2 health plans in New England to enter merger discussions

Harvard Pilgrim Health Care and Tufts Health Plan have signed a memorandum of understanding to explore the idea of merging.

Analysts have said health system reform will create an incentive for smaller health plans to combine or sell to larger plans because of some of the requirements they face, along with the need to remain competitive by investing in health information technology. However, Harvard Pilgrim and Tufts did not give a reason why they were looking at a merger.

A joint statement from the two companies said, "This is the first step in a long process of due diligence for both organizations to internally review the potential for a transaction before reaching a final merger decision, which is anticipated sometime in the next several months."

Harvard Pilgrim has more than 1 million members in Massachusetts, Maine and New Hampshire. Tufts has about 735,500 in Massachusetts and Rhode Island.

Blue Cross Blue Shield of Massachusetts has more than 3 million members, so the combined Harvard Pilgrim-Tufts plan would be smaller, but would present more substantial competition for the big Blues than they do separately.

Harvard Pilgrim, Tufts and the Blues are nonprofit companies.

In a joint statement on Jan. 25, Harvard Pilgrim and Tufts said they hoped to drive down member costs by merging, though they didn't say how that would affect physician payments.

Massachusetts Attorney General Martha Coakley released a report in 2010 saying the power of the state's dominant hospital systems was responsible in part for high care costs.

Tufts and Harvard Pilgrim's statement said benefits of a merger were: "Ensuring access to high-quality health care, enhancing focus on medical outcomes and quality; avoiding duplicate spending on the administrative systems needed to implement government mandates; and creating efficiencies on technology investments -- thereby helping to keep health insurance premiums competitive."

Alice Coombs, MD, a critical care specialist and anesthesiologist from Sharon, Mass., who is president of the Massachusetts Medical Society, said she wasn't sure what the merger would mean to Massachusetts physicians. She said it could change the balance of power during contract negotiations between the new combined entity and hospitals and physicians, giving the insurer more clout.

On the other hand, "It may help Blue Cross Blue Shield to see there's another entity that's growing and looking to gain even greater market share," Dr. Coombs said. "That is going to introduce competition."

Based on the most recent market concentration analysis from the American Medical Association, which is based on Jan. 1, 2007, survey data reported by HealthLeaders-Interstudy, Blue Cross Blue Shield of Massachusetts had 63% market share for PPO and HMO plans across the state. Tufts had the next-highest market share statewide, with 13%.

A Blues statement about the potential merger said, "At a time when hospitals and physicians are consolidating, it's not surprising that some health plans would consider consolidation to try to achieve parity with provider groups."

Other states also have seen health plan merger activity.

Blue Cross Blue Shield of Delaware recently announced its intention to affiliate with the much larger Blues plan Highmark, based in Pittsburgh.

In 2010, Coventry Heath Care, based in Bethesda, Md., purchased two nonprofit Catholic hospital-owned health plans in the Midwest.

Those deals weren't credited to reform but are the kind of merger experts say will become more common.

Antitrust regulators have said they will look closely at health plan mergers, however. Blue Cross Blue Shield of Michigan in 2010 withdrew its bid to buy a Lansing-based, hospital-owned HMO after the U.S. Dept. of Justice and the Michigan Attorney General's Office made clear they would attempt to block the deal.