Nevada regulator OKs merger of United, Sierra

UnitedHealth Group's acquisition of a Nevada health plan has cleared its first regulatory hurdle, despite the opposition of organized medicine, unions and many of the state's own politicians. Those opponents -- including Nevada's governor -- are not done fighting the deal.

Gov. Jim Gibbons, a Republican, says he wants state Attorney General Catherine Cortez Masto, a Democrat, to look at whether anything can be done to block United's $2.6 billion buyout of Las Vegas-based Sierra Health Services in light of its Aug. 27 approval by the state's insurance commissioner.

State insurance commissioners in California and Arizona, where Sierra has Medicare Part D operations, still must approve the merger, which they are expected to do. The Dept. of Justice must also approve the merger -- and it rarely even puts conditions on health-plan mergers, much less rejects them.

"I am deeply disturbed by some of the potential monopolistic tendencies that can result from this merger and by the constraints in Nevada law that prevented the insurance commissioner from acting more forcefully to curb these potential threats," Gibbons said in a prepared statement. "I urge the attorney general to work with my office to take any and all legal steps to prevent adverse outcomes and will also urge the Justice Dept. to closely examine the monopolistic potential in their review of this merger."

The attorney general's office is expected to announce by the end of September whether it will sue to block the deal.

Organized medicine, which had testified against the merger in state hearings, spoke out against the commissioner's decision. The AMA and others noted that a combined United-Sierra, which would include a physician group affiliated with Sierra, would hold 80% of the state's HMO market.

"It's just incredibly important the public be aware that these megamergers that sound great on Wall Street carry significant implications to the type of health care they and their family receive," said William G. Plested III, MD, the AMA's past president, who testified in Nevada for the Association. "Regardless of where you are, a customer never benefits from a monopoly."

Insurance commissioner Alice Molasky-Arman's ruling disputed that a combined United-Sierra would have such control.

She wrote that with insurance markets so complex, there is not "sufficient evidence that there is a separate HMO product market ... in the State of Nevada." She also wrote that in many products, the company would have less than a 35% market share that is considered the acceptable maximum in certain cases, and that physicians would not see the company make up more than 35% of their reimbursements.

However, she did put conditions on the deal, whose biggest risk, she wrote, was to threaten premium rate hikes, reimbursement declines, and a loss of local control once Sierra is subsumed into Minnetonka, Minn.-based United.

Among the conditions: companies won't pass acquisition costs, including executive bonuses and severance packages, on to consumers or physicians; won't raise premiums or fees to cover buyout expenses; won't reduce benefits; and will continue local management of Sierra. Molasky-Arman also said her office, for two years after the deal closes, must approve any payment of "extraordinary dividends" back to United's home office.

In his prepared statement on the deal, United CEO Kenneth A. Burdick said: "We look forward to continuing Sierra's tradition of providing access to quality, affordable health care, as well as bringing a broad range of new products and services to Nevadans. We recognize the value that a local health care company can provide to a community. We will continue to have a strong Nevada presence and build upon Sierra's reputation as a good corporate citizen."

But Nevada State Medical Assn. president Edwin E. Kingsley, MD, said the conditions on the merger are only "a start" that "reflect the difficulty to make this anticompetitive consolidation work for Nevadans." The Las Vegas hematologist/oncologist said the Nevada association is urging the state's attorney general and the Justice Dept. to "stop this merger."

The United-Sierra deal, first announced March 12, was the first billion-dollar deal in more than a year, during which time the biggest health plans were digesting competitors they acquired during a 2002-05 buying spree.