Analysis Group Expert David Dranove Highlighted in Historic Health Care Merger Review
In what was widely considered to be the largest proposed merger ever in the health care industry, academic affiliate David Dranove of Northwestern University's Kellogg School of Management served as the expert economist for the US Department of Justice (DOJ) in its successful challenge of Anthem’s acquisition of Cigna. The two companies are among the five largest health insurers in the United States. Supported by a team of Analysis Group consultants, Professor Dranove submitted two expert reports, testified twice in deposition, and testified four times in court on the issues of market definition, the impact of the proposed transaction on market concentration, and the impact of the proposed transaction on competition.
The most prominent feature of Anthem’s case was its “robbing Peter to pay Paul” theory of the case. Anthem argued that the transaction would enable the merged entity to extract or negotiate lower payments to providers (thereby “robbing Peter”), and that the benefits of these payment reductions would flow to self-insured employers (thereby “paying Paul”). Professor Dranove’s analysis and testimony showed that lessening competition on the insurer side of the market in order to counter market power on the provider side of the market made little economic sense; promoting competition on both sides of the market is necessary for “bending the cost curve.” Firmly grounded in the economics of business strategy – based on how insurers actually compete and how health care markets actually work – Professor Dranove’s framework tied together the upstream and downstream, as well as the static and dynamic, elements of the transaction.
The successful challenge to the merger preserved competition in a very important sector of the US economy and – more generally – avoided setting a precedent in which a lessening of competition upstream can be considered a merger-specific efficiency. As a result of this work, Professor Dranove was selected as a 2017 Honoree for Outstanding Antitrust Litigation Achievement in Economics by the American Antitrust Institute. ■