Amid provider concerns about market consolidation, Harvard Pilgrim Health Care and Tufts Health Plan announced last week they no longer are pursing a merger.
Not so fast ...
Harvard Pilgrim, Tufts end merger talks
In January, the second and third largest health insurers in Massachusetts signed a nonbinding agreement to explore the possibility of merging and spent the last six weeks in discussions.
“As a result of this process, we have now determined that we are stronger as individual competitors than one company,” said Eric Schultz, president and CEO of Wellesley, Mass.-based Harvard Pilgrim Health Care, in a joint statement March 4.
Both not-for-profit insurers said the due diligence period revealed that the savings and efficiencies they thought they could achieve together turned out to be less evident than expected. They also said integrating the two health plans would be more expensive and time-consuming than anticipated.
“We made the thoughtful determination that while we are in the same business, our operations are very different and, in many important aspects, not fully compatible without significant changes to existing processes and applications,” said James Roosevelt Jr., president and CEO of Watertown, Mass.-based Tufts Health Plan, in the statement.
The combined entity would have been a formidable competitor against the state's largest insurer, Blue Cross and Blue Shield of Massachusetts, which has 2.9 million members.
When the insurers revealed the possible deal, Massachusetts Hospital Association CEO Lynn Nicholas said such a merger could work out well for providers and members if the companies operate more efficiently as one (Jan. 31, p. 14).
The American Hospital Association, however, said in the letter to Assistant Attorney General Christine Varney on Feb. 28 that the possible merger “raises significant competitive concerns by further concentrating the already-consolidated health plan market in the Commonwealth of Massachusetts, and in local and regional markets within the state.”
Of particular worry to hospitals was potential concentration in the HMO market, according to the letter, which was signed by Richard Pollack, executive vice president of the AHA.
Combined, the two health plans would have captured 30% of the HMO market. Blue Cross and Blue Shield of Massachusetts, the state's largest health insurer, owns 40% of the HMO market. The three competitors are the only ones that offer statewide coverage for HMO plans.
“In sum, an already oligopolistic market would become a duopoly,” the letter stated.
Both not-for-profit insurers reported positive 2010 year-end financials March 1. Harvard Pilgrim Health Care posted revenue of $3 billion, up 11% from $2.7 billion in 2009. Net income was $49.6 million last year, up 138% from $20.8 million in 2009. Total membership at year-end was 1.1 million, an increase of 42,000 members from the end of 2009.
Tufts Health Plan reported revenue of $2.6 billion, up 4% from revenue of $2.5 billion the year prior. Net income soared 120% to $64.9 million in 2010 compared with $29.5 million in 2009. Tufts had nearly 742,000 members at the end of 2010, up about 0.7% from 737,000 members at the end of the prior year.
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