Unhealthy mergers: The wrong trend
■ Federal regulators need to put a stop to the United-PacifiCare merger, as well as review how health plan mergers are affecting physicians and patients.
Posted Sept. 5, 2005.
When Anthem and WellPoint Health Networks in late 2003 announced their proposed $16 billion merger, the largest ever between health plans, financial analysts predicted that it would spur even more mega-deals. And they were right.
Witness, for example, UnitedHealth Group following with a $5 billion merger with Oxford Health Plans. UnitedHealth in July announced that it wants to acquire PacifiCare Health Systems for $8.1 billion.
Then again, the American Medical Association and others for years have warned that health plans were growing more and more dominant, not only through big, headline-grabbing billion-dollar deals, but also through smaller purchases of regional plans. Witness, for example, UnitedHealth Group's summer announcement that it would buy Neighborhood Health Plan (NHP), centered in south Florida.
WellPoint, whose 28 million members make it the nation's largest private-pay health plan, and United, whose 25 million members make it the second-largest, are working their way toward becoming the dominant players in the national health coverage marketplace.
So now more than ever, federal regulators must scrutinize health plan mergers to determine and understand the negative effects they're having on patient care and health care costs, as money for care gets redirected toward corporate profits.
In a July letter to U.S. Attorney General Alberto Gonzales, AMA Executive Vice President and Chief Executive Officer Michael D. Maves, MD, MBA, expresses the Association's disappointment that federal regulators' antitrust authority has concentrated on physician groups, which tend to be 10 doctors or fewer, rather than the major health plans that control care for tens of millions of Americans.
In recent years, Dr. Maves writes, there have been more than 400 mergers involving health plans and managed care organizations, and in only one of those deals -- Aetna's 1999 purchase of Prudential's health care operations -- did federal regulators take any action. (Aetna was forced to sell off operations in certain Texas markets, but the merger itself went through.)
The letter expresses the AMA's "strong opposition" to the United-PacifiCare deal and its concerns about the impact of the NHP acquisition, neither of which has yet received the required federal and state regulators' approval. In each case, United is buying access to major markets, California and Florida, where it had not built up market share on its own.
Further consolidation, Dr. Maves writes, is going to drive health costs up even further by allowing plans to charge whatever premium they want, while treating physicians with a track record that leaves much to be desired.
Bigger health plans have not created greater "efficiencies," one of the usual stated reasons for corporate mergers. Instead, plans are using their market power -- often more than half of private-pay insured patients in a metropolitan area -- to exert control over doctors and patients. The only thing getting more efficient is plans' ability to impose their will.
WellPoint and United have not announced any further deals, but financial analysts are already guessing which company might be the next target. Humana? Cigna? Or more acquisitions of plans that focus on such niches as consumer-directed care or senior services?
In the David-and-Goliath battle between physicians and plans, every new acquisition makes the prospect of a fair ending for doctors and patients more remote. If it is unrealistic to expect Goliath to shrink, at least put an end to this troubling growth spurt.