Health plan mergers may face stricter scrutiny

Health system reform makes it more important than ever that the Dept. of Justice scrutinize every proposed health insurance merger, Christine A. Varney, assistant attorney general in the Justice Dept.'s Antitrust Division, told a joint audience of the American Bar Assn. and the American Health Lawyers Assn.

Varney said health system reform relies, in part, "on the belief that robust competition and expanded choice will expand coverage while containing cost." Citing the scuttled merger of two health plans in Michigan as a template, Varney said the Justice Dept. "will not hesitate to block the merger or to require the settlement concessions necessary to protect consumers" if the deal were to result in less competition or greater market concentration.

In March, a proposed merger of a Blue Cross Blue Shield of Michigan subsidiary with Lansing, Mich.-based Sparrow Health System's health plan was scuttled by the companies after the Justice Dept. made it clear it would not approve the deal.

Varney said the merger of Michigan Blues' HMO subsidiary Blue Care Network and Physicians Health Plan of Mid-Michigan would have given the combined company an overwhelming share of the local private insurance market -- with 70% already held by the Blues and 20% of it by the hospital plan. Merely the existence of a separate, competing plan helped keep the Michigan Blues somewhat in check in Lansing, Varney said.

The American Medical Association, using information gathered by HealthLeaders-InterStudy, in February said that as of Jan. 1, 2007, 99% of 313 metro areas had health insurance markets that would meet the Justice Dept. and Federal Trade Commission's definition of "highly concentrated." The AMA also said 24 states reported two insurers controlling a combined 70% of the market.

Varney told the ABA and AHLA audience, meeting May 24 in Arlington, Va., that her staff has found the fear of being unable to compete with dominant plans is the biggest inhibitor to a new competitor entering a market. "New entrants cannot negotiate for competitive provider discounts because they have few enrollees and they cannot win new enrollees because they do not have competitive discounts," she said.

In additional to scrutinizing mergers, Varney said the Justice Dept.'s attention also would focus on any anti-competitive behavior by hospitals and physicians. However, she said that her department would be "receptive to new and innovative forms of provider arrangements that do not necessarily involve financial risk sharing" if clinical integration and coordinated care by separate physician practices and hospitals can decrease costs and improve quality.

Specifically, she cited accountable care organizations, a new concept being unveiled by Medicare in which physicians and hospitals integrate care and are held jointly responsible for Medicare quality and costs.