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Anthem, WellPoint merge into largest health plan

The combined company, which operates many BlueCross BlueShield insurers, prompts physician misgivings about how the new WellPoint will wield its power.

By Robert Kazel — Posted Dec. 20, 2004

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When IBM dominated the computer industry, it was called Big Blue. With a merger now complete between Blue Cross and Blue Shield giants Anthem and WellPoint Health Networks, the health care industry has a dominant company it could call Big Blues.

The merger, effective Nov. 30, created an Indianapolis-based health insurance colossus with the name of WellPoint Inc. The company covers about 28 million members in 13 states, primarily under Blue Cross and Blue Shield brands, making WellPoint the largest publicly traded health plan in the nation. Nationally, about 88 million people are in Blues plans.

The value of the transaction, structured as an acquisition of California-based WellPoint by Indianapolis-based Anthem, was set at $16.5 billion when the plan was announced in October 2003, though its fair-market value at the time of the merger was approximately $20.8 billion, the company said.

Samuel R. Nussbaum, MD, former chief medical officer and executive vice president of Anthem, said he did not believe the merger would harm competition or diminish reimbursements for physicians in WellPoint's networks.

But Donald J. Palmisano, MD, immediate past president of the American Medical Association, criticized mergers such the Anthem-WellPoint deal as potential threats to free trade in health care because they're rapidly reducing the number of competitors vying for business. The resulting few large plans, wielding far greater power, could be in a better position to dictate patient care against doctors' wishes or demand unfair terms when bargaining with physicians, he said.

"The AMA continues to be concerned about the mergers of these large companies, where we have a great concentration of patients under one [owner]," he said. "Twenty eight million covered lives -- we don't feel that's in the patient's best interest."

Georgia relents

The new WellPoint came into existence the same day Georgia Insurance Commissioner John Oxendine granted his OK to the deal, which was necessary because WellPoint's BlueCross BlueShield of Georgia subsidiary is regulated by his agency.

Oxendine negotiated a $126.5 million package of financial assistance from WellPoint to bolster health care in the state, including $26.5 million for telemedicine programs that will link residents of rural areas to specialists in cities.

WellPoint also pledged to direct an estimated $100 million of its investment portfolio to help develop rural health care facilities in Georgia over the next two decades.

Georgia had once approved the deal but changed its mind after California's insurance department turned the deal down, sparking a lawsuit from Anthem. Oxendine said an initial offer from the insurer to the state was too low, and his agency "was prepared to do what we needed to do" to win more concessions -- particularly after insurance officials in California earlier in November approved the merger once WellPoint pledged to invest $265 million for health care in that state. That offer got the merger approved in California and caused Anthem to drop its lawsuit.

Other than California and Georgia, officials in the states where Anthem and WellPoint had customers did not ask for health care investments as a condition of approving the merger, a WellPoint spokesman said.

Dr. Palmisano, despite his misgivings about the merger, said it was good California and Georgia were able to obtain additional funding for indigent care and rural medicine, respectively, saying those concessions were at least "a step in the right direction [beyond] the original proposal."

The effect on competition

Anthem and WellPoint did not conduct business under the Blues brand name within the same states in the past, so WellPoint's market power within particular areas will not be unduly augmented at the expense of physicians or patients, Dr. Nussbaum said.

"In many ways, a lot won't change," he said. "We are not talking about saving through any changes in reimbursement models. This is not about using our market influence to [lower] reimbursement."

Dr. Nussbaum said he would stay on at WellPoint, though his title and role had not been announced at press time.

Physicians can expect to see WellPoint expand physician quality incentive programs that will supply bonus money for improvements in practice infrastructure such as electronic medical records systems, he said. The new company also is interested in increasing the transparency of its pricing policies with physicians, as Anthem has attempted recently, he said.

Physician apprehension

But David Cook, executive director of the Medical Assn. of Georgia, said many doctors in the state were dismayed with the completion of the merger, in part because of longstanding problems with WellPoint, including disagreements over medical necessity and bundling of claims -- as well as perennial difficulties in obtaining fee schedules.

"Physicians have no negotiating power as it stands right now," he said.

The announcement by Anthem and WellPoint that they aimed to become one company touched off apprehension among many physician and consumer groups, which warned that the plan was further proof that the American health insurance system was largely being reduced to a few companies with diminished accountability.

Those fears seemed to gain credence in April, when UnitedHealth Group declared its intention to buy Trumbull, Conn.-based Oxford Health Plans for $4.7 billion in stock and cash. That merger is being challenged in court now by the Medical Society of New Jersey, which claimed that New Jersey regulators did not study the deal long enough before approving it. The case is pending.

The evolution of managed care toward near-monopoly in many regions was noted in a report by the AMA this year, "Competition in Health Insurance: A Comprehensive Study of U.S. Markets," which noted that 93% of metropolitan areas in the United States had HMO and PPO markets that were "highly concentrated," as defined by merger guidelines developed by the Dept. of Justice and the Federal Trade Commission.

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ADDITIONAL INFORMATION

Biggest plans

The top publicly traded health plans in the United States as of the Nov. 30 Anthem-WellPoint merger and their approximate medical membership:

  • WellPoint Inc.: 28 million
  • UnitedHealth Group: 22 million
  • Aetna Inc.: 13.4 million
  • CIGNA Corp.: 12 million
  • Health Net Inc.: 7.3 million

Note: UnitedHealth Group includes acquisition of Oxford Health Plans in July, with about 1.5 million members. This merger is being challenged in court by the Medical Society of New Jersey. Source: Company financial reports

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