Deal meets opposition already

By Marshall Allen (contact)

Tuesday, March 13, 2007 | 7:15 a.m.

A $2.6 billion merger agreement between Sierra Health Services, the state's largest health insurance provider, and UnitedHealth Group, a national chain, is being met with skepticism by some in the medical community.

Sierra Health, which insures 620,000 Nevadans, most of them in Las Vegas, is widely accused of underpaying doctors and playing hardball with hospitals.

But if Sierra Health is an 800-pound gorilla, UnitedHealth Group is King Kong, covering about 70 million Americans through its various health care plans. And if regulators approve the deal, UnitedHealth will dominate the Las Vegas market.

Members of the American Medical Association want the Justice Department to veto the merger plan because it would give UnitedHealth 95 percent of the Las Vegas health maintenance organization (HMO) market, and 56 percent of the HMO and Preferred Provider Organization (PPO) markets combined.

"They'll be able to set the premiums at whatever level they want and there won't be an effective counterbalance," said Dr. James Rohack of Temple, Texas, a member of the AMA board.

"We've seen as the market gets consolidated by insurers their profits go up, the premiums go up, and they start to try and strong-arm the doctors and the hospitals into a 'take it or leave it' contract."

Not surprisingly, officials from Sierra Health and UnitedHealth don't see things in such a pessimistic light.

Sierra Health Chief Executive Dr. Anthony Marlon, who started the company in 1972, stands to make $190 million from the 4,372,080 shares of common stock he owned at the end of 2006.

Peter O'Neill, Sierra Health's vice president for public and investor relations, said the company had been a takeover target in recent years by national companies.

Its primary appeal, he said, rests in the Southwest Medical Associates business model which adds the medical services of 250 doctors, physician extenders and nurse practitioners to the insurance company. That keeps costs down because the in-house providers see about 75 percent of Sierra Health's patients.

It's a unique arrangement for an insurance company, O'Neill said, and a model that UnitedHealth is interested in trying on its own and possibly taking national.

As for the issue of market share, O'Neill noted that UnitedHealth will not be that much bigger than Sierra Health is now. He said he does not think premiums would rise, because UnitedHealth will make no substantial changes to operations, the business model or the personnel lineup. The various subsidiaries will remain, but with additional UnitedHealth offerings, O'Neill said.

Tyler Mason, spokesman for UnitedHealth, said it wants to expand the Southwest Medical Associates model while adding the technology for which UnitedHealth is known. Advances like electronic medical records and UnitedHealth's vast health care database will improve Sierra Health's bottom line and patient care, he said.

Mason added that UnitedHealth's potential market share if the deal goes through must be put into the context of the always-growing Las Vegas market. Also, because most of Sierra Health's physicians are employees of the company, drops in reimbursements will not be a major concern.

Mason said the deal should close by the end of 2007, pending the approval of shareholders and Nevada regulators. Until then the two companies will operate as separate entities.

With consolidation being a hot trend among health insurance companies nationwide, the proposed deal between Sierra Health and UnitedHealth should be examined closely, said Larry Matheis, executive director of the Nevada State Medical Association.

"Whenever you have more consolidation of the health care market you have fewer choices for people," Matheis said.

Insurance companies wield enormous influence in people's lives, Matheis said. For instance, when Sierra Health ended its contract with the four HCA hospitals in Las Vegas, many people had to shift providers and some were unable to access specialists.

Mason said it is too early to tell whether UnitedHealth will be able to renew coverage for current Sierra Health patients with the HCA chain.

A national corporation like UnitedHealth also does not have to be concerned about local issues, Matheis said.

While it will take time to determine whether UnitedHealth is better or worse than Sierra Health, the deal, if approved, is certain to mean huge change, Matheis said.

"A challenge of the health care system for everybody is this constant anxiety caused by constant change, and not necessarily constant improvement," he said.

Las Vegas insurance broker John Grady said he believes the merger will be a good thing for local employers. It will encourage other national companies to compete in Las Vegas, and expenses will remain stable because UnitedHealth will continue to profit through the Southwest Medical Associates model, he said.

Dr. Bill Pierce, president of the Nevada Academy of Family Physicians, said local doctors have learned not to get excited about mergers between insurance companies.

"I'm sure it looks good on paper, but I don't know," he said. "I'm skeptical of anything in insurance right now. I haven't seen these moves improve things for us."