Doctors in New Jersey have challenged UnitedHealth Group's acquisition of Oxford Health Plans, arguing the deal will harm providers and consumers by giving the insurer too much market clout.
The $4.9 billion merger, which created the state's third-largest insurer with 440,620 members, was completed July 29 after being approved by federal and state regulators, including New Jersey Banking and Insurance Department Commissioner Holly Bakke.
But last week, the Medical Society of New Jersey filed a lawsuit in Mercer County Superior Court seeking to statutorily stay Bakke's approval and obtain a trial in which a judge would have to determine whether the merger should be allowed to proceed.
At deadline, the court had yet to take action on the filing, which called for an initial conference to be held within 30 days to set a discovery schedule.
UnitedHealth said its acquisition of Oxford has been completed and vehemently maintained that the lawsuit has had no effect, nor will it have any, on the status of the merger, first announced in April.
"This blatant effort to use the court system as an instrument of public relations does not serve the interests of the citizens of New Jersey," said UnitedHealth spokesman Mark Lindsay, adding that the merger creates new efficiencies that will provide the state's consumers with "increased access, choice and affordability in healthcare."
The 8,500-physician medical society said Bakke and other state officials signed off on the merger without adequately assessing its potential effects. According to the complaint, Bakke approved the deal the same day she received a 28-page report summarizing the analyses and opinions submitted to her department during a two-week public comment period.
"The scant time spent on such review and analysis bespeaks a total disregard of Bakke's, (New Jersey Commissioner of Health and Senior Services Clifton) Lacy's and the state's duty to protect its citizens from the overreaching of mega-sized HMOs," the lawsuit states.
Mary Cozzolino, a spokeswoman for the New Jersey insurance department, declined to comment on the lawsuit other than to say Bakke approved the merger after a "thorough review of the statutory requirements."
UnitedHealth and the medical society remained divided on the immediate implications of the lawsuit.
The medical society maintains that Bakke's approval-and hence, completion of the merger-was automatically stayed when it filed its complaint with the court. According to Robert Conroy, an attorney for the group, the action was filed under a New Jersey insurance statute that states, "The filing of an appeal pursuant to this section shall stay the application of any such rule, regulation, order or other action of the commissioner to the appealing party."
Conroy added: "The law provides that upon the filing of our complaint, approval of the merger is delayed. It is as if the (commissioner's) order of July 29 never occurred."
The medical society said it sent a letter to New Jersey Attorney General Peter Harvey, requesting that his office bar UnitedHealth from operating in the state as though the merger were approved. As of Friday afternoon, the attorney general's office had no record of receiving the letter, a department spokesman said.
UnitedHealth, however, said the medical society had misinterpreted the law and that, much like trying to unring a bell, it is impossible to stay a deal after its completion.
"We are unaware of any decision that has or will adversely affect the merger, which has already taken place," Lindsay said, adding that Oxford no longer exists as a separate corporate entity.
Barry Senterfitt, an insurance and regulatory lawyer with the law firm Akin Gump Strauss Hauer & Feld in Austin, Texas, agreed. Typically, he said, only the parties directly involved in a proceeding-in this case, UnitedHealth and Oxford-have standing to contest a decision by a regulatory body. Senterfitt does not practice law in New Jersey, but he said most states operate under the same basic body of insurance law.
"Historically, it has been pretty rare for an intervention by a third party to occur," he said. "Usually, once a commissioner rules ... the parties directly involved in the administrative proceeding can appeal to overturn the ruling. But if the medical society was not an actual, formal party to that proceeding, I don't see where they are coming from."
But Senterfitt acknowledged that the medical society could try to argue that it was a party to the proceeding because it submitted an economist's report on the merger during the department's public comment period last month.
Michael Lampert, a partner at the law firm Saul Ewing in Princeton, N.J., said that although it's very rare, courts at times have forced combined companies to de-merge or divest some of their assets to comply with antitrust laws.
"It's a little odd but not inconceivable," he said of the medical society's legal argument.
After a cursory review of New Jersey's insurance law, Lampert's colleague Connie Foster said that while it seems "sort of clear" that the statute in question allows for an automatic stay, several underlying technical issues make interpretation difficult.
Foster, chair of the insurance group at Saul Ewing in Harrisburg, Pa., added that it was possible the medical society had achieved a stay on Bakke's approval but not on the merger itself. "It's a close call," she said.
The lawsuit is the latest example of growing opposition to large insurance mergers. Last month, California Insurance Commissioner John Garamendi rejected a portion of Anthem's planned $16.4 billion acquisition of WellPoint Health Networks, arguing the deal would harm policyholders (Aug. 2, p. 14). Anthem last week filed a lawsuit to overturn the denial.
Senterfitt said these recent speed bumps could prompt insurers to be more cautious about future acquisitions.
"I don't believe that such transactions will cease to occur," he said. "However, acquisitive parties will probably evaluate candidates even more closely to make sure that the proposed combination will not pose extraordinary regulatory hurdles."