The American Medical Association has come out against the proposed $4.9 billion purchase of Oxford Health Plan by UnitedHealth Group. And while the association's top leader is calling on federal authorities to investigate the sale for its impact on competition in New York City, the AMA's gripe goes far beyond the specifics of this deal.
In the association's recently released third national survey of selected U.S. healthcare markets, AMA researchers have concluded that an overwhelming majority of the 84 large metropolitan markets studied are "highly concentrated" under federal definitions for limited competition. It also says the recent spate of mega-mergers may trigger a "domino effect," further decreasing competition.
"The red flags are up," said AMA President Donald Palmisano, M.D., regarding the Oxford-UnitedHealth deal. "We believe that the authorities should investigate these mergers. We're concerned about the consolidation."
The proposed merger of Minnetonka, Minn.-based UnitedHealth Group, which serves 20.2 million customers, and Oxford, with about 1.5 million covered lives in New York City, northern New Jersey and southern Connecticut was announced late last month.
The combination will create an entity nearly on par with the end product of the Anthem-WellPoint Health Networks merger, a $16.4 billion deal involving 26 million covered customers announced last fall.
"Everything I'm saying also applies to the Anthem-Wellpoint merger," Palmisano said.
The 108-page AMA study, Competition in Health Insurance: A Comprehensive Study of U.S. Markets 2003 Update, released Friday, relied on market-share data voluntarily submitted by payers with HMO and PPO plans to various government agencies and private information services. It also used the Herfindahl-Hirschman Index (HHI), part of the 1997 guidelines used by the Justice Department and the Federal Trade Commission in reviewing antitrust issues.
The HHI is calculated by squaring the percentage of market share of each competitor, then summing the squares. Thus, a market with four health plans each controlling one quarter of the market would be deemed highly concentrated with an HHI of 2,500 (25 x 25=625; 625 x 4=2,500).
An HHI of less than 1,000 indicates a market that is not concentrated. A score between 1,000 and 1,800 is considered moderately concentrated. According to the 1997 guidelines, a merger in such a market that increases the HHI by more than 100 points "may raise significant competitive concerns," said the AMA. Markets with an HHI about 1,800 are "highly concentrated"; any change that raises the index by more than 50 points would raise significant anticompetitive concerns, while an increase of more than 100 points would be presumptively anticompetitive.
The New York City market, before the Oxford-UnitedHealth deal, has an HHI score of 1,274,which would rise 312 points to 1,586 after the sale using the same data from the AMA study, Palmisano said, noting the scores fall within the moderately concentrated range.
"They're saying themselves an increase of 100 may raise significant competitive concerns," Palmisano said.
Of the 84 markets surveyed, 78 (93%) are highly concentrated, with the top 10 having HHI ratings of several multiples more than the highly concentrated threshold of 1,800. They are:
- Salinas, Calif., 7,264
- Tallahassee-Panama City, Fla., 7,049
- Gainesville-Ocala, Fla., 6,018
- Clarksville, Tenn.-Hopkinsville, Ken., 5,998
- Chattanooga, Tenn., 5,693
- Rochester, N.Y., 5,181
- Dayton-Springfield, Ohio, 5,148
- Pensacola-Fort Walton, Fla., 5,134
- Philadelphia-Wilmington, Del.-Atlantic City, N.J., 5,086
- Syracuse, N.Y., 5,025.
"The AMA is increasingly concerned that the United States is heading toward a system dominated by a few publicly traded companies that operate in the interest of shareholders and not primarily in the interest of the ultimate consumer of healthcare -- our patients," the study overview said.
The study said that physicians -- 67% of whom are either in solo practice or in groups of four physicians or fewer -- are "disempowered in their relationships with health insurers, to the detriment of their patients."
Mohit Ghose, spokesman for America's Health Insurance Plans, the trade group for 1,300 health insurers, questioned the assertion that physicians are without market leverage.
"If you've got only one group of 10 oncologists in an area, how do you contract with them, and who has the upper hand?" Ghose asked.