Feds approve buyout of Sierra Health

UnitedHealth Group, the largest U.S. health insurer, Monday won Justice Department clearance to acquire Las Vegas-based Sierra Health Services for $2.6 billion.

But opponents of the deal say they're not through fighting, with a powerful trade union and a doctors' association saying late Monday that they were consulting lawyers about legal options they could pursue.

The federal Justice Department allowed the deal to proceed after UnitedHealth agreed to divest policies of about 27,000 Medicare Advantage customers in Clark and Nye counties to Humana of Kentucky, the government said Monday in an e-mail statement. They are enrolled in the Medicare Advantage program.

The decision increases UnitedHealth's medical plan enrollment by about 630,000, to more than 29 million, and gives the Minnesota company a larger role in one of the fastest-growing regions of the United States. The decision came four days before the Nevada insurance commissioner's approval was due to expire Friday.

"This divestiture ensures that senior citizens and others will continue to benefit from competition between sellers of Medicare Advantage products," said Thomas O. Barnett, the assistant attorney general in charge of the Justice Department's antitrust division, in the statement. "We are committed to preserving competition in the health insurance industry because this competition spurs insurers to lower prices, enhance services and offer innovative new products."

Competitive concerns raised unrelenting opposition from several trade groups and unions after the companies announced the deal in March.

With Sierra Health's 670,000 members statewide and UnitedHealth's 110,000 PacifiCare customers in Nevada, the businesses together would dwarf other insurers in the Silver State, and that wasn't acceptable to members of the American Medical Association, the Nevada State Medical Association, the Clark County Medical Society and the Service Employees International Union (SEIU), which represents nurses at local hospitals.

Nevada's second-biggest managed-care insurer, Indiana-based WellPoint, has 270,000 members -- just one-third the client base of Sierra Health and UnitedHealth.

Combining UnitedHealth and Sierra Health threatens health-insurance competition in Nevada because the market dominance will let the companies slash benefits for patients and reimbursement rates for doctors and hospitals.

The Nevada attorney general's Bureau of Consumer Protection said in July the buyout could result "in the most concentrated insurance market in the country." The companies' dominance would be especially acute among Medicare Advantage plans, where they would cover 96 percent of Clark County residents enrolled.

The two businesses would also control 95 percent of the HMO market in Las Vegas, trade groups said.

Nevada Attorney General Catherine Cortez Masto noted during an afternoon news conference that the agreement also guarantees that new competitors will have access to offer coverage for Nevada hospitals and medical facilities for a two-year period.

"This will increase the likelihood of one new competitor in the market," she said. "The more competition, the better for people."

Representatives of the SEIU and medical associations said Monday that they find little comfort in the federal government's divestiture requirement.

"It doesn't address the fundamental problem, which is the anticompetitive nature of the kind of concentration we'll see," said Larry Matheis, executive director of the Nevada State Medical Association. "The Justice Department failed the people of Nevada, and frankly, they failed the nation, because this kind of concentration is going to happen everywhere now that the federal government says it's OK."

Matheis said Justice's action Monday is "only a proposed consent decree," so it needs approval from a federal judge. He said the association will "communicate" with the judge who gets the case. A lawsuit to stop the deal is also still possible, he said.

Matheis said he's frustrated that ongoing investigations into UnitedHealth subsidiaries in New York and California, where the company could face $1.3 billion in fines for claims-processing problems, didn't sway the federal government's decision.

The SEIU was consulting with lawyers late Monday about its legal options against the buyout.

"We don't believe (Justice's call for divestiture) goes far enough to protect patients at all," said Hilary Haycock, communications director for SEIU's Nevada chapter. "The Medicare Advantage market is significant. These are our retirees, our elderly residents, and they're going to be subjected to UnitedHealth's really horrible business practices."

Competitive worries also led state and local officials to install mechanisms for fighting the deal after Nevada Insurance Commissioner Alice Molasky-Arman gave it her conditional approval in August.

Masto said in August her office would continue to study the merger to determine whether it complies with state law and serves the interests of Nevadans. And the Clark County Commission in January gave the go-ahead to officials at county-run University Medical Center to take legal or administrative measures to block the buyout if they felt it would mean lower reimbursements for care.

Masto's office announced Monday that its concerns about the deal would ease with the Medicare Advantage divestiture, and with a $15 million donation from UnitedHealth over the next five years to community health-care initiatives.

"The consent decree comes with a lot of stipulations that United must follow," Mastro said. "We will seek fines if United does not abide by our terms. This settlement is a milestone for Nevada. This is only the second time in history the DOJ has worked side by side with a state to sell a business division."

Matheis said he wasn't impressed.

"Given UnitedHealth's track record, the attorney general's office will need more than $15 million just for regulatory and litigation activities just to bring UnitedHealth's behavior in line."

Officials at University Medical Center, which would receive more than $7 million of the donation to improve infrastructure and health care delivery systems, didn't comment by press time on what they thought of the decision and whether they'd act against the deal.

Executives at Sierra Health and UnitedHealth have said the buyout's detractors have overstated the overall market share that will result from the merger.

HMOs and Medicare Advantage are just two components of a much-bigger state insurance market.

In commercial insurance for employers, for example, the two companies would hold 35 percent of the market in Las Vegas and 28 percent statewide. Among employers with up to 50 employees, the two would have 27.2 percent of the local market and 18.9 percent of the statewide market.

They also say the local operation will remain under Sierra Health's local management, so there'll be no changes in how the company operates. That means the claims-processing problems that have affected UnitedHealth subsidiaries in other states won't visit Nevada.

Rather than harming Nevada's health-care patients, the merger will help them, bringing national networks and new policy designs to local clients.

"We look forward to building on our shared heritage of providing consumers access to affordable high-quality health care," said Ken Burdick, UnitedHealth's chief executive officer, in a statement. "Our goal is to offer Nevadans the most comprehensive range of cost-effective, innovative health care products and services in the Southwest."

Added Jonathon Bunker, president and chief operating officer of Sierra Health: "Joining our two organizations will be good for Nevada's health care consumers, good for the many dedicated professionals who provide their care and good for the employees of Sierra."

The government's demand that UnitedHealth divest some of its Medicare Advantage business wasn't unexpected.

Carl McDonald, a director with CIBC World Markets, said last spring that antitrust investigations don't typically scuttle health-care mergers. Rather, they result in orders to sell off insurance lines a company dominates. And the Medicare business would be the most likely divestiture target, he said.

When UnitedHealth bought PacifiCare in 2005, the federal government required UnitedHealth to spin off some of the commercial-insurance lines it dominated in Arizona and Colorado.

Trading in Sierra Health shares on the New York Stock Exchange will cease immediately, said Tyler Mason, a UnitedHealth spokesman. The company has to spin off its Medicare Advantage component to Humana within 45 days, he said.

The announcement that the deal could move forward came after the Justice Department's Antitrust Division filed a civil antitrust lawsuit Monday in the U.S. District Court for the District of Columbia to block the proposed acquisition.

At the same time, the department filed its proposed settlement that, if approved by the court, would resolve the lawsuit and the Justice Department's competitive concerns.

Contact reporter Jennifer Robison at jrobison@reviewjournal.com or (702) 380-4512. Stephens Media Capital Bureau reporter Ed Vogel and Bloomberg News contributed to this report.