California considers UnitedHealth Group’s proposal to buy competitor

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St. Paul Pioneer Press (St. Paul, MN)

UnitedHealth Group’s proposed acquisition of PacifiCare Health Systems will likely draw close scrutiny in California.

Already, consumer advocates and doctors groups there are questioning whether the deal will sacrifice what’s best for patients.

The approval of California regulators, known for their aggressive stance on health care merger deals, is needed before the merger can be completed. PacifiCare has 3.3 million members, mostly in California, and is among the largest health care plans in that state.

Minnetonka-based UnitedHealth is proposing to acquire PacifiCare in a deal valued at $ 9.2 billion including debt. The deal faces regulatory review from both the California Department of Insurance and the California Department of Managed Health Care.

“My department has established a very clear position on health care industry consolidations and the effect that they may have on consumers,” California Insurance Commissioner John Garamendi said in a statement. UnitedHealth‘s proposed acquisition faces the same close scrutiny and principles used in previous mergers, he said.

Lois Quam, chief executive of UnitedHealth Group’s Ovations business, focusing on seniors, said UnitedHealth will work closely with California regulators.

She pointed out that the deal faces regulatory review in other states where the company does business as well and from the Justice Department. “We look forward to working with the relevant regulators in all the states as well as nationally.”

Cypress, Calif.-based PacifiCare mainly has a presence in western states. “We have very little overlap,” Quam said.

But more than antitrust issues, California regulators are expected to focus on quality access to health care.

The merger of California-based WellPoint Health Networks and Indianapolis-based Anthem Inc. last year might shed some light on what UnitedHealth faces. After the two health insurers announced their deal, Garamendi required changes in the merger agreement aimed at protecting patient’s access to health care and affordable health care.

The WellPoint deal “had been approved by 11 other states and the commissioner looked at the deal and he said this is bad for Californians,” said Garamendi’s spokesman, Norman Williams.

In addition, the Foundation for Taxpayer and Consumer Rights, a Los Angeles-based consumer activist group, also fought for changes in the WellPoint merger proposal. The group is promising to be just as vocal with UnitedHealth and PacifiCare.

Jerry Flanagan, health care director with the taxpayer foundation, said he is concerned that the merger will result in less choice for patients, lower payments for doctors and hospitals, and more waste in the health care system if regulators do not set conditions for the merger.

Flanagan noted that past mergers by health insurers have done nothing to lower premiums or increase efficiency in the health care system.

The group is calling on state and federal regulators to investigate and limit executive payouts resulting from the merger. They contend such payouts lead to higher patient premium costs and make health care more unaffordable.

They also seek guarantees that patients will not face new restrictions on which hospitals and doctors they can visit or limited access to necessary prescription drugs and other medical treatments.

In the WellPoint-Anthem merger, before regulatory approval, the companies were required to agree to send each dollar spent in merger-related executive bonuses to a fund dedicated to health insurance for low income consumers and to train nurses. That fund eventually hit $365 million.

The California Medical Association also has voiced concern about UnitedHealth-PacifiCare. “The merger troubles us. It places Wall Street’s demand for profits ahead of Main Street’s interest in good health care,” said Dr. Jack Lewin, head of the CMA, which represents 35,000 doctors in the state.

“There’s no discernible benefit to the consumer for this,” he said. “The benefit is to the companies and their shareholders.”

The CMA currently is embroiled in a fraud lawsuit against a number of big managed care companies, including UnitedHealth and PacifiCare, alleging they refused to pay for some medically necessary treatment.
The Associated Press contributed to this report.

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