New York health plan merger sparks fears of insurer monopoly

New York City fails in its attempt at a restraining order. Doctors say the deal would hurt their ability to negotiate fair contracts.

By Amy Lynn Sorrel — Posted Dec. 18, 2006

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New York physicians worry that bigger will not mean better for patient care if the merger of two health plans into the state's largest insurer is allowed to stand.

A federal judge Nov. 14 rejected New York City's request for a temporary restraining order to prevent the companies from joining. The ruling came just one day after city officials sued Health Insurance Plan of New York and Group Health Inc. to stop their union. The city claimed that it would create a monopoly of insurance options for public employees in the metropolitan region and that the firms would raise prices because their competitors are more expensive.

Doctors fear that the deal will make it difficult for them to negotiate adequate reimbursement with the merged plan and hinder their ability to provide quality medical care.

The American Medical Association and the Medical Society of the State of New York last year sent a letter to the U.S. Justice Dept. and the New York State Insurance Dept. asking regulators to scrutinize the merger's impact.

The combined company's commercial market share is 33% statewide. Group Health was already the state's largest health insurer, with a 25% market share. In the New York City area, where HIP's business is centered, Group Health's and HIP's combined market share also is 33%, compared with HIP's 20% before the merger.

"Less competition means less choices for patients, and it leads to one-sided contracts given to physicians on a 'take it or leave it' basis," said Donald Moy, MSSNY general counsel. The physician groups are not involved in the city's lawsuit but are keeping an eye on it, he said.

"We continue to remind regulators that they have to be vigilant [because] as market power grows into fewer monopolistic plans, it is hurting the public," he said.

Going ahead with lawsuit

New York City officials, meanwhile, say they plan to forge ahead with their lawsuit, in spite of U.S. District Court Judge Kenneth M. Karas' refusal to grant a temporary restraining order. His decision allowed the acquisition to go through on Nov. 15. Attorneys say oral arguments before the federal trial court are likely to take place early next year.

According to the city's lawsuit, the merger violates state and federal anti-trust laws because the two companies combined would control more than 90% of the health insurance market for city workers.

"There will be no competition between them," said Michael A. Cardozo, corporation counsel for the City of New York. "The merged entity could raise prices substantially ... without fear of any market constraint."

But the court determined that the deal would not cause any immediate harm to the city or plan members because the insurers would continue to function separately for some time and premiums could not be increased immediately.

Group Health and HIP spokeswoman Ilene Margolin described the arrangement as "an affiliation under a common parent" rather than a merger. She said the firms are separate and offer different products. Group Health is a PPO, and HIP is an HMO.

The alliance received regulatory approval from the Justice Dept. and the state. New York Superintendent of Insurance Howard Mills gave final approval of the acquisition in October. He found that it was unlikely to substantially lessen competition and would allow the plans to compete in the increasingly consolidated health insurance market.

The state insurance department will monitor what it refers to as a "change in control" for any anticompetitive effects, according to its letter to Group Health and HIP. The state's approval requires the companies to establish an oversight committee to ensure that members' options and premiums are not affected adversely. The committee also must make sure that the affiliation does not result in the plans reducing doctors' reimbursement to amounts lower than they would be without the integration.

Doctors, however, remain skeptical. The say the recent spate of insurer consolidation has reduced benefits for patients and created unfair business practices for doctors.

Manhattan family physician Albert Levy, MD, said he was concerned about possible difficulties with the Group Health-HIP union, having experienced some aftershock from the merger of UnitedHealthcare and Oxford Health Plans LLC in July 2004.

"It became really chaotic, and most doctors have dropped out of both, which makes my work more difficult because I have fewer specialists I can refer to," Dr. Levy said. "The problem is insurance companies more or less reimburse at the same rate, which is uniformly very low."

Last year United and Oxford told New York doctors that if they wanted to stay in, or join, one of the physician networks, they had to be in both. If doctors did not agree, their contracts would be canceled under the "all-products" requirement.

In September the MSSNY filed a class-action antitrust lawsuit against the plans, claiming that they are illegally forcing doctors to participate in their networks. The plans say the merger has helped them create a broader network for patients.

The AMA and MSSNY also noted in their letter that Group Health's and HIP's September 2005 announcement to join up came just days after WellPoint, the nation's largest insurer, said it was acquiring WellChoice, the parent company of Empire Blue Cross Blue Shield in New York. That deal went through in December 2005.

With 18% of the commercial health insurance market, Empire is the second largest insurer in New York behind Group Health, the AMA said.

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Case at a glance

City of New York v. Group Health Inc. and Health Insurance Plan of New York

Venue: U.S. District Court, Southern District of New York
At issue: Whether the merger of two health plans creates a monopoly of insurance options for public employees in the New York City area.
Potential impact: Doctors say the merger will make it difficult for them to negotiate with the combined plan and hinder their ability to provide quality medical care. The health plans say they are operating separately under a common parent and that they offer different products and services.

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