United-Sierra merger in Nevada approved -- with conditions

Days before approval from the Nevada Division of Insurance was set to expire, federal and state regulators approved the merger of the country's largest health insurer, UnitedHealth Group and Nevada's largest health insurer, Sierra Health Services.

The Feb. 25 approvals from the Dept. of Justice and the Nevada Attorney General's Office came with some conditions. For example, the Dept. of Justice said United must sell its Medicare Advantage business in Las Vegas, though it may keep Sierra's.

For physicians, the attorney general's office said that for the next two years, United must not put all-products or most-favored-nation clauses in its contracts, nor can it use its Ingenix database to set out-of-network rates. The New York Attorney General's Office filed a lawsuit against United in February for allegedly using Ingenix to intentionally propagate low fees, a charge the company denied.

Despite the conditions, the deal "is still going to be harmful," said Larry Matheis, executive director of the Nevada State Medical Assn.

Both the U.S. Dept. of Justice and Nevada Attorney General Catherine Cortez Masto filed federal lawsuits blocking the deal but simultaneously filed the proposed consent agreements, effectively issuing conditional approvals. Both agreements are subject to approval by federal judges.

A tentative agreement calls for United to sell the policies of 25,000 Medicare Advantage HMO members to Humana for $185 million. United and Sierra's combined share of the individual Medicare Advantage HMO in Clark and Nye counties would have been around 94%. Instead, United will now hold 60% of that market, with Humana holding 34%, according to estimates in the Justice Dept. lawsuit.

United issued a statement saying it intended to abide by the agreements and complete the $2.6 billion acquisition of Las Vegas-based Sierra. The deal was first proposed in March 2007.

United will retain other Medicare business in Nevada, including 1,800 members of its Medicare Advantage HMO business sold as group policies, along with its Medicare supplement plans, stand-alone Part D plans and private fee-for-service plans, said company spokesman Tyler Mason. Sierra will retain its Medicare Advantage HMO business.

The combined insurer will hold a 95% share of Las Vegas' HMO market.

In addition to requiring $15 million in contributions to public health programs over five years, the agreement with Masto's office also included the conditions on how the new United-Sierra can contract with physicians.

The state agreement also would require United to fund audits by the state's Division of Insurance and to establish a state physicians' council, intended "to address the concerns of physicians in Nevada, to work together to improve health care delivery."

The AMA is part of a coalition, including the state medical society, the Service Employees International Union of Nevada and the Clark County Commission, opposed to the acquisition. The coalition says the deal would diminish health plan competition and suppress reimbursement to physicians and health care workers.

William G. Plested III, MD, AMA immediate past president, is a surgeon in California, where United's PacifiCare subsidiary recently drew a multimillion-dollar fine from state regulators for failures to pay physicians promptly and to tell patients how to appeal claims decisions.

"There could be no better plan for Nevada to follow what [United is] doing than to look at their past behavior, and the minute it starts to be reproduced, to jump on it," he said.

Matheis said although the busiest era of health plan mergers and acquisitions may be over, there likely will be further industry consolidation, and other states should be paying attention to the United-Sierra deal.

The outcome demonstrates that state regulators will have to do the heavy lifting on antitrust enforcement in the absence of aggressive regulation by the Justice Dept. "Everybody has to redouble their efforts and really work with their state attorneys general," Matheis said.

His words come as Pennsylvania regulators are examining the proposed merger of Highmark Inc. and Independence Blue Cross, which would create one of the country's largest health plans and would cover more than half the state's residents.

The U.S. Dept. of Justice effectively signed off on the deal last year.

Legislation expanding the state Insurance's Dept.'s authority to examine the merger is pending. The Pennsylvania Medical Society has asked regulators to scrutinize the proposal because of market share concerns.