cigna’s role and develops a secret integration team to exclude Cigna from the process.

43. As Anthem ignored all input from Cigna in the regulatory process, it

also worked to undermine Cigna’s role in the transaction more broadly. This

behavior demonstrated that Anthem’s failures to lead the regulatory process were

intentional and malicious.

44. On December 29, 2015, only days after a conversation with Cigna’s

CEO, David Cordani, in which no issues or concerns were raised, Mr. Swedish

took the highly unusual step of sending an adversarial letter to Cigna, marking the

start of a year-long attempt to create a false record impugning Cigna’s efforts in

support of the deal. Mr. Swedish followed up with a second letter that same week,

making clear his intent to unilaterally impose a governance structure that would

limit Cigna’s involvement in the combined company. In response, the Chairman

of Cigna’s board conveyed that the contracted-for governance structure was a

fundamental premise on which the board had agreed to the deal, as integrating

Cigna’s leadership was critical to leveraging Cigna’s innovations to deliver

synergies for the combined company and generate value for stockholders. Indeed,

during the negotiations over the merger, Cigna’s board pushed for its stockholders

to get more of their consideration in stock precisely on this basis.

45. Anthem continued to impose its unilateral decision-making on Cigna

in every way it could. This heavy-handed approach was made explicit in the

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integration process. Section 5.10 of the merger agreement specifically required the

parties to establish an Integration Committee “to ensure the successful combination

of the operations of Anthem and Cigna after the Closing.” Consistent with the

clear import of this provision, Cigna sought to have a collaborative role in the

process. Mr. Swedish, however, declared that he alone would make all final

decisions about integration. Anthem then delegated control of most integration

matters, including the key work on identifying synergies, to McKinsey, a

consultant that Anthem unilaterally retained. Even worse, Anthem put together a

team that was unequipped for the task: the head of McKinsey’s team had limited

M&A experience, having previously only worked on one merger that had gone to

closing, and Anthem’s own business integration leader had no experience

overseeing an integration at all.

46. Anthem’s control over the integration process also put it in a position

to harm Cigna in the marketplace by misappropriating and failing to protect its

confidential information. Cigna continuously pushed Anthem to put robust

security protections in place during the integration process. Anthem ignored or

resisted all efforts by Cigna to correct these problems, instead pushing for more lax

rules that made it easier for Anthem to take advantage of the confidential

information Cigna had shared in the integration process. For example, Anthem

announced a new Facility Reimbursement Policy in September 2016 that appeared

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to have been directly modeled on Cigna’s pre-existing claims-editing system and

was only made possible through confidential information Cigna had shared to

facilitate integration.

47. The extent of Anthem’s abuse of the integration process did not

become fully apparent until trial in the DOJ litigation in late November 2016,

when Mr. Swedish admitted in open court that Anthem’s executive leadership, on

Mr. Swedish’s orders, had assembled a separate, secret Anthem-only integration

team designed specifically to exclude Cigna from the integration process.

48. Despite Anthem’s repeated attempts to cut Cigna out of the process,

Cigna continued to fully comply with its contractual obligations and tried to guide

the integration process in the most productive direction. In April 2016, Cigna

informed Anthem that the best use of the parties’ resources was to focus on the

combined company’s Day 1 go-to-market strategy, which was a more pressing

matter than the cost-cutting efforts with which Anthem had become obsessed.

Cigna also continued work to support the regulatory process. As Anthem admitted

in its own post-trial findings of fact in the DOJ litigation, Cigna participated in and

“worked extensively” on integration efforts, participating in “over 1,000 joint

meetings” of the integration teams and devoting hundreds of employees to the

integration process.

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49. Anthem has repeatedly acknowledged in public statements that Cigna

was a cooperative partner, while concealing the extent of the dysfunction on

Anthem’s side. At a May 2016 investor conference, for example, Anthem’s

General Counsel, Thomas Zielinski, stated that working with Cigna on the

transaction “had been a very collaborative process and maybe more so than other

transactions I have been involved with.” Mr. Swedish further declared that “the

teams are working very, very well together” and that “we have been very

collaborative.” Anthem apparently never wavered in its view that Cigna was a

positive force in the process: In late November 2016, Mr. Swedish testified in

open court that the parties had “work[ed] very well together” and that any

perceived conflict was just “noise” that had not impacted Anthem’s ability to move

forward with its integration plans. He further testified that it was “inspirational”

how well the Cigna and Anthem teams had worked together.

(iii) Anthem develops the “bias to Blue” plan and puts its self-interest and allegiance to the Blues ahead of the deal.

50. Anthem had an affirmative obligation under the merger agreement to

seek solutions to the Blues-related impediments to the deal. However, by seizing

unilateral control of the integration process, Anthem put itself in a position to use

the transaction to strengthen itself and the Blues.

51. After Anthem’s board and senior executives worked in negotiations

with Cigna to downplay the risk posed by the Blues rules, as well the extent of

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their allegiance to the Blues more broadly, Anthem’s post-signing conduct

revealed a different story. In its transaction announcement, Anthem committed to

remaining “Blue.” Anthem then held multiple private meetings with its fellow

Blue insurers, going out of its way to conceal these meetings from Cigna. Only

later did Mr. Swedish acknowledge—when he was forced to in open court—that he

held one-on-one meetings with key Blue executives for months after the deal was

announced, including a secret meeting at the Peninsula Hotel in Chicago. During

this time, Anthem refused to give Cigna any information at all on what its plans

were for complying with the Blues best efforts rules after the merger.

52. As it met in secret with its fellow Blues, Anthem also developed plans

that would favor the Blues while harming the chances of regulatory approval for

the merger with Cigna. The “bias to Blue” plan was a stark example. Contrary to

the strategy of defending the deal on the ground that it would expand consumer

choice and that Cigna’s offerings would increase, the “bias to Blue” plan would

have the opposite effect. Under this strategy, which Anthem announced it would

adopt at a June 9, 2016 meeting of the Steering Committee tasked with overseeing

the integration process, Anthem would push Cigna customers towards the Blue

platform by withholding the additional discounts that the combined company

expected to negotiate with healthcare providers unless customers made the

transition over to Anthem, i.e., to Blue. Anthem also advocated for “forced

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migrations” from Cigna to Anthem. Even while the deal remained pending, the

Anthem sales team went so far as to tell potential customers that they should

switch to Anthem then, as they would likely be rebranded post-merger anyway.

53. The extent of Anthem’s intent to undermine the Cigna brand became

even clearer at trial. Anthem’s Vice President of Corporate Development, Stephen

Schlegel, admitted that, contrary to Mr. Swedish’s earlier public reassurances,

Anthem was calculating that the merger would push the combined company out of

compliance with the Blues rules. It would be up to the other Blue plans to

determine whether Anthem had fixed the problem to their satisfaction, and they

had the power to assess a $3 billion penalty and strip Anthem of its Blues license.

This would be uncharted territory: no Blue had ever gone out of compliance

before. Anthem thus had to adopt an even more aggressive rebranding plan than it

had revealed in “bias to Blue.” In Mr. Schlegel’s words, Anthem would do

everything it could to “take revenue from the Cigna side . . . and bring it over to the

Blue Cross side.”

54. Anthem’s coercive rebranding tactics were the complete opposite of

the consumer-choice rationale that was supposed to be key to the regulatory

strategy, and they became a lightning rod for the DOJ. Among other things,

Anthem became increasingly dependent on arguing that efficiencies would be

generated by applying Anthem’s deeper provider discounts to Cigna customers.

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But this argument played directly into one of the government’s key arguments: that

the combined company would use anticompetitive market power to drive down the

reimbursement rates it pays to providers for their services.

55. Anthem also attempted to downplay to the court—just as it had with

Cigna—the level of cooperation among the Blues. Throughout the trial, Anthem

characterized the Blues as a mere “rental network arrangement” that gave its

customers access to insurance coverage outside of Anthem’s fourteen states. But a

mountain of documents showed to the contrary: that there is deep coordination

among the Blues in competing for customers, especially national accounts. This

evidence only grew as the regulatory process went on. Documents unsealed in the

pending antitrust multi-district litigation (“MDL”) against Anthem and the other

Blues revealed a troubling picture of the Blues as a unified block, which did not

meaningfully compete against each other. These unsealed documents also shed

light on how the Blues worked together to win national accounts through

Consortium Health Plans, a coalition of Blues plans of which Anthem is a member

and part owner. Anthem neither informed Cigna of the underlying facts

surrounding its coordinated action with its “Blues brethren,” nor did it seek to

consult with Cigna on how to mitigate the damage from these documents.

56. The pendency of the Blues MDL undercut Anthem’s defense of the

transaction in other ways. Shortly after the merger was announced, counsel for the

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plaintiffs in the MDL wrote a letter to the DOJ urging it to focus on two arguments

that would ultimately become centerpieces of the government’s case: (i) that the

Blues “best efforts” rule, requiring Anthem to generate two-thirds of its business

under a Blue brand, would limit Anthem’s ability to grow the Cigna brand, and

(ii) that Anthem competes for business with other insurers, including Cigna, not

just in local geographic markets, but also for large “national accounts.” The MDL

plaintiffs also made it known to Anthem that they would be closely watching the

merger case, sending document requests about the merger to both Anthem and

Cigna. The threat of prejudicing its position in the Blues MDL may have impacted

Anthem’s defense of the merger, for example giving Anthem an incentive to try to

downplay the importance of the Blues best efforts rules, which were at the

forefront of the antitrust claims in the MDL.

57. Anthem’s Blues-driven motivations also dictated its misguided

approach to divestitures. After many months of failing to engage with the

government at all, when Anthem finally threw together a purported remedial

plan—only after senior DOJ staff expressed serious concerns about the deal in

June 2016—it settled on a strategy that was not only completely unworkable, but

designed to disproportionately harm Cigna and its ongoing competitiveness while

strengthening the Blues. Anthem insisted that Cigna alone divest assets, while

refusing to take customary steps such as hiring an investment banker that would be

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necessary to identify qualified bidders. Then, despite DOJ’s repeated and voiced

concerns regarding the Blues organization and rules, including the Blues’

competing as one for national accounts, Anthem demanded that Cigna share its

competitively sensitive information with two Blues that Anthem had identified.

Anthem failed to acknowledge Cigna’s serious information-protection concerns.

Indeed, even after the DOJ indicated to the parties that divestiture to Anthem’s

fellow Blues would be a non-starter—telling the parties that “divestiture to a Blue

plan is not a path forward”—Anthem continued to demand that Cigna share its

competitive information with Blue insurers.

58. Given Anthem’s misguided priorities, the DOJ publicly announced

that Anthem’s proposed fix was intrinsically flawed on the merits and that

Anthem’s proposed buyers were inadequate. Indeed, Anthem so mismanaged this

effort that it killed any prospect of discussing a resolution with the DOJ at any time

throughout the litigation. Although Anthem would occasionally thereafter try to

push for mediation, the government refused at every turn.

59. There is no innocent explanation for Anthem’s position that it could

somehow resolve the DOJ’s concerns around national accounts by divesting to a

Blue. As it realized that it had severely harmed the prospects of getting the merger

closed, Anthem had turned its efforts to harming Cigna and helping its fellow

Blues.

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(iv) Anthem further undermines the deal by commencing a self-interested litigation against its pharmacy benefits manager.

60. Anthem allowed the pursuit of its self-interest to interfere with the

transaction in ways that went beyond the Blues issues. Anthem’s misguided

lawsuit against its pharmacy benefits manager (“PBM”)—one of the most

important relationships for any health insurer—was another glaring example of

such conduct.

61. In its bid for Cigna, Anthem stressed the importance of synergies

relating to the combination of the companies’ PBM operations. In a June 20, 2015

press release, Anthem stated: “We believe there are substantial and achievable

synergy opportunities, including operating efficiencies, as we leverage our

respective core competencies as well as PBM savings from our combined scale.”

62. Anthem repeatedly touted the significant value and opportunity the

merged firms’ customers would gain from PBM efficiencies. As Anthem’s CFO

stated on a June 22, 2015 investor call, “The synergy is the combination of the 2

PBMs coming together and what can that incremental value actually drive for the

combined organization that neither of us could get individually.” Indeed, a third-

party consultant the parties jointly retained had conducted a market analysis and

calculated PBM cost savings of nearly $15 billion over five years.

63. Nonetheless, Anthem commenced a breach of contract suit against its

PBM provider, Express Scripts, on March 21, 2016 in the midst of the parties’

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regulatory review, claiming $15 billion in damages. Anthem did so without any

consultation of Cigna, even though launching such litigation threatened to raise a

host of issues that could impact the regulatory review process and the savings

expected to be achieved by the combined company.

64. Soon after filing the litigation, Anthem informed Cigna that it would

not be including PBM synergies in its submissions to the DOJ. This was a

complete reversal of course, and it undermined the prospects of regulatory

approval by eliminating a significant, sustainable and innovative synergy that

would benefit health care customers and value-based health care providers.

65. The Express Scripts litigation also put on vivid display Anthem’s

mishandling of Cigna’s confidential information. For the integration, Anthem had

access to highly confidential information relating to Cigna’s PBM pricing.

Anthem’s allegations against Express Scripts indicating that “market analysis” had

revealed the terms in the Anthem/Express Scripts PBM agreement to not be

competitive raised the distinct possibility that Anthem had misappropriated for its

own purposes Cigna’s confidential pricing information.

66. Anthem’s handling of the Express Scripts situation was further glaring

evidence that Anthem was motivated, first and foremost, to act for its own benefit,

even when doing so would undermine the prospects of obtaining approval for the

transaction.

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(v) Anthem intensifies its efforts to harm Cigna after thegovernment files suit.

67. Anthem’s self-interested conduct and mishandling of the regulatory

process destroyed any prospect of convincing the government to approve the

transaction. On July 21, 2016, the DOJ, 11 states and the District of Columbia

filed suit to block the Anthem-Cigna merger. As the prospects of regulatory

approval grew even more dim, and Anthem realized that it would still have to deal

with Cigna as an independent competitor, Anthem sharpened its focus on harming

Cigna’s prospects as a standalone competitor.

68. After the litigation was filed, Anthem’s sales representatives

contacted Cigna customers to solicit their business. These solicitations appeared to

misappropriate customer information Anthem obtained from Cigna during the

integration process, in direct violation of the parties’ confidentiality agreement and

Section 5.3 of the merger agreement. Anthem also undertook unilateral outreach

to Cigna’s customers about the merger without any notice to Cigna and used the

third-party subpoena process as a pretext for harassing Cigna’s customers. This

pattern of behavior confirmed that Anthem was now using the merger to disrupt

Cigna’s relationship with its customers. A buyer actually expecting to close the

transaction would seek to preserve, not damage, these relationships. But as

Anthem saw the writing on the wall that its strategy could not get the merger

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approved, and that it would need to continue competing with Cigna, it did

everything it could to weaken Cigna’s competitive status.

69. At trial, Anthem focused its efforts on eliciting false and disparaging

testimony about Cigna. For example, Anthem caused one of its expert witnesses to

testify that—contrary to all real-world evidence and to Anthem’s public statements

at the outset of the deal praising Cigna’s strengths—Cigna was not a leader in

value-based care. This testimony was designed to undercut Cigna and bolster

Anthem’s own business. Anthem executives also gave similar false testimony

disparaging Cigna’s standing in the market. Anthem would not have elicited such

testimony in open court if it actually intended to acquire Cigna and compete

vigorously using the Cigna brand. Rather, instead of defending the transaction,

Anthem was set on harming Cigna’s interests as an independent company. Indeed,

the Anthem sales team began touting these misstatements to potential customers in

an effort to win business away from Cigna.

70. After failing to defend the transaction, in its post-trial proposed

findings of fact, Anthem abandoned any pretense of seeking to acquire Cigna for

its innovative offerings or its pioneering value-based care. After telling the market

that Cigna’s “distinctive strengths” were, among other things, its “consumer-

centric technology platforms” and value-based care model, Anthem’s findings of

fact were singularly aimed at undercutting Cigna and elevating Anthem’s own

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relative position in the market. Anthem’s disparagement of Cigna was blatant:

Anthem alleged that it “le[]d the competition in value-based initiatives” and that

Cigna was unable “to do value-based care effectively,” called Cigna a “second

tier” competitor, and sought to discredit Cigna’s growth model. In so doing,

Anthem relinquished any plausible defense for the merger, reinforcing the

government’s argument that Anthem had pursued the transaction with the aim of

eliminating an innovative competitor in the industry.

71. Anthem’s false and malicious statements thus gave Cigna no option

but to take certain limited measures to correct the factual record and protect the

interests of the company and its stockholders. In particular, Cigna could not in

good faith endorse the inaccurate statements made in Anthem’s proposed findings

of fact, which, as the trial judge described, were “distressing” and “insulting” in

their misleading presentation of facts. Nor could Cigna stand by while Anthem’s

unilaterally-retained expert disparaged Cigna’s business model through inaccurate

testimony which served no purpose in defending the deal and served only to

malign Cigna. Cigna’s witnesses also had to testify truthfully in response to the

questions asked of them, which created tension with Anthem’s attempt to tell a

story that was divorced from reality. Anthem thus further undermined the chances

of success in the litigation by putting its desire to harm Cigna ahead of presenting a

credible defense of the transaction.

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72. In addition to its damaging conduct before the district court, Anthem’s

misuse of Cigna’s confidential information, which had already been a major

concern for Cigna, became even more apparent as the deal neared its end. At a

JPMorgan healthcare conference in early January 2017, Anthem touted to investors

that it had learned valuable information from Cigna, including about how to sell

certain specialty products that Anthem does not currently offer, and would use that

information to compete against Cigna if the transaction did not close. Anthem’s

management reiterated this point in discussions with securities analysts following

the company’s February 1, 2017 earnings call. Anthem told UBS, for example,

that from the due diligence it conducted on Cigna, Anthem learned that Cigna has a

“great franchise” that is “way better” than Anthem in a number of areas, including

integrated healthcare management and specialty products, and Anthem would use

what it had learned from Cigna to create an “upside opportunity” for Anthem if the

deal did not close. Anthem made similar statements to AllianceBernstein, adding

that it would focus on a “stop-loss” product—an offering to self-insured employers

for which Cigna is well-known as a market leader. Again, these comments

confirmed Anthem’s malicious intent to use the merger agreement to improve its

competitive standing in the market, to Cigna’s detriment.

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D. The District Court enjoins the deal, leaving no viable path to closing.

73. Trial on the government’s claims to block the transaction proceeded in

the U.S. District Court for the District of Columbia, before Judge Amy Berman

Jackson, from November 21, 2016 through January 4, 2017. Judge Jackson

bifurcated the case into two phases, corresponding to the primary claims that the

government leveled against the transaction: (1) that it would unlawfully harm

competition in the market for national accounts, and (2) that it would unlawfully

harm competition in 35 local markets.

74. On January 18, 2017, while a decision from Judge Jackson remained

pending, Anthem issued a notice to Cigna purporting to extend the Termination

Date under the merger agreement from January 31, 2017 to April 30, 2017. The

notice stated that, regardless of the outcome of the district court’s proceeding,

“additional time will be needed to consummate the merger.” In separate

correspondence, Anthem’s General Counsel also stated that, if the district court

enjoined the merger, Anthem would seek an expedited appeal of the decision. This

correspondence also stated that it was “Anthem’s position that Cigna has no right

to terminate the merger agreement on or after the initial termination date, January

31, 2017.”

75. Anthem’s breaches of the merger agreement continued even while the

court’s decision was pending. On January 25, 2017, Anthem communicated to the

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DOJ that it intended to make a supplemental post-trial filing. In breach of

Anthem’s consultation obligation under the merger agreement, Anthem failed to

give Cigna any advance notice that it was contacting the government and then

made its filing with the court only hours after sending a draft to Cigna—an empty

gesture that provided Cigna no meaningful opportunity to review. Anthem’s

unilateral action proved to be misguided: Judge Jackson responded that she

“would have denied any motion for leave to file such a pleading if Anthem had

asked before docketing it.”

76. On February 8, 2017, Judge Jackson issued a detailed, 140-page

opinion finding for the government and enjoining the transaction. Judge Jackson

concluded that the merger would be anticompetitive because it would “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.” The opinion

further observed that Anthem had been unable “to demonstrate that its plan [was]

achievable or that it [would] benefit consumers as advertised,” including because

Anthem’s own documents revealed that it had “considered a number of ways to

capture [the claimed savings from the merger] for itself and not pass them through

to the customers as it insisted in court that it would.” Because the district court

found that the transaction would harm competition in the market for national

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accounts, it did not need to reach the question of whether the merger would harm

competition in 35 local markets. Judge Jackson did, however, add that the

evidence supported the government’s claim as to at least one of those markets,

Richmond, Virginia.

77. Immediately after the opinion came down, and before the parties were

even permitted to review it in light of the confidentiality rules in the case, Anthem

informed Cigna that it would be issuing a press release vowing to appeal and

“aggressively” pursue the transaction, offering no explanation for how it had

reached the determination that this course was appropriate. Cigna prudently

informed Anthem that it believed the parties should review the opinion and then

have a discussion about how to proceed. Anthem refused to have any such

discussion and, on February 9, still before a public version of the opinion was even

available, filed a hasty notice of appeal in the D.C. Circuit. In an appellate filing

and subsequent correspondence, Anthem confirmed that it “disputes that Cigna has

a right to terminate at all” and that “Cigna has no right to terminate the Merger

Agreement even if final approvals have not been received by April 30,” but is

nevertheless seeking a ruling on the merits from the D.C. Circuit by that date.

78. Anthem’s claim that it can somehow get the deal approved before

April 30 is contrary to both reality and to Anthem’s prior statements. An appeal to

the D.C. Circuit will almost certainly not be decided within the timeframe Anthem

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is seeking. But even if Anthem were somehow to get the injunction overturned,

significant additional obstacles to closing the transaction would remain, including a

likely remand to the district court to address the government’s remaining claim

concerning anticompetitive harm in the 35 local markets. Anthem must also secure

approval from thirteen additional states, five of which have not even held a hearing

yet, as well as from three international jurisdictions.

79. Anthem has already admitted that, even without a federal injunction,

getting through the state approval process would take 120 days. In an August 2,

2016 submission to the district court, Anthem stated that, “[a]s a practical

matter . . . Anthem’s ability to close its acquisition of Cigna depends on [the

district court] action concluding (without an injunction) before the end of 2016,

thereby leaving 120 days to obtain the remaining State regulatory approvals before

the extended Termination Date of April 30, 2017.” On August 12, 2016, Anthem

again told the court at a status conference that the “April 30th date [was] fixed”

and that a judicial decision at least 120 days prior to that date would be needed to

secure necessary state approvals. Now, with only 75 days before April 30,

Anthem, by its own admission, does not have the time to appeal the federal

injunction, succeed on that appeal, get the injunction overturned, and secure

approvals from sixteen additional jurisdictions. Anthem is pursuing a course that

cannot succeed and that will only further harm Cigna.

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80. On February 14, 2017, Cigna delivered a notice of termination

informing Anthem that Cigna was terminating the merger agreement pursuant to

Section 7.1(b). Cigna sent the notice to Anthem and other persons entitled to

receive notice under the merger agreement.

E. Anthem’s conduct has caused substantial harm to Cigna.

81. The merger agreement entitles Cigna to at least the $1.85 billion

Reverse Termination Fee if the transaction cannot close for regulatory reasons.

Because Anthem has committed numerous Willful Breaches of its contractual

obligations under the merger agreement, however, Sections 7.2 and 7.3(e) are clear

that Cigna is not limited to the Reverse Termination Fee. Anthem also must pay

the damages resulting from its breaches.

82. Anthem’s intentional actions described above directly undercut its

ability to secure regulatory approval for the transaction. As a result, Cigna and its

stockholders have lost the substantial benefits that they expected to receive from

the transaction, including a premium of over $13 billion. They have also lost the

opportunity to participate in a combined company that, had Anthem pursued the

strategy that the parties envisioned at the outset, would have generated substantial

returns for its stockholders (including former Cigna stockholders).

83. Anthem has also worked to directly undercut Cigna in the

marketplace, including by maligning Cigna’s reputation in public testimony,

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seeking to harm Cigna’s relationships with its customers and potential customers,

and misappropriating Cigna’s confidential information. These actions have caused

competitive harm to Cigna. This harm is ongoing, as shown, for example, by

Anthem’s repeated statements to the market that it will use Cigna’s competitive

information to bolster its own business. Anthem cannot be permitted to continue

this damaging conduct, and it must be held liable for the harm it has already

inflicted on Cigna.

COUNT I (Declaratory Judgment – Termination of Merger Agreement)

84. Cigna repeats and realleges the allegations of paragraphs 1 through 83

as if fully set forth herein.

85. The Court is authorized to issue a declaratory judgment under 10 Del.

C. §§ 6501-6505.

86. An actual controversy exists between Cigna and Anthem regarding

whether the merger agreement should be deemed terminated pursuant to Section

7.1(b) and whether Anthem has validly extended the Termination Date pursuant to

such section. In accordance with 10 Del. C. §§ 6501 and 6502, Cigna has a legal

interest in this Court construing this provision of the merger agreement.

87. Section 7.1(b) of the merger agreement provides that the agreement

may be terminated “[b]y either Anthem or Cigna, if the Merger shall not have been

consummated on or before January 31, 2017 (the ‘Termination Date’).”

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88. The Merger was not consummated on or before January 31, 2017.

89. Cigna delivered a notice of termination to Anthem, in compliance

with the notice provisions of the merger agreement, on February 14, 2017.

90. Cigna has fully performed its obligations under the merger agreement.

No failure of performance by Cigna proximately caused or resulted in the failure of

the Merger to have been consummated by the Termination Date.

91. Anthem is not entitled to extend the Termination Date:

i. Under Section 7.1(b) of the merger agreement, a party may

extend the Termination Date to April 30, 2017 only “if all of the conditions to

Closing shall have been satisfied or shall be then capable of being satisfied, other

than the conditions set forth in Section 6.1(a) (but only if the applicable Legal

Restraint constitutes a Regulatory Restraint) and Section 6.1(b).”

ii. Under Section 6.3(b) of the merger agreement, Cigna’s

obligation to effect the merger is subject to the condition that “Anthem and Merger

Sub shall have performed or complied in all material respects with all agreements

and covenants required to be performed by them under this Agreement at or prior

to the Closing Date.”

iii. Anthem has materially breached its covenants and agreements

under the merger agreement as set forth above and in Counts III through V below.

Accordingly, the condition in Section 6.3(b) is not satisfied, and it is not true that

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all conditions to Closing other than those set forth in Sections 6.1(a) and 6.1(b) are

satisfied.

iv. Any extension of the Termination Date would also be futile as

it is impossible for Anthem to obtain regulatory approval by April 30, 2017.

92. Cigna is, therefore, entitled to a declaration that the merger agreement

is terminated, effective as of February 14, 2017, and that Anthem’s purported

extension of the Termination Date to April 30, 2017 was not valid.

93. In the alternative, if the Court determines that Anthem’s purported

extension of the Termination Date was valid, Cigna is entitled to a declaration that

the merger agreement will be terminated immediately after the earlier of (i) the

date on which the district court’s injunction or any other regulatory restraint on

closing becomes final and non-appealable, or (ii) April 30, 2017.

COUNT II (Reverse Termination Fee)

94. Cigna repeats and realleges the allegations of paragraphs 1 through 93

as if fully set forth herein.

95. Section 7.3(e) of the merger agreement provides that Anthem is

required to pay Cigna a $1.85 billion Reverse Termination Fee, among other

things, if the merger agreement is terminated pursuant to Section 7.1(b).

96. As set forth in Count I above, Cigna has validly terminated the merger

agreement pursuant Section 7.1(b).

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97. The only potentially relevant exception to Anthem’s obligation to pay

the Reverse Termination Fee—if the failure to obtain regulatory approval was

“caused by Cigna’s Willful Breach” of its reasonable best efforts obligations—is

inapplicable here. Cigna has fully complied with its obligations under the merger

agreement, and the failure to obtain regulatory approval was not caused by any

Willful Breach by Cigna.

98. Anthem is, therefore, obligated to pay Cigna the $1.85 billion Reverse

Termination Fee in its entirety under Section 7.3(e) of the merger agreement within

two business days of the date of termination of the merger agreement.

COUNT III (Breach of Contract – Failure to Use Reasonable Best Efforts)

99. Cigna repeats and realleges the allegations of paragraphs 1 through 98

as if fully set forth herein.

100. Section 5.3(a) of the merger agreement required Anthem to use

“reasonable best efforts to take, or cause to be taken, all actions, to do, or cause to

be done, all things reasonably necessary to satisfy the conditions to Closing.” This

obligation extended under Section 5.3(b) to “taking any and all actions necessary

to avoid each and every impediment under the HSR Act, any Healthcare Law,

antitrust law, insurance law or other applicable law that may be asserted by or on

behalf of any Governmental Entity,” including, among other things, obtaining all

Necessary Consents, resolving any objections that may be asserted by the

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government, and opposing “fully and vigorously” any litigation initiated to block

the merger.

101. Anthem committed multiple willful and material breaches of its

obligations under Section 5.3 of the merger agreement. In particular, as more fully

set forth above, Anthem (i) failed to develop a viable regulatory strategy to secure

antitrust approval, including by failing to engage with the government;

(ii) unilaterally acted at trial to malign Cigna and harm Cigna’s standing in the

market rather than to support approval of the transaction; (iii) introduced testimony

and evidence that were false or contrary to the factual record, undermining the

credibility of the defense of the transaction; (iv) failed to make any effort to

resolve the Blues-related impediments to the deal and instead adopted a “bias to

Blue” plan designed to strengthen Anthem’s own business and its fellow Blues

while damaging the prospects of regulatory approval for the merger; (v) undertook

damaging outreach to Cigna’s customers; (vi) assembled a “secret” integration

team in an attempt to cut Cigna out of merger planning; and (vii) misappropriated

Cigna’s competitive business information for its own gain.

102. Each of the foregoing breaches was a Willful Breach as defined in the

merger agreement. Anthem committed the “material breach” with “actual

knowledge” that its act or omission would constitute a material breach of the

merger agreement. Merger Agreement § 8.13.

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103. Cigna is entitled to damages due to Anthem’s Willful Breaches

pursuant to Sections 7.2 and 7.3(e) of the merger agreement.

104. Cigna and its stockholders were damaged by Anthem’s Willful

Breaches in an amount that will be determined at trial.

COUNT IV (Breach of Contract – Failure to Consult with Cigna)

105. Cigna repeats and realleges the allegations of paragraphs 1 through

104 as if fully set forth herein.

106. The merger agreement required Anthem to consult with Cigna in

developing its regulatory and litigation strategy. In particular, Sections 5.3(e) and

5.8 of the merger agreement specifically barred Anthem from unilaterally making

any filings, issuing any press release or communications relating to the merger, or

pursuing any meetings with the government without first notifying Cigna and

giving it the opportunity to comment. Section 3.2 of the Amended and Restated

Mutual Non-Disclosure Agreement (“NDA”), dated as of August 6, 2014, between

Anthem and Cigna, which is incorporated into the merger agreement, further

barred Anthem from contacting Cigna’s customers without Cigna’s consent.

107. Anthem breached these obligations by, among other things: (i) failing

to keep Cigna apprised of and consult Cigna with respect to its regulatory and

litigation strategy; (ii) engaging in damaging outreach to Cigna’s customers

without notifying or consulting Cigna; (iii) attending meetings with governmental

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entities without including Cigna; (iv) engaging in substantive discussions with the

government, and sending communications to the government, concerning the DOJ

litigation without giving Cigna notice or the opportunity to participate; (v) placing

advertisements criticizing the government without notifying or consulting Cigna;

(vi) disregarding Cigna’s urging that a credible divestiture plan needed to be

developed; (vii) persistently failing to acknowledge or incorporate Cigna’s advice

and feedback in its advocacy efforts; and (viii) failing to give Cigna a meaningful

opportunity to review litigation filings.

108. Each of the foregoing breaches was a Willful Breach as defined in the

merger agreement. Anthem committed the “material breach” with “actual

knowledge” that its act or omission would constitute a material breach of the

merger agreement. Merger Agreement § 8.13.

109. Cigna is entitled to damages due to Anthem’s Willful Breaches

pursuant to Sections 7.2 and 7.3(e) of the merger agreement.

110. Cigna and its stockholders were damaged by Anthem’s Willful

Breaches in an amount that will be determined at trial.

COUNT V (Breach of Contract – Misuse of Confidential Information)

111. Cigna repeats and realleges the allegations of paragraphs 1 through

110 as if fully set forth herein.

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112. Sections 5.2 and 5.3(e) of the merger agreement required Anthem to

protect Cigna’s confidential information; the Anthem-Cigna NDA also imposed

such obligations on Anthem. Anthem repeatedly breached these obligations and

harmed Cigna in the marketplace by misappropriating and failing to protect

Cigna’s confidential information, and using that information for Anthem’s own

gain.

113. Anthem resisted Cigna’s repeated attempts to implement robust

information security protocols in the integration process and disregarded Cigna’s

significant confidentiality concerns, including those specifically raised before the

Steering Committee. Anthem deliberately took advantage of the lax control

environment it had created so it could obtain access to Cigna’s competitive

business information and then improperly leverage this knowledge in the

marketplace.

114. Among its many breaches, Anthem misappropriated confidential

information Cigna shared during the integration process to develop its new Facility

Reimbursement Policy. Anthem’s litigation against Express Scripts also indicated

that Anthem used Cigna’s competitive business information for its own gain. And

Anthem stated, including in discussions with investors and securities analysts, that

it would use information taken from Cigna, including about how to sell certain

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specialty products that Anthem does not currently offer, to compete against Cigna

if the transaction did not close.

115. Each of the foregoing breaches was a Willful Breach as defined in the

merger agreement. Anthem committed the “material breach” with “actual

knowledge” that its act or omission would constitute a material breach of the

merger agreement. Merger Agreement § 8.13.

116. Cigna is entitled to damages due to Anthem’s Willful Breaches

pursuant to Sections 7.2 and 7.3(e) of the merger agreement.

117. Cigna and its stockholders were damaged by Anthem’s Willful

Breaches in an amount that will be determined at trial.

REQUEST FOR RELIEF

WHEREFORE, Cigna Corporation, on behalf of itself and its stockholders,

respectfully requests judgment:

i. Declaring that the merger agreement is terminated, effective as of

February 14, 2017, and that Anthem’s purported extension of the Termination Date

to April 30, 2017 was not valid;

ii. In the alternative, if the Court determines that Anthem’s extension of

the Termination Date was valid, declaring that Cigna is entitled to terminate the

merger agreement immediately after the earlier of (i) the date on which the district

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court’s injunction or any other regulatory restraint on closing becomes final and

nonappealable, or (ii) April 30, 2017;

iii. Ordering Anthem to pay Cigna the $1.85 billion Reverse Termination

Fee under the merger agreement and all interest accruing on any portion thereof

that remains unpaid from the date that is two business days after the date of

termination of the merger agreement;

iv. Ordering Anthem to pay Cigna damages in an amount to be proven at

trial, including but not limited to over $13 billion of lost premium value to Cigna’s

stockholders;

v. Awarding Cigna attorneys’ fees and costs associated with this action;

and

vi. Awarding Cigna such other relief as the Court deems just and proper.

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Of Counsel:

WACHTELL, LIPTON, ROSEN & KATZ William Savitt Graham W. Meli Steven Winter Bita Assad 51 West 52nd Street New York, New York 10019 (212) 403-1000

ROSS ARONSTAM & MORITZ LLP

/s/ David E. Ross David E. Ross (Bar No. 5228) Garrett B. Moritz (Bar No. 5646) 100 S. West Street, Suite 400 Wilmington, Delaware 19801 (302) 576-1600

Attorneys for Plaintiff Cigna Corporation

February 14, 2017

PUBLIC VERSION FILED:February 17, 2017

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1

IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE

ANTHEM, INC., :

:

Plaintiff, :

:

v. : C.A. No.

: 2017-0114-JTL

CIGNA CORPORATION, :

:

Defendant. :

- - -

Chambers

Leonard L. Williams Justice Center

500 North King Street

Wilmington, Delaware

Wednesday, February 15, 2017

4:00 p.m.

- - -

BEFORE: HON. J. TRAVIS LASTER, Vice Chancellor

- - -

TELECONFERENCE

PLAINTIFF'S MOTION FOR A TEMPORARY RESTRAINING ORDER

AND THE COURT'S RULING

------------------------------------------------------

CHANCERY COURT REPORTERS

500 North King Street

Wilmington, Delaware 19801

(302) 255-0521

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CHANCERY COURT REPORTERS

APPEARANCES: (via telephone)

KEVIN M. COEN, ESQ.

D. MCKINLEY MEASLEY, ESQ.

RICHARD LI, ESQ.

Morris, Nichols, Arsht & Tunnell LLP

-and-

GLENN M. KURTZ, ESQ.

CLAUDINE COLUMBRES, ESQ.

of the New York Bar

White & Case LLP

for Plaintiff

DAVID E. ROSS, ESQ.

ADAM D. GOLD, ESQ.

Ross Aronstam & Moritz LLP

-and-

WILLIAM SAVITT, ESQ.

of the New York Bar

Wachtell, Lipton, Rosen & Katz LLP

for Defendant

- - -

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CHANCERY COURT REPORTERS

THE COURT: Good afternoon, everyone.

This is Travis Laster speaking.

I'd like to start by asking Delaware

counsel for Anthem to speak up and tell me who is on

the line and who will be making the presentation this

afternoon.

MR. COEN: Good afternoon, Your Honor.

This is Kevin Coen at Morris Nichols here on behalf of

Anthem. With me in my office is Mac Measley, and on

the line is Glenn Kurtz and Claudine Columbres from

White & Case. Mr. Kurtz will be speaking today on

behalf of Anthem.

THE COURT: Okay. I have the same

request for Delaware counsel for CIGNA.

MR. ROSS: Good afternoon, Your Honor.

David Ross of Ross, Aronstam & Moritz on behalf of

CIGNA. Adam Gold of our office is here with me. Also

on the line is Bill Savitt of Wachtell Lipton Rosen &

Katz, for whom we filed a pro hac motion a few minutes

ago. And with the Court's permission, Mr. Savitt will

be speaking on behalf of CIGNA.

THE COURT: All right. That's fine.

So to let you know what I have done, I

have read the entire complaints in both the

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CHANCERY COURT REPORTERS

Anthem-initiated case, which we're technically here

on, as well as the CIGNA-initiated case that is its

companion.

I have looked at but I can't pretend

to have read fully by any means the termination

provisions in the merger agreement; and I have read

memorandum of law in support of the TRO; and I have

looked at the proposed form of orders; and most

recently, I have read Mr. Ross' letter.

So I say that because you all have

radically different views of the underlying facts, and

I don't think it will behoove any of us to use this

time to review your respective positions on the

underlying facts or how you reached this phase.

What I think would be helpful is if

you all focused your minds and your comments on

whether a TRO should be granted and then what type of

schedule we should have, depending on what happens,

with or without a TRO.

So with that framing, Mr. Kurtz, I'd

ask you to go first.

MR. KURTZ: Thank you, Your Honor.

Good afternoon.

THE COURT: Good afternoon.

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CHANCERY COURT REPORTERS

MR. KURTZ: I will try to avoid

talking about too many of the merits which are in

dispute. I think we could say that there is one

matter that has been agreed to, and that is that the

merger is a unique and transformative merger; that it

would offer better and lower cost health care to tens

of millions of consumers; and it would pay over

$13 billion of deal premium value to CIGNA

shareholders. So without intending a pun here, there

is a great deal at stake.

This case and this motion are brought

to preserve that value by maintain the status quo in

the deal and, specifically, by enjoining termination

and interference with ongoing efforts to clear the

merger.

I think it's important for the Court

to understand that there are at least two pathways to

a closing here. One is through appeal and the other

is through resolution with a new DOJ. And the motion

is intended to preserve those options, primarily.

There's reasons that we believe the

merger is still able to clear. Notably, now Vice

President Pence was supportive of the transaction as

the governor of Indiana. The merger would allow

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CHANCERY COURT REPORTERS

Anthem to expand into nine new states under the

Affordable Care Act.

That seems particularly important now,

as Aetna has pulled out of certain states and it's

mulling over whether to reduce its presence further.

And today, timely enough, Humana announced a decision

to pull out of the exchanges altogether. Looking at

new rules, this is a way to sort of help with that as

well.

And then on the appeal front, Anthem

promptly filed a motion to expedite. The D.C. Circuit

Court set a schedule that had the Government's papers

going in today and a reply by Anthem tomorrow at

12:00. And we think that's what generated the

termination notice, because now the Government has

taken enormous advantage of this to oppose the

expedition as saying the deal is now dead. And we're

looking to get a TRO in place in order to be able to

let the D.C. Circuit Court know by tomorrow at noon

that the deal has not been terminated.

Obviously, the lynchpin of a TRO is

ordinarily irreparable harm. We have two forms of

irreparable harm here. The termination of a unique

and transformative merger is irreparable harm. The

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CHANCERY COURT REPORTERS

courts in Delaware have repeatedly recognized that:

True North, Oracle, Hollinger, Revlon. There's no

replacement. There is no replacement here.

The second irreparable harm here is

the damage if not the entire thwarting of an appeal.

If there's no merger in place, then we can expect DOJ

to move to strike an appeal as no longer available.

Then it wouldn't be justiciable if you were litigating

a decision that couldn't result in the consummation of

a merger. That has been recognized by several courts,

that the loss of an appellate right is irreparable

harm, harm that can't be compensated for with money

damages.

And then a third way to get to

irreparable harm is that CIGNA agreed that a breach of

the merger agreement constitutes irreparable harm.

Delaware courts have enforced those provisions. It

seems particularly appropriate here, where you have

extremely large and sophisticated parties represented

by lots of counsel to support that and enforce it.

And I'll get to momentarily why we think that we have

a clear right to keep the merger alive. So we think

this presents a textbook case of irreparable harm.

When you have irreparable harm, the

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CHANCERY COURT REPORTERS

colorable claim element of a TRO is a really low

threshold, we think. We've seen it described as

claims are colorable if the facts that are alleged are

true would make them colorable or that they're

nonfrivolous. And we think that the verified

complaint more than demonstrates colorable claims. We

think they're clear.

There's fundamentally two claims here

at issue. The first one is that Anthem, on

January 18th, extended the termination date of the

agreement. The original termination date was

January 31st. That's Section 7.1(b) of the merger

agreement. That's not a drop-dead date. The merger

stays in place unless and until it's validly

terminated. But the original termination date was

January 31st.

Section 7.1(b) permitted Anthem to

unilaterally extend the termination date through

April 30. That's what we did. That's been recognized

throughout this case. In fact, at the time that the

District court -- and that's the underlying antitrust

case -- was considering a schedule, all parties

indicated that the merger would stay around through

April 30. And in reliance on that, the District Court

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CHANCERY COURT REPORTERS

set the schedule. And then, notably, in the recent

opinion in which the Court enjoined the transaction,

she said that the merger agreement is in place through

April 30.

So we think that one is more than

colorable. We think that's clear. That maybe even

irrefutable. I'll come back in a second to CIGNA's

response to that.

The second reason that a termination

would be invalid is that CIGNA just doesn't have a

right to terminate because the termination right, as

set forth in 7.1(b), does not permit termination where

a party has failed to fully perform its obligations in

a manner that proximately causes the merger to not

close by the termination date.

We set out a whole host of conduct

that I won't go over, given the Court's statement on

it, about why we think that's a pretty clear breach.

I will say only as an overall matter that you have two

different stories. You have identified, that's true,

I think, that when the time comes to get into the

details, you know, we'll be able to demonstrate why

our story is the right one.

But I think, objectively, looking at

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what happened and didn't happen, we demonstrated very

clearly a breach of best efforts. Best efforts is a

daunting standard. It's got a hell or high water

obligation with respect to the regulatory clearance

matter. That's been described as bracketed only by

financial disaster by a leading case, Bloor v.

Falstaff, which was also cited in Hexion, in this

court, as the standard.

And we think that if Your Honor looks

at all the conduct that's been pled, you'll see that,

objectively, that's a lack of best efforts and that

the kinds of things that CIGNA raises are in the

nature of excuses. And the best efforts is an

objective criteria that doesn't really accommodate

excuses or reasons. It demands behavior.

The balancing of equities -- actually

I'll direct my comments to the balancing of the

equities but I'll also note that the merger agreement

contains a provision where the parties agree that

injunctive relief should be issued to enjoin breaches

of the agreement. It also includes specific

performance. We obviously haven't sought that today.

And, again, we're with sophisticated

parties, and we think that we've pretty clearly

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demonstrated that these are breaches; that a

termination is a breach in and of itself, in addition

to the best efforts issues.

Balancing of the equities we think

decisively weighs in favor of a TRO. As I've already

addressed, there's enormous irreparable harm to Anthem

in losing a unique and transformative merger. The

same is true with respect to tens of millions of

consumers who will lose out on better and less

expensive health care at a time when health care is in

a bit of a state of flux if not distress.

And then, of course, CIGNA

stockholders stand to lose $13 billion of deal premium

that's not easily replicated either.

When balancing that against CIGNA, we

think it's pretty overwhelming. I don't see any harm

to CIGNA. CIGNA is merely basically sitting around,

probably, while we try to get this deal through. And

it's abiding by the terms of the agreement. And the

only thing it loses is its ability to continue its

efforts to avoid a merger.

And we're going to work diligently.

And if we can get the merger cleared through a

settlement or through an appeal, then everybody is

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going to benefit. And if we are unsuccessful in that,

then the termination is going to come soon enough.

But certainly there's no urgency to

anything that's going on in terms of CIGNA being

restrained. And I think some of that is even

reflected in the submission that CIGNA made a few

minutes ago, which we sort of have been able to get

through but largely seems to suggest that they would

continue to cooperate, going forward, both on an

appeal -- and I don't think that actually works

because I think they've just undermined, and hopefully

not irreparably, our motion to expedite -- but also in

terms of taking steps to get to a close.

And CIGNA points out that they're not

at the point -- it's not imminent that they need to

sign certificates of merger or anything like that.

And I agree with that. We haven't asked for that.

But the reality is if this is a

terminated deal, then the cost of entry for us in

settlement has been revoked, and, as I mentioned, I

think also potentially our appeal. We can't go and

negotiate a settlement, with or without divestitures,

with new DOJ if DOJ says, Well, you don't have a

merger to negotiate around.

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And as I mentioned, we're a little

afraid that there will be a problem perfecting an

appeal in the D.C. Circuit if there is an argument

that's already been made heavily by DOJ that there's

no merger to protect.

So there's a lot of damage here. We

lose a deal, and we lose an appeal, potentially, on

one end; and there's really nothing that we see on the

other end. CIGNA has been living around the merger

agreement for many, many months. It contracted to

live through April 30, just for the asking. And we

don't see any harm at all. And, frankly, by the time

we get to April 30, we probably have a better record

and understanding about where we can go with this.

And then the last thing that I'd like

to address, Your Honor, is the CIGNA notion that

Anthem is in breach of the agreement and, therefore,

Anthem is not able to extend the -- and I know there

hasn't been a lot of time to focus on the niceties of

the language, but 7.1(b), that provides for both

pieces of the puzzle. One is the termination right,

which is surrounded by the breach language. That's

the right that requires a party, before they could

exercise termination, to have performed fully the

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obligations, not have breached them, and not to have

proximately caused the problem.

The extension, which was designed just

to allow the parties to extend in order to get more

time if more time was needed with regulators, doesn't

replicate that language at all. It just talks about

conditions other than regulatory approval that are

satisfied or are capable of being satisfied. And, of

course, all of this is still capable of being

satisfied. We can still get regulatory approval.

And even as to the best efforts

allegations, if regulatory approval is forthcoming,

then there can't really be an argument that we got

there but we didn't get there in the best possible way

and that, therefore, somehow, there's no need to close

the transaction.

And the last point on the contract is

the condition is set up, it cross-references over to

the Article Sixth conditions. And those conditions

are satisfied expressly, either by satisfaction of the

condition or waiver of it. And, again, it's

capable -- the magic language in the contract -- the

condition is capable of being satisfied, not only,

therefore, through the regulatory approval but also

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it's capable of being satisfied through waiver.

So I'm happy to answer questions, but

without getting into any of the factual matters that

Your Honor has read and didn't need repeated, that

would be my opening remarks.

THE COURT: That's helpful.

Let me ask you a couple questions

before I go to Mr. Savitt.

Assuming that I were to give you a TRO

today, one would normally think we'd have to come back

relatively soon for some type of preliminary

injunction. What would be your preference for when

that would occur?

MR. KURTZ: Well, we are prepared to

move on any schedule, light speed or otherwise, as the

Court would like to see, or CIGNA would like to see.

We're sort of protected with a TRO. It may be that

CIGNA would have a bigger interest.

If I were going to make a suggestion

on my own, it would probably be if we got ourselves to

April 30, then we could deal with at a preliminary

injunction stage the issue about whether or not CIGNA

has any right to terminate in light of the breaches.

But we're also prepared to move next

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week or any other time, if CIGNA wants it or Your

Honor wants it.

THE COURT: All right. That's

probably enough of an answer on that, then.

Let me hear from Mr. Savitt.

MR. KURTZ: Thank you.

MR. SAVITT: Thank you, Your Honor.

And thank you for hearing us.

We are digesting this morning's

filings from our good friends on the other side. I

think I can, in summary, respond, however, to the

information that's been put before the Court and the

parties.

The remedy that's been sought, as the

Court, of course, knows, is an extraordinary one, not

readily granted, notwithstanding my friends'

suggestion to the contrary. It requires a showing on

the merits. It requires a showing as to harm. And

the short answer for why a TRO ought not be entered

here is that there has been no showing on the merits

and no showing as to harm.

As to the merits -- and I will, with

fidelity, Your Honor, respect your suggestion that we

not litigate the facts. It is for sure that there is

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a significant disagreement with respect to how the

events over the past 18 months plus have unfolded. We

register our disagreement with what's been said on the

other side of it, and particularly with respect to

what's been suggested about the impact for the

insurance market, the health insurance markets and

health insurance industry and health care industry in

the United States as a whole, but will not use the

Court's time to litigate that matter except to

register our disagreement.

The folks on the other side seeking a

TRO have to make a showing, and what they have to make

a showing of is that they haven't breached the

agreement. The allegations in our verified complaint

are detailed and extensive and we think will be

abundantly supported by massive evidence at trial.

I'm not litigating that now, of

course, Your Honor, but the question is whether

there's been a showing that that hasn't happened. And

there has been no showing. Literally nothing. Zero.

They haven't even tried to make such a showing, and

there is nothing before the Court in the nature of

evidence that could support a restraining order.

It's not as though Anthem has been

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taken by surprise with respect to this situation, what

with a 55-page brief. It seems rather more that they

were waiting for this to happen.

You can't do a TRO without a showing

on the merits, and there hasn't been one. And by

that, to be express, Your Honor, I mean there hasn't

been a showing that CIGNA does not have a right to

terminate.

And it's not as though this is a new

issue that cries out for resolution right now or --

for the love of Mike, the issue of the parties'

dispute was front and center in the litigation in the

District of Columbia, and it figured in Judge Berman's

decision, which I believe the Court now has.

As to the harm, the irreparable harm

piece of it, we don't think there's been any showing

on that either, Your Honor.

Now, some of what my friends said I

think confuses the issue whether there would be

irreparable harm with respect to an ultimate judgment

that the merger was terminated, that is to say whether

the remedy of an injunction is an adequate substitute

for an award of damages. That is an irreparable harm

question, but it's not the precise irreparable harm

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question we're dealing with now.

What we're dealing with now is the

irreparable harm question whether, absent a

restraining order, the extraordinary device that

Anthem proposes, it will suffer irreparable harm. We

think there's been no showing there either.

We are struggling to define with

precision what even is alleged to be the irreparable

harm. Reference was made in my friend's presentation

to the loss of a valuable transaction, but that's not

the irreparable harm here.

At the end of trial, if the Court

believes that Anthem is correct, then it can order

specific performance and the transaction will proceed,

assuming that it's able to clear the other conditions

necessary for consummation, which we think is

exceedingly unlikely, but that's another matter.

The irreparable harm that is on issue

here, that's on offer here, seems to be the argument

that without an order of this Court, Anthem won't be

able to proceed with its appeal, and Anthem won't be

able to take steps to continue to get regulatory

approval.

We don't see a showing that that's so.

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They can prosecute their appeal without us. Anthem

indeed took its appeal without CIGNA as a participant

in that appeal.

What they can tell the District of

Columbia Circuit is the truth, which is perfectly

clear, not just from today's filings but what has come

before, which is the parties dispute whether there has

been a breach and whether there are termination

rights.

They can say that that issue is before

Your Honor, and they can tell the D.C. Circuit that

the parties to that dispute, to the dispute we are

presently on the phone about, agree -- at least we

do -- that we should try to ensure that whatever

ruling this Court ultimately makes can be given proper

effect. A principle that we think is important in the

context of evaluating a motion for a TRO which we're

happy to say we clearly agree with.

To the extent there is an argument

regarding whether Vice President Pence thinks that the

merger ought to be approved, well, it's not in any

papers as far as we can tell.

Their arguments regarding new DOJ, the

fact is there is no new DOJ. There is only old DOJ.

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No new DOJ personnel has been appointed or approved.

And the idea that we are doing

anything on the CIGNA side of things to impair any

discussions there is without any basis, as is the

suggestion that there is some new DOJ to talk to.

I did want to address the question why

what's happened happened now because my friend

adverted to it with a suggestion -- false -- that it

was driven by their motion to expedite. What's

happened, Your Honor, is that Anthem has only now,

recently, in the past number of days, made clear that

it believes CIGNA has no right to terminate the merger

agreement, not to January 31st, not on April 30th, as

my friend suggested, but ever.

Their position is that Anthem is -- is

that CIGNA can't terminate the merger agreement

because it's breached the merger agreement in ways

that precluded regulatory approval. If that's right,

then by Anthem's light, CIGNA is on the hook

indefinitely.

That rendered the dispute presently

before the Court utterly inevitable, because it is as

certain as the day is long that April 30th will come

and go and regulatory approval for this transaction

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will not be had. I doubt I will even hear my good

friend on the other side dispute it.

It is Anthem's own words that it's 120

days from Court approval until regulatory approval can

be had. From today, that takes us into June. And

we're not going to start today. We're going to start

only after an appeal on whatever calendar is decided

by the D.C. Circuit, and in the event of a favorable

ruling for the transaction in the D.C. Circuit, a

remand for further proceedings in the District Court.

There isn't any question that April 30th is not going

to see regulatory approval.

But what's fundamental now is Anthem's

position that CIGNA is precluded from escaping the

merger agreement, terminating the merger agreement,

even then. This isn't a circumstance where Anthem

said, Well, give us until April 30th and we'll see

where we are. Anthem has taken precisely the opposite

position.

And even then, so the Court

understands, it's very difficult for CIGNA to continue

to perform this contract even if it was otherwise able

to. We are being asked to approve of filings in the

District of Columbia Circuit Court that we believe are

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legally misguided and are factually inaccurate.

We've navigated this tension as best

we could in the District Court but we couldn't

continue to be bound by any obligation to cooperate in

the Circuit Court, given the increasingly

irresponsible litigating positions Anthem has taken,

especially when balanced against the literally zero

percent chance of success on the regulatory front by

April 30th.

And in few of all this -- and I'm

coming to a point, Your Honor, that we believe is

important for purposes of responding to what the folks

on the other side have said -- we've concluded that

what's happening here is Anthem wants to keep CIGNA on

ice. It wants to continue to keep a competitor from

competing. It wants to continue exploiting the merger

agreement for its own narrow gain. That's what

they've done for over a year and a half. We've been

tied up for over a year and a half. And they aren't

entitled to do it anymore.

CIGNA has a right to terminate. It

has obligations to stockholders and to customers and

the people it serves to move to put a deal behind it

that cannot be done when a termination right is ripe,

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which it is.

My friend made reference to -- I think

he said that there was no harm because CIGNA would

just be basically sitting around while the months ran

off the clock and Anthem pursued increasingly hopeless

regulatory strategy. But large public companies worth

many tens of billions of dollars with obligations to

stockholders and constituencies don't basically sit

around. There is a strategy to be deployed. There

are capital deployments to be made. There are any

number of initiatives that each of these companies,

CIGNA and Anthem, need to get to if they're going to

go about their business.

The idea that an ongoing temporary

restraining order is cost-free to CIGNA is false, just

plain false. There's no showing of it. And handcuffs

of the sort that Anthem proposes to continue to bind

CIGNA are not justified on the facts, not justified on

the contract, and not at all cost-free.

Now, it's our position that we've

complied with our obligations under the merger

agreement, and I think the evidence will show that. I

know the Court doesn't want to hear about it and,

candidly, I don't want to talk about it now.

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I do want to say that we are keen on

the CIGNA side to continue to conduct ourselves so as

to ensure that any relief the Court orders will be

capable of being given effect.

What we are not trying to do here is

to short-circuit the ability of this Court or any

other to have its rulings enforced. Candidly, we

don't think, ultimately, an order of specific

performance can happen here because we don't think

there's any way this transaction can ever be approved,

given the self-interested way in which Anthem has gone

about seeking regulatory approval.

But we have no interest in doing

anything to impair this Court's remedial authority.

If anything, candidly, Your Honor, it's the Anthem

side of the equation that is ignoring the merger

agreement.

As an illustration, both companies

have covenants in the merger agreement that restrict

their ability to deploy capital for share repurchases.

As the Court knows, this is an important issue from a

governance and capital management perspective.

CIGNA announced to Wall Street in the

past number of days that it would undertake

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repurchases this year only within the tolerance

permitted by the merger agreement, attempting to live

within the boundaries of the merger agreement so as to

ensure the capacity of the Court to order effective

relief. That's a company that's trying to remain

compliant.

Anthem, on the other hand, announced

to Wall Street that they'll undertake buybacks this

year that will exceed the amount permitted by the

merger agreement. That is a company that is not

coloring within the lines of the merger agreement.

There are all sorts of other matters

pertinent to integration that evince Anthem's failure

to do its contractual duty, and it just can't be said,

Your Honor, that the situation is cost-free or that

either party should be put in the position of having

to indefinitely comply with the restrictions of the

agreement.

Finally, I think I heard the other

side say that CIGNA has conceded that the contract

could be extended to April 30th, and I think that was

in their papers as well. That just is not true.

Anthem, to be sure, argued before

Judge Jackson in the D.C. Circuit that the trial

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schedule needs to be compressed to hit an April 30th

deadline, but among other things, they told the Court

that it needed to be finished 120 days before

April 30th so they could have time to appeal so they

could have time to implement a favorable ruling.

So all that does is confirm that

April 30th is no longer even remotely in prospect. It

doesn't do anything to support the idea that anyone on

the CIGNA side made such a concession.

Anthem cites in page 3 of its papers a

statement from the District Court's opinion enjoining

the merger that the parties are bound by their merger

agreement through April 30th, but all the Court was

citing there was a unilateral filing of Anthem in

which Anthem made the point that expedition was

necessary.

I mean, it's kind of worth noting that

Anthem doesn't think that the statement is true

because Anthem thinks that CIGNA is bound well beyond

April 30th, as it has made perfectly clear.

These issues come together, Your

Honor, in our response to the temporary restraining

order because we submit that what has not been shown

is, on the merits, a sufficient likelihood of success

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to allow the extraordinary remedy ordered, or on the

irreparable harm, to justify the extraordinary relief

that's been requested.

I've said it a couple of times and

I'll say it again, and it's in Mr. Ross' letter, we

believe that we should get this case tried. We

believe we should get it tried promptly. It's

complicated, and it's going to be very fact-intensive.

We want to make sure the Court has an adequate record,

but we are ready to get to work on it. And we're also

ready to do that in a way that will ensure the Court's

ultimate ability to do substantial justice as it sees

fit. And we're happy to cooperate with our friends on

the other side of the caption to see to it.

Having said all that, the idea that a

sufficient record has been submitted to justify a

temporary restraining order, we would submit, Your

Honor, is inaccurate and ought not be countenanced.

So I'll stop there and, of course, be

delighted to take any questions that the Court might

have.

THE COURT: Thank you, Mr. Savitt.

Mr. Kurtz, do you have anything you

want to reply?

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MR. KURTZ: Yes. Thank you, Your

Honor. I'll be brief, but let me take the big issues

on, at least.

On the merits, I think I accurately

described the standards, which is colorable claim,

which is, in fact, a low threshold.

I also walked through and we briefed

that breach -- and that's the only basis on which

CIGNA says that the extension is improper, that there

was a breach. I walked through in the brief and we

walked through today, Your Honor, that 7.1(b)

extensions are not attached to breaches; that,

instead, it just has to be a condition that's capable

of being satisfied. And my brethren didn't respond to

that, but that's a legal issue. Your Honor can look

at the words and decide yourself.

Also, the notion, factually, that

Anthem is in breach is not supported even by the

complaint. We have proof by Your Honor in the form of

our verified complaint that Anthem, in fact, incurred

$520 million, which may be a record -- I don't know --

in trying to get through regulatory clearance.

We've walked through -- and I won't

repeat the facts -- obviously, just tireless work.

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And we continue to work. And a lot of times, I think

when you're trying to figure out who really did what

they were supposed to do, maybe you look at parties'

interests, because people tend to act in their own

interests. And you can see our interest has been at

the outset to merge. We reinitiated it over

resistance. And here we are, later in the game, and

we're fighting for it. And we're reaching out to DOJ,

which is new, by the way. There is a confirmed

Attorney General, Sessions. And CIGNA is fighting to

terminate it.

So I think on the merits, which is a

low threshold, I don't know if it had to be an

overwhelming likelihood of success on the merits, but

I think we have met it.

And on that April 30 date, you can

look to our brief on pages 30 and 31 and you can get

the quotes. It's not just Anthem that was at

April 30. It was also CIGNA that stood up and said,

We agree. And the Court, of course, established that

date as the foundational basis for a trial schedule

and reiterated that in the recent decision. So it's

only CIGNA that's trying to change the timing rules as

they got here.

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In terms of harm, I'm not sure how it

could credibly be argued that the loss of a

transformative merger is not irreparable harm. It's

textbook irreparable harm.

The appeal, which I'm not sure my

friend responded to, likewise, the loss of an

appellate right is irreparable harm. I think the

response was, Oh, it's okay, you can argue your

position, but, unfortunately, our position is

compromised in the event of a termination.

And I'll quote from a DOJ filing

today, where DOJ said CIGNA's termination "gut"

Anthem's argument for expedited appellate review.

"Since CIGNA has already terminated the agreement,

expedited review and perhaps any appellate review" --

any appellate review -- "would be futile." So I don't

really think we can argue about the harm this is

discussing.

CIGNA says, Well, the harm isn't the

loss of the transaction because we're still available,

but there is no way to make progress on the

transaction if you don't have a merger agreement that

purports to still be in place. No one will talk with

you. Nobody will -- we can't negotiate divestitures

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or approvals, and we may not be able to take an

appeal.

And counsel says, Well, look, this is

not painless. There's a cost. I don't dispute

there's a cost for all parties. That's the cost that

they undertook when they entered into an agreement

that, in fact, had an extension date for the asking,

unilaterally, through April 30.

And that became the cost also when

they chose to attack the merger instead of support it,

because under the terms of the agreement between these

sophisticated commercial parties, that breached it.

If you breach, you don't get to terminate. So we're

not asking them to do anything outside the agreement.

And it is indefinite. We don't

dispute it's indefinite. It's indefinite because

we're where we are, based on the conduct of CIGNA.

But having said that, as I said

before, nobody is looking to delay this. We're going

to try to get it through, which is going to create

enormous benefit for everyone. And if it doesn't get

through, we have the same interest as CIGNA has in

terminating.

And I'll tell you, we had I think it

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was a $120 million commitment fee payment due on our

extension. Our financing only went through

January 31st. That's real dollars spent in support of

trying to clear a merger with a real belief that we

have an opportunity to do so. Companies don't

undertake extended financing commitment fees in the

nine figures lightly.

And we're certainly not trying to keep

CIGNA on ice. I don't know how CIGNA is on ice.

Maybe they have an equity repurchase interest that I

don't know about. But they're out competing and

trying to get more work and operating their businesses

and making various flowery and optimistic statements

into the marketplace about their abilities to continue

on in business.

And any ice that is involved in

remaining tied to the agreement that the parties

signed, it applies both ways. And, obviously, Anthem

isn't looking to put itself on ice either, which is

why we're moving diligently and tirelessly to get to a

result here.

The idea -- the conspiracy theory that

Anthem spent $520 million, including a $120 million

commitment fee, just to extend and is pursuing

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settlement and appeal somehow to harm CIGNA really is

a little offensive. It also doesn't make any sense.

There is no harm attendant to efforts to continue to

clear the merger or to take an appeal. It's a little

bit fantasy, and there is no way that it actually

could be happening. There's no handicuffs at all.

So we think that this is a TRO that

doesn't hurt CIGNA, even with respect to the matters

that they've identified, because they say they'll come

right back. They'll come right back if we win at the

trial. But the problem is we'll have lost all the

time between now and then, because we have an

agreement that by all public accounts has been

terminated and not reinstated through our TRO.

And so talk about being on ice. The

progress of the deal is on ice. And there's no way,

then -- when we get to a hearing, if we win, you're

starting from scratch, but you've lost your appeal

right, potentially. The D.C. Circuit doesn't get to

play the game that we start and stop whenever we feel

like it because we can put the genie back in the

bottle. It's a public termination.

And CIGNA's statement that it didn't

make that to coincide at all with the motion to

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expedite is at least a little suspect, given that we

only had to get through tomorrow before we could have

seen if we got an expedited motion before feeding the

DOJ juicy quotes for their opposition.

But at the end of the day, all we're

trying to do here -- we're not asking to require them

to sign over shares or sign stock certificates or

provide due diligence, which we'll need at some point

in order to divest assets, if a divestiture of assets

is required to remediate in order to get a settlement.

All we're saying now is the

termination is stayed, the invalid piece of paper that

got sent across the wire is stayed, and that CIGNA

can't interfere with our efforts to get it cleared, at

least through April 30th, pending Your Honor's

determination of the next step, trial or preliminary

injunction, however people want to proceed. Which, as

I said, maybe makes sense to do sometime before

April 30, by which time Your Honor will have more

record.

And, obviously, my friend over there

says the record indisputably is going to undermine me,

so that will help him. I'm not nearly as convinced.

I think that we have the ability to make progress, and

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we'll be in a position to report into that over time.

So we believe we're entitled to a TRO,

and we would ask for it.

THE COURT: All right. Thank you both

for your eloquence.

MR. SAVITT: Your Honor, I apologize

for interrupting. If I may make a couple points. And

I will be still briefer than my good friend on the

other side.

THE COURT: Very quickly.

MR. SAVITT: One is to observe -- and

this is in Mr. Ross' letter -- but the matter of

breach, the short of it is that if there's been a

breach of obligation on Anthem's part, its right to

extend is terminated. That is a function of the

interplay of Section 6.3(b) and Section 7.1(b) of the

merger agreement.

As to this business about being on

ice, we have been, and as long as we're subject to the

merger agreement, are trying to comply with that. We

doubt Anthem is. It's not a trivial matter in the

least.

Conspiracy theory. Well, it only

takes -- you need two to conspire. So there is no

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conspiracy theory. It's all Anthem. But what doesn't

make a lot of sense is that CIGNA would throw down --

would file a complaint and terminate if it didn't need

to escape the deal for legitimate purposes, if it

didn't need to invoke its rights for legitimate

purposes.

If it was as simple as waiting for

April 30th to come and go, then there's no reason we

wouldn't have done that. We couldn't do it because we

were being put in an impossible legal and business

position by the conduct of Anthem.

And as to the relief with respect to

not interfering with their efforts, no one is

interfering with their efforts. It's not even

alleged. The question of whether it's an invalid

piece of paper, that's not a fit subject for a TRO or

preliminary injunctive, frankly. It's essentially

final relief in the case and requires a trial.

I apologize, Your Honor, and I

appreciate the indulgence.

THE COURT: All right. Thank you.

I'm going to go ahead and give you all

my ruling now. I am granting the TRO. Here's my

reasoning.

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I won't go into the details of the

situation that the parties have presented except to

say that Anthem and CIGNA are parties to a detailed

merger agreement. There has been an injunction issued

by the District Court of the District of Columbia

blocking the merger.

Anthem desires avidly to appeal that

injunction. It has argued, and I think it has the

better reading of the merger agreement on this point,

that CIGNA is required to support it in its appeal.

Notwithstanding that fact, CIGNA has

issued a termination notice purporting to terminate

the agreement and has filed a lawsuit seeking to

establish that it complied with its obligations and

that Anthem, in fact, breached its obligations under

the agreement.

We are technically here on Anthem's

countersuit which seeks, in the first instance, to

hold CIGNA to its agreement and, in the second

instance, should that not be possible, to recover

damages.

The relief that is sought today is a

temporary restraining order that would preserve the

status quo so that this case can be litigated and this

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Court can indeed grant final relief, if appropriate,

enforcing the merger agreement through a decree of

specific performance.

It is also a TRO that is designed to

preserve the status quo pending April 30, 2017, which

is the drop-dead date for the merger agreement,

assuming that neither party establishes a breach that

would prevent the other party from terminating as of

April 30th.

A status quo order that would keep the

merger agreement in place pending that date is

critically important because, otherwise, without that

type of temporary restraining order, CIGNA can claim,

as it has, to have terminated the merger agreement.

That obviously has real-world

consequences, notwithstanding the suggestion by

CIGNA's counsel to the contrary. One of those

real-world consequences is that if the merger

agreement is terminated, then the injunction issued by

the District Court is arguably moot. That, in turn,

would prevent the Court of Appeals for the District of

Columbia from reviewing that injunction.

I can tell you, as a trial judge, that

while it seems highly likely, having read the District

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Court's opinion, that the government has the strong

hand going into that appeal, I have been reversed on

many occasions where I had thought I had gotten it

right, and so it is certainly possible that the Court

of Appeals could reverse that decision and result in

the elimination of an impediment to the closing.

It's also possible that with the

merger agreement still in place, impediments to the

closing could be addressed through other ways.

Mr. Kurtz has cited several of them.

This brings us to the analysis of the

TRO application. It requires, in the first instance,

a colorable claim. It requires, in the second

instance, a showing of irreparable harm. And then the

Court, as it always must, has to take into account the

balancing of the hardships.

CIGNA's counsel starts from the

proposition that this is an extraordinary remedy. It

is an extraordinary remedy but in the sense of a

non-ordinary remedy. It is an out-of-the-ordinary

remedy. It is not an extraordinary remedy in the

sense of "The League of Extraordinary Gentlemen" or

extraordinary superpowers or things that a Court just

never does.

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It is out of the ordinary in the sense

that cases normally do not proceed at an expedited

pace and normally do not involve preliminary

injunctive relief, whether as a temporary restraining

order or otherwise, to preserve the status quo. We

normally proceed in a nonexpedited fashion to a trial.

So in that sense and only that sense is preliminary

injunctive relief extraordinary.

But preliminary injunctive relief

including a TRO is quite common, particularly in this

Court, which deals with a lot of similar and, using

the word in the same sense, extraordinary situations

where it is necessary to preserve the status quo so

that effective legal relief can be granted.

This is an extraordinary transaction.

And I say that not in the sense of whether I believe

it's a great deal, as Mr. Kurtz cleverly put it, but

in the sense that it is an out-of-the-ordinary

transaction. It is quite large. It involves two

major companies. It is quite detailed. It is the

type of thing that, while it is in place, creates a

very different state of play than if it is purportedly

terminated.

Preliminary injunctive relief of the

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TRO variety or the preliminary injunction variety also

becomes less extraordinary where, as here, the parties

have agreed to its availability by stipulating in the

merger agreement that irreparable harm will arise from

breach.

If parties don't want that, don't put

it in your merger agreement. If you want to be able

to come in later and say that there's no irreparable

harm, don't agree in your merger agreement that there

is irreparable harm. It's credibility impairing to

say that there's no irreparable harm when there is a

provision in the agreement where you stipulated that

there is irreparable harm.

So in terms of the TRO standard, the

first question is whether a colorable claim has been

asserted. As I see it, the first aspect of the

colorable claim is whether the merger agreement

remains in existence as of now but for the termination

because of the extension of the drop-dead date through

April 30, 2017.

In my view, Anthem's arguments on that

are not only colorable but are, at least on a

preliminary basis, more persuasive.

The termination date provision gives

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Anthem the right to extend to April 30th not only if

the conditions to closing are satisfied as of that

date but if they are capable of being satisfied.

What CIGNA would like to say is that

Anthem had already breached as of the time when the

time for extension came and therefore could not

exercise its extension right. There are several

problems with that argument.

The first is that CIGNA's claims of

breach themselves have to be proven. It is not

established. And Anthem has countered that, in fact,

it did not breach and that it did what it was supposed

to do under the merger agreement. That is contested.

The second is that it is colorable for

purposes of today that Anthem could establish that if

it had failed to or was not then able to satisfy one

of the conditions, that it was capable of satisfying

the conditions by April 30, 2017. It's not clear to

me that because of that language, an actual breach

would prevent you from exercising your extension right

to April 30 if that breach, to the extent it existed,

was curable.

There's a third reason why I think

Anthem has the better of the argument on the

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extension, and that's the dialogue with the District

Court in the District of Columbia about the timing of

the merger agreement and how long it would be in

place. Nowhere in that dialogue is there any

indication of CIGNA taking the position that it's

taking now about the extension right not being able to

be exercised. To the contrary, CIGNA appeared to be

on all fours with Anthem and with the District Court

in believing that the drop-dead date had been extended

and was then April 30, 2017.

What that means, then, is that this

agreement, but for CIGNA's purported termination,

remains in place. And CIGNA's purported termination

is a change in the status quo that has consequences

for Anthem.

As I see it, Anthem has more than

cleared the low hurdle for a colorable claim in terms

of the agreement remaining in effect. It remains in

effect subject to the District Court's order enjoining

the parties from proceeding, but that is the current

state of play, a binding merger agreement that the

parties are not allowed to proceed with because of the

District Court's order. That is a very different

state of play from what CIGNA would like to achieve,

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which is a terminated merger agreement that moots the

District Court's order and the prospect of any appeal.

The second claim that I think is in

play in this case is whether, because of the

allegations of breach, the merger agreement can remain

in place after April 30, 2017. That possibility

arises because if a party has breached, then a party

cannot exercise its termination right.

I don't think I have to express any

view on that today because the question for me today

is whether I preserve the status quo through a TRO

pending a preliminary injunction hearing later, when

we can determine whether the status quo should be

continued.

I think in connection with the later

preliminary injunction hearing, we will have to deal

with the arguments about which sides breached -- maybe

both sides breached -- and what the consequences of

that are for an April 30th termination. But I think

for purposes of today, the fact that the merger

agreement would be in place but for CIGNA's attempt to

terminate is enough to establish a colorable claim.

I then get to the issue of irreparable

harm. And this is the one where I find that CIGNA's

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eloquent arguments are somewhat astounding.

Clearly, the loss of a major

transaction is irreparable harm. If Anthem is in a

position to close this deal or otherwise hold CIGNA to

the merger agreement, it is in a very different

position than if the agreement is terminated. Those

two states of the universe are literally universes

apart. They're fundamentally different.

Second, in terms of irreparable harm,

not only is the deal potentially lost, but the

opportunity to pursue things in the interim, such as

the appeal, such as potential alternatives to

regulatory approval, are also lost.

CIGNA's counsel took the strong

position that he thought it was certain as the day is

long that it would be impossible for Anthem to achieve

regulatory approval. This is a year in which we've

seen the Cavaliers come back from a 3-1 deficit for

the first time in NBA history. This is a year where

we've seen the Cubs come back from a 3-1 deficit to

win their first World Series in over a century. This

is a year where we've seen the Patriots come back from

a 28-3 deficit to win the Super Bowl for the first

time in overtime. This is a year where the new

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Administration that Mr. Kurtz wants to deal with was

not predicted by virtually any political pundit to be

the Administration that Mr. Kurtz would be dealing

with. I don't think that, given that, this is the

year in which someone can reasonably posit and be

certain as the day is long that there is no chance for

this merger to get approved.

Yeah, there might be no chance for it

to get approved in a traditional fashion, but there

are untraditional things that are available, and

Mr. Kurtz has identified some routes short of a

full-blown appeal followed by state-by-state approval

that he thinks theoretically could get him there.

At least for purposes of today, I am

not going to deny relief and allow the status quo to

be fundamentally changed based on overconfidence about

what is certain not to happen.

We, finally, get to the balancing of

the hardships on this issue. I think it's

foreshadowed by my analysis of the irreparable harm.

If no TRO issues, then CIGNA gets to claim that the

merger agreement is terminated, and any ability to go

forward with the transaction is lost.

By contrast, if the status quo is

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maintained, then that is all that happens. The status

quo is maintained. The agreement remains in place.

The parties continue to comply with it. They're still

in a situation where they have a binding merger

agreement that they have been enjoined from proceeding

with. Anthem can pursue its appeal. And CIGNA simply

has to live by the agreements that it voluntarily

undertook when it signed up the transaction.

So for all these reasons, I'm granting

the TRO.

I think what you all need to target is

a preliminary injunction hearing during the week of

April 10th. At that preliminary injunction hearing, I

would be inclined to consider not only the question of

whether Anthem validly extended in January, which is

what I've given you a preliminary and tentative view

on today, but also the question of whether there was a

sufficient basis to believe that a breach occurred and

that the breach was by CIGNA such that the merger

agreement would need to stay in place beyond

April 30th.

And then we can go from there as to

what proceedings we need from that point on in terms

of a trial for specific performance or damages or

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whatever has to happen.

Now, let me give you a couple caveats.

Nothing I say today presages how I view the case as a

whole. I've obviously ruled in favor of Anthem. I've

obviously expressed some skepticism about some of the

arguments that CIGNA has advanced, particularly on the

absence of irreparable harm, when we're talking about

an agreement governing a front-page Wall Street

Journal headline deal that contains an irreparable

harm provision.

Yeah, I'm skeptical that there's no

irreparable harm from the loss of that, and I'm

surprised that that argument was made, but that

doesn't translate into the idea that Anthem wins the

case. It means that for purposes of today, they have

cleared the relatively lenient standard for a TRO,

which requires only a colorable claim and a threat of

irreparable harm and the balancing of hardships, to

maintain the status quo pending further proceedings.

Certainly, once there is a more

developed record in terms of a preliminary injunction,

things could be different. And when we ultimately get

to the merits in terms of deciding what actually has

happened, things could be very different.

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I also will say that in terms of the

form of temporary restraining order that I'm granting,

I am striking the words that appear in the single

sentence from "or" to the end.

So, in other words, I am enjoining

CIGNA from terminating the merger agreement. I am not

going further than that. Because once I have enjoined

CIGNA from terminating the merger agreement, CIGNA is

bound by the provisions under the merger agreement.

So is Anthem.

But for purposes of any additional

restriction on taking any action to prevent or impede

regulatory approval on consummation of the merger, the

actions that CIGNA is expected to take, is obligated

to take, and the things it's obligated not to do, are

set forth in the merger agreement. By keeping the

merger agreement in place, those restrictions stay in

place.

I'm not going to substitute for what

sophisticated parties agreed to. I'm not going to

replace that with whatever this is, a dozen words.

You all are going to have to stick with what your

sophisticated deal lawyers worked out for you in terms

of the obligations relating to transactional approval

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and regulatory approval.

All right. I've talked almost as long

as you all did, for which I apologize.

Mr. Kurtz, you were the movant. What

questions do you have?

MR. KURTZ: I have no questions, Your

Honor. And we appreciate your immediate attention.

THE COURT: All right.

Mr. Savitt, what questions do you

have?

MR. SAVITT: No questions, Your Honor.

Thank you.

THE COURT: All right. I will sign

the order in the form that I've suggested, and you all

can go from there in terms of pursuing what other

issues you want to pursue.

Thank you, everyone.

(Conference adjourned at 5:08 p.m.)

- - -

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CERTIFICATE

I, JEANNE CAHILL, RDR, CRR, Official

Court Reporter for the Court of Chancery of the State

of Delaware, do hereby certify that the foregoing

pages numbered 3 through 51 contain a true and correct

transcription of the proceedings as stenographically

reported by me at the hearing in the above cause

before the Vice Chancellor of the State of Delaware,

on the date therein indicated.

IN WITNESS WHEREOF I have hereunto set

my hand at Wilmington, Delaware, this 15th day of

February, 2017.

/s/ Jeanne Cahill

----------------------------

Jeanne Cahill, RDR, CRR

Official Chancery Court Reporter

Registered Diplomate Reporter

Certified Realtime Reporter

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