Several states reconsidering Anthem-WellPoint merger

Some regulators are reviewing the permission they gave to the insurers to unite, although the plans say their deal will get done.

By Robert Kazel — Posted Nov. 15, 2004

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On the heels of California regulators who turned down the proposed Anthem-WellPoint Health Networks merger over the summer, insurance officials in several other states say they are having second thoughts about previous approvals they granted to the $16 billion deal.

Any reconsideration by regulators appears to threaten the merger between Indianapolis-based Anthem and Thousand Oaks, Calif.-based WellPoint. The combination would create the country's largest private health plan.

But WellPoint Health Networks CEO Leonard Schaefer said efforts to close the merger, which would create an Indianapolis-based company called WellPoint Inc., would go on.

Donald J. Palmisano, MD, immediate past president of the AMA, called any new consideration of the merger a "welcome development."

The insurance commissioner of Georgia, John Oxendine, had approved the merger in June. But his office confirmed in October that he had rescinded that approval pending further details about large incentive bonuses to be paid to WellPoint executives, and other concerns, in connection with the deal.

In addition, the Missouri Dept. of Insurance, which also approved the merger, is reconsidering its position on the deal due to a $10 million extraordinary dividend requested by HealthLink HMO, a subsidiary of WellPoint. The state agency must approve extraordinary dividends.

Missouri regulators are seeking to determine if the request conflicts with conditions for the merger previously submitted by WellPoint Health Networks, and whether it is connected to money pledged by WellPoint for patient care in California in its efforts to win approval for the deal in that state.

HealthLink at first had told the state a $367,000 ordinary dividend was planned, according to press reports.

Texas insurance regulators also are deciding if they will nix their approval of the merger because its consent is contingent on the deal being consummated by Dec. 31, 2004, said Danny Saenz, the state's deputy commissioner of insurance.

The deal has not officially closed because it has been tied up in court in California, where Anthem filed suit against Insurance Commissioner John Garamendi's July 23 decision to disapprove the merger, which at that time made Garamendi the only state or federal regulator to give the deal a thumbs-down.

The insurer already asked Texas officials for an extension and was granted it, but had not yet asked for another extension as of late October, Saenz said.

Meanwhile, insurance departments in Illinois, Virginia and Wisconsin, all of which approved the merger, are looking at the deal again to see if subsequent changes proposed by WellPoint to California officials would affect plan members in their respective states, according to the San Francisco Chronicle.

The AMA's Dr. Palmisano, a general and vascular surgeon in New Orleans, said, "The more light that shines upon this megamerger the better. Consolidation of health insurers continues unabated, creating a market situation in which a few insurers exert a disproportionate influence on the market. Those benefiting most appear to be the departing executives who receive cash and stock packages tied to the merger. Patients will feel the pain of this merger if it is allowed to go forward."

In a conference call with investment analysts Oct. 27, Schaefer said handling any additional objections from officials in other states was not expected to be a problem.

"We remain fully committed to the merger. ... It has always been our understanding that every state has a regulatory duty to ensure that the deal they approved is the deal that gets done. We will continue to respond to regulatory agencies concerning any questions they may have about the merger," he said.

Anthem did not reply to a telephone request for an interview.

The potential investigation of the merger by more states was hailed by Steve Kern, lawyer for the Medical Society of New Jersey, which on Aug. 2 filed suit against regulators in its state and Minnetonka, Minn.-based UnitedHealth Group, charging that New Jersey's rapid approval of a $4.2 billion merger between United and Trumbull, Conn.-based Oxford Health Plans wasn't based on thorough scrutiny, and was not valid.

"Somebody's finally waking up to the fact these companies aren't necessarily good for patients and doctors and reducing the cost of health care delivery," he said. "The more people looking at what these companies are doing the more they realize they are earning huge profits that could otherwise [reduce] the cost of health care."

The New Jersey society's suit, now being considered by a state appellate court, will determine if a trial will be held to weigh the impact of the merger more thoroughly.

Despite MSNJ's assertion that its lawsuit halted the United-Oxford merger, United maintains it is a done deal and says the society's lawsuit is without merit.

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Anthem faces broker-fee inquiry

Anthem Inc. was subpoenaed in late October by the Connecticut attorney general in connection with a widening investigation into commissions and bonuses paid by insurers to brokers.

The plan is not the first major health insurer to get a subpoena as part of the scandal swirling around hidden "contingency" fees and alleged bid-rigging in the insurance industry. Aetna Inc. was subpoenaed earlier in October by New York Attorney General Eliot Spitzer, and both Spitzer and Connecticut Attorney General Richard Blumenthal subpoenaed CIGNA Corp., according to press reports.

Anthem said it would cooperate with any investigations fully.

Aetna was exhaustively reviewing its practices but had found no wrongdoing, CEO John W. Rowe, MD, told industry analysts in a conference call Oct. 28.

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