Review urged for United-Oxford deal

Less insurer competition in the Northeast likely will further squeeze doctors and employers, analysts say.

By Robert Kazel — Posted May 17, 2004

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The intention of UnitedHealth Group to acquire Oxford Health Plans Inc. is yet more evidence that the managed care industry is consolidating at a worrisome pace, and that federal regulators must wake up to the danger that doctors and patients will be harmed by unfettered corporate mergers, AMA's president warned.

The AMA and others are asking federal regulators to take an aggressive look at Minnetonka, Minn.-based United's proposed acquisition.

"All of the warning bells are going off," said Donald J. Palmisano, MD. "They're ringing right now. Let's hope [federal authorities] hear them."

United on April 26 said it reached an agreement to buy Trumbull, Conn.-based Oxford for $4.7 billion in stock and cash. The merger would add about 1.5 million Oxford subscribers, most of whom are New Yorkers, to United's existing nationwide customer base of more than 20 million.

The deal, scheduled to be completed by the fourth quarter, pending regulatory approvals, "will significantly expand our presence in the northeastern markets," said Robert Sheehy, CEO of the health plan segment of United, in a prepared statement.

That's what concerns the leaders of some physician organizations. According to a study of health plan competition by the AMA, the insurance market in the greater New York area -- which includes the New York City metro area and parts of New Jersey, Connecticut and Pennsylvania -- already is considered a "concentrated market" under guidelines established by federal agencies.

That means a few large insurers have come to dominate it, and UnitedHealth's latest action would appear to exacerbate the trend.

United, with its new Oxford subsidiary, would cover about 25% of HMO and PPO members in the New York market and possibly would supplant Empire BlueCross BlueShield as the leading insurer in the region, the AMA study indicates. Empire had a market share of approximately 22% in the area in 2002, the most recent year that data is available.

Before United's announcement, there were reports that Empire's parent company, WellChoice Inc., was negotiating to buy Oxford, but those talks collapsed.

Health plans have found it increasingly difficult to add members in a stagnant economy and are unable or unwilling to woo plan sponsors with lower premiums, so the chance to boost membership through outright acquisition has never been more tempting, said John Asencio, a senior vice president with the Segal Company, a benefits consulting firm.

"It's build it or buy it," Asencio said. "[United] has been trying to build it for quite some time, and Oxford offered them the opportunity to buy it."

A larger market presence by United probably will lead to lower reimbursement levels for doctors and price pressure on employers, Asencio said.

Calls to United and Oxford by AMNews were not returned.

Asencio predicted physicians and plan sponsors will start to encounter greater price pressures about 18 to 24 months after a merger is completed.

This pressure on physicians and patients should move the Federal Trade Commission and Dept. of Justice to aggressively investigate the potential effects of the planned buyout, Dr. Palmisano said. "We have repeatedly stated attention needs to be directed to the merger of these large companies. The more you allow this to happen, the more it will happen."

The call for an aggressive investigation of the United-Oxford merger comes soon after federal and state regulators approved the $16.4 billion merger of Indianapolis-based Anthem Inc. and Thousand Oaks, Calif.-based WellPoint Health Networks Inc. The merger, which is nearing completion, will result in a 26-million member plan, the nation's largest private plan.

United has been an active acquirer, last year buying Rockville, Md.-based Mid Atlantic Medical Services Inc., known as MAMSI, for about $3 billion, and Golden Rule Financial Corp. of Indianapolis, for $500 million. This year United also bought the HMO and POS products of Touchpoint Health Plan of Wisconsin for $40 million.

The New York Times quoted a spokesperson for New York Attorney General Eliot Spitzer as saying that office has asked United and Oxford for information about the deal. States in which Oxford operates would be required to approve the merger.

"We have to be concerned with the fact that there are fewer plans, fewer choices available to patients, [and] plans with greater market dominance," said Donald Moy, general counsel of the Medical Society of the State of New York. "We'd hope the regulatory officials ask these questions as well."

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Insurer consolidation means more members

WellPoint Inc. 26 million
UnitedHealth Group 21.7 million
Aetna 12.3 million
CIGNA 10.2 million
Humana Inc. 7 million

Note: WellPoint numbers based on completion of Anthem-WellPoint Health Networks merger. UnitedHealth Group numbers based on completion of merger with Oxford Health Plans.

Source: Company filings with the Securities and Exchange Commission

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A bigger plan

Oxford Health Plans UnitedHealth Group
Members 1.5 million 20.2 million
Net earnings per share (1Q 2004) $1.03 $0.88
Annual revenues (2003) $5.5 billion $28.8 billion
Market presence Conn., N.J., N.Y. All 50 states

Source: Company filings with the Securities and Exchange Commission

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