Pennsylvania to examine its Blues market

Pennsylvania's Blues plans have fallen under scrutiny by state regulators, again just months after two of them dropped plans to merge into a single company.

State Insurance Commissioner Joel Ario said in July that his department would do a market conduct examination of all four Blue Cross Blue Shield-licensed plans "to determine if any of them were engaged in anticompetitive or unfair trade practices in violation of the law," said the department's news release.

The four plans, BlueCross of Northeastern Pennsylvania, Capital BlueCross, Highmark and Independence Blue Cross, for the most part operate in separate regions of the state and dominate that region's market, with the exception of the central region where Capital and Highmark compete.

Ario's announcement was welcomed by physicians who have argued for years that the Blues plans' power is out of proportion and leads to unfair practices, particularly in some contract negotiations with doctors. "Finally, somebody is doing a critical appraisal of this," said Pennsylvania Medical Society President Daniel Glunk, MD. "We've been trying to voice our concerns for a very long time."

Dr. Glunk, an internist from Williamsport, Pa., said concern over Blues dominance dated at least back to the merger of two Blues plans that created Highmark in 1996.

Highmark and Independence Blue Cross, Pennsylvania's two largest private insurers, applied to state and federal officials in April 2007 to consolidate. Federal antitrust officials raised no objection.

After a year and a half of hearings and studies by the state, in January Ario told executives at both companies that he would approve the deal only on the condition they give up one Blues trademark -- leaving another up for grabs for another company that would compete with the new plan. (Highmark holds the Blue Shield logo.) But rather than open themselves up to Blue-on-Blue competition, Highmark and Independence withdrew the application.

Much of the testimony about the impact of a potential Highmark-Independence merger was framed first by many physicians' and hospitals' position that competition was already scarce in Pennsylvania thanks to the market dominance of Highmark on the western end of the state and Independence in the Philadelphia area.

"Even with the consolidation off the table, the competitive dynamics of the marketplace have not necessarily improved," insurance department spokeswoman Rosanne Placey said in an e-mail. "The Blues hold the lion's share of our marketplace [more than 60%], and given their longevity here -- of probably 80 years -- it is very difficult for other insurers to compete with the brand they've established."

Placey said the results of the examinations could trigger anything from recommendations for legislation to fining the companies for violating the state's Unfair Insurance Practices Act.

In a corporate statement, Highmark spokesman Michael Weinstein said the company is "extremely disappointed" the department of insurance was subjecting the Blues to the examinations. "While Highmark will cooperate with the examination process and respond to the department's information requests, we continue to believe that substantial competition exists in Pennsylvania's regional health insurance markets," he said.

The state has hired a law firm to do the examinations, which are expected to be completed in early 2010.