Quest for medical intervention

Wednesday, June 6, 2007 | 7:09 a.m.

Opponents battling a planned merger between health insurance giants may have a powerful ally: the Justice Department, which intervened in a similar case a year ago.

The proposed $2.6 billion deal would allow national titan UnitedHealth Group, which covers 70 million people, to absorb the largest health insurance provider in Nevada, Sierra Health Services, which covers about 620,000 Nevadans, most of them in Clark County.

Physicians and hospital officials nationwide are marshaling arguments against the deal because of antitrust concerns. The Nevada State Medical Association, American Medical Association and American Hospital Association say the merger would smother competition in Nevada. They're hopeful the Nevada State Insurance Commission or the Justice Department will reject the merger.

If the deal goes through, United would gain Sierra Health's enormous share of the commercial health maintenance organization (HMO) market, increasing its stake to 80 percent statewide and 95 percent in Clark County, according to government figures. United's share of the HMO and preferred provider organization (PPO) markets combined would soar from 9 percent to 56 percent.

"You will have such a concentration of power - economic power and simple size - that there will be no equal competitor or any other competitor close to that size," said Larry Matheis, executive director of the Nevada State Medical Association.

Sierra Health spokesman Peter O'Neill said it's too early to tell whether the Justice Department, which regulates acquisitions in the health care industry, will challenge the deal. The HMO market makes up only 18 percent of the insurance provided in the state, he said, and Sierra Health has had about 80 percent of it already, without issue. However, Las Vegas is unique because of the high number of companies that self-insure their patients, he said. "We don't know yet how they'll parse that data," O'Neill said.

National health care acquisition experts say they would not be surprised if the Justice Department intervenes . Regulators from the department or the Federal Trade Commission routinely review mergers larger than $50 million. The authorities can allow a merger, sue to block it or file decrees requiring the companies divest some of their holdings to loosen their control of the market.

In this case the Justice Department has moved beyond the review into a full-fledged investigation of the proposed acquisition. That happened in only 3 percent of the 1,695 reported mergers in 2005, the most recent year for which statistics are available.

Washington attorney Jeff Miles, who specializes in health care antitrust cases, said the market share numbers in the United-Sierra Health deal are "by far the highest" since the government challenged its first managed care merger in 1999.

There is concern that premiums may increase and reimbursements to doctors and hospitals may decrease, Miles said.

Federal regulators have the United-Sierra Health acquisition "in the cross hairs," said Malcolm Pfunder, a Washington merger and acquisition lawyer. "They've got to argue their way out."

Miles and Pfunder cautioned that market share alone does not determine whether antitrust concerns exist. It's impossible to tell how the market share breaks down without an investigation, Miles said. Consumers may be able to substitute plans offered by competing companies, he said, even an HMO and a PPO. Or, the merger could create efficiencies that would improve the outlook, and allow other insurance companies to enter the market if they so desired, he said.

"It looks bad on the face of it," Miles said of the proposed deal. "But the face of it frequently is wrong."

The Justice Department or FTC rarely challenges a proposed merger. It happened in only four of 50 investigations in 2005.

But both attorneys said the most recent health care challenge may be a bad omen for United and Sierra Health.

In 2006 the Justice Department obtained a consent decree requiring United to divest holdings when it merged with PacifiCare Health Systems. The new company gave up about 6,000 members in Boulder, Colo., and 54,000 members in Tucson . United's market share would have been much smaller in those cities than it would be in Las Vegas if it merged with Sierra Health. The new entity would have controlled 33 percent of the market share for health insurance sold to small-group employers in Tucson , and would have been responsible for more than 30 percent of total payments to physicians in Boulder.

A judge ruled the United-PacifiCare deal would substantially lessen competition in those markets for physicians and for the sale of health insurance plans to small-business owners.

Tyler Mason, spokesman for Minnesota-based United, said criticisms of the merger are unfounded. He emphasized how the merger with Sierra Health would improve health care in many ways for Nevadans. Sierra Health patients would tap into the larger company's national network of providers, which means they could save money if they need treatment while traveling, Mason said.

"You're going to get a better rate and have less out-of-pocket costs," Mason said.

Also, United has invested $2.5 billion in technology in recent years to streamline administration and improve care, Mason said. About 20 million United customers have electronic identification cards that contain their personal health records, and Sierra Health patients would have access to the cards after the merger.

Mason addressed United's possible market share in the context of Southern Nevada's rapid growth. Opportunities abound for other companies to enter the market because so many health care services are needed to sustain the growth, Mason said. And United's goal would be to "work with all the physicians possible" and provide services "at a rate customers can afford," he said.

Many of those customers would be business owners such as the 7,000 who belong to the Las Vegas Chamber of Commerce. The chamber contracts with Sierra's Health Plan of Nevada (HPN) to provide insurance to member companies, most of which have fewer than 25 employees. Spokeswoman Cara Roberts said the chamber is not concerned by the merger.

The opening salvo in the showdown between critics of the merger and the insurance companies will be June 14 in Carson City as the Nevada Insurance Division holds a public hearing on the merger. Nevada Insurance Commissioner Alice Molasky-Arman will rule on the viability of the companies and potential antitrust problems.

She'll hear arguments from critics of the deal, who say United would have leverage to maximize profits by turning the screws on other health care stakeholders. "Everyone who has some relationship to the health care system will be affected by this," Matheis said.

Small-business owners in particular rely on competition between insurance companies to keep health benefits affordable, and their efforts directly affect patients. A monopolized market could allow an insurance company to raise premiums, which could increase the number of uninsured patients, pass costs on to patients or lessen the quality of coverage.

Doctors and hospitals depend on competition among insurance providers to prevent being forced into financially unattractive reimbursement contracts. And if they decide to forgo a contract with the insurance company - as occurred in January in the dispute between Sierra Health and the Sunrise Health System - patients who use those service providers will be forced to find others.