An 18-month merger effort went up in regulatory smoke last week when Matthew Thornton Health Plan rejected conditions imposed on its consolidation with Harvard Pilgrim Health Care.
Dartmouth-Hitchcock Medical Center, the Lebanon, N.H.-based parent organization of Matthew Thornton, decided to keep the HMO independent rather than accept "the baggage taken on during the regulatory process," said Gregory Banks, spokesman for Dartmouth Hitchcock and Matthew Thornton.
Banks said an approval order issued by the state insurance commissioner "required us to voluntarily agree to a number of things regulatory in nature but not regulations," which would result in operating restrictions applied to the merged organization but not to competitors.
The HMO tried to get the insurance department to agree to modifications of the broadly written order but couldn't, Banks said. The conditions included detailed reports on the merged company's activities, a claims reserve secured by a trust agreement, and commissioner approval for changes in the HMO's operating environment, he said.
In addition, the state attorney general prohibited Harvard Pilgrim from inheriting an exclusive relationship between Matthew Thornton and the physician network of the Hitchcock Clinic, both operating units under the same Dartmouth-Hitchcock corporate umbrella.
That arrangement was "a very key element" for Harvard Pilgrim in the original agreement, but the Brookline, Mass.-based HMO was willing to go forward with the restrictions, Banks said.
Harvard Pilgrim was "deeply disappointed" that it "won't be affiliating with Matthew Thornton in the way we had envisioned," said Manuel Ferris, president and chief executive officer.
But he added, "We intend to have a strong and expanding presence in New Hampshire and to build on our existing healthcare network by forging new relationships with doctors and hospitals there."
Matthew Thornton, based in Bedford, N.H., has 136,000 enrollees, a 30% increase from the 105,000 it reported when the merger agreement was announced in June 1994. It also increased its provider network 37% in the interim to 550 primary-care physicians and more than 1,800 specialists.