Michigans attorney general isnt the only state regulator to closely scrutinize not-for-profit healthcare.
In Pennsylvania, the Insurance Department last week held two of three public hearings scheduled on the proposed merger of not-for-profit insurance giants Highmark and Independence Blue Cross. And in Ohio, an inquiry into tax-exempt hospitals subsidized care for low-income patients survived the May resignation of Attorney General Marc Dann, who admitted to an affair as his office became embroiled in a sexual harassment scandal and mismanagement inquiry.
Executives for Highmark and Independence, which combined would be one of the largest U.S. health insurers, first announced merger plans in March 2007 and the Federal Trade Commission and Justice Department cleared the deal last year. But at a July 8 hearing in Pittsburgh, the states insurance commissioner, Joel Ario, questioned whether Pittsburgh-based Highmark and Philadelphia-based Independence wouldnt be healthy competition for one another, should regulators block the deal.
State law prohibits mergers that curb consumer choice unless a deal delivers economic gains that outweigh lost competition, Ario said. Its about consumer protection.
Kenneth Melani, Highmark president and chief executive officer, said that the $12.4 billion company had no plans to enter its potential partners market after an expansion into central Pennsylvania earlier in the decade resulted in costly and dysfunctional competition with another independent Blues plan.
He defended a merger with Independence as necessary to remain viable in a consolidating industry and rejected any assertion the deal would be anti-competitive. The key thing here is that we dont have overlapping markets, he said. When we come together, no consumer will have less choice in the marketplace.
Independence Blue Cross President and CEO Joseph Frick told the hearings panel that none of the $1 billion in estimated savings and additional profit from a merger was calculated from projected changes to hospital or doctor reimbursement. A two-year freeze on administrative fees for the combined companies could yield $295 million, Frick said.
The insurers called on consultant David Knott, a senior partner for Booz & Co., to testify on the mergers economic benefit. Knott said projections show additional profits of $135 million and savings of $882 million, estimates he said were reasonable and achievable.
Public comment on the deal is expected to continue for at least 30 days after the final hearing July 15 in Philadelphia, according to Arios office. How quickly a decision will follow is unclear. The insurers must also resubmit documents related to the merger to the Justice Department since the merger has not yet been finalized. The American Hospital Association urged federal antitrust investigators to open an inquiry into how the deal may affect provider rates and consumer choice.
Ohios then-attorney general, Dann, called for greater oversight of the states charitable organizations in January. Ted Hart, a spokesman for Danns successor, Nancy Rogers, said the office is commissioning a study of not-for-profit hospitals community benefit spending as part of its effort to set standards for the sector. No timeline is set for the study, Hart said.