Marketplace domination: Watching out for insurer mergers

With health plans' power getting ever more concentrated, it's more urgent than ever for regulators to scrutinize big plan consolidations.

Posted June 7, 2004.

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It was like a preview of coming attractions before a movie. Only a few weeks before the AMA issued its latest report on health plan market concentration, UnitedHealth Group announced it was paying $4.7 billion to buy Oxford Health Plans Inc. as a way to increase rapidly its business in the Northeast, as well as gain access to sell multistate plans to the 90 Fortune 500 companies located within Oxford's operating area.

With such a buildup, the numbers in the report, "Competition in Health Insurance: A Comprehensive Study of U.S. Markets, 2003 Update," are all the more shocking. Out of 84 metropolitan areas studied, AMA Private Sector Advocacy found that 78 of them meet the 1997 Dept. of Justice and Federal Trade Commission definition of "highly concentrated" in terms of HMO/PPO market share. That's 93% -- up from 87% (61 out of 70 metro areas) from the previous year's report. In 26 states where reliable metropolitan-level data wasn't available, 22 -- 85% -- were highly concentrated. All the other markets were considered concentrated -- there's no market where individual health plans have failed to gain significant market share.

In 90% of the 84 metro areas and 88% of the 26 states, one company represented more than 30% of the HMO/PPO market. In 37% of the metro areas and 42% of the states, one company represented more than half the market.

In Tallahassee-Panama City, Fla., one insurer -- Blue Cross and Blue Shield of Florida -- held 83% of the HMO/PPO market. That area had two insurers represent 98% of the market, while only two companies held 95% of Salinas, Calif., and 90% of Macon, Ga.

Such dominance isn't limited to smaller metropolitan areas -- Philadelphia also had two companies representing 90% of the market.

And these numbers are from 2002 -- they don't even take into account deals such as Anthem's merger with WellPoint Health Services, creating the largest private health plan in the country. Or United's purchase of Mid Atlantic Medical Services Inc., a move that established a major beachhead for the nation's No. 2 private health plan on the East Coast.

While the companies don't say this publicly, the stock analysts who cover them do -- every merger is an attempt to create market dominance so a company can make significant gains by cutting costs, including squeezing physician reimbursement and patient benefits.

This is why the AMA is in the front ranks of those asking the Dept. of Justice and the FTC, both of which must approve any merger, to take an aggressive look at the United-Oxford deal. "The more you allow this to happen, the more it will happen," says AMA President Donald Palmisano, MD. As if to prove his point, the United-Oxford merger announcement came soon after federal regulators signed off on the $16.4 billion merger of Anthem and WellPoint.

It's heartening that at least one state, New York, is asking for additional information from United and Oxford in its role in approving the merger. Additional federal inquiries would send the signal that health plans should not have free rein to wield their monopsony power. This escalating trend of consolidation with little apparent scrutiny or appropriate limits can't help but pit profits against patients, with little doubt over which will prevail. Meanwhile, physicians continue to desperately need the antitrust relief that would at least give them a chance to level the playing fields with health plans.

We're all too familiar with the coming attractions promising patients and physicians more shocks. It's time a few came along that signal a happy ending.

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