The health insurance industry continued its steady march toward consolidation last week with UnitedHealth Group announcing plans to snap up Oxford Health Plans in its fifth acquisition in six months.
The proposed $4.9 billion deal would make UnitedHealth dominant in the highly competitive Northeast, home to several Fortune 500 companies, fewer than half of which the insurer currently serves. Trumbull, Conn.-based Oxford covers 1.5 million members in Connecticut, New Jersey and New York.
The addition of Oxford would also put UnitedHealth within striking distance of Anthem and WellPoint Health Networks, which will officially dominate the industry with 27 million members when their $16.4 billion merger closes later this year. UnitedHealth has some 21 million members nationwide, including 1.5 million in New York.
The Oxford deal is the latest in a recent slew of industry mergers (April 12, p. 18). Just one week earlier, WellChoice, the New York-based parent of Empire Blue Cross and Blue Shield, ended talks to buy Oxford in a deal experts said was devised partly to prevent its key rival from falling into the hands of a much larger player.
"We haven't seen the last of these (merger) announcements, not by a long shot," said Shellie Stoddard, senior healthcare analyst with credit-rating agency Standard & Poor's.
The deal, expected to close in the fourth quarter pending regulatory and Oxford shareholder approvals, marks UnitedHealth's latest effort to fill critical gaps in its geographic reach. In February, the insurer completed its $3 billion purchase of Mid Atlantic Medical Services, more than doubling its enrollment in the fast-growing mid-Atlantic region to 3.5 million members (Nov. 3, 2003, p. 6).
For major insurers such as UnitedHealth, having a broad presence has become crucial to winning large corporate customers, which are increasingly looking to cover employees in several states under a single contract. Blues plans such as WellChoice have snatched up several lucrative multistate accounts in recent years thanks to the national Blue Card program, which lets members access any Blues network in the country.
Charles Berg, Oxford's president and chief executive officer, will head the company's regional operations, which will retain the Oxford brand name. According to a Securities and Exchange Commission filing, either company is free to pull out of the deal if it has not closed by Dec. 31 but would be forced to pay a $212.5 million termination fee if it does so.
Local providers fear UnitedHealth will use its increased market clout to force down reimbursement rates. New York's hospitals lost a combined $430 million in 2002, while insurers there enjoyed $1.3 billion in profits, said Kenneth Raske, president of the Greater New York Hospital Association.
"We're already seeing a growing disequilibrium, where wealth is being shifted away from hospitals and the communities they serve toward a few corporate titans. And the more consolidation there is, the worse it's likely to get," Raske said. "It's clear to me that providers are starting to take it on the chin."
The acquisition will be "scrutinized very carefully" by regulators, said Mike Cowie, a partner with the law firm Howrey Simon Arnold & White and former senior litigation counsel for the Federal Trade Commission. But he added the deal raises far fewer antitrust concerns than an Oxford-WellChoice combination, which analysts estimated would have brought 35% of the market under the control of a single insurer.
Industry observers expect the pace of acquisitions to continue as major insurers look to buy smaller rivals with strong regional clout. Indeed, the Oxford deal has renewed speculation that Anthem-WellPoint will make a grab for WellChoice, the last remaining independent, publicly traded Blues plan with 4.8 million members in New Jersey and New York. Analysts also expect Aetna, which had sworn off acquisitions for the past few years, to get back into the game-especially now that UnitedHealth is expanding in the Hartford, Conn.-based insurer's own back yard.