UnitedHealth sets standards for market success
Health insurance giant buys Sierra
By Ian Mylchreest
Las Vegas Business Press
March 19, 2007
Local health insurance giant Sierra Health Services agreed last week to be bought by Minnesota-based UnitedHealth Group. The deal is an all-cash transaction that will pay Sierra shareholders $43.50 per share. That values the local insurer at $2.6 billion.
The David and Goliath relationship in this deal is evidenced by UnitedHealth’s financing. It said that the transaction would be financed “with cash on hand, cash flows from operations and normal capital market activities.”
UnitedHealth spokesman Tyler Mason said the deal would not involve significant job losses in Las Vegas because the company would maintain its local operations. “We need people on the ground to grow the business and that is what we intend to do,” he said.
UnitedHealth faced turmoil in 2006 when its then-CEO William McGuire became the poster boy for backdating stock options, after a front page story in the Wall Street Journal revealed the practice. The board eventually forced McGuire out but his $1.6 billion in stock options were left untouched.
http://www.lvbusinesspress.com/articles/2007/03/19/news/iq_13194749.txt
And…
AMA asks Justice Department to block takeover of Sierra Health Services
AMA
March 19, 2007
The American Medical Association (AMA) today asked the Department of Justice to block the proposed acquisition of Sierra Health Services by UnitedHealth Group, and outlined its strong opposition to the merger in a letter to U.S. Attorney General Alberto Gonzales. The AMA has deep reservations about United’s goal of dominating the Nevada health insurance market, and in particular the Las Vegas market, by purchasing the state’s largest insurer.
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.
The proposed acquisition of Sierra highlights the alarming trend of consolidation within the health insurance industry. Between 1995 and 2005, there were more than 400 mergers involving health insurers and managed care organizations. The AMA has long cautioned that this trend is responsible for a growing market imbalance where patients and physicians are left vulnerable to the demands of a few giant health insurers.
http://www.ama-assn.org/ama/pub/category/17426.html
And…
UnitedHealthcare under fire over pay
By Chris Rauber
San Francisco Business Times
March 16, 2007
Doctors locally and statewide are engaged in a new round of warfare with UnitedHealthcare, and the California Medical Association has asked state regulators to step in.
The CMA, which represents 35,000 doctors statewide, wants the state Department of Managed Health Care and the Department of Insurance to see if reports of widespread delays, underpayments and other errors on doctors’ contracts by the giant Minnesota-based health plan are the result, as the doctors’ group says it suspects, “of a significant lack of administrative capacity.”
This is year two of tumultuous disputes between UnitedHealthcare, which acquired Cypress-based PacifiCare in late 2005, and many of the region’s doctors and medical practices. Last October, for example, United boasted that it had added 41 hospitals and nearly 11,000 physicians to its California provider network in the first half of 2006, including premier groups like San Francisco-based Brown & Toland Medical Group. But Sun Microsystems dropped the health plan, replacing it with Blue Cross of California, reportedly in part due to the continuing dispute with doctors. Benefits consultants said other major companies could take similar steps if the situation dragged on into this year.
http://www.bizjournals.com/sanfrancisco/stories/2007/03/19/story1.html?b=11742768001432550
Comment:
By Don McCanne, MD
And our national policies are designed to keep big government out of our health care and allow market forces to play out? If you step back and look at how Medicare functions and then look at how UnitedHealth and the other private insurers function, how could anyone seriously contend, when it comes to health insurance, that big market forces provide greater value than big government?
Particularly ironic is that fact that this large player in an industry noted for its highly wasteful, profound administrative excesses is being accused of having a “significant lack of administrative capacity.” It has so many administrators that it has to hire more administrators to find the administrators within its administrative pools to administer the administrative functions of their company whose primary product is administrative services.
But this does show what markets do well. Their administrative services have been so profitable that they can buy for $2.6 billion, in an all cash deal, one of the small players, while retaining its large administrative staff so that they can keep “people on the ground to grow the business.”
Is that what this is all about? Allowing administrators to intrude into our health care system to create market successes by diverting health care resources to their own industry? Shouldn’t it be about improving resource allocation for the benefit of patients? Private insurers excel at the former, whereas public insurance excels at the latter.
If we adopted a universal national health insurance program it would be very damaging to the private health insurance market. Is that a price that we are prepared to pay?