Potential roadblocks in the path of the mega-merger between United HealthCare Corp. and Humana are beginning to multiply, as state hospital associations and federal and state regulatory authorities question the $6.2 billion deal's anti-competitive implications.
The U.S. Justice Department has sought additional information from the merging companies, the first sign that the huge HMO merger is being actively reviewed.
Also, the Florida Department of Insurance, which is responsible for reviewing insurance mergers in that state, has scheduled a public hearing Aug. 5 in Orlando to consider arguments by the Florida Hospital Association and other groups with positions on the proposed merger.
Federal officials have 20 days from the time they receive responses from the companies to determine whether to approve or block the merger, or to ask the merging companies to divest business units in specific markets where the merger might threaten competition.
At press time, officials at the Justice Department could not be reached for comment. But industry sources said the Justice Department beat out the Federal Trade Commission in an interagency battle for jurisdiction over the case.
Officials at Minneapolis-based United and Louisville, Ky.-based Humana, which announced in late May their plans to form one of the country's largest managed-care companies, insist that the Justice Department's request was not unexpected and that the actions by unhappy providers are not expected to delay the merger's projected third-quarter close. "We anticipate some hearings," said Greg Donaldson, a spokesman for Humana.
In addition, the Florida and Illinois state hospital associations have opposed the mergers on anti-competitive grounds and pushed their state regulatory agencies to do the same.
Sue Busch, a spokeswoman for United, said officials hope to have a chance to explain the advantages of the merger to the state associations.
The merging companies announced last week that shareholders are expected to vote on the combination at special meetings on Aug. 27. But some analysts said the merger could face major obstacles in Florida and Illinois, unless the merging companies divest themselves of some local operations.
"Absent divestiture, I think they're going to have a big problem in those two states," said Tom Burnett, an analyst at New York-based Merger Insight, an equity research firm.
It's unclear at this point, Burnett said, whether the merging companies would be willing to divest some of their operations to allow the merger to go through. Missouri, Ohio, Texas and Wisconsin are other states in which the merger would give United considerable market clout.
In any case, provider groups in both Florida and Illinois are seeking resolution of their antitrust concerns.
"We do have some concerns about the merger in some of the Florida markets, and we are asking the Justice Department to carefully investigate those markets," said William Bell, general counsel for the Florida Hospital Association.
Those major markets include Daytona, Fort Lauderdale, Miami, Orlando, Tampa and West Palm Beach, Bell said (See chart).
As a result, he said, association officials have met with antitrust attorneys in the Florida attorney general's office and planned late last week to send letters to federal and state regulators requesting that they investigate the merger.
A similar scenario is unfolding in Illinois, where the Illinois Hospital and HealthSystems Association has asked federal and state authorities to stop the merger, charging it would give United nearly 90% of the Medicare managed-care market in Chicago and leave employers and consumers with just two significant HMOs serving the commercial market there.
"I think they (federal officials) are going to give it serious review," said Kenneth Robbins, president of the Illinois hospital group. "Our hope is that they determine, at least in the Chicago market, that this merger is a violation of antitrust law."
Robbins said that working with the Justice Department "is just one of the cards we intend to play."
Other avenues include talking to the Illinois attorney general's office and the state Department of Insurance about possible violations of state law, he said. "We'd be concerned about monopoly no matter who the monopolist was," Robbins said, "But we're particularly concerned about United."
Business organizations and providers in Chicago have been extremely critical of United's hard-nosed approach in negotiations with employers, hospitals and doctors.
Officials at the Illinois Department of Insurance received a filing from United on June 30, and the department now has "60 days to determine whether or not a hearing is necessary," said spokeswoman Nan Nases.
The Kentucky Department of Insurance plans to hold a hearing Aug. 7 on the United-Humana deal.
Others might join the fray soon. The Florida Medical Association's board was scheduled to consider a draft policy on July 18 recommending that the association investigate potential antitrust violations related to the merger and "vigorously pursue" assistance from the appropriate state and federal regulatory authorities.
Missouri's Department of Insurance, which under Director Jay Anghoff is seen as one of the most aggressive insurance regulators in the nation, also has asked for more information.
The Texas Department of Insurance is seeking more facts as well.
Regulators in Wisconsin, where concentration in the Milwaukee market is of concern to providers, are reviewing the filings and have not scheduled hearings, officials there said.
But providers, including the Medical Society of Milwaukee County, plan to take up the issue in the near future, said Executive Vice President Betsy Adrian.