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October 21, 2014

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state government:

Seeking a boost in regulatory power

Big business aligns against Cortez Masto’s idea

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Sam Morris

Nevada Attorney General Catherine Cortez Masto testifies last week before the Assembly’s Commerce and Labor Committee. She’s introduced a bill that would give her standing in mergers in the state.

Nevada Attorney General Catherine Cortez Masto, stung that her office had little authority last year to review the biggest health insurance company merger in state history, is seeking new authority to review such cases for potential abuse of market power.

Business interests have aligned against Cortez Masto. But with the Legislature now in Democratic hands, she is likely to get additional powers.

If she does, the shift will demonstrate how the Democratic surge of the past two elections, which propelled Cortez Masto into office and gave Democrats control of Nevada’s Senate, is pushing state government — even if incrementally — toward becoming more active in regulating the marketplace and more responsive to consumer advocates and labor unions.

First, a little history:

The 2008 merger between Sierra Health Services and insurance giant UnitedHealth Group was instructive in the power of big business in Nevada.

Doctors, the union representing nurses, Sierra customers and even Republican Gov. Jim Gibbons raised concerns about the new company’s market power.

The deal was set to virtually eliminate Medicare HMO competition in Nevada, giving United control of 95 percent of the Medicare HMO market statewide, and 100 percent in Clark County, according to Nevada’s health planning and statistics bureau.

Nevada’s then-Insurance Commissioner Alice Molasky-Arman, though generally praised for integrity and evenhandedness, allowed the merger to go through with conditions arrived at with the help of the companies themselves. A spokesman for Sierra said he was “quite pleased.”

For consumer advocates, however, the merger was a classic case of a regulatory body being “captured” by the business it is charged with regulating — too cozy a relationship.

Cortez Masto wanted to investigate for potential abuse of the marketplace. But a lawyer consulting on the deal sent her a letter that said, in essence: Back off — you have no legal authority to examine the deal in state court.

In many states, where aggressive attorneys general have broad authority to protect consumers from abusive trade practices as well as the citizens’ health and welfare, the letter would have landed in a wastebasket. In states such as Hawaii, Idaho and Nebraska, the attorneys general are given authority to examine mergers, according to the National Association of Attorneys General.

The problem for Cortez Masto, however, was that the lawyer was likely right. The relevant Nevada statute suggested that her office had no standing.

Cortez Masto used a federal law, the Clayton Act, to press her case in federal court. But with the U.S. Justice Department approving the deal, she was left with little leverage. She wrung $15 million out of the new company, to be used for health care programs, which was a pittance given the company’s massive size.

Now Cortez Masto has proposed legislation, Assembly Bill 95, to ensure she has the power to act.

The legislation was written broadly, stating that current law shall not “supersede, prohibit, bar or otherwise limit the Attorney General’s authority to investigate, review and bring an enforcement action against any merger, acquisition or joint venture affecting trade or commerce in any industry in the state of Nevada.”

The state’s biggest industries, including gaming, immediately lined up against the bill.

In an Assembly Commerce and Labor Committee hearing, Bob Ostrovsky, lobbyist for the Nevada Resort Association, said the act would give the attorney general “broad, sweeping authority” and noted that state gaming regulators investigate and approve mergers.

“We don’t want to have to go through a number of different processes,” Ostrovsky said, echoing the argument of other lobbyists. They want one approval process and one process only, or at least a system that is hemmed in by clear rules and offers no surprises.

Lobbyists seem baffled that a Nevada attorney general would seek so much power.

When reminded that the attorney general of the United States has broad authority to regulate mergers, one lobbyist, who didn’t want to be named criticizing Cortez Masto, said, “This isn’t the United States Department of Justice. This is Nevada.”

Although Cortez Masto has significant allies among the state’s powerful special interests, they fear some future attorney general would use the new authority irresponsibly.

Banking lobbyist Bill Uffelman noted his industry is heavily regulated by the federal government. Reno-Sparks Chamber of Commerce lobbyist Tray Abney said the small businesses he represents worry they’d be prevented from merging.

Lobbyists with national companies expressed concern that if a big company had any business at all in Nevada, the law would allow the attorney general to probe mergers of those big national companies, like, say, last year’s acquisition of Merrill Lynch by Bank of America.

Cortez Masto said in an interview she has no interest in looking at small business mergers and acquisitions, and even less interest in big-footing federal regulators. She said she’s only seeking concurrent authority with state regulatory agencies, allowing her to work together with them or push them harder:

“Our concern is that we had a regulator who wasn’t doing enough to protect the citizens,” she said, referring to the

UnitedHealth situation.

A compromise is likely, both lobbyists and Cortez Masto said.

“This is the beginning point,” she said. “We’re going to work together to address these issues.”

One possibility: A state mechanism resembling the federal Hart-Scott-Rodino law, which gives the federal government a time line and well-defined process to determine whether a proposed merger meets certain criteria for acceptability before it can go through.

Gibbons’ office said it has no position on the bill at this time. Assembly Speaker Barbara Buckley and Commerce and Labor Chairman Marcus Conklin said a compromise is likely.

In other words, there’s a decent chance Cortez Masto will come out of this session with more power relative to big business.

“We want to protect consumers, Nevadans, businesses. That’s what the attorney general should be allowed to do,” Cortez Masto said.

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