DOJ REQUIRES DIVESTITURE IN UNITEDHEALTH GROUP’S ACQUISITION OF SIERRA HEALTH SERVICES

On February 25, 2008, UnitedHealth Group Inc. (“United”) and Sierra Health Services Inc. (“Sierra”) entered into a settlement agreement that required United to divest assets relating to United’s Medicare Advantage business in the Las Vegas area in order to proceed with United’s acquisition of Sierra.

Allegedly, the transaction, as originally proposed, would have created a combined company controlling 94 percent of the Medicare Advantage health insurance market in the Las Vegas area and resulted in higher prices, fewer choices, and a reduction in the quality of Medicare Advantage plans purchased by senior citizens in the Las Vegas area.
According to the Antitrust Division, the original transaction would have eliminated competition between United and Sierra, the first and second largest sellers of Medicare Advantage plans in the Las Vegas area, allowing United to increase prices and reduce the quality of Medicare Advantage plans sold to seniors in the Las Vegas area.

Numerous opponents to the deal cited such as the American Medical Association (“AMA”) asked the DOJ to block the proposed acquisition. The AMA alleged that if the proposed merger is allowed, that United would control 78 percent of the HMO market in Nevada, and 95 percent of the HMO market in the Las Vegas-Paradise metropolitan area. It argued that United’s near-monopoly in the HMO insurance market will deter competition and deny patients and employers a choice among HMO plans.  The AMA also argued that the combined firm would have monopsony power over healthcare providers.

While competitive overlaps between United and Sierra’s HMO health insurance businesses existed, the Antitrust Division did not seek any divestitures.  In the Aetna/Prudential merger, which was investigated in 1999, the Antitrust Division concluded HMOs, PPOs, and POS products were separate and distinct products.  They were different in terms of benefit design, pricing differentials, and other factors so they were not reasonable substitutes for each other.  Many employers and employees viewed HMOs and PPOs as different products.  However, the lines have blurred over time.  In UnitedHealth/PacifiCare in 2006, the Division concluded that the sale of HMO plans is not a relevant product market and focused on the sale of commercial health plans to small employers as the relevant market.

In addition to requiring United to divest Medicare Advantage assets in the Las Vegas area to Humana, one of the biggest sellers of Medicare Advantage plans in the United States, the DOJ was concerned that Humana did not at the time of this acquisition operate any Medicare Advantage plans in the state.  Therefore, the DOJ required United to assist the new acquirer with the transition into the market and, in particular, assist it in negotiating agreements with existing provider networks.  This is intended to allow all plan participants affected by the switch to have the same access to substantially all of United’s provider network on terms “no less favorable” than they currently have.

Lessons Learned

For the first time, the DOJ demonstrated that health plan mergers can be anticompetitive because of the impact they have on the Medicare Advantage program.  At the same time, this investigation makes clear that the Antitrust Division does not view the sale of HMO plans as a different market from the sale of PPO plans and provides no comment related to any monopsony concerns.  Finally, the DOJ will require the merging parties to assist the buyer(s) of divested assets in establishing provider networks with competitive rates in an effort to restore lost competition from the merger.

Andre Barlow
(202) 589-1834
abarlow@dbmlawgroup.com