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Administration Warns Health Insurance Industry on Mergers

Source: AP

Posted on 26 May 2010

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The Obama administration on Monday told the health insurance industry that it won't hesitate to block mergers that threaten to stifle competition.

Justice Department antitrust chief Christine Varney told a lawyers' conference that vigorous enforcement of anti-monopoly laws is vital to the success of the new health care law, particularly in trying to control rising premiums.

The antitrust division "is committed to vigorously, but responsibly, scrutinizing mergers in the health care industry that appear to present a competitive concern," Varney told a joint meeting of the American Bar Association and the American Health Lawyers Association.

"If we determine that our initial concerns were well-founded, we will not hesitate to block the merger or to require the settlement concessions necessary to protect consumers," she added.

Varney also put hospitals on notice that the government will investigate mergers "likely to reduce competition."

Big insurers are steadily getting bigger, and in many states one or two large carriers dominate the market. Groups representing doctors and consumers have protested the trend, blaming industry consolidation for rising costs. Insurers counter that larger companies save money by being more efficient administrators, and they fault doctors and hospitals for driving up medical costs be performing too many tests and procedures.

New competitive insurance markets are a cornerstone of President Barack Obama's health care law. They'll open for business in 2014 to serve consumers who buying their policies directly, as well as small businesses.

Varney said the goals of health care overhaul "cannot be achieved" if insurer mergers reduce competition, or if big companies use their market clout to keep out upstarts.

She gave a preview of the Justice Department's strategy through a case study of a recent merger proposal that failed after the government opposed it.

In March, Blue Cross Blue Shield of Michigan and Physicians Health Plan of Mid-Michigan dropped their plan to consolidate in Lansing. Blue Cross had nearly 70 percent of the market, while leading competitor Physicians controlled about 20 percent.

"Our investigation found that it was competition between the two companies that had led them to offer lower prices, better service, and more innovative products ... even though Blue Cross-Michigan already enjoyed a substantial market share," she said. "The acquisition also would have given Blue Cross-Michigan the ability to control physician reimbursement rates in a manner that could harmed the quality of health care."