Health plan mergers deserve tough scrutiny

As we report in today's issue, authorities in Pennsylvania continue to mull over the benefits and risks that could accrue from a merger between Highmark and Independence Blue Cross, which providers and consumers have suggested could give the merged entity too much power. The deal would create the third-largest Blue plan in the U.S., and just about lock up the health plan market in some parts of the state.

You know, sometimes I just have to shake my head and wonder what people are thinking. It seems pretty obvious to me that this level of consolidation will give the combined entity huge leverage in provider negotiations, driving down payments in a way that can only be called "anticompetitive." This is my gut feeling, not a statistical analysis, but hey, let's look at how things have gone down elsewhere and see what you think, OK?

Bear in mind that this is just one of the big mergers that has taken place in recent years among health plans, which have been consolidating rapidly. The AMA has been inveighing loudly against these deals, including UnitedHealth Group's planned acquisition of Las Vegas, NV-based Sierra Health Services, which was eventually investigated and held to some standards by the Department of Justice and the state of Nevada. By one estimate, the deal gives the combined health plan a 78 percent interest in the Nevada HMO market and a 94 percent interest in the Medicare Advantage market in Las Vegas.

Of course, there were some big deals in California a few years ago whose ripples are still being felt--and they're not pleasant ripples, it seems. When UnitedHealth acquired PacifiCare in 2005, the market tightened up noticeably in the state. Years later, the state's Department of Insurance has cited PacifiCare for problems attributed to its takeover by UHG, for potential penalties that could hit $1.33 billion, as well as $3.5 million in fines. The DOI contends that 30 percent of the claims it reviewed were improperly denied.

Another California deal that raises questions about health plan consolidation is the buyout of Blue Cross of California (BCC) by WellPoint. BCC, which was picked up by WellPoint in 2004, has faced withering criticism from the state's Department of Managed Health Care, which received more than 1,600 consumer, physician and hospital complaints about its business practices between 2004 and 2007. The agency, and the AMA, contend that WellPoint has raised premiums and cut physician fees to help pay for the costs of the acquisition and finance executive payouts from the deal--which it promised not to do as a condition of going forward.

Yes, I admit that these are just data points, and don't directly prove that health plan consolidation harms anyone. On the other hand, I've summarized for the sake of space, and can sincerely say that if you dig more deeply into these and several other health plan mergers, falling provider fees, bad customer service and high costs (at minimum) seem to be typical results.

I know that realistically, any industry with high overhead and a scalable product is going to consolidate. But when it comes to the health plan business, let's not put our heads in the sand as to what sort of obstacles we're facing. This thing has just begun to get ugly. - Anne