Aetna U.S. Healthcare is poised to become the nation's largest health insurer,
and physicians are fighting mad.
Two weeks before Christmas, Aetna announced its plan to cover one of every 10 Americans through its purchase of Prudential HealthCare. Aetna expects the deal, which is under antitrust review by the U.S. Justice Department, to close May 1.
The proposed $1 billion acquisition -- the largest consolidation of health plans to date -- has doctors across the country up in arms.
"(The merger is) a very frightening situation for us," says Robert Gunby, M.D., a Dallas OB/GYN and former president of the Dallas County Medical Society. "Over the last couple of years, we've had a terrible situation with Aetna. Now that they've bought up Prudential, they're going to have upward of 40% of the market (in urban areas of the state). If they get that much of the market share, nobody can afford to drop out."
In addition to Texas, doctors in Illinois, New Jersey and elsewhere fear billing fiascoes, lower reimbursement and Aetna's all-product contract, which forces physicians to accept HMO patients. Those were among the problems that occurred when Aetna merged with U.S. Healthcare in 1996 and began adopting the latter's far more aggressive approach in negotiating with doctors.
Well-publicized physician defections in Dallas, Ohio and San Mateo County, Calif., have contributed to strained relations between providers and Aetna.
Aetna argues the Prudential acquisition will be much smoother than its mergers with U.S. Healthcare and NYLCare. After the U.S. Healthcare deal, the company served one of every 12 Americans and covered 10.3 million managed-care enrollees; the 1998 NYLCare merger added 2.2 million enrollees. Aetna says it learned many lessons in those mergers. Furthermore, it only has one computer system to integrate with the Prudential merger, as opposed to more than 10 disparate systems in the U.S. Healthcare deal.
The Blue Bell, Pa.-based company predicts the merger will improve patient choice and care by adding providers to its network. It says the new geographical areas and additional enrollees it will serve will yield helpful information on practice and outcome patterns, which in turn will lead to better treatment decisions.
Although the outcome of the Aetna-Prudential consolidation is uncertain, physicians are aggressively fighting the deal and talking about becoming more organized to improve their bargaining position if the merger goes through.
Nationally, organized medicine has taken the unprecedented step of trying to derail the merger, while on the local level a growing number of practitioners are deciding to walk away from Aetna contracts.
Aetna's proposed purchase of Newark, N.J.-based Prudential, announced Dec. 10, is gargantuan by any measure. After the merger is completed, Aetna will insure 22.4 million enrollees, up from 15.7 million at the end of 1998 (see chart on page 34). It also will be the nation's largest managed-care company with 18.4 million enrollees and will more than double the size of its dental enrollment to 15 million from 7 million.
Through the acquisition, the company will enter 14 states and 30 metropolitan areas it previously didn't serve. The deal also will combine Aetna's 177,000 physicians with Prudential's 140,000.
Despite the size and value of the deal, the Prudential purchase hasn't wowed Wall Street. Aetna's stock is trading at about $80 per share, around its pre-announcement price. Analysts have mixed views of the company's fortunes, with seven "buy" and five "hold" recommendations, according to Bloomberg L.P., a New York-based provider of financial information. The recommendations indicate moderate optimism about the company's future.
Aetna stands behind its motives for the purchase. The goal is to "expand our ability to service people in a high-quality fashion, and the price fit into our parameters," says Arthur Leibowitz, M.D., chief medical officer. "Bringing together a larger membership allows us to use our data system to bring about the use of information to improve the quality of care."
As part of its efforts to advance patient outcomes, Leibowitz says Aetna has funded research efforts at 40 academic medical centers and published more than 50 peer-reviewed articles using the company's proprietary database.
But doctors, particularly in Texas, don't buy the company's rationale.
"Aetna wants to drive down costs of healthcare delivery," says Ralph Turner, M.D., another OB/GYN in Dallas. "I don't know if they understand where the floor is for the level that is safe." Turner is chairman of the 562-doctor Genesis Physicians Practice Association in Dallas. His group on July 12, 1998, terminated its contract with Aetna for "failure to provide timely and accurate clinical and financial data necessary" to care for the 8,000 Aetna HMO enrollees the practice saw, Turner says.
Bohn Allen, M.D., a general and vascular surgeon in Arlington, Texas, agrees with Turner's dim view of Aetna's motives.
"I have great concern about (the purchase)," Allen says. "In most of the urban areas in Texas, (the merger) would give Aetna about 39% to 40% of the market. . . . For some physicians that may represent 50% to 60%" of their practice.
Such concerns are being voiced by doctors all around the country, says Randolph Smoak Jr., M.D., a general surgeon in Orangeburg, S.C., who is 1998-1999 chair of the American Medical Association board of trustees.
"Talking with physicians about this issue has revealed their great consternation of Aetna having any greater market share," Smoak says. "When you have that type of dominance, you create a take-it-or-leave-it attitude. It really does create problems for both patients and physicians."
Smoak also questions the patient information Aetna generates. He says the company bases studies on financial information, such as hospital bills, which could bias its clinical data samples and hurt the validity of its conclusions.
One group of doctors that shares Smoak's ill-will toward Aetna is in Illinois.
In a prepared statement, Richard Geline, M.D., president of the Illinois State Medical Society, said Aetna "is poised to grab a stranglehold over patients and doctors that threatens the quality of healthcare." The society, in combination with the AMA, has called on the U.S. Justice Department to review the merger.
Harry Greene, M.D., a primary-care and oncology physician who is executive vice president of the Massachusetts Medical Society, says the only reason his group hasn't joined the Illinois society and the AMA is that Aetna has a relatively small market share in Massachusetts.
"We're relying on the AMA" to evaluate the merger, Greene says. If the merger "creates a monopoly or near monopoly so patients don't have choice, if appropriate payment is ratcheted down or if needed services that may not be profitable are removed -- those are the things we're concerned about."
Physicians in areas where Aetna has a small market share are less concerned.
"I honestly do not believe I have had one comment about this," says Russell Dean, executive director of the Academy of Medicine of Cincinnati, which represents 2,400 doctors. Prudential only has about 45,000 enrollees in the area, so "that's probably why we're not hearing much about it." Aetna may not be a problem, but doctors in Cincinnati are having trouble with managed-care companies with larger market shares.
Leibowitz, citing Aetna's 1998 survey of primary-care doctors in its network, argues that the majority are satisfied. To generate this level of satisfaction, the company's 125 regional medical directors spend all their time troubleshooting by visiting and listening to doctors.
"Those physicians who are in our network are there (because) they want an opportunity to provide good care," Leibowitz says. "Aetna is probably the least intrusive" plan they deal with. He says Aetna has improved the terms of its provider contracts and announced a plan for external review of coverage decisions.
However, Aetna continues to insist that if providers want its PPO, point-of-service and indemnity patients, they also have to accept its HMO patients -- and accompanying lower reimbursements -- to be in the insurer's physician network.
Smoak says accepting such patients under the insurer's all-product contract is fraught with risk. Doctors don't know what kind of patients they will get or what resources they will have to expend to service them, he says. "It's like a pig in a poke," Smoak says.
Leibowitz counters that forcing doctors to accept Aetna HMO patients helps the insurer's employer clients and their employees and maintains relationships between doctors and patients. Aetna is beginning to allow doctors it really wants in its network to reject its new HMO patients, but they must accept current patients who convert from the insurer's other plans, Leibowitz says.
But that measure may not be enough to convince doctors Aetna doesn't pose a threat.
According to data from the Texas Association of Health Plans provided by the AMA, the combined entity would control 41% of the state HMO market, with United HealthCare Corp. a distant second at 10%. These proportions, the AMA said in a background paper, "represent an unacceptable concentration of market power based on guidelines set by the Department of Justice and the Federal Trade Commission."
The paper also argues that Aetna will maintain a 38% share of the HMO market in New Jersey and 27% in Georgia. Doctors in those states are far from happy. The Medical Society of New Jersey, for example, issued a public statement formally protesting the merger.
Aetna disputes such claims. "The markets (Aetna is and will be in) are all very competitive," Leibowitz says. He adds that nationally, Blue Cross and Blue Shield plans will continue to dominate most of the areas Aetna will serve.
Moreover, the numbers some physician groups use in making their case are distorted, he says. Aetna provides third-party administration services for many large companies, but employees in those plans are not actually its enrollees, he says.
"We don't feel we reach a market-controlled level in any of the markets," Leibowitz says. He adds that Aetna uses Medicare reimbursement rates as its guide for setting rates.
Doctors' main fear about market dominance is that Aetna will be able to more easily reduce reimbursement to providers. In fact, the AMA's Smoak argues that this already has occurred repeatedly.
"Certainly the bigger Aetna is in the market, the more potential they will have to be tough in demanding lower (physician reimbursement) rates," says Paul Ginsburg, president of the Center for Studying Health System Change, a Washington-based research group.
Larry Levitt, director of the changing healthcare marketplace project at the Henry J. Kaiser Family Foundation in Menlo Park, Calif., agrees with Ginsburg.
"In theory, a merger like this can lower costs, but I think it's a cause for concern," Levitt says. "For plans in certain markets, there isn't any viable competition. It probably means less choice and higher prices for consumers and lower reimbursement for doctors."
The consolidation is merely another development in the steady power gains by HMOs and corresponding losses by doctors, Levitt says.
"The Aetna and Prudential merger, while enormous, is just a continuation of the trend" of consolidation, he says. "About two-thirds of HMO enrollees (were) in the 10 largest (plans) at the end of last year. We're moving toward a system where 12 plans control the entire market. What that means for physicians is their bargaining leverage just gets continually worse."
Levitt argues that as the HMO industry consolidates, and plans stop slashing rates to compete for market share, as has been the case in the past few years, they are "starting to gain the upper hand" over doctors and other providers.
Leibowitz says there already has been a sea change in power back to doctors in the past year as physicians have joined independent practice associations, physician-hospital organizations and other groups. He says Aetna wants to work with these expanding groups because "clinically, they bring greater value."
Doctors disagree and are fighting back in many ways. On the governmental front, the AMA has asked the Justice Department to review the merger. It's the first time the organization has ever made such a request.
In a Dec. 18 letter to Joel Klein, assistant attorney general of the Justice Department's antitrust division, E. Ratcliffe Anderson Jr., M.D., executive vice president of the AMA, argued that "the market power that would be created or exacerbated by this merger would limit the choices of patients and employers, reduce competition and further erode the ability of physicians to make medical decisions based on science and the medical needs of their patients, not on share price."
Spokeswoman Jennifer Rose says the Justice Department's investigation, launched in December 1998, is ongoing. Although she couldn't say when the department would make a decision, she did say it generally takes several weeks or months to come to a conclusion.
With the exception of Microsoft Corp., most mega-mergers in recent years have been approved. However, Ginsburg argues that the outcome of the review is far from clear.
"Normally on most issues, the insurers have never been real popular, particularly relative to hospitals and physicians," Ginsburg says. "On the other hand, there is a consumer issue: The consumers don't want to pay providers more than they have to."
In Texas, doctors are taking matters into their own hands. The Texas Medical Association in Austin has been meeting with the FTC, Clinton administration representatives, state legislators and the Texas attorney general, says Rocky Wilcox, general counsel for the association. Wilcox is asking the Texas attorney general to review the merger on antitrust grounds.
While some doctors may continue to go it alone and hope for the best, "the most effective thing physicians can do is get into larger organizations," Ginsburg says. "Form an (IPA) or a group practice to establish some countervailing power."
Ginsburg cites the current situation in Boston. In recent years, the city has seen a wave of consolidation among both managed-care companies and providers. As a result, managed-care companies find it difficult to negotiate contracts with just one hospital or physician group and must negotiate with large networks to get coverage for their employer clients. Doctors must negotiate with the biggest managed-care companies because they represent such a large proportion of their business.
"Neither can contemplate doing (anything) without the other," Ginsburg says.
Regardless of whether the Prudential deal is approved, tens of thousands of doctors across the country will have to accept that Aetna is a dominant managed-care company that isn't going away. Aetna will have to persuade doctors to cooperate if it wants to continue lowering the cost of healthcare to its employer clients.
The company says it is doing everything it can to repair and improve its image in the medical community (see related story on page 28), including renegotiating with recalcitrant groups such as Genesis and listening to physician advisory committees around the country, which provide no-holds-barred advice to the company.
But until the balance of power between providers and payers becomes stable, Aetna and doctors likely will remain at odds.
The AMA is putting together a plan that will propose stronger coordination of physicians, Smoak says. He declined to discuss specifics but said the plan was slated to be made public last month. He says the AMA also might support legislation to ease antitrust restrictions on doctors.
"We've reached crisis proportions," Smoak says. "We've got to do something to rectify this imbalance (of power)."