Las Vegas was abuzz in late August when a runaway railroad tanker car loaded with chlorine gas was headed for the heart of town. Had it crashed, it could have been a catastrophe. Fortunately, the car was stopped and disaster was averted.
Before that chlorine gas tanker broke loose and threatened to spill its deadly contents, however, another train, figuratively speaking, was bearing down on Nevada and is still on track. That metaphoric train is the UnitedHealth Group’s proposed friendly takeover of Sierra Health Services, a transaction now under review by the U.S. Department of Justice.
If and when the “train” gets here, will it bring significant enhanced benefits and improvements in the delivery of healthcare, as Sierra Health and United maintain, along with proponents Consumers First, Nevada Alliance for Retired Americans and medical provider Fremont Medical Centers? Or will it bring market dominance – a monopoly known as “monopsony” – that could ultimately result in higher premiums and reduced benefits, as feared by the American Medical Association (AMA), Nevada State Medical Association, Service Employees International Union, Gov. Jim Gibbons and Assembly Speaker Barbara Buckley. That is the question – and it comes at a time when the nation and Nevada is mired deep in a healthcare crisis.
Premiums for employer-sponsored health insurance have soared an average of 6.1 percent in 2007, less than last year’s 7.7 percent increase, but still 64.8 percent higher than the overall 3.7 percent rise in workers’ wages. The jump is also more than double the 2.6 percent inflation rate, according to the 2007 Employer Health Benefits Survey conducted by the Kaiser Family Foundation and Health Research and Educational Trust.
“We’re seeing some moderation in health cost increases, but premiums for family coverage now top $12,000 annually,” said Kaiser President and CEO Drew E. Altman. “Every year, health insurance becomes less affordable for families and businesses,” he explained. “Over the past six years, the amount families pay out-of-pocket for their share of premiums has increased by about $1,500.” Nationwide, according to Kaiser, the number of companies offering health benefits to their employees fell from 66 percent in 1999 to 60 percent this year. While there was no decrease in the number of large firms of 200 or more workers providing healthcare coverage, the percentage of companies with three to nine workers that offered health benefits fell from 56 percent in 1999 to just 45 percent in 2007, and from 65 percent to 59 percent for companies with three to 199 workers. Even in firms offering benefits, not all employees are eligible.
Looking ahead, Kaiser reported that 21 percent of employers surveyed expect to raise workers’ premium contributions next year; 13 percent are “very likely” to increase office visit cost-sharing; 12 percent will boost deductibles; and 11 percent anticipate raising prescription drug cost-sharing. Unfortunately, data for Nevada and other individual states usually trails by at least two years. What is known is that 19.6 percent of Nevadans are uninsured compared to the nationwide average of 15.8 percent.
Nevadans are hammered daily about the lackluster performance of the state’s schools – low test scores, insufficient funding and low graduation rates. But if written testimony submitted by Assembly Speaker Buckley and Assemblywoman Susan Gerhardt is accurate, the state’s healthcare system needs an overhaul. According to the two assembly women, unnamed “recent studies reveal the following severe deficiencies:”
• Nevada ranks 47th for access to care;
• Nevada ranks 51st in quality of care;
• Nevada is last for immunization coverage for children under age 3;
• Nevada ranks 45th in access to physicians – approximately 25 percent below the nationwide median – and has one of the lowest physician-to-population ratios;
• Nevada ranks 49th in nurses – also 25 percent below the U.S. median;
• Nevada is 41st for mortality rates.
Whether you accept these figures or not, few dispute the need to insure more Nevadans and provide them with affordable, as well as better quality healthcare. Is UnitedHealth Group the white knight with the remedy? Or will it exacerbate an already daunting challenge facing Nevada’s employers, medical providers and the insured. Sierra Health Services, betting on the former, has laid its reputation on the line.
“Everybody benefits from this merger,” said Jon Bunker, Sierra’s president and chief operating officer, who will rise to CEO for United’s new Southwest Region once the transaction is complete. He echoes Sierra’s founder, Dr. Anthony M. Marlon, chairman of the board and chief executive officer, who said he is confident the combined companies will “generate significant benefits for all of our stakeholders as we work to improve the delivery of care across the healthcare system.”
“Sierra is predominantly a Nevada-based company, so most of our direct provider contracts or networks are with Nevada physicians and other healthcare providers,” said Bunker, while pointing out that United has insurance products in every state in the nation which gives it a large, broad network of contracted physicians and hospitals. “Our ability to tap into their contracts and networks, and extend them to our employers and members, whether they are traveling, whether they are employed around the country, or if they just want to receive their healthcare in Arizona, Utah, California or somewhere else – whatever the reason, they will now have the opportunity to do so. Under Sierra, those opportunities were limited because our network was limited to Nevada.”
Other projected benefits for Nevadans, said Bunker, include access to leading-edge, consumer-based technology which Sierra doesn’t have the resources to invest in or create. “Physicians and other healthcare providers will benefit because United is known for providing great data and feedback on clinical outcomes.” Long-term career employment opportunities, maintains Bunker, will be enhanced because of what United can provide, not only because of its size, but also its management depth. “United is a fairly young company and that provides lots of opportunities for lots of people.”
He insists that the merger will not result in a wholesale loss of jobs for current Sierra employees. “While there are certain positions that are duplicative, such as investor relations, chief financial officer – positions of that nature – those would be the only positions subject to possible reduction … 15 or fewer.”
Bunker said the merger was “co-initiated.” Sierra Health had reached a point in its existence – which can be traced back to 1972 – where it needed either to expand into a bigger regional or national company, or become part of an existing one. Concurrently, he noted, United was looking to augment its presence and offerings in Nevada. “We had a nice market position. They were underperforming here, and I think the combination of the two is what led United to us,” said Bunker.
Ken Burdick, United’s president and CEO, said United’s primary motivating factor in acquiring Sierra is the brand and reputation of Sierra and its affiliate, Southwest Medical Associates, which he called Nevada’s largest multi-specialty medical group practice. “Sierra is a financially strong organization with very stable operations and systems, and has a long and well-recognized history of consistently delivering high-quality, affordable healthcare in Nevada.”
Burdick avows the combined companies will create opportunities to better serve consumers in a number of areas, including:
• Offering a full spectrum of health benefit programs and services for commercial and government employers – ranging from large multi-site corporations to small local businesses – as well as for individuals;
• An extensive portfolio of options and services to address the needs of participants in government-sponsored programs, including older Nevadans in a variety of Medicare programs, and Nevada state Medicaid beneficiaries;
• Diversified service options dedicated to specialized healthcare needs such as behavioral, dental, vision and pharmaceutical benefits.
Sierra’s customers, according to Burdick, will have significantly more choices through United’s national network of more than 537,000 doctors and other healthcare professionals and 4,700 hospitals, which will help members avoid more expensive “out-of-network” costs, whether at home or when traveling. “Sierra and United are committed to improving access to healthcare products and services to underserved populations, such as low-income seniors and minorities with specific healthcare concerns.”
He emphasizes that “it is United’s intention that Sierra continue to operate as it does today, and continue to be committed and accountable to the local communities it serves,” adding that the merger will allow Sierra’s physician network and customers to make use of the full range of United’s advanced technology resources. “United has invested more than $3 billion in superior technology over the past several years to enhance and streamline healthcare administration, and improve quality and safety for its members and providers,” he said, noting that 20 million United Healthcare customers now have electronic ID cards that simplify the process of checking eligibility. The cards, he said, facilitate access to an automatic updating of patients’ personal health records, a benefit that will be extended to Sierra’s members.
United’s “enormity,” however, is what alarms acquisition critics. Currently, United is a smaller player in the Nevada healthcare market. If and when the acquisition is completed, it could become the 900 pound gorilla. Would it be benign or malevolent? Would it provide Nevadans all the benefits both companies claim it will – or will it quash competition, putting consumers at risk for higher premiums and healthcare providers for lower reimbursements?
United’s share of Nevada’s commercial healthcare insurance market is 8.6 percent, compared to Sierra Health’s 19.4 percent. Combined, United will own 28 percent, according to a fact sheet released jointly by the two companies. In the Medicare market, United has a 15.8 percent share and Sierra 20.4 percent, but United’s post-acquisition share will be 36.2 percent. Together, the two companies already dominate Nevada’s Medicare Advantage market, but a spokesperson for both companies said “no other insurance companies have chosen to offer Medicare Advantage in Nevada,” noting that only 33 percent of Nevada seniors are enrolled in Medicare Advantage, with the remaining 67 percent choosing another option.
If the proposed merger is allowed, “the AMA estimates that United would control 78 percent of the HMO market in Nevada, and 95 percent of the HMO market in the Las Vegas-Paradise metropolitan area.” Sierra and United dispute this, claiming there is no distinctive HMO market in Nevada and that the HMO segment is but one component of the commercial insurance market, along with preferred provider plans (PPOs) and others. After the merger, United will have 750,000 members in Nevada, compared to its current statewide membership of 110,100. Nationwide, it has 70 million members and reported 2006 revenues of $71.7 billion, compared to revenues of $1.7 billion for Sierra Health Services over the same year.
Asked about the acquisition’s impact on competition in Nevada, Mike Murphy, president of Anthem Blue Cross Blue Shield in Nevada responded that as a policy, his company doesn’t comment, but said, “We feel that Anthem Blue Cross Blue Shield will maintain a strong presence and, as a result of the merger, be even more attractive to Nevada consumers.” The same question evoked a “no comment” from another local provider, Hometown Health.
The application, which was approved with conditions by the Nevada Insurance Commissioner and regulatory bodies in Arizona and California, is pending before the Justice Department. Gov. Gibbons has requested them to carefully consider how the buyout would affect Nevada’s insurance markets. He has also asked Nevada Attorney General Catherine Cortez Masto to “continue with a vigorous investigation” into the Sierra Health sale and noted that he also is looking forward to participation in the review process by the Federal Trade Commission.
In her order of approval for the acquisition, Nevada Insurance Commissioner Alice A. Molasky-Arman imposed a number of conditions with which the companies must comply. “I am convinced that Health Plan of Nevada (a division of Sierra Health Services) will continue to offer the same high quality of products and services that it has historically offered, and that the costs of the acquisition will not be borne by Nevadans,” she said. “With the conditions in the order, this is good news for Nevada healthcare consumers and providers.”
Her conditions include:
• No acquisition costs, including executive bonuses and severance packages, will be passed to healthcare consumers or providers;
• Premiums paid to, and provider fees paid by, Health Plan of Nevada will not be increased as a result of the costs of the acquisition;
• Sierra’s system of claims handling will continue after the acquisition, and will not degrade as a result of the acquisition;
• Benefit plans will not be scaled back as a result of the acquisition;
• Local home office, management and employment will continue;
• United’s affiliates will take specific actions to help reduce the number of uninsured Nevadans.
Both companies also made additional commitments to address concerns raised by the Division, including a pledge to continue, and build on, their charitable giving and philanthropic activities, although no amounts were specified. Through the PacifiCare Foundation, part of the United Health Foundation, United donated $10,000 to Reno-based C*A*R*E* Chest of Sierra Nevada. At that time, Reed Tuckson, M.D., senior vice president of the United Health Foundation, said United is “committed to supporting local community-based organizations to increase access to quality healthcare services and resources for all Americans.”
As part of its required $50 million commitment to California, United and PacifiCare announced in August they will fund $25 million in new grants to benefit healthcare consumers and improve the delivery of healthcare services in the Golden State. The United Health Foundation also announced $1 million in grants in June to the Colorado Department of Local Affairs to fund the Colorado Rural Mobile Health Project. Since 1999, the foundation and its family of public foundations “have contributed $250 million to support the charitable work of our community partners.”
That United has the resources to take Nevada to another level in healthcare insurance and healthcare availability is probably not arguable, in spite of nationwide challenges it faces on a variety of issues. Will United perform as it has promised? That is arguable.
United is the target of a long list of governmental investigations, audits and reviews which conceivably could lead to the assessment of damages, civil or criminal fines or penalties, or other sanctions. The healthcare giant has just been assessed a $20 million fine by insurance regulators in 36 states – including Nevada – for failures in processing claims and responding to consumer complaints. The fine was negotiated between United and the regulatory agencies to, in Burdick’s words, “resolve essentially all past regulatory matters and to establish an efficient transparent framework for evaluating and regulating United’s performance over the next three years.”
As the Department of Justice scrutinizes the proposed acquisition over the coming months, Nevadans are left to wonder and speculate. “If the application is approved, will United be part of the healthcare solution or just a bigger part of the problem?” Only time will tell.
