Health plan mergers: More oversight needed

While it was good to see the Justice Dept. put some conditions on a health plan merger, even stricter regulation is needed.

Posted Feb. 6, 2006.

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The good news is, the Dept. of Justice for once didn't allow a health plan merger to go forward as intended. The bad news is, the merger still went through.

The Justice Dept.'s requirement that the UnitedHealth Group-PacifiCare Health Systems merger happen only under certain conditions is a tiny step toward what the AMA and physicians have been asking the government to do for years -- examine health plan mergers carefully so that plans aren't allowed an unfettered ability to impose their will on physicians and patients.

Aetna's 1999 purchase of Prudential's health insurance operation is the only other health plan or managed care organization merger that wasn't approved as submitted. That's out of the more than 400 such mergers that the Justice Dept. has reviewed,

In this instance, the Justice Dept. is forcing the newly combined United-PacifiCare to sell operations in Boulder, Colo., and Tucson, Ariz. The plan also must cancel a deal in which it has access to Blue Cross of California's physician network.

In doing so, the Justice Dept. offered what for it is a rare acknowledgment of the realities concerning health plan monopsony power. For example, in court papers filed as a formality when it seeks to impose conditions on a corporate merger, the government noted that in Boulder and Tucson, the newly merged plan would control more than 30% of the physician contracts and the small-group insurance market. In 1999, when the Justice Dept. forced Aetna to sell Prudential operations in Houston and Dallas, its threshold for market power was a 42% share.

It's well worth noting that is was not only the Justice Dept. officials who took a closer look at the United-PacifiCare merger. State regulators in Colorado and California imposed their own conditions on the deal. Those state-level conditions included payments toward care for the uninsured and, in Colorado, formation of a committee between United and physicians to discuss payment and other issues.

At a hearing held by Colorado state regulators, AMA Trustee Edward Langston, MD, testified against the United-PacifiCare. Dr. Langston said after the merger's approval that he was "encouraged that the Dept. of Justice is beginning to recognize the AMA's long-standing concern about the negative effects of aggressive consolidation among health insurers."

So why did Dr. Langston follow that up by saying that he, like many physicians, was disappointed that the merger went through?

Because the imposed conditions are hardly a roadblock to United getting the expansive power it wants through this deal, and to other health plans wishing to expand through acquisitions.

The covered lives spun out of Boulder and Tucson will total about 12,000 -- a drop in the bucket for Minnetonka, Minn.-based United, which with the PacifiCare acquisition now has 26 million members. That's second only among private plans to Indianapolis-based WellPoint's 33 million. (The number includes the members WellPoint added in late December 2005, when its purchase of New York-based WellChoice was approved.) A simple figure reflects the fast pace of consolidation: When the Justice Dept. imposed conditions on Hartford, Conn.-based Aetna in 1999, it was then the largest private health plan with 16 million members.

The Justice Dept. ordered the spinoffs in Boulder and Tucson because under the department's definition, those markets were "highly concentrated." Yet AMA studies have shown that the definition would apply to scores of markets around the country.

To mega-sized health plans, those numbers are a success story. But it is a very troubling piece of news for patients and physicians hoping for a future of fair treatment from plans.

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