HMO MERGER OPPOSED.

Byline: Deborah Adamson Daily News Staff Writer

Doctors and consumer groups urged state officials Thursday to reject the merger of Health Systems International of Woodland Hills with Foundation Health Corp.

In a hearing before state Department of Corporations officials in downtown Los Angeles, the groups asked regulators to strike down the merger, which already has been approved by federal authorities.

Advocates reason that the merger will reduce the number of competitors in the market. As a result, they said, health care services will suffer.

``Mergers by nature tend to reduce competition and can put HMO enrollees at risk,'' said Jack McCleary, president of the California Medical Association in San Francisco, who expressed dismay at the federal decision.

``It will threaten both the quality and affordability of care,'' he said.

But Jay Gellert, president of Health Systems, the parent of health maintenance organization Health Net, testified that the merger would enable the companies to save money and divert those funds to investments in new technologies and expansion of services.

``A key rationale for the merger was our ability to reduce administrative costs while at the same time, increasing the level of service we provide to our members,'' he said.

Last fall, Health Systems and Foundation Health Corp. of Rancho Cordova, the parent of Foundation Health Plan, announced plans to merge in a $3 billion stock-for-stock deal.

It will create California's second-largest health care provider and the fourth-biggest in the nation. Combined revenues are more than $6 billion a year, about equally split between the two companies.

To be called Foundation Health Systems, the new entity hopes to shave at least $110 million a year in overhead costs. Company officials believe the marriage will strengthen the new entity's position in a competitive environment.

At the hearing, executives downplayed antitrust concerns by saying that although both firms compete in more than 30 of the state's 56 counties, they serve complementary markets.

Foundation caters more to small groups and individuals while Health Systems targets larger organizations, the executives said.

They also said that about 70 percent of their doctors groups overlap, so the merger probably won't force a patient to switch to a different physician.

But McCleary said the merger will create a much larger HMO that will lessen the bargaining power of doctors to negotiate for better contracts.