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Pa. Blues Merger Plan Raises Eyebrows

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Insurers and provider groups in Pennsylvania are starting to react to the announcement that Highmark Inc. and Independence Blue Cross hope to merge.

Highmark, Pittsburgh, is a nonprofit Blue Cross and Blue Shield carrier with a 60% share of the western Pennsylvania health insurance market, and it also is the largest health insurer in West Virginia.

Independence Blue, Philadelphia, another nonprofit company, has a market share of about 50% in its core markets, according to Standard & Poor’s Ratings Services, New York.

Although a merger of the companies could create a health insurer with $20 billion in annual revenue and more than a 50% share of the Pennsylvania health insurance market, the companies operate “for the most part in geographically exclusive portions of the state,” according to Moody’s Investors Service, New York.

The lack of overlap might mean that a merger would not make the combined company any more dominant throughout Pennsylvania than each company is in its core market today, analysts today.

Capital Blue Cross, Harrisburg, Pa., the company that holds the Blue Cross license for central Pennsylvania, put out a statement emphasizing that it already competes with large out-of-region insurers.

“Just the leak of the possibility of a takeover led to a firestorm of protest by others, including immediate calls for investigation from the Pennsylvania legislature,” Capital Blue says in the statement.

“Given the inevitable adverse effects of the proposed combination, we expect it will be scrutinized for its long-term effect on, among other things, health care prices, costs and access, competition and local control over health care decisions,” the company says. “Experience demonstrates that the state’s health care system provides affordable, high quality health care when there is more competition, not less.”

Carolyn Scanlan, president of the Hospital & Healthsystem Association of Pennsylvania, Harrisburg, put out a statement of her own raising questions about the proposed deal.

“Such a merger has significant implications for hospitals and, more importantly, for the patients and communities that hospitals serve.” Scanlan says. “Hospitals and health systems will participate in the regulatory approval processes at the state and federal levels. We will be looking for detailed analyses and information about the proposed new company…. An open and transparent process by all parties in regard to all aspects of the merger is essential.”

Moody’s analysts describe regulatory hurdles as a potential hurdle for Highmark, but an S&P analyst says regulatory risk should be a manageable risk for Highmark.