Aetna U.S. Healthcare's pending billion-dollar acquisition of Prudential's health business would create the country's largest health insurer -- covering one American in 12 -- and prompts scrutiny of whether it would exert too much power over patient care and providers.

As federal antitrust regulators review the deal, Aetna says it offers economies of scale and expanded medical networks. "We think it's really going to help consumers a great deal," said Walt Cherniak, an Aetna spokesman.

Critics, led by physician groups including Maryland's state medical society, say the deal will give Aetna enough market dominance to allow it to bully doctors and patients.

"As plans are under financial pressure and are gaining market share, that's a worrisome combination," said T. Michael Preston, executive director of the Medical and Chirurgical Faculty of Maryland, the state medical society. "The depths haven't been fully plumbed when it comes to aggressive tactics, forcing down reimbursements and difficult practices."

Others believe the combination of managed care companies won't make much difference. "Each is already big," said Richard Zoretic, chief executive officer of United HealthCare of the Mid-Atlantic. "In terms of increased market clout, the impact of the acquisition is a little overstated."

Aetna announced last month that the Justice Department had extended its review of the purchase under the Hart-Scott-Rodino Antitrust Improvements Act.

The extension "is a sign that the government is serious about the antitrust issues in the case," said Kevin Outterson, health care partner at Baker Donelson, a Nashville, Tenn., law firm. Outterson is vice chairman of managed care for the American Bar Association, but said he was not speaking for the ABA.

Only about 3 percent of Hart-Scott-Rodino reviews are extended, said Shirley Z. Johnson, chief of the antitrust practice at Greenberg Taurig in Washington. "When it is extended, that means the government sees some problems initially," she said. Of those that are extended, she said, about a third result in antitrust complaints. The Prudential deal would be Aetna's third acquisition in three years.

In 1996, it bought U.S. Healthcare for $8.9 billion, acquiring an aggressive and successful upstart HMO that promised to provide management expertise to help Aetna, an old-line insurer, cope with the managed care world.

A year ago, Aetna's health division, renamed Aetna U.S. Healthcare, snapped up New York Life's health unit, NYLCare, for $1.05 billion. That deal made Aetna the third-largest health insurer in the Baltimore-Washington market.

That those deals went through without challenge doesn't mean the Prudential deal will, Johnson said -- in fact, "the more it grows, the tougher the government will be" in examining further growth.

If the Antitrust Division of the Justice Department has objections, said Outterson, it is unlikely to challenge the entire deal, but could negotiate with Aetna to divest some businesses.

If completed, the deal would produce a "big three" of national managed care companies -- Aetna, CIGNA and United Healthcare -- said John Erb, a vice president of Gallagher Benefits Services, a national benefits consulting firm in Boca Raton, Fla.

But the impact of the deal varies considerably from market to market.

The American Medical Association, in a filing with the Justice Department's Antitrust Division, said the deal could give Aetna/Prudential 46 percent of the HMO market in Houston, 39 percent in Dallas, 33 percent in Orlando, Fla., 30 percent in Atlanta and 38 percent in New Jersey.

"Its general 'take-it-or-leave-it' attitude toward physicians show it is determined to use its market power to give Aetna increasing control over how medical care is provided," the association wrote.

"From the AMA's experience reviewing health plan contracts, the Aetna contract is in a category by itself in terms of its one-sided nature and onerous provisions with clear patient care implications."

If Aetna covers even 10 percent of a doctor's patients, the AMA worries, the physician will not be able to say no to lower reimbursement rates or unwelcome contract provisions.

The deal would give Aetna more than a million members in Maryland, the District of Columbia and Virginia -- with more than 450,000 of those HMO and point-of-service members in Maryland.

Exact comparisons with other insurers in the state are difficult, since they have different ways of counting members, particularly those in preferred-provider plans.

But according to the companies, CareFirst BlueCross BlueShield covers 1.7 million; Mid Atlantic Medical Services, 920,000; Kaiser Permanente, 260,000; and United, 243,000.

Cherniak, the Aetna spokesman, said, "There is plenty of competition in the Maryland managed care market, both before and after we complete the acquisition of Prudential. We don't see that it will affect a physician's ability to negotiate contracts with us."

Competition is also sufficient to prevent Aetna from raising premiums ahead of other companies, said Tracy Cassidy of William M. Mercer Inc., a benefits consulting firm.

"They would use their leverage with the provider community [doctors, labs and so on] before they would use it on employers," Cassidy said.

However, she continued, HMOs have already lowered provider payments to the point that "it appears we have reached the boundary of what that reimbursement level can be in order for all the parties to co-exist and feel good about it."

Dominant market share "is more valuable in negotiating a hospital contract than a physician contract," said United's Zoretic -- but hospital contracts cannot be negotiated in Maryland, where all insurers pay the same rate.

Even if Aetna does gain the market leverage to cut rates to doctors, that is "a secondary concern from the antitrust perspective," which focuses on prices for customers, said Johnson. "What the antitrust authorities may figure on the doctors' argument is, 'This [lower doctor fees] is going to be great for consumers.' "

Others doubt it. Erb, the benefits expert, said, "From my perspective, we'll have fewer firms competing for my clients' business -- and less competition means higher prices and less service."

Pub Date: 3/07/99