The U.S. Justice Department may have signaled it's delivering what providers have long asked for: the stomach to scuttle health plan mergers. Or not.
Sign of the times?
Feds scuttle Mich. Blues acquisition of HMO
Sparrow Health System in Lansing, Mich., announced last September that it was selling its HMO, Physicians Health Plan of Mid-Michigan, to Blue Cross and Blue Shield of Michigan's HMO subsidiary Blue Care Network. They'd hoped to close the deal by the end of 2009, pending clearance from federal antitrust authorities and the Michigan Office of Financial and Insurance Regulation.
But six months later the Justice Department and Michigan Attorney General Mike Cox notified the parties they intended to go to court to block the deal. Last week the deal was called off.
Health insurers have become the Obama administration's favorite boogeyman in recent weeks. Officials decried rate hikes and other business practices as they worked to bolster political and public support for a final, comprehensive healthcare bill on the brink of passing or imploding. It's not clear, however, to what degree the Michigan case reflects a tougher stance on health-plan consolidation or simply the specific circumstances in Lansing.
“This shows a DOJ that's learned its job as a law enforcer is to sometimes just say, ‘No, it's not right for you to do this merger,' ” said David Balto, an antitrust lawyer and senior fellow at the Center for American Progress, a left-leaning think tank.
“The history of health-insurance mergers over the past several years is clear. These mergers have led to higher premiums, more uninsured and more profits,” Balto said.
The Justice Department and Cox took credit for the outcome. Christine Varney, the Justice Department's assistant attorney general for antitrust, hewed closely to the Michigan matter at hand rather than rattle a saber at the industry at large in the department's announcement. Varney previously signaled a generally more aggressive approach than was seen under the Bush administration, though without singling out health insurers as likely targets (June 29, 2009, p. 30).
Cox has been extremely critical of Blue Cross and Blue Shield of Michigan and questioned how the not-for-profit could afford to spend its resources on acquisitions—$350 million since 2005, according to his office—while telling state officials they need to raise rates in order to remain financially viable.
Because no lawsuit was filed, the view of the government's facts and allegations are confined to its news release. Blue Care Network is described as controlling 70% of the Lansing market for commercial health insurance, and the Justice Department concluded that adding Physician Health Plan's 41,000 members and 20% share would have led to “higher prices, fewer choices and a reduction in the quality” of plans available to residents and their employers.
Art Lerner, a healthcare antitrust lawyer and partner in law firm Crowell & Moring, said he believes the Justice Department's antitrust team under Obama is in fact scrutinizing health-insurance deals more closely. “I will say, from my own experience, the heat is on,” Lerner said. But, he added, the Lansing case isn't necessarily evidence of that, based on what the government has said about it. “If the facts are as alleged, I'd think they would have filed this complaint two years ago as well,” Lerner said.
The Justice Department's actions policing health-plan mergers have largely been confined to asking for targeted remedies but allowing the broader deal to go forward.
Physicians and consumer groups vigorously opposed UnitedHealth Group's purchase of Sierra Health Services in Las Vegas. The Justice Department ultimately narrowed its concern to the market for Medicare Advantage plans, and the deal was allowed to close in 2008 with UnitedHealth required to divest its Medicare Advantage business in the area. In 2005 the department required PacifiCare to divest portions of its commercial health insurance business in some parts of the country before allowing a merger with UnitedHealth.
The American Medical Association presented its “strong opposition” to the Justice Department, AMA President J. James Rohack said in a written statement, and calculated that Blue Care Network would have controlled 99% of the HMO market.
Rohack praised the Justice Department's forcefulness in the case, and he added that the “AMA hopes this action signals the Obama administration's commitment to a more aggressive enforcement policy for the benefit of patients and their physicians, and will not be confined to extraordinarily anti-competitive mergers.”
Sparrow wanted to get out of the insurance business it entered 30 years ago and focus on expanding its reach as a regional provider of medical services. Blue Care was seen as a good buyer because of its Michigan roots and because overlap in the provider networks would minimize disruption to members, said John Berg, the system's executive director for strategic market development.
With no other potential buyers for its health plan, the system will work on “reintroducing the PHP band to the community as the health plan of choice for Mid-Michigan,” Berg said. “I think it's fair to say the timing and the political environment affected this—to what extent we don't know,” Berg said. “We're just a hospital in Lansing.”
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