Harvard Pilgrim, Tufts drop merger plan

Two Boston-area health plans that looked close to merging have backed off and decided to remain separate companies.

Tufts Health Plan and Harvard Pilgrim Health Care announced Jan. 25 that they had signed a memorandum of understanding and would explore combining into a single company. On March 4, they announced that they had decided not to merge.

"During the due diligence period it became apparent that the savings and efficiencies both organizations were seeking would be more difficult to achieve than initially envisioned and the integration of the two organizations would be more costly and time-consuming than anticipated when discussions first began," a joint statement said.

Even with their combined membership, Tufts and Harvard Pilgrim would have been smaller than the state's largest health plan, Blue Cross Blue Shield of Massachusetts.

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

Blue Cross Blue Shield of Massachusetts has more than 3 million members. The Blues held 57% of the market for PPO and HMO health insurance in Massachusetts, according to the American Medical Association's latest analysis of health insurance competition, based on Jan. 1, 2008, enrollment data gathered by HealthLeaders InterStudy.

The Massachusetts Medical Society had not taken a position on the possible Tufts-Harvard Pilgrim merger.

The Tufts-Harvard Pilgrim case probably doesn't mean there will be a halt on further consolidation in the health insurance market, said Michael Blau, a Boston-based health care attorney who is a partner at Foley & Lardner.

Based on the publicly stated reasons for the merger being abandoned, Blau said, "It appears unique to the culture, infrastructure and relationships and markets of those two plans. Most people feel, notwithstanding the uncertainties around health reform, there are some drivers in health reform toward further industry consolidation."

However, health plans with substantial market share can expect to attract scrutiny from the U.S. Dept. of Justice, where authorities have signaled they will look closely at deals that diminish competition.

For example, Blue Cross Blue Shield of Michigan's HMO subsidiary scrapped plans to buy Lansing, Mich.-based HMO Sparrow Health Care in 2010 after state and federal antitrust regulators made clear they would challenge the deal.