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June 5, 2007
Honorable Alice A. Molasky-Arman
Re: UnitedHealth Group Acquisition of Sierra Health Systems
Dear Commissioner Molasky-Arman:
The AMA is writing to express its strong opposition to the proposed acquisition of Sierra Health Systems (Sierra) by UnitedHealth Group (United). The AMA has urged the United States Department of Justice to block the merger because of the impact in Nevada. The impact in the state of Nevada is unlike the impact in any market of any previous health insurer merger. Our testimony will focus on the anti-competitive effect this merger will have on Nevada insurance markets, a negative effect that will be compounded by questionable business practices engaged in by United in other markets. We also strongly support the position of the Nevada State Medical Association.
It is clear that United's goal in pursuing this merger is to dominate the Nevada insurance market, in particular Las Vegas. The numbers are truly staggering, as shown in the attached chart. For the past five years, the AMA has conducted the most in-depth study of commercial health insurance markets (by actual reported enrollment) in the country. This study, Competition in Health Insurance: A Comprehensive Study of US Markets, is based on the most current and credible data available and includes both HMO and PPO products. The AMA is in the process of finalizing our most recent edition, based on 2004 data. The findings for Nevada strongly suggest that this merger undermines competition in Nevada and in Las Vegas especially.
The AMA analysis of InterStudy and HealthLeaders data shows the following:
In the Las Vegas-Paradise metropolitan statistical area (MSA), in the combined HMO/PPO market, United would have a market share of 56% after the merger, compared to its current market share of 18%. United would have a market share of 95% after the merger, compared to its current market share of 13% in the HMO market.
These market shares should be considered in the context of the financial aspects of United's operations. At a time when premiums continue to escalate, United is posting high profit margins. Since 2002 United has posted year-end earning increases of between 27% and 53%. For 2006 its net earnings increased 27%. United has also awarded its senior executives mind-boggling compensation packages over this same time period. United is currently in the midst of several ongoing investigations and shareholder lawsuits over illegally backdating senior executives' stock options to increase their already extravagant compensation.
The Threat of Market Dominance
The AMA has long been concerned that ongoing consolidation of health insurance markets will ultimately lead to a market dominated by one or two health insurers that places profits over patients. The ascendancy of a dominant health insurer jeopardizes patient care in two important ways. First, without competition to help ensure that patient and employer choice counterbalance profit motives, the for-profit health insurer's drive to maximize profits will inevitably compel it to place profits over patients.
Second, physicians have a professional, legal, and ethical responsibility to advocate on their patient's behalf. In the presence of health plan dominance the physician's role as patient advocate becomes even more critical. However, that role is being systematically undermined as dominate insurers are able to impose take-it or leave-it contracts that include provision that directly impact patient care, such the determination of what is "medically necessary care." A physician who engages in aggressive patient advocacy risks exclusion from the dominant health plan's network and faces the realistic possibility that his/her practice will no longer be financially viable. In the presence of these dynamics, only state oversight and intervention can prevent deterioration of the patient-physician relationship, foster physician advocacy, and make patient choice a reality.
United's Failure to Comply with State Regulations
United's conduct shows a dismissive attitude towards its state regulatory obligations. It has been fined by a number of states for failing to comply with state law since 2001. Moreover, in some of those states, United has been fined more than once for the same conduct. United has the unenviable position of having had the largest fines ever levied against a health insurer in several states.
Specific examples include:
Arizona: In March 2006, the Arizona DOI fined United for the second time for violations of a number of state laws. These include state prompt payment laws, and state laws on member's rights to appeal denials of care. United was fined $364,750, the largest fine in Arizona's history. This was the second fine levied against United for similar violations. The first was in 2003. In the 2006 case, the director of the Arizona DOI stated that, "I will not tolerate knowing violations of consent orders."
Ongoing State Investigations of United's Business Conduct
The AMA believes that United's conduct reflects a philosophy that it is more cost-effective to violate state law and possibly pay a fine than to assure compliance with laws designed to protect both patients and physicians. The AMA's first concern is that this unprecedented merger will create monopoly conditions in Nevada to the detriment of Nevada citizens. That being said, given the magnitude of this merger in Nevada and United's track record in other states, if this merger is allowed to go forward, it is incumbent on the Nevada Department of Insurance to assure that United is held accountable for compliance with state laws.
If the AMA can be of further assistance, please do not hesitate to contact me. The AMA appreciates the opportunity to comment on this matter.
Michael D. Maves, MD, MBA