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home / healthcare / press releases

NEWS RELEASE
Mar 03, 1999


CONTACT: Jamie Court - 310-392-0522 x327

California Regulators Called Upon To Stop Aetna-Prudential Merger

Testimony of Jamie Court and Doug Heller
Consumers For Quality Care called upon the California Department Of Corporations to halt its approval of the Aetna-Prudential merger at hearings in Los Angeles today. (Testimony available upon request)

The heath care watchdog group claimed that merger would result in an HMO industry leviathan that will cover one out of ten Americans and will downsize patient care to unreasonable levels, unduly leverage physicians, undermine competition and cause the potential for unfair business practices.

If the buyout is allowed, Aetna will triple its presence in California, further consolidating the health care market in the state. A four company oligopoly -- Aetna, Inc., Kaiser, Pacificare and Health Systems International -- will control healthcare for over 12.5 million Californians in HMOs if the pending buyout is allowed.

"This buyout is certain to limit the healthcare options for patients and employers, erode the bargaining position of doctors and hospitals, and threaten the quality of care patients receive," said Jamie Court, director of Consumers For Quality Care. "Allowing this buyout to proceed is to hand over a key ingredient for market dominance to a corporation which has routinely compromised patient care and disregarded doctors' concerns in the pursuit of profit. A bad actor like Aetna should not be given a license to have more leverage over patients and their doctors."

The group pointed to recent evidence of Aetna's poor conduct to bolster its case against allowing the company to grow:
  • Hundreds of doctors across California have defected from Aetna recently because Aetna has foisted upon doctors reimbursement rates that appear to be inadequate to patient care needs;

  • Aetna has been forcing doctors to accept "all-or-nothing" contracts -- where doctors must either accept all of Aetna's plans or will not be able to work under any of them. This shows a market dominance which could lead to doctors being forced to accept onerous contracts that are harmful to their patients simply to survive.

  • Aetna U.S. Healthcare was the subject in January of the largest jury award ever issued against an HMO for not treating a dying cancer patient fairly, after which the company's CEO publicly attacked the widow and the civil justice system.
Consumers For Quality Care is a project of the non-partisan, non-profit Foundation for Taxpayer and Consumer Rights.
_________
Testimony of Jamie Court and Doug Heller:

Regarding Proposed Aquisition of Prudential Health Care Plan of California, Inc. by Aetna Inc.

Thank you for inviting Consumers for Quality Care to testify today. Consumers for Quality Care is a non-profit consumer watchdog group created in 1994 to protect and to promote the public interest in higher quality health care.

Consumers for Quality Care urges you to deny the proposed acquisition of Prudential Health Care Plan of California, Inc. by Aetna Inc.

If this buyout is allowed, Aetna will triple its presence in California, further consolidating the health care market in the state. A four company oligopoly -- Aetna, Inc., Kaiser, Pacificare and Health Systems International-- will control healthcare for over 12.5 million Californians in HMOs if the pending buyout is allowed.

The proposal is a dangerous move in the direction of a private healthcare monopoly. This buyout is certain to limit the healthcare options for patients and employers, erode the bargaining position of doctors and hospitals, and threaten the maintenance of a free market.

The newly forged company would have over 22 million enrollees (more than 18 million in "managed care" plans) and contracts with approximately 400,000 doctors -- two-thirds of the physicians in the country. Additionally, Aetna will become the nation's second largest dental insurer with 15 million enrollees.

This buyout should be disallowed because Aetna will crowd out competition simply by its new bulk, not by operating effectively. The fact that Aetna has grown so quickly based on a track record of poor quality care (see below) suggests the free market has already been compromised.

This merger will undermine competition in the managed care marketplace and sentence consumers to fewer choices, fewer services and the potential for greater price fixing and unfair business practices.

Impact on consumer choice and patient care

The concentration of healthcare into the hands of very few HMO corporations will spell disaster for the goal of competitively priced and quality healthcare. If a patient or employer cannot shop around, there will be no competitive pressure on HMOs to offer affordable premiums. With such a powerful market position, Aetna will decrease the level of coverage offered for a basic premium and make optional certain benefits that would be part of a basic premium in a more competitive market. Patients would be subject to higher premiums and lower levels of care as a result.

Aetna has already foisted upon doctors capitation rates that appear to be inadequate to patient care needs. That is why 600 physicians in San Mateo recently defected from Aetna on January 1st. Thousands of doctors across the country have, in fact, defected from Aetna because reimbursements do not allow them to provide quality care. At least 575 doctors and health care providers in Long Beach, California left Aetna recently and 400 doctors defected from Aetna in North Texas, while similar walkouts or threats to leave have occurred in Ohio and Georgia. If this merger is approved, physicians will have few other places to go when they object to Aetna's conditions and cut-rate reimbursements. This will be a serious blow to patient care.

If this merger is approved without guarantees about Aetna's conduct and authorization practices, the new company would be in a position to downsize the level of care even further. Aetna was already ranked worst by California doctors in a survey conducted by the Pacific Business Group on Health Negotiating Alliance. This poor report card is bolstered by evidence from other regions.

Impact on doctors

The buyout of Prudential would severely weaken the position of doctors when they negotiate contracts with Aetna and other HMOs. With so few companies managing so many patients, doctors would not be able to effectively leverage Aetna into sufficiently compensating them. Doctors will lose much needed bargaining power when seeking a fair and patient-oriented contract and when pressing Aetna to provide medically necessary treatments. The combined Aetna-Prudential would be in a powerful position to grind its capitated rates so low that physicians could not possibly adequately care for their patients.

Most recently, Aetna has been forcing doctors to accept "all-or-nothing" contracts -- where doctors must either accept all of Aetna's plans or will not be able to work under any of them. This shows a market dominance which could lead to doctors being forced to accept onerous contracts that are harmful to their patients simply to survive. Aetna has shown a willingness to do foist such contracts on doctors and the state of California should not give the company a greater way to do this.

Aetna is already overextended from previous mergers

Aetna has yet to recover internally from both its 1996 merger with US Healthcare and the 1998 merger with New York Life. Aetna cannot absorb another 6 million members nationwide, nearly one million of them in California alone, without degrading the quality of care provided to those patients. Two years after the US Healthcare merger, Aetna Inc. continues to have problems bringing US Healthcare patients and doctors into their system. This has led to under-served patients and frustrated doctors. Moreover, Aetna is not likely to have even integrated the New York Life database with their main database until well into the year 2000. In its haste to dominate the HMO industry, Aetna has allowed patient services to erode. Aetna has neither the structural nor technological capacity to buy Prudential without curtailing care for patients. Aetna cannot serve new members before they have begun to effectively operate their system as it stands today.

Aetna: Defiant corporate citizen

Allowing this buyout to proceed is to hand over a key ingredient for market dominance to a corporation which has routinely compromised patient care and disregarded doctors' concerns in the pursuit of profit. The combined Prudential-Aetna entity would be in a position to further compromise medical decisions with administrative and fiscal concerns, a violation of the Knox Keene Act. In addition, Aetna has recently exhibited a genuine disregard for civil authority which suggests that it cannot be trusted with greater market leverage.

Aetna has been challenged for various abuses of the public's trust and numerous transgressions of the law. Each of these instances demonstrates both the antitrust and public health risks associated with stifling the competitive market by allowing this buyout to proceed.
  • In one of the greatest spectacles of rapacious greed this century, Aetna paid former U.S. HealthCare Chief Leonard Abramson nearly $1 billion in the $9 billion merger of U.S. HealthCare and Aetna in 1996. This has caused significant ramifications for Aetna patients who have been forced to endure severe health care rationing in order to pay for Mr. Abramson's buyout bonus. (Abramson currently serves on Aetna's board) This company has a demonstrated track record of usurping money from the medical system to extravagantly compensate its administrative arm. This merger again poses another serious threat to patient care dollars. We urge you to closely scrutinize the proposed executive compensation package.

  • Aetna U.S. Healthcare was the subject in January of the largest jury award ever issued against an HMO. A San Bernardino County jury last month sent a $ 120 million message to the company in the case of schoolteacher Teresa Goodrich, whose husband, a district attorney, died after an ordeal from June 1992 to March 1995 trying to get Aetna to approve treatment, not all of it experimental, recommended by his Aetna doctors for his rare form of stomach cancer, leiomyosarcoma. When David Goodrich could wait no longer, those doctors administered the treatment without HMO approval. The patient died believing he had left his wife with $750,000 in medical bills. The jury's award included $4.5 million to the widow to cover the medical bills and for loss of companionship. The $116 million balance was the jury's decision to punish Aetna for, among other things, the finding that Aetna acted in bad faith and with malice toward Goodrich in denying him coverage based on a treatment exclusion that never existed in his contract. Most troubling is the fact that Aetna still claims it did nothing wrong and that the company was the victim. CEO Richard Huber responded to the verdict, "This is a travesty of justice. You had a skillful, ambulance-chasing lawyer, a politically motivated judge and a weeping widow." According to Los Angeles Times columnist Ken Reich, Huber said, "Juries are customarily not intelligent enough to consider complicated contractual issues and that this one in particular was too ill-informed, as a result of the judge's evidentiary rulings, to render a sound verdict."
    Aetna's unwillingness to defer to civil authority suggests that the new leviathan to result from this merger will continue to run rampant over civil dictates at the expense of patients.

  • In a video of an Aetna training for claims managers uncovered in Fisher v. Aetna,, Aetna lawyers tells claims managers to perform a reasonable investigation of claims only for patients who have the right to sue. The video is the best direct evidence to date that, following the U.S. Supreme Court ruling in 1987 setting set up a shield of legal immunity for HMOs covering patients with employer-paid coverage under the Employee Retirement Income Security Act of 1974 or ERISA, Aetna became more callous toward policyholders. The company dropped its field investigation force, eliminated claims handling guidelines and increased its claims personnel caseloads four to 4.5 times the industry average. The burden of proving that a claim is payable shifted from the company to the disabled patient, who is often unable to properly document his or her own case.

  • In Texas, the state Attorney General has named six HMOs in a lawsuit charging the corporations with rewarding physicians for withholding care. Four of the six HMOs are owned by Aetna. The AG also charges that "Aetna penalizes doctors who speak frankly with patients about the insurer's coverage."

  • Aetna has been targeted by medical groups and patient groups for contractual gag-clauses -- which prevent doctors from informing patients about certain treatments-- and for Aetna's narrow definition of medically necessary care used when the company determines levels of treatment provided to patients.

  • In Florida, regulators warned Aetna that its contracts with doctors were not in compliance with state law. Aetna's violations included "contract language about emergency room referrals, privacy of patient records and so-called gag rules."

  • Aetna has recently seen a spate of doctors across the country defect from the company due to mishandling of claims and lack of compliance with contracts. Psychologists have publicly challenged Aetna for forcing drugs on patients while cutting down on allowable doctor visits. Additionally ,in a number of lawsuits around the country, psychologists allege that Aetna not only promises more therapy sessions than they actually cover, the company squeezes out psychologists and replaces their services with the lower cost counseling of social workers.

  • In a survey by the New York Attorney General, Aetna failed to comply with a state law requiring them to provide its HMO plan's subscriber contract to consumers when asked.
A bad actor like Aetna should not be given a license to have more leverage over patients and their doctors. With greater market share in key cities, Aetna will have put itself in a position to offer more patients less coverage for ever higher premiums. In light of the rapid consolidation of private healthcare companies, and considering Aetna's aggressive maneuvering to dominate the HMO industry over the last two years, we urge you to disallow the proposed buyout.

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