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Read Making a Killing

home / healthcare / in the media

Los Angeles Times
May 19, 2004

by Robert Salladay and Peter Nicholas

No Hearing on HMO Acquisition

SACRAMENTO -- Ignoring nearly a decade of practice by California regulators, the Schwarzenegger administration is poised to approve without public scrutiny the union of two health insurance companies that could affect millions of Californians.

Consumer groups are upset that hearings haven't been scheduled on Anthem Inc.'s $15.5-billion acquisition of WellPoint Health Networks Inc., which would create a healthcare powerhouse with 26 million customers from Maine to California.

The deal has the potential for far-reaching effects in the state. WellPoint insures 7 million people under its Blue Cross of California subsidiary. Consumer watchdogs want Gov. Arnold Schwarzenegger to order a public hearing and get assurances that Blue Cross won't cut the level of service here.

"Anthem and WellPoint executives have to assure the public that the promises made to Blue Cross customers will be kept," said Jamie Court with the Foundation for Taxpayer and Consumer Rights.

California's Department of Managed Health Care said Tuesday that it expected to make a decision soon on the effect the acquisition would have on consumers in California. "I would say we're beginning to near the end of our work here," said G. Lewis Chartrand, chief deputy director of the department.

A hearing isn't required by state law, Chartrand said. That contrasts with the state of Georgia, for example, where a daylong hearing is scheduled today.

California hearings have been held on health company consolidations in the past, but the circumstances with WellPoint and Anthem are different because Blue Cross would continue to operate and there would be no curtailing of consumer choice or competition, officials with the California agency said.

A WellPoint spokesman said Tuesday that it wouldn't object to a public hearing. "Whatever the regulators decide is necessary, we'll be happy to abide by," said Ken Ferber, vice president of corporate communications for WellPoint.

Anthem's cash-and-stock purchase of WellPoint, based in Thousand Oaks, would create the nation's largest health insurer in terms of customers served and premium values. The company would have the WellPoint name and be based in Indianapolis.

Insurance Commissioner John Garamendi said he would like a joint hearing by the Insurance Department and the Department of Managed Health Care.

"We have a California-based company that is going to be run out of Indiana, and what does that mean to Californians?" Garamendi asked.

The managed-care agency, formed in 1999 to regulate the state's HMOs, is responsible for ensuring that mergers don't harm California consumers. Previously, health plans were regulated by the Department of Corporations. Keith Bishop, that department's director under then-Gov. Pete Wilson in the 1990s, said he voluntarily called two hearings on major health plan mergers during his tenure. He said health plans initially were reluctant to participate.

"I think from a plan's perspective, they probably wanted everything as certain as it can be," Bishop said, "and if you hold public hearings, it may introduce an element of uncertainty."

Schwarzenegger's financial disclosure forms show that he has invested more than $1 million in a Santa Monica-based fund management firm, Dimensional Fund Advisors, which lists WellPoint as a client. Dimensional describes the governor as a passive investor whose stake is less than 5%. Court, of the consumer rights group, contends that because of the governor's "financial relationship" with WellPoint, public hearings are important to prevent "the specter of impropriety and back-scratching."

A spokesman for the governor, Rob Stutzman, called that "nonsensical static from people that make their living by complaining about the governor."

Secretary of state records show that Blue Cross of California has contributed $71,000 to Schwarzenegger's campaign fund and to the effort to pass two measures on the March ballot championed by the governor. A WellPoint executive gave $21,200 to the governor's campaign last year, records show.

California Medical Assn. Chief Executive Dr. Jack Lewin said Anthem ought to demand a public hearing in California to hear the concerns of consumers, doctors and hospitals.

"Not having the public hearing is not a good sign," Lewin said.

"Anthem should have the public hearing and get in and listen to people and be ready to start a new approach."
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Times staff writer Lisa Girion in Los Angeles contributed to this report.


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