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Life Health > Health Insurance

Anthem-Cigna deal assailed by hospitals on Blue Cross power

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(Bloomberg) — U.S. hospitals are stepping up their bid to stop Anthem Inc.’s takeover of rival health insurer Cigna Corp., saying the deal will increase the dominance of Blue Cross Blue Shield plans and potentially raise premiums for consumers.

The enhanced bargaining power of the Blue Cross plans will undermine competition and should compel the Justice Department to stop the deal, the American Hospital Association (AHA) wrote in a letter to the department’s antitrust chief Bill Baer.

See also: Doctor group asks regulators to block health insurer mergers

Blue Cross Blue Shield is an association of independent insurers operating across the country. Anthem (NYSE:ANTM) operates health insurance plans under the brand in 14 states.

“The acquisition threatens to both reinforce existing barriers to entry and raise new ones, further entrench dominant Blue plans, and exacerbate conditions conducive to abuse of market or monopoly power,” according to the letter, which was dated Monday.

The hospital group’s missive adds a new set of criticisms to prospective mergers that have the potential to remake the U.S. health care industry. Anthem’s $48 billion deal for Cigna (NYSE:CI), together with the planned Aetna Inc. (NYSE:AET) takeover of Humana Inc. (NYSE:HUM), would consolidate the country’s five biggest health insurers into three.

By bulking up, insurers would gain more power to negotiate prices with hospitals and doctors, which has fueled warnings from the hospital association and the American Medical Association (AMA) that the deals could lead to less choice and higher costs for consumers.

Consumer choice

Baer, whose antitrust division of the Justice Department is investigating both mergers, has cautioned that consumer choice is a bigger priority than health companies’ desire to add market share and gain leverage over providers like hospitals.

Matthew Asensio, a Cigna spokesman, referred comments to Anthem.

Anthem is working with the Justice Department and is confident that the United States will review the proposed merger based on fact, Anthem said in a statement provided to Bloomberg News.

“Together, Anthem and Cigna, which have limited overlap in a highly competitive industry, will be in a better position to improve consumer choice and quality,” Anthem said in the statement. “Additionally, we will deliver for consumers by operating more efficiently to reduce our own costs, while enhancing our ability to manage the cost drivers that negatively impact affordability for consumers.”

America’s Health Insurance Plans (AHIP), which represents the health-insurance industry, said the hospital association’s letter fails to reflect the level of competition in the market.

“It is well established that decades of hospital consolidation have created many markets in which hospitals can set their prices at supra-competitive levels,” it said. “It’s a bit hypocritical for them to then claim that they are harmed because they won’t offer reasonable prices to new entrants into markets.”

Bargaining leverage

Blue Cross plans insure one-third of all Americans and would gain an additional 14.7 million people from the deal, an increase of 14 percent, according to the hospital association. Blue Cross plans have been the target of antitrust scrutiny in the past. In 2010, the Justice Department sued Blue Cross Blue Shield of Michigan, saying terms of its agreements with hospitals prevented other insurers from entering the market and likely raised costs for consumers.

While Anthem would acquire Cigna members around the country and potentially increase its bargaining leverage with hospitals, the deal would also strengthen Blue Cross plans in states where Anthem doesn’t operate, according to the AHA. That’s because under Blue Cross rules, a Blue Cross plan in a state where Cigna also offers coverage would be able to count Cigna members as its own when negotiating with providers, enhancing its leverage in negotiating with providers, according to the hospital association.

Outside of the 14 states where Anthem operates as a Blue Cross or Blue Shield licensee, “the Blues will continue to compete just as they did prior to the acquisition,” Anthem said in its statement. “Cigna products will not become Anthem BCBS products in states where we do not have a Blue license,” it said.

With higher membership numbers for the sake of negotiations with providers, the Blue Cross plans would gain market power and have less incentive to pass savings to consumers, according to the AHA. Rival insurers in those states could also find it harder to negotiate the same levels of discounts from providers as larger Blue Cross plans, harming their ability to compete, the group wrote. It cited a Justice Department study that found that insurers need a large number of enrollees to negotiate discounts and compete with rivals.

“We expect that the acquisition would increase the Blue plans’ incentive and ability to pressure providers to raise their competitors’ costs,” which would probably lead to higher premiums, the association wrote.

—With assistance from Zachary Tracer.

See also:

U.S. health insurers slip as Clinton calls for merger review

AMA quantifies Cigna and Humana deal effects on market competition


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