TALLAHASEE - In mid-December, the Florida Medical Association (FMA), Florida Osteopathic Medical Association (FOMA) and the American Medical Association (AMA) joined forces to oppose Aetna Inc.'s application to acquire Humana Inc., in Florida.
Aetna, the fourth-largest insurer, announced July 3 that it plans to buy Humana, the largest insurer of Medicare Advantage, for $37 billion to form the largest Medicare Advantage insurer in the state.
"We believe that high insurance market concentration is an important issue of public policy because the anticompetitive effects of insurers' exercise of market power poses a substantial risk of harm to consumers," according to the joint letter. "Our analysis of data related to the proposed merger reveals significant concerns with respect to the impact on consumers in terms of healthcare access, quality, and affordability."
The trio of associations sent a letter Dec. 17 to the Florida Department of Financial Services' Office of Insurance Regulation (OIR), concerning the potential combination of Aetna and Humana.
"We've analyzed the likely competitive effects of this proposed merger both in the sell-side market for insurance and the buy-side market for physician services," according to the joint letter. "We've considered data on competition in health insurance in recent studies on the effects of health insurance mergers, and the testimony of Aetna's executives and expert, Dr. Thomas R. McCarthy of NERA Economic Consulting. We've
reviewed this matter from our long-standing perspective that competition in health insurance, not consolidation, is the right prescription for health insurer markets. Competition will lower premiums, force insurers to enhance customer service, pay bills accurately and on time, and develop and implement innovative ways to improve quality while lowering costs.
"Competition also allows physicians to bargain for contract terms that touch all aspects of patient care."
The result, medical association leaders emphasized, will be detrimental to consumers.
"The merger would create, enhance or entrench monopsony power in Florida markets for the purchase of physician services," said Thomas L. Greaney, a national leading antitrust expert, Chester A. Myers Professor of Law, and co-director of the Center for Health Law Studies at the Saint Louis University School of Law in St. Louis, Mo.
"The lessons of oligopoly are pertinent here: consolidation that would pare the insurance sector down to less than a handful of players is likely to chill the enthusiasm for venturing into a neighbor's market or engaging in risky innovation. One need look no further than the airline industry for a cautionary tale."
Northwestern University's Leemore S. Dafny, PhD, a professor of strategy, the Herman Smith Research Professor in Hospital and Health Services, and director of Health Enterprise Management at the Kellogg School of Management, explained in recent Senate testimony on the merger that monopsony is "the mirror image of monopoly; lower input prices are achieved by reducing the quantity or quality of services below the level that is socially optimal."
Dafny also noted that "if the past is prologue, insurance consolidation will tend to lead to lower payments to healthcare providers, but those lower payments will not be passed on to consumers. On the contrary, consumers can expect higher insurance premiums."
Impetus of the Letter
The Dec. 17 letter was prompted by questionable actions by the OIR that occurred nearly a month earlier. On Nov. 20, the Friday before Thanksgiving, the OIR published in the Florida Register notice of a Dec. 7 public hearing on Aetna's application for the proposed acquisition of Humana. Even though physicians practicing in Florida have substantial interests that would be affected by the OIR's decision on the application, the OIR didn't serve a copy of the notice to the FMA or FOMA. The notification and scheduling snafu made it unlikely for those impacted by the decision to conduct due diligence on the issue to adequately participate, according to the joint letter.
In addition, a submission of comments by Dec. 17 had been hampered because the OIR "has been dilatory in producing requested application-related documents, such as Aetna's competitive analysis, which the OIR still hasn't produced," according to the joint letter.
Politico Florida's report described the OIR hearing as "oddly lacking the participation of anyone except Aetna and Humana executives and witnesses for the companies," according to the joint letter, adding the report characterized the hearing as a mere gesture inconsistent with important public policy issues at stake.
"At the capital on (that) Monday, no critics appeared to oppose the merger, which would impact about 2.4 million people spanning four licensed Humana insurance companies in Florida," according to the report.
The mega-merger's impact would exceed federal antitrust guidelines and be presumed to enhance market power in three Florida metro areas: Jacksonville, Sarasota-Bradenton-Venice, and Tampa-St. Petersburg-Clearwater, the joint letter read.
According to the U.S. Department of Justice, "a merger enhances market power if it's likely to encourage one or more firms to raise price, reduce output, diminish innovation, or otherwise harm customers as a result of diminished competitive constraints or incentives."
The AMA analysis, continued the joint letter, also shows the proposed merger would raise significant competitive concerns in an additional four Florida metro areas, including Fort Lauderdale-Pompano Beach-Deerfield Beach, Lakeland-Winter Haven, Miami-Miami Beach-Kendall, and West Palm Beach-Boca Raton-Boynton Beach.
"Physicians charge that Aetna has yet to address findings showing the negative competitive effects of the proposed merger," according to the joint letter. "Physicians noted to Florida insurance regulators that Aetna hasn't met its burden of proof to show the merger wouldn't substantially lessen competition, or tend to create a monopoly in Florida's commercial health insurance market."
Bottom line of the joint letter: Physicians believe that Florida is at a critical decision point on the Aetna-Humana merger and urged state regulators to reject Aetna's application to acquire Humana.
In an Aetna/Humana joint press release, company leaders said the complementary combination brings together Humana's growing Medicare Advantage business with Aetna's diversified portfolio and commercial capabilities to create a company serving the most seniors in the Medicare Advantage program and the second-largest managed care company in the United States.
"The combined entity," according to a company press release, "will help drive better value and higher-quality healthcare by reducing administrative costs, leveraging best-in-breed practices from the two companies -- including Humana's chronic-care capabilities that measurably improve health outcomes for larger populations -- and enabling the company to better compete with more cost effective products."
Aetna CEO Mark T. Bertolini put it bluntly: "The acquisition of Humana aligns two great companies and will significantly advance our strategy of more effectively serving members in a rapidly changing healthcare industry."
Humana CEO Bruce D. Broussard summed up the transaction as "a testament to the accomplishments of Humana associates and an outstanding outcome for our shareholders, who will receive an immediate premium and the opportunity to participate in the growth potential of the combined organization."
If approved, Aetna has said it doesn't anticipate closing on the Humana acquisition earlier than mid-year.
In the meantime, association leaders asked the OIR to grant a 30-day continuation of the hearing to allow critics of the proposed merger to have timely access to documents and to testify before the hearing panel.
Florida law places the "burden of proof" on Aetna to show "the effect of the acquisition wouldn't substantially lessen competition or wouldn't tend to create a monopoly."
"In other words, Aetna must produce the evidence and carry its burden of persuasion that the merger wouldn't substantially lessen competition," according to the joint letter. "Accordingly, this statement will begin by examining the evidence presented by Aetna through its expert, Dr. McCarthy."
The proposed merger, they say, violates NAIC competitive standards and federal antitrust merger enforcement standards.
Perhaps the greatest obstacle, association leaders pointed out, is the so-called chicken-and-egg problem of health insurer market entry: health insurer entrants need to attract customers with competitive premiums that can only be achieved by obtaining discounts from providers.
"However, providers usually offer the best discounts to incumbent insurers with a significant business--volume discounting that reflects a reduction in transaction costs and greater budget certainty. Hence, incumbent insurers have a durable cost advantage," according to the joint letter.
AMA pointed to the presence of significant entry barriers in health insurance markets that was demonstrated in the 2008 hearings before the Pennsylvania Insurance Department on the competition ramifications of the proposed merger between Highmark Inc. and Independence Blue Cross. In a report commissioned by the Pennsylvania Insurance Department, consulting firm LECG Corporation concluded it was unlikely that any competitor would be able to step into the market after a Highmark/IBC merger.
Another wrinkle: According to a recent New York Times article, the Obama administration will pay only 13 percent of what insurance companies were anticipating to receive through "risk corridors" that were expected to help insurance companies with too many sick people and too little cash to operate in the first years under the health law.
"There have been reports that UnitedHealth Group Inc. may leave the marketplaces," according to the joint letter. "Moreover, only two for-profit companies that weren't already health insurers have entered the state marketplaces."
One company is Oscar, touted by Bertolini as an example of successful entry in his testimony before the Senate Judiciary Committee. However, Oscar estimated in a regulatory filing that it lost about $27.5 million in 2014, roughly half its revenue. The CEO of Oscar, one of the very few new companies to even attempt entry, described the task as "quite daunting."
Rejecting the Merger
AMA, FMA and FOMA leaders noted that any remedy short of rejecting the merger application wouldn't adequately protect consumers, and that a divestiture wouldn't protect against the loss of potential competition that occurs when one of the largest health insurers is eliminated. Also, divesture could be highly disruptive to the marketplace and cause harm to consumers, especially in Medicare Advantage markets where the elderly would be faced with a new insurer.
"As a practical matter, the overwhelming number of markets adversely affected by the proposed merger, along with the barriers to entry to health insurance, makes unlikely that the OIR could find proposed buyers of assets that could supply health insurance at a cost and quality comparable to that of the merger parties in the huge number of affected markets," according to the joint letter. "Moreover, any qualified purchaser able
to contract with a cost competitive network of hospitals and physicians, if found, would likely already be a market participant, and a divestiture to such an existing market participant wouldn't likely return the market to even pre-merger levels of competition."
Accordingly, association leaders have urged the OIR to reject the parties' application to merge so consumers are protected from premium increases, lower plan quality and a reduction in the quantity and quality of physician services.
"Physicians strongly believe that any remedy short of rejecting the merger wouldn't adequately protect Florida's consumers," according to the joint letter. "A divestiture wouldn't protect consumers against the loss of potential competition that would occur when one of the largest health insurers is eliminated from the marketplace."
At press time, Orlando Medical News was unable to reach the OIR for comment.