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AMA Leads Critics Questioning UnitedHealth Acquisition of PacifiCare

AARP announced last month UnitedHealth would supply their drug coverage plan

July 9, 2005 – In a strongly worded statement, a spokesman for the American Medical Society expressed outrage at the acquisition of PacifiCare Health Systems by United Health Group, which will be the company used by the giant in senior citizen insurance, AARP, to devise a plan for AARP to market coverage for the Medicare prescription drug program (Medicare Part D).

AMA President-elect William G. Plested called on federal and state regulatory agencies to take a close look at the proposed acquisition.

"The American Medical Association  is outraged that at a time when health care costs are escalating and the number of uninsured continues to rise that an enormously profitable private health insurance conglomerate, UnitedHealth Group, is spending $8.1 billion to acquire yet another national health insurer, PacifiCare Health Systems,” said Plested.

“This acquisition highlights the alarming rate of consolidation within the health insurance industry that the AMA has been cautioning about for years," he added.

UnitedHealth Group issued a news release saying it is merging with PacifiCare Health Systems, Inc., owner of Secure Horizons. A source later said PacificCare will become a division of UnitedHealth, which will probably make UnitedHealth the second largest health company in America.

Both companies have a well-recognized, long-standing commitment to older Americans, they say, and are leaders in Medicare program innovation.

"This acquisition also shines a light on the growing imbalance between individual patients and physicians and giant health insurers,” said the AMA statement.

“United's track record in dealing openly and fairly with America's physicians leaves much to be desired. The AMA urges federal and state regulatory agencies to examine closely United's recently proposed acquisitions - not only PacifiCare in the West but also Neighborhood Health Plan in Southern Florida," the statement concluded

The Los Angeles Times reported that UnitedHealth's William W. McGuire and PacifiCare's Howard Phanstiel described the $8.1-billion deal — which must win regulatory and shareholder approval — as a step toward a more rational healthcare system.

The acquisition of PacifiCare Health Systems Inc. by industry giant UnitedHealth Group Inc. would mean more competition in the health insurance business — not less, the companies' chief executives said Friday.

Answering criticism from the AMA and consumer groups, the two men said a combined company would better compete against industry leader WellPoint Inc., which owns Blue Cross of California, benefiting consumers as well as investors, according to the LA times.

"I understand all the noise, I understand that everybody has positions," said McGuire, 56. "Those concerns are legitimate."

One big prize for UnitedHealth, which is aggressively moving forward to expand Medicare insurance, is PacifiCare’s administrator contract with Medicare. They are the nation's biggest administrator of Medicare insurance plans, and this division in California would be acquired by Minnetonka, Minn.-based UnitedHealth, the nation's second-largest health insurer. Combined, the two would provide health insurance to more than 25 million Americans.

Insurance rating firm A.M. Best said it was placing its ratings of UnitedHealth Group and its subsidiaries under review with "negative implications."

The agency said it was concerned about UnitedHealth's mounting debt-to-tangible capital ratio, which was about 58 percent a the end of 2003 and is projected to be more than 100 percent following the PacifiCare deal.

For the story in the Los Angeles Times, click - CEOs Defend Healthcare Deal

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