Official OKs Sierra Health buyout

Nevada Insurance Commissioner Alice Molasky-Arman late Monday approved UnitedHealth Group’s $2.6 billion buyout of Sierra Health Services, but not without extracting a few concessions from the companies.

Molasky-Arman’s ruling included six conditions the companies must meet to ease the concerns health-care professionals and consumers raised during public-comment sessions in June and July.

The commissioner is requiring that the companies not pass any buyout costs, such as executive bonuses or severance packages, on to consumers. She’s demanding that premium costs within Sierra’s Health Plan of Nevada insurance line not increase as a result of the purchase’s costs. Sierra Health’s claims-handling system must not “degrade” after the sale, and the companies can’t scale back benefits as a result of the buyout, either.

Arman-Molasky is also calling for continued local management of Sierra Health, and she’s charging UnitedHealth with taking “specific actions” to reduce the number of uninsured Nevadans.

The conditions are designed to assuage the anti-competitive worries of some consumers and groups including the American Medical Association and the Service Employees International Union.

Las Vegas-based Sierra Health has about 670,000 members in Nevada, while Minnesota-based UnitedHealth has 138,000 members in the state through its PacifiCare Health Systems operation. The two companies are No. 1 and No. 3 in market share in Nevada. WellPoint Health Networks, which merged with Anthem in 2004, is No. 2, with 270,000 members.

The deal’s detractors said the companies could use their market dominance to suppress reimbursements to doctors and hospitals, to slash benefits and to raise premiums on consumers.

“Many valid concerns were raised by residents of Nevada, my staff and others,” Molasky-Arman said in a statement. “Both United and Sierra were cooperative and proactive in working with the (Nevada Division of Insurance) to create ways to protect consumers in this state and satisfy all relevant statutory requirements.

“I am convinced that Health Plan of Nevada will continue to offer the same high quality of products and services that it has historically offered, and that the costs of the acquisition will not be borne by Nevadans.”

Peter O’Neill, Sierra Health’s vice president of investor and public relations, said the two companies worked with the insurance commissioner to develop the deal’s conditions.

“(The contingencies) came as a direct result of concerns expressed at the hearings,” O’Neill said. “We concur with them, we believe they’re important and we have made a commitment to fulfill them.”

O’Neill said Sierra Health officials are “quite pleased” with the commissioner’s decision, and he added that the companies’ most important priority is to ensure that no premiums or provider reimbursements will change “as a direct result of the merger.”

Executives at UnitedHealth, a Fortune 500 company with more than 70 million customers nationwide, said they plan to build on Sierra Health’s accomplishments in the Nevada market.

“We look forward to continuing Sierra’s tradition of providing access to quality, affordable health care, as well as bringing a broad range of new products and services to Nevadans,” said Kenneth Burdick, chief executive officer of UnitedHealth, in a statement. “We recognize the value that a local health care company can provide to a community. We will continue to have a strong Nevada presence and build upon Sierra’s reputation as a good corporate citizen.”

UnitedHealth announced the buyout proposal on March 12.

The American Medical Association weighed in on the deal a week later, asking the U.S. Department of Justice to block the purchase for anti-competitive reasons.

The doctors’ trade group estimated that UnitedHealth would control 78 percent of the Nevada HMO market and 95 percent of the Las Vegas HMO market after the buyout. The association called the merger plan a “blatant grab for dominant market power.”

Before a series of public-comment sessions concluded on July 27, other groups came out against the Sierra Health sale.

The Clark County Medical Society, the Nevada State Medical Association and the Service Employees International Union all said they opposed the acquisition. And the Nevada Attorney General’s Bureau of Consumer Protection, which hasn’t taken a position on whether the merger should go through, said the deal “may result in the most concentrated insurance market in the country.”

Officials of Sierra Health and UnitedHealth responded that the deal’s opponents considered just one market segment — fully insured HMOs — and didn’t examine the companies’ market share in other competing insurance lines.

In commercial insurance for employers in Nevada, for example, the two businesses would claim 28 percent of the market, and just 18.9 percent of the market in insurance for companies with two to 50 workers. Their market share in Medicare HMOs and PPOs would be 36.1 percent, the companies said.

They also said they’d be able to pass along administrative savings to consumers, and Sierra’s insureds would have access to a national network of doctors and hospitals. Plus, Sierra Health would retain its existing local management, and consumers would notice no changes in their services, the companies said.

The public-comment sessions drew hundreds of doctors, nurses, business owners, consumers and philanthropists, with public testimonials running roughly 50-50 in favor of or against the deal.

Regulators from the federal Department of Justice, as well as California and Texas, must also approve the buyout.

The Division of Insurance announced its decision after the stock markets closed. Shares in Sierra Health fell four cents, or 0.10 percent, Monday to close at $41.94 on the New York Stock Exchange. Shares in UnitedHealth fell 42 cents, or 0.85 percent, to close at $49.19 on the New York Stock Exchange.

UnitedHealth is offering $43.50 a share for Sierra Health. Nearly 100 percent of Sierra Health’s shareholders approved the buyout in June.

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