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Consolidation continues to be a major theme in the health insurance sector in 2007.
While UnitedHealth Group Inc.'s proposed acquisition of Sierra Health Services Inc. is the merger and acquisition "highlight" so far, according to analysts, the majority of deals are smaller transactions involving companies that provide specialty health care products and services or have attractive regional operations.
Minnetonka, Minn.-based UnitedHealth and Sierra officials vow to move forward with UnitedHealth's planned purchase of Las Vegas-based Sierra despite strong opposition by consumer groups, a local union, several Nevada politicians and provider organizations such as the Chicago-based American Medical Assn.
During hearings about the proposed merger held in Nevada in June and July, some physicians expressed concern about reimbursement rates, said Anthony Marlon, Sierra's chairman and chief executive officer, during the company's second-quarter earnings call. "The tenor of the hearings was balanced," he said. "The AMA was its usual self."
UnitedHealth has been involved in several disputes with provider organizations, including the AMA, most recently related to its plan to rank New York doctors based on quality metrics and the implementation of a policy that allows the insurer to fine physicians if their patients have laboratory tests in out-of-network facilities.
The companies are working with the antitrust division of the Department of Justice to comply with its request for additional information about the merger and expect to receive substantive comment from the department during the fourth quarter, Mr. Marlon said.
Despite the political dynamics, the regulators and the companies will likely come to a solution, said Stephen Zaharuk, vp and senior analyst for Moody's Investors Service Inc. in New York. "It's just how much it's going to cost the company to do it," he said.
Future transactions on the UnitedHealth/Sierra scale are unlikely this year, mainly because the profitability of the health plans make them overvalued from an acquisition standpoint, Mr. Zaharuk said. "I don't think we're going to see (blockbuster deals) for the next year," he said.
Analysts point to deals such as Indianapolis-based WellPoint Inc.'s acquisition of American Imaging Management Inc. and Louisville, Ky.-based Humana Inc.'s planned purchase of CompBenefits Corp. as the future norm for M&A activity in the sector.
WellPoint recently completed its acquisition of American Imaging Management, a radiology benefit management and technology company that serves health plan clients representing more than 20 million consumers. Unnecessary imaging and radiological examinations have been a key driver of cost increases for WellPoint in recent years, but the acquisition will lower the company's cost trends, which it will consider in its pricing, said Wayne DeVeydt, WellPoint's CEO. "So we also have responsibility to pass some of these savings onto our customers, and that's part of growing our membership," he said during the company's second-quarter earnings call.
Humana purchased CompBenefits for $360 million. The Atlanta-based dental and vision benefits provider serves more than 14,000 employer groups in 22 states.
Bethesda, Md.-based Coventry Health Care Inc. will acquire the parent company of Vista Healthplan Inc., a Sunrise, Fla.-based health plan serving about 295,000 members for $685 million to expand the company's footprint into one of the nation's fastest growing states.