Timely scrutiny of health plan consolidation

After years of plan mergers, a medical society's legal challenge provides the opportunity for one deal to get the proper attention.

Posted Nov. 1, 2004.

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When the Medical Society of New Jersey sued to stop the merger between UnitedHealth Group and Oxford Health Plans, its quest seemed quixotic. After all, the multibillion dollar deal had already been approved by every state and federal agency necessary, including New Jersey's Dept. of Banking and Insurance. As far as investors were concerned, Oxford was no more -- United had taken it off trading on the New York Stock Exchange.

And yet, the society's lawsuit is turning out to be not such a doomed crusade after all. With a New Jersey court ruling against United's motion to dismiss MSNJ's case, the society's lawsuit could provide something the physician community has wanted for years as health plans succumbed to merger mania.

The lawsuit could prove the opportunity for a true, in-depth consideration of such deals' ability to create market-dominating plans that wield unlimited power over physicians and patient care issues.

The crux of MSNJ's lawsuit, which is receiving partial financial support from the AMA's Litigation Center, is that the New Jersey Dept. of Banking and Insurance did not truly scrutinize the United-Oxford merger. By law, it was allowed 45 days after testimony to grant or refuse its approval. The department, on July 29, announced its approval after only three days of consideration.

MSNJ, which had testified a United-Oxford deal would create a plan with massive market clout in New Jersey, especially in the state's northern half, sued the plans and the regulators on Aug. 2. Even though the deal was technically done, MSNJ relied on a little-known state statute that it says allows any party aggrieved by a merger to sue, which then puts the deal on hold.

United counters that's not what the law allows. At the least, so far New Jersey courts have been sympathetic to MSNJ's appeals to have a judge hear its side, and force the plans and regulators to discuss the deal, and how it got approved, in great detail on public record.

AMA President John C. Nelson, MD, MPH, in a statement backing MSNJ's effort, said the United-Oxford merger needs "thorough and meticulous assessment, and allowing the MSNJ challenge to proceed ... is critical to this assessment."

The lack of scrutiny has created a situation where, well before the United-Oxford deal was announced, health plans' market power had grown to stifling proportions. According to the AMA's "Competition in Health Insurance: A Comprehensive Study of U.S. Markets, 2003 Update," available online (link), 78 out of 84 metropolitan areas studied met the 1997 Dept. of Justice and Federal Trade Commission definition of "highly concentrated" in terms of HMO/PPO market share.

Along with pressure on physician reimbursements, such dominance also has emboldened plans to raise premiums to patients. According to a study by the Kaiser Family Foundation and the Health Research and Educational Trust, workers in company health plans are paying double-digit percentage rate increases for the fourth straight year, including an 11.2% jump in 2004. "In any other industry, a wave of mergers followed by an abrupt rise in prices would cry out for an investigation," Dr. Nelson said in his statement regarding the MSNJ lawsuit.

New Jersey isn't the only state where such an investigation may happen. Further details of Anthem Inc.'s attempted merger with WellPoint Health Networks are expected to come out in a lawsuit Anthem filed against California Insurance Commissioner John Garamendi. His rejection of the deal in late July has put on hold plans to form the nation's largest private health plan. Garamendi was a rare case of a regulator who said no to a health plan merger.

It isn't healthy for any health plan to have virtually unlimited power over an area. And it appears that, now, someone is willing to hear out that position.

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