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Merger could affect some physician contracts: Anthem and Wellpoint.

Physicians who have contracts with Anthem's or WellPoint Health Networks' Blue Cross and Blue Shield plans should check their contracts carefully now that the two plans have decided to merge, according to Bill DeMarco, a Rockford, Ill., health care consultant.

"Technically speaking, a merger is a contract "reopener." and fee schedules could change," he said. "Before they sign an automatic 're up' contract with one of these new owners, physicians ought to look at the contract."

If approved, the merger agreement between Anthem of Indianapolis and Well Point of Thousand Oaks, Calif., will create a plan with 26 million members spread across 13 states. The merger "creates additional opportunities for both companies to expand collaborative reimbursement programs that reward physicians and hospitals for clinical quality," Larry Glass cock, Anthem's CEO, said in a statement.

Some see the merger in a different light. "I think this deal was more about Leonard Schaeffer cashing out, frankly," said Dr. Marcy Zwelling, president of the Los Angeles County Medical Society, referring to WellPoint's CEO, who stands to reap millions of dollars as a result of the deal.

But the proposed merger won't significantly change the reimbursement outlook in California, where WellPoint dominates the insurance marketplace. "California is the worst paid of all states," said Dr. Zwelling, an internist who practices in Los Alamitos. "We are hurting."

For example, when her office draws blood on a patient who has come in just for that purpose, and does all the associated back-office work--getting the blood ready for the lab, reading the results, communicating the results to the patient, and entering information into the chart--it gets a total of $9.19 from WellPoint.

But, she added, WellPoint has been responsive on some reimbursement issues. After several discussions, the company agreed to raise its rates for evaluation and management services provided in California; the increases will take effect in January.

Dr. Zwelling said she hopes the merger will create an opportunity for WellPoint to address more of these reimbursement problems. "But in a national marketplace, any time you get mergers, [the company is] going to be more powerful, and it will be that much more difficult to make changes in the marketplace." Instead, she said she believes that the changes are going to be made to address the bottom line."

The merger would result in for profit Blue Cross and Blue Shield plans in 14 states and Puerto Rico, with another 37 Blue Cross and Blue Shield plans remaining not for profit. The combined Anthem WellPoint plan would serve 2.6 million of the total 88 million Blue Cross and Blue Shield members nationwide. Several of the remaining nonprofit plans, including those in New Jersey, Kansas, North Carolina, and Maryland, recently abandoned efforts to become for profit or had their proposals turned down by state regulators.

There are several reasons why such conversions, which often involve being bought by a larger for profit Blue Cross and Blue Shield plan like Anthem, don't work out, said Steven B. Larsen, former Maryland state insurance commissioner. One reason is the justification being given for the conversions themselves.

"In the old days, these were financially troubled plans, and states were happy to have someone come in [and take them over]," Mr. Larsen, now an attorney in private practice in Baltimore, said at a meeting of the American Bar Association's health law section. "But now they're not financially troubled plans, so they have to have a reason for conversion."

Most of these plans contend that they're having difficulty generating enough profits internally and would like to be able to go to investment banks to get capital. Or they need to merge with for-profit plans to get the large scale they need to launch new technologies, Mr. Larsen said. "At a general level, [these reasons] seem to make sense, but the broad arguments haven't panned out in individual deals."

For example, when the CareFirst Blue Cross and Blue Shield plan, which serves Maryland, Virginia, the District of Columbia, and Delaware, proposed being bought by WellPoint and becoming a for-profit plan. it was spending more on technology upgrades than many companies, including WellPoint itself. "It wasn't the case that they didn't have the money to spend," he said.

Although many large mergers are quickly approved by regulatory bodies, the Anthem WellPoint merger could come under unusual scrutiny. Four Democratics in Congress--Pep. Pete Stark (Calif.), Rep. Charles Rangel (N.Y.), Jim McDermott (Wash.), and Max Sandlin (Tex.) have written to the Federal Trade Commission urging investigation of the merger proposal.

"Recent consolidation may well have contributed to the double digit increases in health insurance premiums we have experienced over the past several years," the legislators wrote. "We are concerned that the combining of the financial assets and market power of Anthem WellPoint would further increase consolidation and make it even more difficult for individuals to have access to affordable health insurance." At press time, the FTC had not responded to the letter.

More insurer consolidation was taking place the very day the Anthem-WellPoint deal was announced: United HealthGroup said it had entered into a deal to buy Mid Atlantic Medical Services Inc. If approved, the $600 million deal would result in a company with 3.5 million members.

For-Profit Blues Plans Are Tougher Negotiators Than Nonprofits

If past experience is any guide, physicians may experience tougher payment negotiations as the number of for-profit Blue Cross and Blue Shield plans increases, according to several experts.

"Conversions [from nonprofit to for profit] seem to be followed by Blues plans adopting a more aggressive attitude in negotiations with providers," said Mark Hall, Ph.D., professor of law and public health at Wake Forest University, Winston-Salem, N.C. "Conversion is the final nail in the coffin of friendship between providers and Blue Cross plans."

Some of the hardening in negotiating positions may be partly due to the fact that the general market for providers has gotten tougher, said Dr. Hall, the author of a recent report on the effects of Blue Cross and Blue Shield conversions in four states. "I don't think there's any doubt that over the last 5 years, negotiations have gotten more intense, and you hear various accounts of who that's attributed to. But there does seem to be some merit to the view that Blues plans have considerable market share, so providers have more difficulty dropping out of those networks if they don't get favorable rates."

Blue Cross and Blue Shield plans that become for profit are simply following the rules of capitalism when they lower reimbursement rates, said Dawn Touzin, director of the community health assets project at Community Catalyst, a Boston-based nonprofit group that studies health care conversions. "It's Business 101. If you want to increase profits, either increase revenue or decrease expenses. You can increase revenue by taking it out on the consumer in terms of premiums, and decrease [expenses by] decreasing what you're going to have to pay for claims in the first place.'"

Although some observers say having a Blue Cross and Blue Shield plan become for profit leads to lower physician payments, not everyone sees a connection.

"I don't think there's a direct cause and effect," said Paul Kitchen, executive vice president of the Medical Society of Virginia, in Richmond. "It's all an issue of management; if the plan had poor management when they converted and they continue to have it ... it's going to continue to get worse. But they all have to operate in the same sort of competitive business environment."

Virginia has two Blue Cross and Blue Shield plans: the for-profit Anthem plan, which has members all across the state; and not-for-profit CareFirst Blue Cross and Blue Shield, which has members mainly in northern Virginia as well as in Maryland and Washington. "Among the folks up in northern Virginia, it's well known that Anthem reimbursement is more generous than CareFirst reimbursement," Mr. Kitchen said.

Provider relationships became an issue in Maryland; in March, state regulators there denied CareFirst's request to be purchased by WellPoint and become a for profit plan. "WellPoint ... is not ranked highly by providers on many issues," then Maryland insurance commissioner Larsen wrote in a summary of his 352-page report on the conversion denial. "It is viewed as a tough negotiator and has been sued by hospitals."

His report quoted an analysis from a consulting firm noting that CareFirst "had essentially 'held the line' and not granted significant increases to providers for the past several years."
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Title Annotation:Practice Trends
Author:Frieden, Joyce
Publication:Internal Medicine News
Date:Jan 1, 2004
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