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The New York Times
Jun 22, 1999
by STEPHEN LABATON
U.S. Approves Deal For Huge Company For Managed CareOver the objections of doctors groups and consumer advocates, the Federal Government today approved the $1 billion acquisition of Prudential Health Care by Aetna Inc., which will create the nation's biggest managed care company.
Following a six-month review, lawyers at the Justice Department's antitrust division approved the deal on the condition that Aetna sell its NYLCare Health Maintenance Organization in the Dallas-Fort Worth and Houston markets.
That divestiture -- the centerpiece of a consent decree that settles a civil suit filed today by the Federal Government and Texas -- will result in the loss of about 425,000 subscribers. Even so, Aetna, which is based in Hartford, will provide benefits to more than 21 million individuals, or about one in 11 Americans.
The acquisition had been criticized by physicians groups and consumer organizations, which were concerned about the power of the newly merged entity. When the deal closes, Aetna will control between 30 percent and 60 percent of the H.M.O. markets in some major metropolitan areas, according to the American Medical Association, including Atlanta, Orlando, Fla., and Bergen County in northern New Jersey.
In the Texas markets where Aetna must divest, the acquisition would have given the company control of 63 percent of the Houston market and 42 percent of the market in the Dallas-Fort Worth area.
Aetna first announced in December that it would buy Prudential Health Care from the Prudential Insurance Company of America for $1 billion.
Critics had petitioned the Government to impose far more conditions on the deal, saying it would vastly increase Aetna's ability to negotiate fees and working rules on doctors and hospitals, squeezing the medical profession for greater cost savings while possibly raising premiums and controlling practices.
"Unfortunately for the patients and doctors around the nation, this means the industry leviathan has control of the whole pond," said Jamie Court, director of Consumers for Quality Care, a consumer health group based in Santa Monica, Calif. "We will likely see doctors with more complaints and patients with fewer services."
Mr. Court called the decision "a black eye for the Clinton Administration in terms of patient protection."
Dr. Nancy W. Dickey, president of the American Medical Association, said that the Justice Department action was "an important first step" but that the authorities in the states should continue to scrutinize the proposed deals because of Aetna's powerful market share.
"This is an adequate first step, but it is not the end of the issue," Dr. Dickey said. "This will still leave Aetna with a tremendous piece of the market. Problems vary community by community and market by market, but patients in Hoboken need to be protected as much as patients in Dallas."
But officials said today that the Government had decided not to challenge Aetna's presence in a number of other markets because it was already so large and the proposed merger would not appreciably alter that. Moreover, they said, Federal law only gives them the authority to examine the effects of the proposed merger.
"This settlement demonstrates the department's commitment to preserve competition in all sectors of the health care industry," said Joel I. Klein, Assistant Attorney General in charge of the Justice Department's antitrust division. "The required divestitures will have two important effects. First they will preserve competition and protect consumers from higher prices for H.M.O. and H.M.O.-based point-of-service plans.
"In addition, the divestitures will deny Aetna the ability to unduly depress physician reimbursement rates and thereby impair the quantity and quality of physician services provided to patients."
In their complaint filed in Federal District Court in Dallas today, the Federal Government and Texas said that Aetna's acquisition of Prudential would have eliminated the competition in Houston and Dallas, "allowing the merged entity to increase the prices and to reduce the quality" of services.
The complaint also challenged the deal in Texas on the ground that it would give Aetna too much control over many physicians, leaving them highly vulnerable in the event they became embroiled in a dispute with the insurer.
Aetna executives said they had decided only reluctantly to part with some of the H.M.O.'s in Texas.
"Although we do not agree with the Justice Department's concerns about the effect of the acquisition, a divestiture was the most expeditious way to bring closure to the comprehensive D.O.J. review process," Richard L. Huber, the chairman and chief executive of Aetna, said.
Other executives said that even after the sale, the company would remain the leader in the Texas market, with about 2.5 million health clients, including one million H.M.O. subscribers.
Company executives said that they plan to close the deal this summer, though the regulatory process will likely continue through at least this fall. Officials in six states -- California, Florida, Georgia, New Jersey, New York and Texas -- are still reviewing the acquisition, and could order further modifications.
Dr. Dickey of the American Medical Association said that state chapters of the group would continue to press state regulators to scrutinize the deal.
But Aetna executives said they had no further plans to sell any other parts of the company. "It's not what we believe will happen," Patricia R. Seif, a spokeswoman for the company, said.
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