Editorial: Government suits over ‘hidden fees’ are good stewardship of public money

It isn’t just mom and pop consumers who feel they’ve been victimized by legal fine print and hidden fees.

Saginaw County, Saginaw Township Community Schools and the city of Saginaw feel the same way. They’re all suing Blue Cross/Blue Shield of Michigan over a total of about $7 million in “secret” fees they were charged – charges they claim they didn’t know existed. They are all self-insured, but pay Blue Cross to manage health insurance premium funds.

The nonprofit insurer has denied any wrongdoing.

Yet, these aren’t your run-of-the-mill, frivolous lawsuits.

Saginaw County Circuit Judge Fred L. Borchard is letting the case of Saginaw County and Saginaw Township Schools go to a jury trial, calling the contract language regarding the fees “ambiguous.” The city of Saginaw has joined a similar case in Genesee County.

In another case, Oakland County last year settled with Blue Cross for a $650,00 payment, and three years of free administration that some said is worth $8.5 million.

We applaud public officials’ efforts to pursue justice in these cases.

In a time of declining public money and budget cuts, these lawsuits are examples of good stewardship of taxpayer money.

If these governments were overcharged with secret fees, the money they claim they lost could have helped prop up failing public budgets.

Right or wrong, it’s easy to sympathize with the feeling that Saginaw County, Saginaw Township Schools and the city of Saginaw have – that they have been taken to the bank.

For the average consumer hit with astounding credit card fees, for example, their ignorance of the meaning of pages and pages of fine legal print might be expected.

But could it really be possible that the legal eagles who governments hire to flyspeck every agreement actually missed fees “hidden” in these contracts?

That’s for a jury to decide.

When public money – our money – is involved, it’s right to seek the answer.

Saginaw County, the city of Saginaw and Saginaw Township Community Schools have filed lawsuits against Blue Cross/Blue Shield of Michigan, claiming the insurer overcharged a total of about $7 million in “secret” fees they say they didn’t know were assessed.

The county has claimed the insurer overcharged it $4 million, while the township schools have estimated the amount reached $1.8 million. Both suits were filed in Saginaw County Circuit Court.

The fees, imposed on the county and the schools in 1994, weren’t disclosed until 2008, court filings said.

Meanwhile, the city of Saginaw is part of a lawsuit filed in Genesee County Circuit Court that seeks more than $1 million against the insurer over the same issue, said William H. Horton, a Troy attorney who represents the city, the county and the township schools.
Lawyers have sought to make that case a class action lawsuit with the Genesee County Road Commission and Tuscola and Cass counties, said Elizabeth A. Favaro, also an attorney for the plaintiffs.

Attorneys argued the city, schools and the county weren’t told of the “secret and hidden fee” added to hospital claims in addition to administrative and “stop loss” fees for catastrophic insurance coverage that were disclosed, Favaro and court records said.

Blue Cross/Blue Shield has denied wrongdoing. It said the plaintiffs failed to show evidence they didn’t know of the disputed charge, called an administrative services contract access fee, court records said.

“We’ve also demanded that (Blue Cross) stop charging these (access) fees,” Horton said.

The city, county and the school district are self-insured but use Blue Cross/Blue Shield to manage health insurance premium funds.

The insurer charges the access fee as part of the billed cost to handle the claims, court records said.

“These fees were expressly authorized by the Blue Cross contract,” said Blue Cross spokeswoman Helen Stojic, who added that group savings on hospital claims “year after year” gave the city, school district and the county “substantial savings that far exceed the fees.”

She did not have an exact amount.

“It’s unfortunate that knowing these facts, the groups and their attorneys have chosen to take legal action,” she said. “Despite the legal action, all of the groups continue to do business with us.

“We don’t believe these cases will be successful.”

Deputy County Controller Charles H. Cleaver said keeping Blue Cross to manage the self-insured fund doesn’t mean the county is satisfied.

“If we were happy with that, we wouldn’t file a lawsuit,” he said.

In late December opinions released this week, Saginaw County Circuit Judge Fred L. Borchard ruled against Blue Cross/Blue Shield’s motion to dismiss the county and school district’s lawsuit. Borchard also denied the request of both plaintiffs for an immediate finding of a breach of contract. The judge’s opinion said the contract language on the access fee was “ambiguous,” but he would leave it to a jury to decide if a breach of contract occurred.

Any money that the county might recover would go into an employee health insurance fund, Cleaver said. It’s premature to say how the schools might handle a judgment, Favaro said.
Several Michigan counties have filed lawsuits against the insurer over the same issue, court records said.

In a settlement with Oakland County, Blue Cross/Blue Shield agreed to pay $650,000 and provide three years of free administration of Oakland’s self-insured plan, The Detroit News reported in November. The free administration was worth $8.5 million to the southeast Michigan county, one official estimated.

Will there be more competition or less? It depends who’s talking.

Blue Care Network wants to buy Physicians Health Plan of Mid-Michigan, and before the $45 million deal can go through, state insurance regulators must decide whether the public wins or loses.

A monopoly? A loss of competition? Those are losses for consumers, and so much of the public comment Monday at an hourlong public hearing sponsored by state regulators featured people arguing that the sale would either help or hurt marketplace competition.

“All those customers are with PHP for a reason,” said Michael Harp, a partner and benefits broker with East Lansing-based Papazian Smalley & Harp.

The company helps local businesses find health insurance carriers through which to offer workers benefits.

“You’ll be forcing these businesses into options they’ve already chosen against.”

Blue Care and PHP representatives, however, said just the opposite – that allowing Blue Care to buy out PHP would actually boost competition. For example, Sparrow Hospital, which has strong ties to PHP, would start contracting with a greater variety of health insurance companies and not just PHP.

“Sparrow is confident this transaction will lead to more, not fewer choices,” Sparrow spokesman John Berg told the auditorium of about 65 people who attended the hearing at the Michigan Library and Historical Center in Lansing.

Blue Care has pitched the sale as an opportunity for it to create better economies of scale and spread administrative costs over a broader customer base and keep down rates, but some people question that argument.
Money in reserve

Blair Miller, 57, of Vermontville in Eaton County, walked to the podium to speak on behalf of his wife, Lorraine Miller, whose monthly Blue Care premiums are going from $50 this year to $198 next year.

“This spreading of costs seems more like dumping,” he said.

He noted that if insurance officials have enough millions to buy PHP, then they should instead be cutting rates for customers.

“I oppose it,” he said of the sale. “I find it offensive, and I expect more from my Michigan leaders.”

Following the hearing, Blue Care officials did not provide Monday how much they have in reserve and how much they are required to have in reserve.

“Sparrow and BCN are both trusted Michigan non-profits,” said Jeanne Carlson, president and CEO of Blue Care.
Weighing the facts

State officials now have the task of wading through what is true and what is not.

“OFIR’s thorough review will include a survey of health carriers and health care agents to gain a more complete understanding of the level of competition in the statewide and regional health care market,” said Jason Moon, a spokesman for the state Office of Financial and Insurance Regulation.

The Office of Financial and Insurance Regulation is taking written comments on the deal through Wednesday.

Imagine a country where the only car was a Yugo, the only TV was C-Span, and the only food was kale. Most Americans would undoubtedly balk at this failure of the marketplace—to provide the simple freedom to choose what’s best for your family.

It’s not a stretch to say that when it comes to healthcare, Michigan is suffering under the same type of stranglehold by a single company, and patients across the state are suffering. This time, the single choice for consumers is Blue Cross Blue Shield of Michigan, an old-fashioned monopoly if there ever was one.

Concerns are mounting about the overwhelming power of Blue Cross Blue Shield to control Michigan’s health insurance marketplace, and the problem may be about to get much worse.

The company’s planned purchase of Physicians Health Plan of Mid-Michigan through subsidiary Blue Care Network would virtually eliminate the health insurance choices that Lansing-area residents and employers will have.

Here is what Michigan Attorney General Mike Cox said about the planned merger: “Blue Cross and its subsidiaries must explain how they can afford to buy another company even as they fight to raise rates on seniors. Could these funds have been used instead to help avoid rate increases on struggling Michigan residents?”

Blue Cross Blue Shield plans to fund this purchase using $60 million from its Blue Care Network reserves – money that comes from member premiums. At the same time, it is pleading poverty and wants to raise premiums 31 percent for its Medigap policies. Adding insult to injury, Blue Cross Blue Shield of Michigan is a nonprofit that receives $100 million in annual tax breaks and has a surplus of $2.3 billion.

Health Care for American Now, a grassroots organization, rightly wonders why consumers in Michigan are paying through the nose for this “health-insurance market failure.” Indeed, the state is the eighth-highest overall in healthcare spending, but ranks twenty-seventh overall in health care quality.

There is only one explanation for this complete failure of the healthcare system in Michigan—the monopoly power of Blue Cross Blue Shield. Get ready for some disturbing numbers to prove this point.

Blue Cross and its HMO subsidiary, Blue Care Network, cover 4.7 million members in Michigan, or an excess of 71 percent of Michigan’s insured population. Blue Cross also covers nearly 300,000 Medicare Advantage enrollees in Michigan, or approximately 70 percent of Michigan’s Medicare Advantage population. And Blue Cross covers nearly 90 percent of enrollees in Michigan’s MIChild program.

If the acquisition of PHP Mid-Michigan is approved, the Blue Cross organization will cover over 75 percent of the Lansing-East Lansing commercially insured population. But that’s the most optimistic scenario for consumers.

Rick Murdock, executive director of the Michigan Association of Health Plans, told the Detroit Free Press that Blue Cross business soars to 95 percent of the health insurance business in Lansing and East Lansing when the market share of all Blue Cross companies in the area is counted.

What happens when one company controls so much of the marketplace? Consumers and employers get hammered.

Premiums for the state’s working families have skyrocketed, increasing 78 percent from 2000 to 2007, according to Families USA. That means that the average yearly premium rose from $6,817 a year to $12,151 for families. And Blue Cross Blue Shield of Michigan can’t blame simple inflation or the economic downturn. From 2000 to 2007, wages for the average Michigan worker rose 5 percent, while their premiums increased an average of 17 percent.

With the purchase of the Physicians Health Plan of Michigan—one of the only remaining competitors to Blue Cross in the Lansing–East Lansing region—residents will have limited health care options available to them and may be forced to pay more for their health care coverage.

Doctors and hospitals may also become victims. By eliminating one of the last remaining insurers in the area, the merger seriously weakens the ability of doctors and hospitals to negotiate fair reimbursement rates. Lower reimbursement rates place tremendous added financial strains on hospitals and physician practices that, in turn, threaten the quality of patient care.

Blue Cross Blue Shield is already threatening to cut reimbursement rates to providers, according to an October 12, 2009 report from AMA’s American Medical News. In a thinly-veiled threat to state regulators, Blue Cross and Blue Shield suggests they will need to cut payments to doctors and hospitals if they do not get state approval for their plan to increase Medigap premium rates. They plead poverty, yet apparently they have the reported $60 million they need to purchase PHP.

What can be done about this free-market disaster? Already, the Michigan Association of Health Plans and the Michigan Attorney General have requested that the Office of Financial and Insurance Regulation hold a public hearing on the acquisition. Insurance Commissioner Ken Ross has responded by scheduling for November 23rd, at the beginning of Thanksgiving week.

Attorney General Cox has called on Blue Cross Blue Shield of Michigan and its subsidiary, Blue Care Network, to disclose the finances of BCN’s purchase of Physicians Health Plan of Mid-Michigan. He has also asked the U.S. Department of Justice and the Federal Trade Commission to intervene in the proposed merger, to investigate the anticompetitive implications of the proposed merger, pursuant to federal antitrust laws.

The state has the power to block the merger too. as long as Blue Cross Blue Shield’s political power doesn’t get in the way.. Section 1315 of the State insurance code allows the state to stop the purchase if it “would be substantially to lessen competition in insurance in this state or tend to create a monopoly in this state.

Let’s hope the state follows the law and helps stop a dangerous monopoly that is giving Michigan a bad case of the Blues.

Blue Cross Blue Shield plans to fund its purchase of Physicians Health Plan of Mid-Michigan (PHP) using $60 million from its Blue Care Network reserves – money that comes from member premiums. At the same time, it is pleading poverty in its request for approval from the state to raise premiums for its Medigap policies by 31%. Adding insult to injury, Blue Cross Blue Shield of Michigan is a nonprofit that receives $100 million in annual tax breaks and has a surplus of $2.3 billion.

Expands Blue Cross Blue Shield’s Monopoly in Michigan

If allowed to proceed, this merger will further expand Blue Cross Blue Shield’s monopoly in the Michigan health insurance market. As Blue Cross Blue Shield continues its practice of gobbling up competing health insurers – spending more than $350 million to buy other companies in the past several years – it is eliminating competition and competitive pricing. That means consumers pay more for health coverage, employers pay more to provide health care benefits to their workers, and doctors and hospitals have less power to negotiate fair reimbursement rates for their services.

Virtually Eliminates Competition in the Lansing Area

The Michigan Assn of Health Plans has said that Blue Cross Blue Shield companies already control 95% of the health insurance business in Lansing and East Lansing, according to an October 8, 2009 report in the Detroit Free-Press. The Blue Care Network’s acquisition of Physicians Health Plan of Mid-Michigan eliminates one of the only remaining competitors to Blue Cross Blue Shield in the Lansing–East Lansing area. As a result, area residents and employers will have severely limited health care options available to them and will be at the mercy of Blue Cross Blue Shield as it continues to demand outrageous increases in premiums.

Further Erodes Health Care Providers’ Ability to Negotiate Fair Compensation – Blue Cross Blue Shield is Already Threatening to Cut Reimbursement Rates

By eliminating one of the last remaining insurers in the area, the merger seriously weakens the ability of doctors and hospitals to negotiate fair reimbursement rates. Lower reimbursement rates place tremendous added financial strains on hospitals and physician practices that, in turn, threaten the quality of patient care.

Blue Cross Blue Shield is already threatening to cut reimbursement rates to providers, according to an October 12, 2009 report from AMA’s American Medical News. In a thinly-veiled threat to state regulators, Blue Cross and Blue Shield suggests they will need to cut payments to doctors and hospitals if they do not get state approval for their plan to increase Medigap premium rates by 31%. They plead poverty, yet apparently have the reported $60 million they need to purchase PHP.

The Competitive Landscape in the Michigan Health Care Market Has a Bad Case of the Blues

There is already very limited competition in Michigan’s health insurance market due to Blue Cross Blue Shield’s longstanding dominance. This appears to have a demonstrably negative effect on both the cost and quality of health care in the state.

* Blue Cross Blue Shield of Michigan claims to administer and provide benefits to 4.7 million members. That’s in excess of 71% of Michigan’s insured population, according to state enrollment data.

* Health insurance premiums for Michigan families have skyrocketed 78 percent between 2000 and 2007, according to a September 2008 report from Families USA

* Michigan is the 8th highest among states in spending on health care, according to 2007 National Health Expenditure Data from the CMS, yet it ranks 27th in the quality of health care, according to the America’s Health Rankings survey by the School of Public Health at the University of North Carolina at Chapel Hill.

The Proposed Merger Requires Approval by the Michigan Office of Financial and Insurance Regulation (OFIR) and the Michigan Community Health Department.

The proposed merger requires the approval of the Michigan Office of Financial and Insurance Regulation (OFIR) and the Michigan Community Health Department. State insurance code section 1315 gives the state authority to block the merger if the effect “would be substantially to lessen competition in insurance in this state or tend to create a monopoly in this state.”

At the request of Michigan Attorney General Mike Cox, Insurance Commissioner Ken Ross has scheduled a November 23 hearing to consider approval of the acquisition. The hearing is set to begin at 10:00 AM and will be held at the Michigan Historical Museum, 702 West Kalamazoo Street, Lansing – Ground Floor Auditorium.

The Michigan Attorney General Has Asked the DOJ and FTC to Intervene in the Proposed Merger

Michigan’s Attorney General has formally requested the U.S. Department of Justice (DOJ) and the Federal Trade Commission (FTC) to investigate the anticompetitive implications of the proposed merger, pursuant to federal antitrust laws.

What would have happened if General Motors, in those dark days of a year ago, had suddenly announced a deal to buy Ford Motor Co.?

Well, that interesting hypothesis has some relevance to the announcement this month that Blue Cross Blue Shield of Michigan will buy a competitor, Physicians Health Plan.

This deal – price tag, as yet, not apparent – should throw state regulators into a frenzy of vetting. And it should force state lawmakers to reassess all that Blue Cross has told it about the state’s insurance market.

Consider that Blue Cross, by its own word, faces a disastrous financial future without changes to state law governing individual insurance policies. For 2008, the nonprofit insurer said it suffered a $144.9 million loss – pegged mostly to losses on individual insurance coverage.

In January, the insurer announced major job cuts and requested huge premium increases for 400,000 customers.

Well, Blue Cross did cut jobs. And state regulators did agree to premium increases – though not nearly as large as Blue Cross initially sought.

So, in September, the company’s books are suddenly strong enough to purchase a competing health insurance plan?

That just doesn’t track.

Not the buying PHP part. If Blue Cross ends up with PHP – an arm of Sparrow Health System – it will have a dominant share of the mid-Michigan market. It will have removed a major competitor from the field. That has to be good for Blue Cross’ bottom line.

But is this deal good for Michigan? After all, Blue Cross functions as a nonprofit under state law, trading charitable care for state tax breaks.

Then there’s the matter of competition. A 2007 report from HealthCareforAmericaNow, an advocacy group, said Blue Cross and PHP combined held 95 percent of the Lansing-East Lansing metro market. Is a single firm with almost all the market conducive to competition and its benefits?

The fight in Lansing over individual market rules began with Blue Cross trying to rush through a package of bills in the fall of 2007. Commercial insurers have argued that Blue Cross seeks an unfair position in the law, and have questioned the insurer’s financial claims.

Attorney General Mike Cox also has questioned Blue Cross’ financial claims.

Before this deal goes any further, Blue Cross should detail to the public how it is paying for PHP – and how it managed to engage in such a transaction in its self-reported weakened state.”

An LSJ editorial

Blue Care-PHP merger hearing draws dozens

by Christine Rook

LANSING – There will be more competition – or less, depending on who you talk to – in the local market if Blue Care Network is allowed to buy rival Physicians Health Plan of Mid-Michigan .

Officials for Blue Care, a unit of Detroit-based insurer Blue Cross Blue Shield of Michigan, spoke up Monday morning at a public hearing to emphasize how they think competition will increase by allowing Lansing’s Sparrow Health System to shed PHP and start contracting with greater variety of health insurance companies.

Others, such as Michael Harp, a local benefits broker who works with area businesses, argued the opposite, saying companies pick PHP as a provider because it offers a value BCN and other plans don’t.

“To take that choice away from them would force higher rates,” said Harp, who works with Papazian Smalley & Harp.

More than 60 people attended the public hearing at the Michigan Library and Historical Center in Lansing. The hearing was sponsored by state insurance regulators, who must approve the sale of PHP in order for the deal to go through.

The purchase price is $45 million.

Detroit Free Press

November 7, 2009

Judge limits Blue Cross Medicare rate hike

By PATRICIA ANSTETT

An independent hearing judge today ruled that Blue Cross Blue Shield of Michigan only should raise its supplemental Medicare rates by 3.8%, not the 36.7% it had sought.

The final rate hike will be determined by Ken Ross, the state’s insurance commissioner.

Ross has until Dec. 6 to make the final decision, unless appeals are filed. The rate hikes could take effect as early as Feb. 1.

If Ross lets the 3.8% rate hike stand, monthly premiums for Plan C of the Blue Cross plan, also known as Medigap, would increase $4.07 a month, from $107 to $111, not to $146, as Blue Cross had hoped, according to the Michigan Attorney General’s office.

“This is great news for Michigan seniors,” said John Selleck, a spokesman for Attorney General Mike Cox. He said the ruling, if upheld, would save $85 million for more than 210,000 seniors with the coverage.

The new rate hike comes on top of a 4.7% interim rate hike approved by state insurance Ross that took effect Oct. 1.

In a written statement, Helen Stojic, spokeswoman for Blue Cross, said the ruling “is part of a rate setting process that continues. We remain concerned with the hearing officer’s interpretation of how the subsidy should be structured, and we will continue to advocate for a subsidy structure with the insurance commissioner that works effectively in providing for the long-term sustainability of affordable coverage for seniors.”

The administrative law judge, Musette Michael, hearing the case, sided with the insurer on other issues, such as not having to use part of its $2.2 billion reserve fund to offset rate hikes.

Crain’s Detroit Businesss

November 4, 2009 10:54AM

OFIR sets hearing for Blue Care acquisition of Physicians Health Plan of Mid-Michigan

By Jay Greene

Michigan Insurance Commissioner Ken Ross has scheduled a Nov. 23 public hearing to consider approval of Blue Care Network’s planned acquisition of competing insurer Lansing-based Physicians Health Plan of Mid-Michigan.

Michigan Attorney General Mike Cox and the Michigan Association of Health Plans have asked the state Office of Financial and Insurance Regulation to hold the hearing.

Cox has questioned whether the acquisition is in the best interests of consumers and health care providers.

The hearing is to be held at 10 a.m. at the Michigan Historical Museum in downtown Lansing.

Last month, Blue Care announced it had reached an agreement to purchase PHP from Lansing-based Sparrow Health System for an undisclosed price. Blue Care is the managed care subsidiary of Blue Cross Blue Shield of Michigan.

Cox also sent a letter to the Federal Trade Commission’s Bureau of Competition to request an antitrust investigation into the proposed acquisition. Cox contends Blue Care would control 90 percent of the health insurance market in Ingham County that could lead to unrestrained price increases.

Blue Care said the acquisition will help hold down costs for consumers.

Detroit Free Press

November 3, 2009

Lansing HMO purchase by Blues to be examined

Michigan’s insurance commissioner said today he will hold a public hearing on the proposed purchase of a Lansing HMO by Blue Care Network.

The hearing will be held at 10 a.m. Nov. 23, at the Michigan Library and Historical Center’s ground floor auditorium, Lansing.

The decision follows a request by Michigan Attorney Mike Cox to Ken Ross, commissioner of the Michigan Office of Financial and Insurance Regulation to examine possible monopoly and unfair trade issues raised about the purchase of the Physicians Health Plan of Mid-Michigan.

Cox and others have raised concerns that the purchase would give Blue Care Network and its parent company, Blue Cross Blue Shield of Michigan, such a large part of the Lansing market that it would eventually contribute to higher prices there if private insurers leave the market.

Blue Care Network plans to spend $45 million to buy the company and another $15 million for the HMO’s estimated cash assets and investments.

Blue Cross has said the purchase will be paid with Blue Care Network reserve funds and that the transaction will allow it to hold down health prices by spreading costs over a larger pool of customers.

Spokeswoman Helen Stojic could not be immediately reached for comment this afternoon. But she said last month that the purchase should not hurt competition in a state with a strong HMO market, with more than 20 companies, and would have “little or no impact” on Blue Cross customers, said Helen Stojic, Blue Cross spokeswoman. Other purchases help bring jobs and business to Michigan, the company has said.

Rick Murdock, executive director of the Michigan Association of Health Plans, has said Blue Cross business soars to 95% of the health insurance business in Lansing and East Lansing when the market share of all Blue Cross companies in the area is counted.

As of June 30, Blue Care Network had 530,018 customers statewide, or about 38% of Michigan’s non-Medicaid HMO market, and Physicians Health Plan had 41,739 policyholders, or about 2% of that market, Ross said.

American Medical News

November 2, 2009

Health plans owned by doctors, hospitals are disappearing

By Emily Berry, amednews staff. Posted Nov. 2, 2009.

The loss of smaller, locally owned health plans is one part of broader market consolidation.

The once-plentiful population of health plans owned by physician groups, hospitals or integrated health systems has dwindled steadily in the last decade. The demise of those plans has continued with acquisitions by larger plans over the last year, experts say.

No one has specific numbers on the rate of consolidation, except to say that new physician- and hospital-owned plans are not popping up to replace those that have been bought.

Large plans, both for-profit and nonprofit, have been eager to buy up health plans that hospitals and medical groups are ready to sell.

There are good reasons for that eagerness, said Peter Kongstvedt, MD, author, professor and managed care consultant based in McLean, Va. “The larger the acquisition, the more time it takes and the more it costs.”

Dr. Kongstvedt added, “Smaller provider-owned plans do not command a high price.”

Large plans also know that hospital and physician-owned plans sometimes have a hard time competing with them and therefore make good targets for acquisition.

“You need the scale, you need a lot of things to get by to build the capital … to be able to provide the service,” said Humana Chief Financial Officer Jim Bloem. “These kinds of increasing challenges give smaller plans … the impetus to take a real look at the economics of the plan, the relationship of the plan with other entities they might own.”

Experts say the reasons hospital systems and physician groups are ready to part with their insurance business include state regulations requiring large reserves, patient preference for large networks, and limited resources for marketing that would allow the smaller plans to compete with the national giants.

A recent example of the continuing trend of smaller plans being gobbled up by larger plans came in October, when Coventry Health Care, based in Bethesda, Md., purchased Preferred Health Systems, a health plan owned by Wichita, Kan.-based hospital group Via Christi Health System. If approved, the merger would add about 120,000 people to Coventry’s current membership of 5.2 million. Terms of the deal were not disclosed.

Pam Carbiener, MD, a Daytona Beach, Fla., ob-gyn, was on the board of commissioners for Halifax Health at the time its Florida Health Care Plans subsidiary was sold to BlueCross BlueShield of Florida in August 2008.

She was torn, she said, because as a clinician she worried about losing a physician-friendly, patient-centered, local health plan. Eventually, she came to believe that the hospital needed to sell the health plan to remain financially healthy. The $85 million deal was finalized in January.

Physician- and hospital-run plans are challenged with keeping down medical spending while the practices and facilities need patient volume. A.M. Best found the median medical loss ratio for a physician- or hospital-owned plan was 89.3% in 2007, an increase of 3% since 2004, and higher than the overall health insurance market.

“It’s hard to take off one hat and put on the other,” said Linda McMullen, director of medical economics and associate general counsel at the Florida Medical Assn. “You’re member-benefit driven, so you’re trying to say ‘yes’ to members, but trying to run a business on the other side, saying, ‘We’ve got to raise your premiums by 25%.’ “

Beating the odds

There are some plans, however, that are not only surviving, but look to be thriving.

For example, Hometown Health, the insurance arm of Reno, Nev.-based hospital system Renown Health, has turned away interested buyers. Even in the midst of a recession, the plan has kept up its market share with about 120,000 members, said Ty Windfeldt, director of sales and service.

He said Hometown Health has done well by offering the same things larger plans do, including wellness programs and sophisticated claims reports for employers, but has combined it with customer service anchored in local relationships.

“Rates are one thing; rates drive the main decision, but the premiums employers are paying are so substantial, they’re demanding they get a certain level of service and quality,” Windfeldt said.

Larger plans buying smaller counterparts

Small, regional health insurance plans owned by doctors and hospitals have been steadily disappearing for several years, but the bigger plans have become more open about seeking them out as acquisitions. A few recent examples:

Date Acquiring plan Plan purchased Former owner

October* Coventry Health Care Preferred Health System Via Christi Health System, Wichita, Kan.

September Blue Cross Blue Shield of Michigan Physicians Health Plan of Mid-Michigan Sparrow Health System, Lansing, Mich.

January BlueCross BlueShield of Florida Florida Health Care Plans Halifax Health, Daytona Beach, Fla.

October 2008 Humana Cariten Health Plan Covenant Health, Knoxville, Tenn.

May 2008 Humana OSF HealthPlans OSF Saint Francis, Peoria, Ill.

April 2008 Medical Mutual of Ohio Premier Health Systems Palmetto Health and Sisters of Charity

The AIS Report on Blue Cross and Blue Shield Plans

Oct. 28, 2009

Michigan Blues Plan’s Proposed acquisition of Physicians Health Plan of Mid-Michigan Is Criticized by State AG and Others

By Chris Meehan, Editor, cmeehan@aispub.com

Blue Care Network’s (BCN’s) proposed acquisition of the major assets of Physicians Health Plan of Mid-Michigan (PHP) is facing criticism from the state attorney general’s (AG’s) office and others. Among the criticisms leveled at the proposed purchase are whether BCN’s reserves could have been used to staunch the $46.8 million in losses reported during the first six months of 2009 by its parent company, Blue Cross and Blue Shield of Michigan (BCBSM).

At least one newspaper and AG Mike Cox (R) have questioned whether the funds proposed for the purchase could have offset losses and kept BCBSM from requesting rate hikes of more than 30% for roughly 400,000 members. Cox says, “Blue Cross and its subsidiaries must explain how they can afford to buy another company even as they fight to raise rates on seniors.” He adds until the plan can answer this, “I will remain skeptical” of the purchase. The AG’s office sent letters to state and federal regulators, requesting public hearings and asking the regulators to investigate the extent to which the purchase will reduce competition in the region.

In the proposed deal, announced Sept. 15, BCN agreed to take on the membership and purchase nearly every asset belonging to Sparrow Health System’s HMO, PHP. Under the proposal, BCN will acquire PHP’s nearly 80,000 commercial members and 18,000 Medicaid HMO members. PHP posted net income of $3.2 million on revenue of $175.3 million for 2008. Neither company will disclose the financial terms of the agreement until they get final approval on the deal from the Michigan Office of Financial and Insurance Regulation (OFIR) and the Michigan Community Health Department.

Cox Cites History of BCBSM Purchases

Cox, a persistent critic of BCBSM, notes that the company and its subsidiaries have spent more than $350 million acquiring other companies since 2005. But during the same time, the Blues plan has reported millions of dollars in losses and asked for premium increases on multiple lines of health insurance. Cox adds that the company has a history of making loans and transfers to subsidiaries to make acquisitions and wants to know if such transactions are part of BCN’s deal with PHP.

On Oct. 7, the AG’s office sent letters to the U.S. Department of Justice, the Federal Trade Commission and OFIR, according to spokesperson John Selleck. The letters, he explains, request that the agencies review whether the purchase will reduce competition in the Lansing, Mich.-area where PHP operates and whether the proposed purchase will affect “the overall surplus of BCN’s parent company.” According to Selleck, reports we’ve seen indicate that if the purchase is completed, “Blue Cross would hold over 90% of the market in Ingham County.” The letter to OFIR expressed both concerns, Selleck says, and asks for a public hearing on the acquisition, a request similar to the AG’s actions when BCN proposed its $240 million purchase of M-Care in 2007.

Selleck says the AG’s office also is concerned about how BCN is paying for the purchase. “Our staff attorneys are concerned that though BCN said they [are buying PHP] on their own, the money is still from the parent company.” He adds that BCN “said they paid $45 million cash and there are other conditions that haven’t been spelled out. We’d like to see how it affects the parent’s surplus.” The office is worried about the effect of the purchase on BCBSM’s surplus since the experienced a loss in the first six months of 2009, according to Selleck. However, BCN reported net income in 2008 of $85.6 million, according to the Lansing State Journal.

BCN CEO Contends Its Reserves Are Separate

BCN CEO Jeanne Carlson wrote an op-ed article, published in that newspaper on Sept. 27, defending the proposed acquisition after an editorial criticized it. According to Carlson, the HMO “is making the purchase by moving investment dollars from its segregated reserve fund. These dollars are currently in other investments. Blue Care Network fully expects a solid return on investment from the PHP transaction through premium revenue and spreading of administrative costs.” She adds that the editorial suggested that BCN “use its reserve dollars to fund losses incurred by Blue Cross’s individual and Medigap products. This is not permitted by law. The dollars are segregated for the benefit of Blue Care Network members.”

Dave Waymire, a spokesperson for the Michigan Association of Health Plans, fears the deal “will create an even more dominant monopoly in the Lansing region.” Pointing to a report from advocacy group Health Care for America Now, he notes that BCBSM already had 65% of the overall Michigan market in 2007. BCN has the state’s largest HMO network of physicians and hospitals, including 4,300 primary care physicians and 116 hospitals — compared with PHP’s mid-Michigan network of 11 hospitals and 1,300 physicians.

The Michigan Medical Society does not have a stance on the purchase yet, according to spokesperson Jessy Sielski. He says, “We want to keep a close eye on it when they’re considering approving the deal,” adding, “We’ll see what this means in terms of transitioning the network and find all the facts as they come available.” And he says that many providers in PHP’s network also are in BCN’s network.

The Oakland Press

October 21, 2009

Blue Cross Blue Shield seeking rate hikes

By JERRY WOLFFE

Blue Cross Blue Shield of Michigan, which recently received an average rate increase of 22 percent for medical insurance purchased by individuals, is seeking a 31-percent rate hike for some 200,000 Michigan seniors.

Attorney General Mike Cox, a Republican running for governor, is opposed to the hike in Medigap coverage for seniors. Such insurance pays for co-pays and other costs not covered by Medicare.

Cox succeeded through the state Office of Financial and Insurance Regulation to cut the rate hike for individuals from the 56 percent average increase the Blues originally sought, a spokesman said.

Blue Cross Blue Shield, which is a nonprofit that receives $100 million in annual tax breaks, has a surplus of $2.3 billion, said Cox’s spokesman John Sellek.

In addition, Cox opposes the recent $45 million acquisition by the Blue Care Network, a wholly owned subsidiary of the Blues, of the Physicians Health Plan. The Physicians Health Plan is an Health Maintenance Organization owned by Sparrow Hospital of Lansing.

With the acquisition of Physicians Health Plan, the Blues will “have 90 percent of the health insurance market in mid-Michigan,” Sellek said.

Andrew Hetzel, vice president of corporate communication at Blue Cross, said purchase of the Lansing-area HMO by the Blues subsidiary was to make the insurer more financially sound.

The Blues spends $20 billion a year for medical and pharmaceutical coverage for Michigan customers, Hetzel said.

The rate increases sought in Medigap and the one for individual coverage are to balance costs with revenue from premiums, he said.

“The long-term solution is in a rebalancing of the insurance system to require more insurance companies to accept those with pre-existing conditions,” he said.

BCBSM is an “insurer of last resort,” meaning it must accept people with illnesses that other insurers can reject.

“We’ve been lobbying for two years with state lawmakers to have them require other insurers to cover patients with pre-existing conditions,” Hetzel said.

The cost of covering those with pre-existing conditions is rising and that is the reason why BCBSM has to go back and ask for “rate release,” he added.

Cox said he would rather see rate cuts instead of seeing subsidiaries of the Blues buying other insurance companies, Sellek said Tuesday.

The Blues, with headquarters in Detroit, has 4.7 million customers in Michigan, or 60 percent of the Michigan market.

“Right now in Michigan, the largest portion of the market that’s growing is people who lost their jobs and buy their own insurance,” Sellek said.

Hetzel agreed.

Many people have lost their jobs and, consequently, their medical coverage, Hetzel added.

“If more insurers are required to provide coverage for those with pre-existing conditions, it would spread the cost out and reduce our costs and pressure on premiums and make coverage more affordable,” he said.

Cox “has been fighting” the attempt by the Blues to hike rates for seniors, Sellek said.

“He has the ability to go before Insurance Commissioner Ken Ross and argue that the Blues have a large surplus and it doesn’t need higher rates,” he said.

Hetzel said the Blues did not have a large surplus.

“It would only cover six weeks of claims,” he said.

Experts from Cox’s office have already argued against the senior rate hike and will continue to do so in the future, noted Sellek.

Covering seniors with Medigap insurance is a losing proposition for the Blues, Hetzel said.

“We’ve lost $350 million in this market segment during the past five years,” he noted. “We’re not trying to make a profit over individual lines of business but to make rates commensurate with our costs.”

However, Cox is concerned with the increasing costs to individuals and seniors.

Instead of paying the rate increases, especially those with fixed incomes or those who have lost jobs, many will be forced to drop health coverage so they can buy food or pay their mortgages, Sellek said.

The attorney general has two options when the Blues seek a rate increase.

“One is that the attorney general can oppose it and an administrative judge hears both sides and makes a decision” on a rate hike, Sellek said.

“The other option is that the two sides can negotiate a settlement because it has a known outcome,” he added.

“We’ve had to go several times to the Office of Financial and Insurance Regulation to try and push back on what the attorney general sees as very high rate increase requests” by the Blues, he said.

Hetzel said rate hikes are needed because the Blues’ costs continue to increase.

About 56 percent of working Americans receive medical coverage through their employers while retirees or owners of small businesses must buy their own coverage.

The average 22 percent individual rate hike went into effect Oct. 1. The original rate hike request was for 56 percent, Hetzel and Sellek said.

Sellek said it ranged from a zero percent increase to one of 40 percent for some individuals. The cost variability can be attributed to the size of an individual’s family and the type of coverage desired. It costs more for medical insurance for a larger family or for cheaper co-pays for doctor visits, hospital stays and more extensive coverage, Sellek said.

A Harvard study estimated that medical bankruptcies affect about two million Americans annually and their dependents, including 700,000 children.

“Surprisingly, most of those bankrupted by illness had health insurance,” the study said.

More than three-quarters were insured at the start of the bankrupting illness. However, 38 percent had lost coverage, at least temporarily, by the time they filed for bankruptcy.

Most of the medical bankruptcy filers were middle class, 56 percent owned a home and the same number had attended college, the researchers found.

In many cases, illness forced breadwinners to take time off from work — losing income and job-based health insurance precisely when families needed it most, the study said.

A report by CovertheInsured.org also found the percent of uninsured individuals has increased from 16 percent of the population in 1995 to 17.5 percent of the population by 2006.

“The increase is entirely due to the increase in uninsured among working-aged adults who are between 18-64,” the report said.

CovertheInsured.org also said the reason there are more working-aged adults without insurance is that health insurance costs are “increasing faster than personal income.”

National health spending is expected to reach $2.5 trillion in 2009, accounting for 17.6 percent of the nation’s gross domestic product, according to the National Coalition on Health Care.

By 2018, national health care expenditures are expected to reach $4.4 trillion — more than double 2007 spending.

Contact staff writer Jerry Wolffe at (248) 745-4612 or jerry.wolffe@oakpress.com.

American Medical News

October 12, 2009

Physician pay cuts on horizon at Michigan Blues?

By Emily Berry

The plan said it has been threatened by the economy, litigation and continuing underwriting losses.

Blue Cross Blue Shield of Michigan sees no end to the string of its financial losses, and that could mean an eventual cut in payment to physicians. But state regulators are criticizing the plan for using reserves to buy another plan instead of making coverage less expensive.

“Without regulatory reform, there is a domino affect. If BCBSM faces financial challenges, it is quite likely to cause pressure on all aspects of its business, including effects on reimbursement,” Michigan Blues spokeswoman Helen Stojic said in an e-mailed statement.

That could hit hard, because the plan covers so many of the state’s insured. By the AMA’s most recent analysis of insurance market share, the Blues held 63% of the combined Michigan market for PPO and HMO health insurance.

“As far as physicians are concerned, they’ve been a reliable partner,” said Richard E. Smith, MD, a Detroit ob-gyn who is president of the Michigan State Medical Society. “We’ve been able to weather the storm for four or five decades. This year is different — we’re all victims of the economy. Their ability to remain a viable organization is important for the citizens of Michigan as well as physicians.”

The nonprofit plan reported a net loss of $46.8 million in the first six months of this year, Stojic said. That comes after a reported $144.9 million in losses for 2008, the most of any single-state nonprofit Blues nationwide.

According to financial statements filed with the state, the plan projected a loss of $106.9 million from individual policies for 2009 and $102.9 million in losses on those policies in 2010. The plan did not project overall losses.

Those specific projections come as the Michigan Blues plan presses the state to allow it to raise rates.

In January, when the Michigan Blues announced it was cutting 10% of its employees, the plan requested a 56% rate increase for individual policies for members younger than 65. In August, state regulators approved an average 22% hike effective Oct. 1.

The Michigan Blues is the state-designated insurer of last resort, which means it must cover people who have been rejected by other plans for individual coverage because of preexisting medical conditions. The company has blamed other plans’ “cherry-picking” healthy customers in the individual market for its losses.

As of October, it was still waiting for the state to decide if it could raise rates by an average of 31% for its medigap policies, one of the other product lines it loses money on. In the interim, a judge allowed a 4.7% increase, effective Oct. 1. The company has estimated that without its requested rate increase, it will lose $67 million on medigap policies this year and another $59.5 million in 2010.

State law requires the company to subsidize medigap plans to keep them affordable for seniors.

Despite ongoing losses, however, as of June 30, the company reported a surplus fund in excess of $2.2 billion.

State Attorney General Mike Cox, who is seeking the Republican nomination for governor in 2010, has been a vociferous critic of the company, saying its reserves should be used to help offset the cost of insurance for subscribers.

The company attracted criticism from Cox and others in September when its subsidiary HMO, Blue Care Network, bought Lansing-based Physicians Health Plan of Mid-Michigan, from Sparrow Health System for an undisclosed amount.

The Michigan Blues argued that Blue Care Network funds are kept separate and were unrelated to its requested rate increases for individual and medigap insurance. But Cox called for the company to disclose how much it paid for the PHP plan and explain how it could afford to buy another health plan while asking for rate increases.

Dr. Smith said he had no comment on the deal.

Meanwhile, the Michigan Blues also face a federal class-action lawsuit brought by a pipefitters union local, alleging that the company overcharged for insurance by tacking an improper fee to its premiums. Stojic said the plan disagrees with the court’s ruling and class certification, and is seeking appellate review.

Lansing State Journal

October 9, 2009 Friday

Blue Care Network’s plan to buy PHP raises questions

Christine Rook

* What will happen during the normal fall enrollment when workers choose a health plan for 2010?

* Regardless of whether the sale is approved, employers will choose which insurance carriers to offer. They may choose a new carrier or stay with Blue Care.

McLaren Health Plan, which competes with PHP and Blue Care, says it will continue to offer health care coverage for private and state employees. Blue Care and PHP said PHP membership will be gradually transferred to Blue Care through much of 2010.

* Will PHP customers next year automatically be forced to use Blue Care?

* It appears that PHP customers will be moved to Blue Care plans. Blue Care and PHP said they plan to work with customers to help them select Blue Care plans that work for them.

* What is the timetable for sale?

* The sale of PHP is subject to review and approval by state regulators, according the Office of Financial and Insurance Regulation.

Blue Care Network and Physicians Health Plan of Mid-Michigan hope to finalize a sale by the end of this year.

* Who must approve the sale and what are the likely concerns?

The commissioner of the state Office of Financial and Insurance Regulation must approve the sale. The approval of other state agencies may also be needed depending on the structure of the filing, Moon said.

Some issues the state likely will look at are:

* Whether the buying agency will still be able to offer the types of insurance it currently is authorized to offer.

* Whether the sale would substantially reduce competition in the state or create a monopoly-type situation.

* Whether the deal would jeopardize the financial stability of the buyer.

* Whether the sale would be unfair to customers or security holders or not be in the public interest.

* Whether the buying agency has enough competency, experience and integrity.

PHP and Blue Care said they do not anticipate any problems in getting the sale approved.

* What are the benefits?

* PHP and Blue Care say they share similar missions and commitments and the deal allows Sparrow Health System – PHP’s owner – to focus on its core services of providing inpatient, ambulatory and physician services to the community.

The sale proceeds will remain in the region and be invested in health care services, according to PHP and Blue Care. And Blue Care states that buying PHP allows it to spread administrative costs across a larger customer base and help keep costs down.

Many of the hospitals and health care providers that participate with PHP are also affiliated with Blue Care, so the transition for many patients should be smooth. Blue Care also offers a larger, statewide physician network and extended out-of-state coverage than PHP.

* How much is PHP’s sale price?

* The purchase price is $45 million plus the net equity at closing of PHP’s assets. Blue Care said it plans to pay cash out of its reserves, which were $336.7 million as of the start of the year.

* What is Blue Care’s profit margin?

* Blue Care operates as a nonprofit organization, so any revenue left over after expenses is reinvested in the company instead of going to dividends for stockholders as could be the case in a for-profit stock company. Reinvestments can include such things as buying new computers or developing new products.

Blue Care reported a gain in 2008 of $85.6 million. That represented a 3.5 percent return on 2008 revenue. Blue Care expects a smaller gain this year.

* What is Blue Care’s relationship to Blue Cross Blue Shield of Michigan?

* Blue Care Network is a wholly owned subsidiary of Detroit-based insurer Blue Cross Blue Shield of Michigan. If the state approves the sale of PHP, Blue Care would make the purchase, not Blue Cross Blue Shield.

* How many Michigan customers do Blue Care and PHP currently have?

* State officials say that as of June 30, Blue Care had 530,418 customers. Physicians Health Plan had 41,739 and PHP’s Medicaid HMO had 17,788.

Blue Care and PHP, however, reported that Blue Care has about 620,000 private, Medicare and Medicaid members. PHP has about 83,000 members in nine mid-Michigan counties. The discrepancy in the PHP numbers may be the result of PHP reporting it also has 24,000 members in PPOs or in employer-underwritten or self-funded plans that purchase only administrative services from PHP.

* What would Blue Care’s market share be if the PHP deal goes through?

* As of June 30, Blue Care had 38 percent of the market of people enrolled in non-Medicaid HMOs in Michigan. The state reported that the purchase of PHP’s membership would give Blue Care a 40 percent market share statewide.

Figures provided by Blue Care and PHP for a nine-county mid-Michigan region show Blue Care would have less than 20 percent of the market after the sale. That doesn’t include clients relying on Medicaid and other government programs.

In the Lansing-East Lansing metropolitan area, Blue Care’s parent organization – Blue Cross Blue Shield of Michigan – had a 76 percent market share at the end of 2007, according to a May report from Health Care For America Now. The No. 2 player in the market was UnitedHealth Care Group Inc., with 19 percent, according to the report. Health Care For America is a political advocacy group. It based its results on data from the American Medical Association.

* What would the sale of PHP to Blue Care do to local competition?

* The state will investigate this very question as part of its analysis of the possible sale. McLaren Health Plan, which competes with PHP and Blue Care, promises to continue to offer health care insurance in the greater Lansing area. McLaren Health plan is a unit of Flint’s McLaren Health Care Corp., which owns Sparrow’s crosstown rival, Ingham Regional Medical Center.

* Who protects Michigan residents against a monopoly of health care insurance?

* Section 1315 of the State insurance code allows the state to stop the purchase if it “would be substantially to lessen competition in insurance in this state or tend to create a monopoly in this state.”

* What are some major employers that offer PHP?

* The state of Michigan and Michigan State University, according to state officials.

* Will anyone lose his or her job over the purchase?

* PHP workers will keep their jobs until completion of the sale. After that, Blue Care and PHP will agree on a staffing plan for the remainder of the transition period. After the transition period, Sparrow and PHP will assist dislocated PHP workers in finding other jobs at Sparrow or in applying for jobs with Blue Care.

As of Sept. 15, PHP had 132 employees. Blue Care has just more than 1,100.

Lansing State Journal

October 9, 2009 Friday

Cox objects to Blue Care-PHP deal

Christine Rook

Physicians Health Plan of Mid-Michigan is for sale.

The sticker price: $45 million. And Blue Care Network of Michigan is willing to pay cash.

It’s a deal that lets Lansing’s Sparrow Health System ease out of the health insurance business and that gives Blue Care – owned by Detroit-basedBlue Cross Blue Shield of Michigan – a bigger foothold in the mid-Michigan market.

The deal needs state approval and a review of whether it is in the public’s best interest.

Already there is opposition.

Michigan Attorney General Mike Cox this week asked for a public hearing on the purchase and for state and federal regulators to review the deal.

He thinks the millions spent on PHP might be better spent keeping down insurance rates.

Cox sent the request to the Michigan Office of Financial and Insurance Regulation and the Federal Trade Commission’s Bureau of Competition. One issue was whether the purchase of PHP would create a monopoly in the greater Lansing area.

Roughly 80,000 PHP customers and 132 employees in nine mid-Michigan counties will be affected. It’s unclear yet what the changes will mean for personal health care or just how many jobs will be lost.

Blue Care, though, believes adding the health maintenance organization to its own HMO operation will allow it to better manage costs for the hundreds of thousands of customers it would end up with. State data indicate the combined Blue Care-PHP will have about 590,000 customers, though Blue Care says the number is higher.

“This is just another opportunity to serve the customers,” said Helen Stojic, a spokeswoman for Blue Care and for its parent organizationBlue Cross Blue Shield of Michigan. “There are many benefits to this acquisition.”

Blue Care, headquartered in Southfield, sees Sparrow’s PHP as a good buy, because the two HMOs have similar nonprofit missions and because many doctors that accept PHP already accept Blue Care. In addition, Blue Care is familiar with the mid-Michigan market because it already has local operations.

“Mergers and acquisitions are common within the insurance industry,” said Jason Moon, spokesman for the state Office of Financial and Insurance Regulation. “OFIR Commissioner Ken Ross will make his decision in light of the standards set forth in the insurance code.”

The deal nonetheless has caught the public’s attention – particularly people who may end up being shifted to a new insurer as a result of it.

People can become attached to a health care insurance company, relying on it and trusting it, said Ed Harden, vice president of sales for McLaren Health Plan. The plan, run by Flint-based McLaren Care Corp., competes with PHP.

“There’s probably an emotional component,” he said. “People who have been a member of that plan for a long time are probably going to sense a loss.”

The Detroit Free Press contributed to this story.

Crain’s Detroit Business

October 9, 2009

Cox asks OFIR to review Blue Cross HMO purchase

By Jay Greene

Michigan Attorney General Mike Cox and the Michigan Association of Health Plans have asked the state Office of Financial and Insurance Regulation to hold a hearing on the purchase of Physicians Health Plan of Mid-Michigan by Blue Cross Blue Shield of Michigan.

Last month, Blue Cross announced it had reached agreement to purchase PHP from Lansing-based Sparrow Health System for an undisclosed price.

Jason Moon, OFIR’s public information officer, said Insurance Commissioner Ken Ross hasn’t made a decision on a hearing.

Cox also sent a letter to the Federal Trade Commission’s Bureau of Competition to request an antitrust investigation into the proposed acquisition. Cox contends Blue Cross would control 90 percent of the health insurance market in Ingham County that could lead to unrestrained price increases.

Blue Cross contends the acquisition will help hold down costs for consumers.

Detroit Free Press

October 8, 2009 Thursday

Cox objects to Blue Cross buy

PATRICIA ANSTETT

FREE PRESS MEDICAL WRITER

Michigan Attorney General Mike Cox asked state and federal regulators Wednesday to review the proposed purchase of a Lansing HMO byBlue Care Network, saying money for the transaction might be better used to hold down rate hikes for the insurer and its parent company, Blue Cross Blue Shield of Michigan.

Cox sent the request to the Michigan Office of Financial and Insurance Regulation and the Federal Trade Commission’s Bureau of Competition. The letters also raise issues about whether the purchase of thePhysicians Health Plan of Mid-Michigan would create a monopoly for Blue Cross companies in the Lansing area, eventually raising prices there if private insurers leave the market.

The letter to Michigan regulators asks for a public hearing on the purchase of PHP and its three subsidiary companies.

Documents on file with the state office show that Blue Care Network plans to spend $45 million to buy the company and another $15 million for the HMO’s estimated cash assets and investments.

Cox, who has raised questions about $350 million for other insurance company purchases by Blue Cross subsidiaries since 2005, is fighting a proposed 31.2% rate increase in Blue Cross Medigap policies that the insurer is seeking to offset mounting losses from its Medigap business.

A Lansing administrative law judge hearing the Medigap case is to rule by Dec. 1. It must be approved by Ken Ross, the state’s insurance commissioner.

Ross said in an interview Monday that his staff is exploring the details of the proposed purchase and “what impact, if any, it would have on statewide competitiveness.” No decision has been made yet about whether the agency will request a public hearing on the purchase.

Blue Cross has said the purchase will be paid with Blue Care Network reserve funds and that the transaction will allow it to hold down health prices by spreading costs over a larger pool of customers.

The purchase should not hurt competition in a state with a strong HMO market, with more than 20 companies, and would have “little or no impact” on Blue Cross customers, said Helen Stojic, Blue Cross spokeswoman. Other purchases help bring jobs and business to Michigan, the company has said.

But Rick Murdock, executive director of the Michigan Association of Health Plans, said Blue Cross business soars to 95% of the health insurance business in Lansing and East Lansing when the market share of all Blue Cross companies in the area is counted.

As of June 30, Blue Care Network had 530,018 customers statewide, or about 38% of Michigan’s non-Medicaid HMO market, and Physicians Health Plan had 41,739 policyholders, or about 2% of that market, Ross said.

Contact PATRICIA ANSTETT: 313-222-5021 or panstett@freepress.com

Lansing State Journal

September 27, 2009 Sunday

Carlson: Blue Care-PHP agreement will help keep health costs affordable

A recent editorial about the agreement between Blue Care Network and Sparrow Health System to purchase Sparrow’s Physicians Health Plan of Mid-Michigan (PHP) membership contained inaccuracies and ignored the benefits of the transaction for BCN and PHP customers, Sparrow Health System and the Lansing community.

The editorial incorrectly reported that the acquisition is being funded by Blue Cross Blue Shield of Michigan. This is wrong. Blue Care Network is an HMO owned by Blue Cross but is a separate company with separate products, leadership, financial statements and provider networks. Blue Care Network is making the purchase by moving investment dollars from its segregated reserve fund. These dollars are currently in other investments. Blue Care Network fully expects a solid return on investment from the PHP transaction through premium revenue and spreading of administrative costs.

The editorial also suggested that Blue Care Network should somehow use its reserve dollars to fund losses incurred by Blue Cross’s individual and Medigap products. This is not permitted by law. The dollars are segregated for the benefit of Blue Care Network members. The solution to address Blue Cross’s losses in its individual and Medigap products lies in regulatory reform by the Legislature. The losses are caused by a broken regulatory system that the Legislature has been working to reform for the past two years.

The sale is a good fit for Blue Care Network of Michigan and Sparrow Health System. Both are trusted Michigan nonprofit corporations, each with a long heritage of commitment to nonprofit health care and service to the residents of Mid-Michigan. We share similar missions, commitments and values.

The transaction allows Sparrow to focus on its core services of providing quality, compassionate health care to the Mid-Michigan community. The sale dollars will be invested back into the community in the form of health care services.

It is a good business decision that provides value to Blue Care Network customers by spreading administrative costs across a larger membership base, helping to keep health care affordable and offering long-term value to customers, members and participating providers.

BCN offers a larger, statewide physician network, extended out-of-state coverage through its arrangements with other Blue Cross plans, disease management and preventive services, and the most recognizable health care card in the nation.

Both organizations are committed to a smooth transition to BCN coverage for members and customer groups after the sale is finalized.

Aligning with a local company like BCN will make it easier for PHP Mid-Michigan members to transition their health care coverage, since many of the physicians, hospitals and other health care providers that currently participate with PHP Mid-Michigan are also affiliated withBlue Care Network. This means that most PHP Mid-Michigan members will be able to continue with the same health care providers once the sale is finalized and their coverage transitions to BCN.

The Michigan HMO market remains robust even with acquisitions that have occurred. Competing HMOS across the state have made similar acquisitions over the last 10 years. This is not the first PHP plan purchased by an HMO. PHP plans in other regions of the state such as Kalamazoo and Jackson have been sold by hospital systems toBlue Care Network competitors. In fact, one of the largest recent HMO acquisitions in the state involved a Blue Care Network competitor and was larger than the size of this transaction.

The next step is for the planned sale to undergo regulatory review by the Michigan Office of Financial and Insurance Regulation. The Michigan Department of Community Health will review the Medicaid segment of the acquisition.

We hope this information will help dispel the misinformation and highlight the benefits of this transaction.

Jeanne Carlson

is CEO of Blue Care Network.

Lansing State Journal

September 23, 2009 Wednesday

Blue Cross owes answers on PHP deal

OPINION; Pg. NaN

What would have happened if General Motors, in those dark days of a year ago, had suddenly announced a deal to buy Ford Motor Co.?

Well, that interesting hypothesis has some relevance to the announcement this month that Blue Cross Blue Shield of Michigan will buy a competitor, Physicians Health Plan.

This deal – price tag, as yet, not apparent – should throw state regulators into a frenzy of vetting. And it should force state lawmakers to reassess all that Blue Cross has told it about the state’s insurance market.

Consider that Blue Cross, by its own word, faces a disastrous financial future without changes to state law governing individual insurance policies. For 2008, the nonprofit insurer said it suffered a $144.9 million loss – pegged mostly to losses on individual insurance coverage.

In January, the insurer announced major job cuts and requested huge premium increases for 400,000 customers.

Well, Blue Cross did cut jobs. And state regulators did agree to premium increases – though not nearly as large as Blue Cross initially sought.

So, in September, the company’s books are suddenly strong enough to purchase a competing health insurance plan?

That just doesn’t track.

Not the buying PHP part. If Blue Cross ends up with PHP – an arm of Sparrow Health System – it will have a dominant share of the mid-Michigan market. It will have removed a major competitor from the field. That has to be good forBlue Cross’ bottom line.

But is this deal good for Michigan? After all, Blue Cross functions as a nonprofit under state law, trading charitable care for state tax breaks.

Then there’s the matter of competition. A 2007 report from HealthCareforAmericaNow, an advocacy group, said Blue Cross and PHP combined held 95 percent of the Lansing-East Lansing metro market. Is a single firm with almost all the market conducive to competition and its benefits?

The fight in Lansing over individual market rules began with Blue Cross trying to rush through a package of bills in the fall of 2007. Commercial insurers have argued that Blue Cross seeks an unfair position in the law, and have questioned the insurer’s financial claims.

Attorney General Mike Cox also has questioned Blue Cross’ financial claims.

Before this deal goes any further, Blue Cross should detail to the public how it is paying for PHP – and how it managed to engage in such a transaction in its self-reported weakened state.

An LSJ editorial

Crain’s Detroit Business

September 21, 2009

Blues lose $46.8M in 6 months;

Investment income a bright spot

JAY GREENE

Despite an increase in investment income, Blue Cross Blue Shield of Michigan lost $46.8 million during the first six months of 2009, compared with net income of $117.3 million during the same period in 2008, according to the Michigan Office of Financial and Insurance Regulation.

Contributing to the financial losses so far this year were a loss of 150,000 subscribers, to 4.55 million, because of layoffs and companies dropping employee health coverage, continued losses on individual Medicare supplemental policies known as Medigap, and one-time write-offs for severance packages from layoffs or resignations of several hundredBlue Cross employees earlier this year, said CFO Mark Bartlett.

“We have asked for rate increases (for individual and Medigap) and received some relief, but it is not helping (the bottom line),” Bartlett said.

“This (loss) is a result of poor regulation in Michigan on the individual business. The for-profit insurers continue to send the high-risk people to Blue Cross, and the state has set a rate for Blue Cross that is well below costs,” Bartlett said.

Last year, Blue Cross led an unsuccessful effort to modify how individual policyholders are insured. Blue Cross wants to streamline the rate-setting process and restrict competing insurers from sending unhealthy and costly applicants to Blue Cross.

Blue Cross contends that its financial losses are partly due to competing health insurers that “cherry-pick” profitable healthy people. As the insurer of last resort,Blue Cross has a state mandate to accept everyone.

Sen. Tom George, R-Kalamazoo, chairman of the Senate health policy committee, said he continues to meet with Rep. Marc Corriveau, D-Northville, chairman of the House health policy committee, to craft a compromise health care reform bill.

“We are tied up with the budget (negotiations) right now,” said George, adding he expects to complete negotiations with Corriveau in October and begin to hold legislative hearings.

But George questioned why Blue Cross continues to make acquisitions if it is losing money.

“Lots of companies are losing money, including insurance companies. It is not outside the norm for the nature of this business at this time,” George said. “Despite their losses, they had enough in their reserves to purchase (Physicians Health Plan of Mid-Michigan). They have found the financing to do that.”

Last week, Southfield-based Blue Care Network, a Blue Cross subsidiary, announced plans to purchase the membership of Lansing-based PHP from Sparrow Health System. A purchase price was not disclosed.

From a national perspective, Blue Cross is not alone in posting lower net income and underwriting losses.

In 2008, net income for 39 Blue Cross and Blue Shield companies declined 41 percent, primarily because of underwriting and investment income losses, according to a report by A.M. Best Co., a New York-based credit rating firm. Investment income declined 19 percent and underwriting income declined 6 percent, the company said.

The Michigan Blues lost $45 million on individual policies for the first six months of 2009, which includes $15 million in underwriting and $30 million in administrative costs, Bartlett said.

In fiscal 2008, Blue Cross said it lost $133 million on individual policies. Blue Cross considers its individual market to include nongroup and Medigap business.

For the first six months of 2009, Blue Cross lost about $105 million in its Medigap business alone, including about $90 million in underwriting losses and about $15 million in administrative costs, for the first half of 2009, Bartlett said.

Because of underwriting losses on individual policies and Medigap, Blue Cross ended 2008 with a net loss of $145 million, despite making a profit over the first six months.

One bright spot was investment income, which improved this year after the equity and bond markets melted down last fall. Net investment income totaled $152.9 million for the first six months of 2009 compared with $121.9 million for the same period in 2008.

“We are getting a significant rebound for the first six months of this year,” said Bartlett, noting that he doesn’t expect the second half of 2009 to be as strong.

But erasing those investment gains were underwriting losses of $170.6 million for the first six months this year compared with a $5.8 million gain during the same period of 2008.

Because the Legislature didn’t act on regulatory reform this year, Bartlett said Blue Cross decided to book projected individual losses each month instead of setting them aside in premium deficiency reserve accounts during the year. PDR is an accounting measure in which insurers are allowed to estimate future losses.

“Last year we had to book huge losses last December, and now we will book those losses now,” Bartlett said. Blue Cross reported $25.9 million in PDR losses for the first half of 2009, OFIR said.

Administrative expenses also increased to $420 million for the first six months of this year from $357 million during the same period in 2008. However, about $60 million of that came from payouts to employees who were laid off or resigned, Bartlett said.

“The expectation is that by the end of the year the savings from not having those expenses on the books will offset the costs paid out to leave,” Bartlett said. “Savings in 2010 will be higher.”

In August, the state approved a 22 percent average rate increase for Blue Cross individual and group conversion policies. The rates go into effect Oct. 1. Blue Cross had asked for a 56 percent individual rate hike and 41 percent for group conversion.

Group conversion policies are sold to people who have moved from employer-based health insurance plans to individual plans.

Michigan Insurance Commissioner Ken Ross also approved an interim rate increase of 4.7 percent for the Blue’s Medigap policies. Blue Cross had asked for an interim rate increase of 31 percent for Medigap policies.

Despite improving efficiencies and reaping some revenue increases from higher rates, Bartlett projected Blue Cross would lose another $100 million in its individual and Medigap lines, excluding administrative costs, during the second half of 2009.

Bartlett would not project overall financial losses for the second half of 2009.

However, Blue Cross also reported total operating profits of $244 million in its seven insurance product lines and other categories, according to OFIR. This includes profits of $290 million in group coverage, $1.3 million in vision and $800,000 in dental, OFIR said. These figures do not include administrative costs.

Bartlett said total revenue is up to $3.5 billion from $3.39 million primarily because of growth in its Medicare Advantage plan.

“We break even on Medicare Advantage,” he said. “Our business strategy is to pass along those savings to our accounts.”

In its six-month financial report, Blue Cross also divulged the sale price of its DenteMax subsidiary to Dental Network of America. It sold DenteMax on June 30 for $45 million. Its net gain was $28.1 million.

In addition, Bartlett said the Blues’ for-profit Accident Fund Insurance Co. of America posted net income of about $50 million for the first half of 2009. The profits were counted in the Blues’ six-month financial statement.

Modern Healthcare

September 21, 2009

MIDWEST

LANSING, Mich.–Blue Care Network of Michigan, Southfield, struck a deal to acquire the membership of Physicians Health Plan of Mid-Michigan from Sparrow Health System, Lansing. Mid-Michigan was founded in 1980 as an HMO and now has 80,000 members, including 18,000 in Medicaid managed care. The transaction, the terms of which were not disclosed, requires approval from the Michigan Office of Financial and Insurance Regulation and the Michigan Community Health Department.

Sparrow President and CEO Dennis Swan said in a news release that the deal would “strengthen our ability to care for and serve Mid-Michigan’s families.” Blue Care President and CEO Jeanne Carlson said the acquisition would provide value to customers by spreading administrative costs across a larger membership. Michigan Attorney General Mike Cox, a persistent critic of the business practices of Blue Care parentBlue Cross and Blue Shield of Michigan, called on the company to disclose the financial details of the sale. “Could these funds have been used instead to help avoid rate increases on struggling Michigan residents?” Cox said in a news release. Cox said the company and its subsidiaries have spent more than $350 million on acquisitions since 2006 while also claiming losses and seeing rate increases.Physicians Health Plan saw a net income of $3.2 million on revenue of $175.3 million for the year ended Dec. 31, according to its filing with the Office of Financial and Insurance Regulation. Blue Care reported net income of $85.6 million on revenue of $2.1 billion.

DAYTON, Ohio–Good Samaritan Hospital opened the Dayton Heart & Vascular Hospital at Good Samaritan in a 125,000-square-foot renovation of its 353-bed facility. The $31 million project includes 117 private rooms, operating suites, catheterization laboratories, diagnostic testing areas and a new lobby dedicated to cardiovascular care. Good Samaritan, a member of Catholic Health Initiatives, has now absorbed the operations of Dayton Heart Hospital, which the hospital paid $55 million in 2008 to acquire from physicians and MedCath Corp.

Detroit Free Press

September 16, 2009 Wednesday

Blue Care signs deal to buy Physicians Health

PATRICIA ANSTETT

FREE PRESS MEDICAL WRITER

Blue Care Network, a Detroit-based HMO and subsidiary of the state’s largest insurer, has signed an agreement to buy the 80,000-member, Lansing-basedPhysicians Health Plan of Mid-Michigan, a health insurance plan serving a nine-county mid-state region.

State regulators must OK the sale announced Tuesday. The health plan was started 29 years ago by Sparrow Health System of Lansing. The sale includes three subsidiaries ofPhysicians Health Plan, including a Medicaid HMO.

Jeanne Carlson, president and CEO of Blue Care Network, said the purchase was paid for with reserve funds from the HMO, not with money from Blue Cross. She and others declined to say what they paid for the company.

It is the second HMO purchase by Blue Care Network since December 2006, when Blue Care Network and Blue Cross paid $225 million for M-CARE, an HMO owned by the University of Michigan.

In a statement, Michigan Attorney General Mike Cox said he wants an explanation about how Blue Cross and its subsidiaries “can afford to buy another company even as they fight to raise rates on seniors.” He was referring to rate hikes that take effect Oct. 1 for more than 300,000 Michiganders, and another pending that affects seniors with Medigap coverage he is challenging.

“Could these funds have been used instead to help avoid rate increases on struggling Michigan residents?” Cox asked. “Until that question is answered, I will remain skeptical.”

The sale should help the hospital better focus on patient care, said John Berg, who oversees strategic market development for Sparrow. The health plans and Sparrow will helpPhysicians Health Plan’s 132 employees find other jobs.

Carlson said the purchase will help lower health costs by spreading expenses over more customers, as she said the M-CARE purchase did.

Rick Murdock, executive director of the Michigan Association of Health Plans, a Lansing-based HMO trade group, said the purchase could drive up costs. “When we begin to limit choice and eliminate competition, it raises concerns.”

Grand Rapid Press

September 16, 2009 Wednesday

HMO sold to Blue Cross Blue Shield

LANSING — A Lansing-based health maintenance organization has been sold to a unit of Blue Cross Blue Shield of Michigan. Terms of the deal weren’t revealed.

Blue Care Network announced Tuesday it is buying the membership of Physicians Health Plan of Mid-Michigan.

Sparrow Health System owns the Lansing-based HMO, which has about 80,000 members. Southfield-based Blue Care Network has about 680,000 members.

Lansing State Journal

September 16, 2009 Wednesday

Blue Care Network plans to buy PHP

Christine Rook

Sparrow Health System is getting out of the insurance business.

In a deal announced Tuesday, the Southfield-based Blue Care Network of Michigan agreed to take on all of the customers and buy up virtually every asset belonging to Physicians Health Plan of Mid-Michigan.

The deal still requires approval of the state Office of Financial and Insurance Regulation, and that could take well into mid November, PHP officials said.

In the meantime, the roughly 80,000 PHP customers in nine counties and 132 employees shouldn’t notice any change.

Over the course of 2010, though, those PHP customers will become Blue Care Network members, unless they opt for another insurance plan in the next few weeks when companies tend to hold health care enrollment.

PHP workers won’t learn until 2010 who gets absorbed and who doesn’t, and a complete transition may take until 2011.

“We’re going to do all we can and assist them into transitioning into jobs,” said Jeanne Carlson, Blue Care’s president and chief executive officer.

Network expands

Blue Care serves 628,000 customers, providing a network of doctors that reaches statewide, compared with PHP’s network, which is more narrowly centered in Mid-Michigan.

Neither Blue Care nor PHP officials would disclose the sale price, citing the pending regulatory approval.

Specifics as to why Sparrow wanted to sell off PHP now were unavailable. PHP officials did not immediately provide financial information on whether their nonprofit group ended last year in the red or black.

Blue Care officials stated their company did in fact make money in 2008. Again, details were not immediately available.

“We will be using our reserves to buy PHP,” Carlson said.

Sparrow will retain very little of PHP’s assets – a building, office equipment and computers are among items not being sold.

Similar missions

Scott Wilkerson, PHP’s president and chief executive officer, the deal allows Sparrow to get out of what has been a very competitive market and instead focus on providing care through its network of hospitals and care sites.

Sparrow and PHP have long competed with Ingham Regional Medical Center and the McLaren Health Plan for area customers.

“It’s a competitive market,” Wilkerson said. “McLaren is a competitor, absolutely.”

It’s believed that in buying PHP’s family of health care insurance companies, Blue Care puts itself in a better market position.

“We do feel like BCN is the right choice,” Wilkerson said.

Both Blue Care and PHP are nonprofits with similar missions and an emphasis on preventative care, he said.

“We think this will help assure affordable health care coverage for the region,” he said.

Blue Care officials noted that buying PHP allows Blue Care to spread administrative costs over a greater customer base. Asked for the estimates of that savings during a teleconference with area media, Carlson said, “I don’t have the savings in front of me.”

For customers

* There are no immediate changes for PHP Mid-Michigan groups as a result of being sold to Blue Care Network. Customers can continue to receive their PHP coverage, use their PHP ID card, visit their PHP network physician and contact PHP customer service for assistance. PHP Mid-Michigan physicians can continue to send health care claims for PHP members in their normal manner.

NEWS RELEASE: Cox Calls on Blue Cross to Explain Purchase of Physicians Health Plan

September 15, 2009

LANSING – Attorney General Mike Cox today called on Blue Cross Blue Shield of Michigan and its subsidiary, Blue Care Network (BCN), to disclose the finances of BCN’s purchase of Physicians Health Plan of Mid-Michigan (PHP). The sale of the Lansing-based subsidiary of Sparrow Health System was announced by PHP today.

“Blue Cross and its subsidiaries must explain how they can afford to buy another company even as they fight to raise rates on seniors,” said Cox. “Could these funds have been used instead to help avoid rate increases on struggling Michigan residents? Until that question is answered, I will remain skeptical.”

Cox noted that Blue Cross has a history of making loans and cash transfers to its subsidiaries for the acquisition of other companies and wants to know if such transfers were a part of the PHP acquisition. Blue Cross and its subsidiaries have spent over $350 million buying other companies since 2005. However, during that same period, Blue Cross has claimed millions in losses and asked for rate increases on multiple lines of health insurance.

Cox is currently fighting a Blue Cross proposal to raise Medigap rates by 31.2% on senior citizens before the Office of Financial and Insurance Regulation.

Gannett News Service

July 21, 2009 Tuesday

Insurance consolidation leads some to argue for government intervention

BYLINE: MAUREEN GROPPE

SECTION: Pg. ARC

LENGTH: 943 words

Eds: Can pair with MI-INSURANCE-QA.

By MAUREEN GROPPE

Gannett Washington Bureau

WASHINGTON – Increasing government’s role in health care would interfere with natural market competition and reduce consumer choices, critics of the idea say. But by one measure, there’s little competition now among health insurers.

Four health insurance companies dominate the country. And in most cities nationwide, one or two firms dominate, according to the American Antitrust Institute.

In Lansing, for example, Blue Cross Blue Shield of Michigan controls 63 percent of the market.

The Obama administration argues that a proposed public insurance plan run by the federal government would force private insurers to compete on price and value.

“One of the things the insurance system lacks today is competition,” said White House Chief of Staff Rahm Emanuel. “It doesn’t exist.”

The insurance industry counters that a government plan would have unfair competitive advantages and drive private insurers out of business – amounting to a government takeover of health care and fewer choices for patients.

There’s no question that under the current structure, costs have soared. Premiums for family plans have increased 78 percent in Michigan since 2000.

“The research is very, very clear that it’s rising physician costs, rising hospital costs, rising pharmaceutical costs, the aging of the population, more chronic care – those are the factors that are driving rising health care costs,” said Susan Pisano, spokeswoman for America’s Health Insurance Plans, a group that represents nearly 1,300 health insurance providers.

The issue is a central fight in the congressional debate over how to revamp the nation’s health care system to lower costs while extending coverage to more Americans.

Many lawmakers say they won’t vote for a health care bill that doesn’t include a public plan.

Other lawmakers say they won’t vote for one that does.

Although there are more than 1,000 private health insurance carriers, 94 percent of the nation’s metropolitan areas meet the federal antitrust definition of being highly concentrated, according to a 2008 survey by the American Medical Association. One insurer controlled at least 30 percent of the commercial market in most areas and controlled at least half the market in 44 percent of the areas.

“As you eliminate choice … premiums tend to go up and the ability for keeping prices under control becomes more problematic when the patient doesn’t have any alternative,” said Dr. J. James Rohack, president of the American Medical Association.

He noted that as insurers have grown more concentrated, they’ve earned record profits, even while the number of uninsured Americans has increased because they can’t afford premiums.

“A simplistic look at that would say something’s wrong here,” Rohack said.

The key driver in rising health care costs is medical technology, according to a 2008 report by the Robert Wood Johnson Foundation. Other key factors include obesity and low productivity gains in health care.

Health insurance premiums in states with better-than-average competition were 12 percent lower than those in states with worse-than-average competition, according to a University of Pittsburgh Medical Center study of 31 states.

The AMA has been trying for years to draw attention to consolidation in the health insurance industry, which they say puts doctors and hospitals at a disadvantage when negotiating payment levels.

But the AMA has been careful about what the association says about a public plan option. Doctors don’t want, for example, to be forced to participate in a public plan and don’t want to be reimbursed at Medicare rates, which are lower than what they get from private insurers.

Instead, suggestions the group has made for addressing market consolidation include: having the Justice Department investigate whether increases in industry profits and premiums are a result of market dominance, revising antitrust enforcement guidelines to clarify how much consolidation is too much, and better enforcement of antitrust laws.

“Antitrust enforcers have been asleep at the switch for the past several years and have permitted health insurers to acquire monopolies in dozens of markets,” said David Balto, an antitrust lawyer and advisory board member of the American Antitrust Institute.

The Justice Department has challenged only three of more than 400 mergers of health insurers and managed-care organizations over the past 12 years, according to the AMA.

Pisano at America’s Health Insurance Plans, however, said regulators have been very thorough in investigating mergers “and have continued to conclude that there is competition.”

Health Care for America Now, a coalition of unions and other organizations pushing for a public plan, says public filings of 10 of the largest publicly traded health insurance companies show profits increased 428 percent from 2000 to 2007.

Pisano said health insurers’ profits rise and fall but the industry’s profit margin has consistently averaged 3 percent.

Health economist James C. Robinson, who examined consolidation and competition in the industry, wrote in a 2004 peer-reviewed journal article that, remarkably, large health plans increased operating margins during a period of high medical cost inflation.

Double-digit growth in both earnings and premiums is unsustainable, he concluded.

“In the long term,” Robinson wrote in Health Affairs, “health insurance will be either revitalized by the private sector, through product innovation and competitive entry, or disciplined by the public sector, through purchasing power and regulatory requirements.”

The Associated Press State & Local Wire

September 15, 2009 Tuesday 11:09 PM GMT

Blue Care Network buying Lansing-based HMO

LANSING Mich.

A Lansing-based health maintenance organization has been sold to a unit of Blue Cross Blue Shield of Michigan. Terms of the deal weren’t revealed.

Blue Care Network announced Tuesday it’s buying the membership of Physicians Health Plan of Mid-Michigan.

Sparrow Health System owns the Lansing-based HMO, which has about 80,000 members. Southfield-based Blue Care Network has about 680,000 members.

The deal requires approval from Michigan insurance and public health regulators. Blue Care Network says it expects to close the deal in 2009.

“Dave Waymire, a spokesperson for the Michigan Association of Health Plans, fears the deal ‘will create an even more dominant monopoly in the Lansing region.’ Pointing to a report from advocacy group Health Care for America Now, he notes that BCBSM already had 65% of the overall Michigan market in 2007. BCN has the state’s largest HMO network of physicians and hospitals, including 4,300 primary care physicians and 116 hospitals, compared with PHP’s mid-Michigan network of 11 hospitals and 1,300 physicians.” — From The AIS Report on Blue Cross and Blue Shield Plans, Oct. 28, 2009

“Blue Cross, by its own word, faces a disastrous financial future without changes to state law governing individual insurance policies. For 2008, the nonprofit insurer said it suffered a $144.9 million loss… In January, the insurer announced major job cuts and requested huge premium increases for 400,000 customers… So, in September, the company’s books are suddenly strong enough to purchase a competing health insurance plan? That just doesn’t track. — From Lansing State Journal editorial: Blue Cross owes answers on PHP deal, Sept. 23, 2009

“Blue Cross and its subsidiaries must explain how they can afford to buy another company even as they fight to raise rates on seniors.Could these funds have been used instead to help avoid rate increases on struggling Michigan residents? — From statement by Attorney General Mike Cox, Sept. 15, 2009

Press release from

The sale of the Lansing-based subsidiary of Sparrow Health System was announced by PHP today. “Blue Cross and its subsidiaries must explain how they can afford to buy another company even as they fight to raise rates on seniors,” said Cox.  “Could these funds have been used instead to help avoid rate increases on struggling Michigan residents?  Until that question is answered, I will remain skeptical.”

The release continued: Cox noted that Blue Cross has a history of making loans and cash transfers to its subsidiaries for the acquisition of other companies and wants to know if such transfers were a part of the PHP acquisition.  Blue Cross and its subsidiaries have spent over $350 million buying other companies since 2005.  However, during that same period, Blue Cross has claimed millions in losses and asked for rate increases on multiple lines of health insurance. Cox is currently fighting a Blue Cross proposal to raise Medigap rates by 31.2% on senior citizens before the Office of Financial and Insurance Regulation