Will consumers be winners in merger trials?

Who Should Win the Insurance “World Series”?

Now that the Cubs have ended their century-long drought and brought the championship home to Chicago, it’s time to look at a pair of very different battles getting ready to be fought on behalf of millions of consumers in our nation’s courts.

{mosads}In the next few months, the U.S. Department of Justice will square off with lawyers from Anthem and Cigna and then from Aetna and Humana, seeking to block these four giant health insurers from merging into two mega-health insurers.

Though these court cases may seem a little less exciting than the Fall classic, many of the tools used to predict the result of the World Series can help observers see why the DOJ should prevail in these important consumer protection cases.

Experience matters. You can’t make the World Series unless you are a league champion. The Obama Justice Department is certainly a league champion in merger trial litigation. Unlike the Bush DOJ that spent 5 years declining to go to court in any merger case, the Obama DOJ has been willing to sue and won their last 5 trials without a loss.  They have blocked 40 mergers and litigated a total of over 75 trial days, about three times as much as the prior Administration. That’s a success record the 1960s New York Yankees would be proud of. The attorneys defending the health insurers aren’t the Brooklyn Dodgers, but they can’t measure up to DOJ’s on the ground merger trial expertise.

History matters.  Managers and players know everything about their opponents– batting average, fielding, ERA, etc. They plan their line up and make strategic decisions based on that info. That type of information is crucial in merger litigation. What has been the record of past mergers? Have consumers benefitted? Prior health insurance company mergers have a dismal record for consumers at best. Every economic study has demonstrated that health insurance mergers raise premiums. And there is no evidence that any health insurance merger has benefitted consumers in lower costs or lower premiums.  Finally, when DOJ has tried to fix mergers through some type of divestiture, those have been complete failures – similar to the record of the 1904 Washington Senators (which won only 38 games).

President John Adams (who would have been a Red Sox fan if he just lived another 100 years) said “facts are stubborn things” and the stubborn facts are that consumers lose when health insurers merge –  a fact that should be crystal clear to the courts in these two cases.

Promises don’t count. Baseball managers basically don’t make promises because they know what counts is what is on the field – who scores, who hits, who strikes out —  not what is promised.  Merger litigation takes a similar approach. Often company executives arrive at trial with big promises of massive benefits from the merger or a promise they won’t increase prices. But courts do not trust promises. They look at the underlying economic incentives, past experience, and company documents. Promises alone don’t count.

It is a level playing field but the government has an important burden. Both teams play by identical rules on the same field.   But the government has the burden of proof. It must demonstrate that the mergers pose a significant threat of lessening competition. If it is a tie, the defendants win.   

It is a level playing field but the government has an important advantage, and for good reason. Under the law, the government can establish its initial burden by showing the market will substantially increase concentration. As Justice Brennan, a Brooklyn Dodger fan, announced “a merger which produces a firm controlling an undue percentage share of the relevant market, and results in a significant increase in the concentration of firms in that market is so inherently likely to lessen competition substantially” that the law will presume it unlawful. Although past administrations have tried to run away from that presumption, recent court decisions especially involving hospital mergers, have revived it with a passion. And for good reason. A merger is forever. There is no way to correct a mistake if an anticompetitive merger is approved. And even outside the health insurance ball field it is increasingly clear that mergers and increasingly concentrated markets lead to higher prices.

Relief pitching is crucial.  Like in baseball there are “closers” — the relief pitcher. In merger trials those closers are the economists who put the case together for the judge. They review the trial record and explain to the judge whether the merger will result in competitive harm. For closers name and reputation matter but what is really crucial is experience. The DOJ economists will have a big leg up since they have tremendous expertise in analyzing these markets. 

The fans matter.  Baseball umpires aren’t affected by the crowd and federal court judges won’t respond to fans in the courtroom. But since Congress enacted the Clayton Act (six years after the last Cubs World Series victory) courts have recognized that their responsibility according to the law is to make sure consumers do not suffer harm.  The lodestar is the effect on the consumers.

There is instant replay. In merger trials the “instant replay” is appeal to the appellate courts. Once again the batting average of the Obama antitrust team is stellar compared to their Republican predecessors.  While the Bush team never appealed any of their merger defeats, the Obama team does not stop at the district court. And when they have appealed merger trial loses they have won on appeal including two recent hospital merger cases.  

The results of a merger trial may appear as hard to predict as a World Series. But history shows there are good reasons to believe that, like the fans in Chicago, consumers will have an opportunity to cheer when these trials are over.

David Balto counsels a wide variety of Fortune 500 companies, small business and consumer advocates on antitrust and consumer protection compliance, strategic alliances, distribution issues, mergers and joint ventures. He is the former Policy Director of the FTC in the Clinton Administration.

The views expressed by authors are their own and not the views of The Hill.


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