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BCBS Licensing Agreement Questioned in Anthem Acquisition

- The proposed Anthem/Cigna deal continues to remain under active investigation. In a recent letter to the Department of Justice (DOJ) Antitrust Division, a lead counsel for a nationwide class of healthcare providers challenges Blue Cross and Blue Shield licensees’ anticompetitve practices. The letter, written by Partners at Whatley Kallas – Henry C. Quillen, Edith M. Kallas, and Joe R. Whatley, Jr. – maintains that “Cigna’s effectiveness as a competitor in the market outside of Anthem’s service area will be impaired.” 

Blue Cross Blue Shield Cigna Anthem

The “Blues” are 36 independent companies synchronizing their activities via the Blue Cross and Blue Shield Association, which owns trademarks licensed to the Blues among 67 service areas. If the Blues do not properly abide by imposed restrictions, results will simply be “catastrophic,” says the letter. As per Anthem, a “re-establishment fee” per enrollee was over $98. If Anthem’s license was to be axed in the future, the Blue Cross and Blue Shield Association would then need to review the re-establishment fee of $2.8 billion, the letter says.

Cigna reported over 14 million members, excluding Medicare and Medicaid, will enroll in Blue plans. If Anthem and Cigna eventually merge, only about 64 percent of its members, excluding Medicare and Medicaid, will be enrolled in Blue plans.

“This noncompliance will effectively preclude Anthem from expanding its non-Blue business, including its Cigna-branded business, or perhaps even require Anthem to pull Cigna out of certain markets,” maintains the letter. “Outside of its service areas, Anthem cannot solve the problem by converting Cigna plans to Blue plans, because it is not allowed to do any business under the Blue marks outside its service areas. And, the limit on Anthem’s non-Blue business reduces Anthem’s incentive to invest in or attempt to grow that business.”

“Each Blue agrees that at least two-thirds of the annual revenue generated by it or its subsidiaries (or two-thirds of its enrollment), excluding Medicare and Medicaid, shall be attributable to service offered under the Blue marks (the ‘two-thirds rule’),” the letter states.

The Anthem/Cigna deal may “cause a substantial reduction in competition for national accounts” and that “[f]or employers headquartered in Anthem’s service areas, the proposed merger will eliminate one of Anthem’s main competitors, leading to substantially increased concentration,” the letter additionally confirms.

As RevCycleIntelligence.com reported, as mergers and acquisitions within the healthcare space hit a record high, sizable concerns are developing about what the financial consequences of such may be as time passes. Over the next five to ten years, an increase in mergers and acquisitions is expected. How the licensing agreement may influence the proposed Anthem/Cigna deal is yet to be determined as numerous substantial concerns require further addressing. With more growth and movement comes more opportunity, which is hopefully the next best direction.

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