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California OKs UnitedHealth%2DPacifiCare Deal

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Golden State regulators have persuaded a suitor for a commercial managed care company to make the kinds of commitments that buyers of nonprofit health plans often make.[@@]

California Insurance John Garamendi says he is approving plans by UnitedHealth Group Inc., Minnetonka, Minn., to acquire PacifiCare Life and Health Insurance Company, a subsidiary of PacifiCare Health Systems Inc., Cypress, Calif.

UnitedHealth announced plans in July to pay $9.2 billion to acquire PacifiCare and its subsidiaries.

The Lutheran Hospital Society founded PacifiCare in 1975, but the current company is the successor to a for-profit corporation formed in 1983.

In 2004, Garamendi persuaded Anthem Inc., Indianapolis, and WellPoint Health Networks Inc., Thousand Oaks, Calif., to make hundreds of millions of dollars in investments and charitable contributions to win his blessing for Anthem’s efforts to acquire WellPoint. Garamendi relied in part on arguments about ambiguities in WellPoint’s tax arrangements resulting from the fact that WellPoint had started out as a nonprofit carrier, Blue Cross of California, and completed its conversion to for-profit status only in 1996.

Regulators often require buyers of nonprofit organizations to make large contributions to charity, on the understanding that the owner of a nonprofit organization is the general public.

Although UnitedHealth and PacifiCare have no recent history as nonprofit health carriers, the companies have agreed to make $200 million in investments and $50 million in charitable contributes to help underserved communities, Garamendi says.

The companies also have agreed to make at least $13.7 million in incentive payments to physicians in group practices, to continue a closely watched PacifiCare program that rewards group practices that earn high quality ratings.

In addition, the companies have agreed to keep up PacifiCare’s customer service standards.

“United’s record in this area has been a subject of concern for certain state regulators,” California officials say in a summary of the deal requirements.

PacifiCare Life “does not have similar problems,” officials observe.

To protect PacifiCare Life’s finances, UnitedHealth and PacifiCare have agreed that PacifiCare Life will pay no dividends from health care operations to the parent corporation during the first 4 years after the merger, officials say.


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