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Health plan merger in Mich. abandoned after regulators object

The sale was opposed because it would have given the new company a more than 90% market share.

By Emily Berry — Posted March 22, 2010

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A planned merger between a subsidiary of Blue Cross Blue Shield of Michigan and a Lansing, Mich.-based hospital system's health plan has fallen apart because the parties said they got word that state and federal authorities were ready to block the acquisition.

A March 8 joint statement from the Michigan Blues and Sparrow Health System said the two companies had decided that "the substantial cost and extended time period it could take to get clearance of the acquisition are not in the best interests of either organization." The statement said both parties anticipated that the merger, announced September 2009, would have been done by the end of that year.

But both organizations said they concluded by March 5 that "the transaction would not get clearance without litigation."

On March 8, Michigan Attorney General Mike Cox's office announced that it had been prepared to file a joint lawsuit with the U.S. Dept. of Justice to stop the acquisition.

The American Medical Association praised regulators' decision to oppose the deal, which would have had the Michigan Blues' HMO subsidiary Blue Care Network taking over Sparrow Health System's Physicians Health Plan of Mid-Michigan.

The AMA wrote to federal authorities in January to oppose the deal, which it claimed would give Blue Care Network 99% of the Lansing-area HMO market.

"Without any significant competition, BCN would be free to flex their market power, dictate unreasonable terms and substitute corporate policy for clinical judgment, leaving patients at the mercy of insurers," AMA President J. James Rohack, MD, said in a statement about the dissolution of the deal.

Scott Wilkerson, Physicians Health Plan of Mid-Michigan president and CEO, said in the group's March 8 statement that the insurer had been operating with a "business as usual" mind-set while awaiting approval, so nothing would change for its customers.

"In light of the current regulatory climate, it has become obvious that we should move on and continue focusing on the best ways to serve PHP's members and our region," Wilkerson said.

Opponents want regulators to make sure that mergers are not a part of business as usual for health plans.

"The AMA hopes this action signals the Obama administration's commitment to a more aggressive enforcement policy for the benefit of patients and their physicians, and will not be confined to extraordinarily anticompetitive mergers," Dr. Rohack said.

Mike Cowie, a former antitrust attorney with the Federal Trade Commission who now practices in Washington, D.C., for the Howrey law firm, said it would be a mistake to take the deal's demise as a sign that the White House is somehow changing policies or enforcement strategy.

The department is signaling, if anything, that where BlueCross BlueShield-affiliated plans and other large insurers are dominant and seek to buy smaller plans in the same region, they will meet with opposition, Cowie said.

" 'Chilling effect' is a strong term, but if you're a Blue Cross plan that has a large share in a state, it's going to be difficult to buy competitors within your core area," he said.

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