UnitedHealth Group-Sierra merger a bad deal

Even in Las Vegas, they've never seen odds like this. UnitedHealth Group is poised to be virtually the only HMO game in town, greatly increasing the probability that doctors, patients and employers will be dealt a losing hand. Meanwhile, what are the chances that the Justice Dept. will step in to stop it? Based on past performance: one half of 1%.

The March announcement that UnitedHealth Group plans to take over one of Nevada's few sizeable independent plans broke a year-long streak with no big announcements from health plans looking to consolidate.

In the $2.6 billion cash deal, United said it would buy Las Vegas-based Sierra Health Services. The purchase will create a dramatic change in Nevada's health care playing field.

The health plan would go from controlling 11% of the Nevada HMO market to controlling 78% of that market, according to American Medical Association estimates. It would dominate 95% of the HMO market in the Las Vegas-Paradise metropolitan area after a consolidation. Now, it has only a 13% share in that local market.

When PPOs are figured in, United would control 43% of the HMO/PPO Nevada market postmerger. That's up from the company's 14% share now. In LasVegas-Paradise it would control 56% of the HMO/PPO market, it now has 18% of the market.

That, in turn, leaves physicians at a huge disadvantage when trying to negotiate fair payment contracts. Patients would have far less choice when selecting a health plan. So would employers.

The bulwark against such potentially harmful consolidation, clearly the case with the Sierra deal, is the Dept. of Justice. United has good reason to count on that as its ace in the hole. Department officials have approved some 400 deals in the past decade, with only two of the mergers even having any conditions attached.

But there is still time to bring an end to that dreary pattern.

The Dept. of Justice needs to take the AMA's advice to block United's planned takeover.

In a March 15 letter to Attorney General Alberto R. Gonzales, the Association expressed "strong opposition" to the proposed acquisition.

The AMA said the market share numbers postmerger, along with United's "well-documented single-minded focus on profits, should raise major red flags." First, there is the potential for the health plan to exercise monopoly power over health care consumers by raising premiums above market rates. Second is the concern the company will exercise monopsony power -- the lack of competition on the buying end -- when purchasing physician services.

Insurers already have far too much power in too many states and markets nationwide.

Among the big mergers since 2003: Anthem and WellPoint Health Networks' $16 billion merger; United and Oxford Health Plans' $5 billion deal; and United and PacifiCare Health Systems' $8.1 billion consolidation.

The mergers are a factor in a single insurer having a market share of 50% or more in 56% of metropolitan markets, according to the 2006 AMA report "Competition in Health Insurance: A Comprehensive Study of U.S. Markets." An insurer had a 30% or greater share in 95% of markets. The AMA expects to release new numbers in May.

The picture is not expected to have improved.

But the Justice Dept. has the chance to prevent yet another grossly tilted playing field in which patients and physicians can't hope to hold their own against a too-powerful health plan created through consolidation.

It's time for a change.

The Dept. of Justice needs to block United's bid to take over Sierra.