Two giant health mergers trigger debate: can monopolistic activity aid patients?

Recently announced mergers among health insurers have some experts debating whether large public companies use their dominance to force patients to accept less choice and higher costs for health care, or if these giants use their muscle to offer consumers better efficiencies, lower costs and more choices.

The health-care market is abuzz in the wake of two significant mergers, both announced Oct. 27. Anthem Inc. and WellPoint Health Networks Inc. said the two companies would merge in a $16.4 billion transaction to create the nation's largest health insurer, surpassing rival United-Health Group Inc. On the same day, United-Health said it would merge with Mid Atlantic Medical Services Inc. in a $2.7 billion transaction to create a company with a stronghold in the mid-Atlantic region.

The American Medical Association said in a statement the Anthem/WellPoint merger was "alarming" and warned that acquisition and the United-Health/MAMSI merger "should raise concerns that the country is headed toward a health system dominated by a few publicly traded companies that operate primarily in the interests of shareholders."

In response to the AMA's comments, Deborah New, a spokeswoman for Anthem, said both companies believe that health care is local. "We will continue to operate as we do now, with a strong local focus," she said.

Dr. Donald J. Dalmisano, president of the AMA, told Best's Review the insurance industry is "rapidly being taken over by giants. They develop monopolistic power where they have the power to control prices, the power to control services, and we don't believe that's in the patient's best interests."

However, John Fitzgibbon, national industry director for managed care at accounting and tax firm KPMG LLP, said large public companies have greater economies of scale and can offer lower-cost health care with wider choices for consumers.

"The perception is that for-profit entities charge more--to make money for their shareholders--and don't do the charitable acts that nonprofits do. I haven't seen any evidence of that," Fitzgibbon said.

Under the terms of the Anthem/WellPoint merger, WellPoint would merge into a subsidiary of Anthem, and WellPoint's shareholders would receive $23.80 in cash and one share of Anthem common stock for each WellPoint share they hold, bringing the total value of the transaction to $16.4 billion, based on Anthem's closing price on Oct. 24, the companies said. The new company would be based in Indianapolis, Anthem's current headquarters, and would operate as the Blue Cross or Blue Shield licensee in 13 states.

In terms of market capitalization, the Anthem/WellPoint merger is the largest of any health-care companies. The previous record-holder was Aetna Inc.'s acquisition of U.S. Healthcare in 1996, which was a $10 billion transaction, Fitzgibbon said.

According to a 2001 study by the AMA, there have been 321 health insurance mergers and acquisitions announced since 1995. With the exception of the U.S. Department of Justice challenging the Aetna/Prudential merger in 1999, the "consolidation of the health insurance marketplace has gone virtually unchecked by federal regulators," the AMA said.

Fitzgibbon said the issue isn't how big a certain company is, but how large its share of local markets is. "You can't make global statements about health care. It's a market-by-market business," he said. Even with 26 million members, Anthem/WellPoint would have only about 10% of the U.S. population as members, Fitzgibbon said.

The AMA's study found in 91% of markets with a population of more than 1 million, at least one insurer has a market share of more than 30%. In 48% of those highly concentrated markets, a single insurer has a market share of more than 40%.

"When this occurs, prices go up because they've eliminated the competition," Palmisano said. "This affects the care patients get. [The insurers] have the power right now. They contract with the hospitals and physicians and ... the physicians have no ability to negotiate," Palmisano said.

Fitzgibbon said insurers haven't been the only ones consolidating for power. Hospitals and physicians have been teaming up to gain strength in contract negotiations.

"If you ask why health-care costs are rising, it depends on who you ask. Insurance companies, hospitals, doctors ... everyone has a point. There's a lot of finger-pointing going on," Fitzgibbon said.

David Webster, president of Webster Consulting Group, a health-industry consulting firm, said the merger could result in consumers having a choice between health plans that offer fewer provider options and plans that offer more provider options at a higher cost.

"The health plans will make more money--I don't see them as being losers. They'll be able to take advantage of their scale to get more discounts out of the pharmaceutical companies and health-care providers," be said.