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Creating an Insurance Giant

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Two Pennsylvania payers say their merger will slash costs and reduce uninsured rolls, but some providers remain jittery over decreased insurer competition.

Pennsylvania's two largest health insurers are on track to merge by next fall, creating a mega-company that would control more than 53 percent of the state's health insurance market and, the companies contend, create savings for consumers while improving efficiencies. But the deal has raised concerns in the provider community over decreased competition and physician reimbursement rates.

Highmark Inc. of Pittsburgh and Independence Blue Cross officials say the merger would enable the companies to contribute more toward programs to cover the uninsured. "The new company will achieve operating efficiencies-freeing resources to invest in programs and services that will benefit our group customers, individual customers, physicians, hospitals and the communities in which we operate," said Ken Melani, MD, president and chief executive officer of Highmark, during a Senate Committee meeting on the merger. Melani added that the companies have committed to spending $650 million to expand access to health insurance for the state's uninsured. After the merger, the new company will employ 18,000 people in Pennsylvania, insure 7 million people throughout the United States, and generate $22 billion in annual operating revenue.

Some state associations and hospital leaders, however, have expressed concern that the merger--which has earned Federal Trade Commission and Department of Justice approval but still faces state regulatory hurdles--will limit competition by discouraging other insurers from entering the market.

"The whole community is really weighing a host of questions. The insurance market is consolidating, so you have to ask, is it better to have a Pennsylvania-based plan or to have the state's plans acquired by out-of-state companies? But we also believe you need a competitive market to have a healthy insurance market. We are still trying to sort through all the levels and dimensions of this," says Paula Bussard, senior vice president of policy and regulatory services at the Hospital & Healthsystem Association of Pennsylvania.

The federal agencies' quick approval of the deal prompted HAP leaders to send a letter to state officials urging them to complete a full due diligence before agreeing to the merger. "Pennsylvania's hospitals have raised several issues of importance that should be addressed during the review process, including: continued social and community mission, marketplace competition, the impact on premiums for consumers, clear reporting requirements to enable public accountability, and fair and appropriate provider payment practices," said HAP President and CEO Carolyn Scanlan in the letter.

Both companies have said that the merger will not affect physician reimbursement rates, saying that the new company will "continue to maintain fair and reasonable provider payment levels." Both Melani and Independence Blue Cross President and CEO Joe Frick say the merger would allow the new company to realize about $1 billion in savings, but those savings will not result from changes in physician and hospital reimbursement.

Mark Piasio, MD, immediate past-president of the Pennsylvania Medical Society, says the merger's effects on both competition and reimbursement ultimately will "depend on how the respective sides behave once the merger is complete."

"Independence and Highmark don't directly compete with each other, but after the merger, they will end up controlling 50 to 75 percent of the commercial marketplace, and that does raise concerns about competition and how the merger would affect hospitals, physicians, and even more so, consumers, in terms of their premiums and the products that are available to them," says Piasio.

Still, the society's relationship with the companies has improved since the announcement of the merger, thanks to both sides engaging in open dialogue, Piasio says. "At this point we're actually having a better working relationship with them. We are able to look critically at questions of reimbursement, their costs, access, quality, quality measures, and their pay-for-performance systems."

On the plus side, the merger could simplify billing procedures and contractual issues while increasing the possibility of creating an electronic health network in the state, Piasio says. "Overall, I don't think the merger will help competition; it will diminish the ability of other companies to enter the market. But, as they say, being a monopoly is not a crime-acting like one is."

-Kathryn Mackenzie

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