United States of America and the State of Texas v. Aetna Inc. and The Prudential Insurance Company of America; Public Comments and Response on Proposed Final Judgment
Federal RegisterNov 29, 1999
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DEPARTMENT OF JUSTICE
Antitrust Division
United States of America and the State of Texas v. Aetna Inc. and
The Prudential Insurance Company of America; Public Comments and
Response on Proposed Final Judgment
Pursuant to the Antitrust Procedures and Penalties Act, 15 U.S.C.
16(c)-(h), the United States publishes below the comments received on
the proposed final judgment in United States of America and the State
of Texas v. Aetna Inc. and The Prudential Insurance Company of America,
Civil Action No. 3-99CV1398-H, filed in the United States District
Court for the Northern District of Texas (Dallas Division), together
with the United States' response to those comments.
Copies of the comments and the response are available for
inspection and copying at the U.S. Department of Justice, Antitrust
Division, 325 7th Street, NW, Suite 400, Washington, DC 20530
(telephone: (202) 616-5933), and at the Office of the Clerk of the
United States District Court for the Northern District of Texas (Dallas
Division). Copies of these materials may be obtained upon request and
payment of a copying fee.
Constance K. Robinson,
Director of Operations.
Response of the United States to Public Comments
Pursuant to the requirements of the Antitrust Procedures and
Penalties Act (the ``APPA''), 15 U.S.C. 16(b)-(h), the United States
hereby responds to public comments received regarding the proposed
Revised Final Judgment in this matter.
The United States filed a civil antitrust Complaint under Section
15 of the Clayton Act, 15 U.S.C. 25, on June 21, 1999, alleging that
the proposed acquisition by Aetna Inc. (``Aetna'') of The Prudential
Insurance Company of America's (``Prudential'') health insurance
business would violate Section 7 of the Clayton Act (``Section 7''), 15
U.S.C. 18. The State of Texas, by and through its Attorney General,
joined the United States as co-plaintiff in this action. On August 4,
1999, the United States and the State of Texas filed a proposed Revised
Final Judgment, a Revised Hold Separate Stipulation and Order, and a
Revised Competitive Impact Statement (``CIS'').
The proposed Revised Final Judgment and CIS were published in the
Federal Register on Wednesday, August 18, 1999 at 64 FR 44946 (1999). A
summary of the terms of the proposed Revised Final Judgment and the CIS
and directions for the submission of written comments were published in
the Washington Post and the Dallas Morning News for seven consecutive
days, from July 27 through August 2, 1999. The 60-period for comments
expired on October 18, 1999.
The United States received six comments on the proposed Revised
Final Judgment. Two of the comments were submitted by individuals; one
was submitted on behalf of a medical group and physician contracting
organization; three were submitted on behalf of
[[Page 66648]]
professional medical associations. All six comments are addressed
below.
After careful consideration of the comments, copies of which are
attached to this Response, the United States has concluded that the
additional relief suggested by the comments is either not relevant to
the violations investigated by the Department and alleged in the
Complaint or unnecessary to remedy the harm caused by the proposed
transaction. For that reason, once the comments and the Response have
been published in the Federal Register pursuant to 15 U.S.C. 16(d), the
United States will move this court for entry of the proposed Revised
Final Judgment.
I. Background
At the time the Complaint was filed, Aetna was (and remains) the
largest health insurance company in the United States, providing health
care benefits to approximately 15.8 million people in 50 states and the
District of Columbia; Prudential was the ninth largest, providing
health care benefits to approximately 4.9 million people in 28 states
and the District of Columbia. Aetna and Prudential each offered a wide
range of managed health insurance plans, including health maintenance
organization (``HMO'') plans and point of service (``POS'') plans.
As the Complaint alleges, Aetna and Prudential competed head-to-
head in the sale of HMO and HMO-based POS (``HMO-POS'') plans in
Houston and Dallas, Texas; such competition benefited consumers by
keeping prices low and quality high; and the proposed acquisition would
end such competition and give Aetna sufficient market power to increase
prices or reduce quality in the sale of HMO and HMO-POS plans in those
geographic areas. The Complaint also alleges that the acquisition would
enable Aetna to unduly depress physicians' reimbursement rates in
Houston and Dallas, resulting in a reduction of quantity or a
degradation in quality of physicians' services in those areas.
With the Complaint, the parties also filed a proposed settlement
that would permit Aetna to complete its acquisition of Prudential but
would require the divestitures of certain assets sufficient to preserve
competition in the sale of HMO and HMO-POS plans and the purchase of
physicians' services in Houston and Dallas. This settlement was set
forth in a proposed Final Judgment and Hold Separate Stipulation and
Order. To further clarify certain aspects of the settlement, on August
4, 1999, the parties jointly moved for entry of a proposed Revised
Final Judgment and a Revised Hold Separate Stipulation Order.
The proposed Revised Final Judgment requires Aetna to divest its
interests in two previously acquired health plans serving the Houston
and Dallas areas: the Houston-area commercial HMO and HMO-POS
businesses of NYLCare Health Plans of the Gulf Coast, Inc. (``NYLCare-
Gulf Coast''), and the Dallas-area commercial HMO and HMO-POS
businesses of NYLCare Health Plans of the Southwest, Inc. (``NYLCare--
Southwest''). The NYLCare entities were acquired by Aetna in 1998.
On September 14, 1999, Aetna executed a definitive Stock Purchase
Agreement with Health Care Service Corporation (``HCSC''), the parent
of Blue Cross/Blue Shield of Illinois and Blue Cross/Blue Shield of
Texas. HCSC proposed to buy all of NYLCare--Gulf Coast and NYLCare--
Southwest, excepting only the two entities' Medicare business, for a
total purchase price of approximately $500 million. The United States
and the State of Texas reviewed the proposed transaction to determine
whether it satisfied the requirements of Section IV of the proposed
Revised Final Judgment regarding the required divestitures. On October
27, 1999, the United States notified Aetna and HCSC that, subject to
the terms of the proposed Revised Final Judgment, it did not object to
the sale.
The Revised Hold Separate Stipulation and Order, entered by this
Court on August 9, 1999, mandates that NYLCare-Gulf Coast and NYLCare-
Southwest function as independent, economically viable, ongoing
business concerns and that competition be maintained prior to the
divestitures. It requires Aetna to take steps immediately to preserve,
maintain, and operate NYLCare-Gulf Coast and NYLCare-Southwest as
independent competitors until the completion of the divestitures
ordered by the proposed Revised Final Judgment, including holding
NYLCare's management, sales, service, underwriting, administration, and
operations entirely separate, distinct, and apart from those of Aetna.
In addition, Aetna is obligated to cause NYLCare-Gulf Coast and
NYLCare-Southwest to maintain contracts or agreements for coverage of
approximately 260,000 commercially insured HMO and HMO-POS plan
enrollees in the Houston area and approximately 167,000 in the Dallas
area through the date of signing a definitive purchase and sale
agreement for the divestiture of the two NYLCare entities. Until the
plaintiffs, in their sole discretion, determined that NYLCare-Gulf
Coast and NYLCare-Southwest could function as effective competitors,
Aetna was prohibited from taking any action to consummate the proposed
acquisition of Prudential. On July 27, 1999, the United States informed
Aetna that its efforts to establish and hold separate NYLCare-Gulf
Coast and NYLCare-Southwest as effective competitors were sufficient to
satisfy Section III of the Revised Hold Separate Stipulation and Order,
and that it could close on the purchase of Prudential.
The United States, the State of Texas, and the defendants have
stipulated that the proposed Revised Final Judgment may be entered
after compliance with the APPA. Entry of the proposed Revised Final
Judgment would terminate this action, except that the Court would
retain jurisdiction to construe, modify, or enforce the provisions of
the proposed Revised Final Judgment and to punish violations thereof.
II. Response to Public Comments
A. Overview
The United States received six comments in response to the proposed
Revised Final Judgment. The comments consist of a general concern with
the transaction and any further consolidation in the HMO industry in
the U.S. (see Subsec. B); a concern about the failure of the proposed
Revised Final Judgment to address consolidation in the Georgia HMO
industry (see Subsec. C); a request that the proposed Revised Final
Judgment be amended to enjoin Aetna's use of certain contractual
provisions as anticompetitive (see Subsec. D); and questions regarding
the adequacy of the remedial provisions in the proposed Revised Final
Judgment, in particular the propriety of requiring Aetna to divest its
NYLCare assets rather than its Prudential assets in Dallas and Houston
(see Subsecs. E and F). For the reasons stated in Subsection B-F,
below, the United States believes that the comments provide no basis
for determining that the proposed Revised Final Judgment is not in the
public interest.
B. The Judgment Adequately Protects Competition Affected by the
Proposed Merger and Should Not Address Prior Mergers
Charlene L. Towers of Highland Beach, Florida, quoting a newspaper
columnist, contends that the United States's approval of the
transaction should be reconsidered because it furthers the on-going
consolidation of the HMO industry. Ms. Towers assets that while as
recently as a few years ago there were eighteen large HMO plans in
[[Page 66649]]
the U.S., only seven remain. Ms. Towers also suggests that the HMOs are
now colluding on price and benefits and that consumer choice is
suffering.
Ms. Towers argues that because Aetna's acquisition of Prudential--
in conjunction with the other mergers and acquisitions in the past--
will result in fewer competitors, competition will be harmed. The
number of competitors by itself, especially the number of competitors
nationally, is a poor indicator of competitiveness. Indeed, Ms. Towers
points to no specific market where she believes that the Aetna-
Prudential transaction will substantially lessen competition. Our
investigation, which examined markets throughout the country,
concluded--and the Complaint alleged--that Aetna's acquisition of
Prudential would have substantial anticompetitive effects in the
Houston and Dallas areas. The Complaint did not allege--nor did the
investigation disclose--any evidence of collusion on price or product
design. See United States v. Microsoft Corp., 56 F.3d 1448, 1459 (D.C.
Cir. 1995) (declining to reach beyond the Complaint to evaluate claims
that the government did not make or to inquire as to why they were not
made). Moreover, the proposed Revised Final Judgment, requiring Aetna
to divest itself of the two NYLCare entities in Houston and Dallas,
will ensure the maintenance of competition in those areas, and is fully
adequate to address the anticompetitive effects alleged in the
Complaint. Indeed, since Prudential had only approximately 172,000 HMO-
POS enrollees in Houston and 171,000 in Dallas, while NYLCare covered
260,000 HMO-POS enrollees in Houston and 167,000 in Dallas, the
divestiture will not only effectively restore the Houston and Dallas
markets to the status quo ante, but will result in the creation overall
of a larger and stronger competitor than if Prudential had remained
independent.\1\
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\1\ In addition to the divestitures required by the proposed
Revised Final Judgment, Aetna has decided to sell all the commercial
HMO-POS enrollees of NYLCare-Gulf Coast and NYLCare-Southwest
outside the Houston and Dallas areas, as well as approximately
12,000 enrollees in Preferred Provider Organization (``PPO'') plans.
In total, Aetna will be divesting approximately 526,000 enrollees.
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C. The Judgment Adequately Protects Competition Affected by the
Proposed Merger and Should Not Address Potential Future Mergers
The Medical Association of Georgia (``MAG'') objects to the
proposed merger for two reasons. First, it believes that the
acquisition of Prudential exacerbates Aetna's bargaining power and will
give it the ability to impose ``onerous contract terms'' on
physicians.\2\ Second, it alleges that the proposed future acquisition
of Blue Cross/Blue Shield of Georgia (``Georgia Blue'') by WellPoint
Health Networks, Inc. (``WellPoint'') will further reduce the number of
significant competitors of HMO and HMO-POS plans in Georgia and, in
conjunction with Aetna's acquisition of Prudential, produce
substantial--but undefined--anticompetitive effects.
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\2\ Specifically, MAG cites to Aetna's ``All Products'' clause
(discussed in Subsec. D, below), along with contractual provisions
that permit Aetna to determine ``medical necessity,'' to
``unilaterally amend'' the contract, ``to compel'' physicians to
participate in plans of other insurers, to impose ``unfair
penalties'' on physicians, and to ``hold Aetna harmless.''
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The United States investigated the likely effect of the proposed
merger of Aetna and Prudential in those areas of the U.S. where Aetna
and Prudential compete, including Georgia. The information obtained in
the investigation led the United States to conclude that the merger was
unlikely to have substantial anticompetitive effects in either the sale
of HMO-POS products or the purchase of physician services in
Georgia.\3\
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\3\ While Aetna would control roughly 26% of the HMO-POS market
in the Atlanta area after acquiring Prudential, the United States
concluded that Aetna would continue to face significant competition
from Kaiser, which also has approximately 26% of the market, United
HealthCare, with approximately 19%, and Georgia Blue, with
approximately 18%. In Macon, Georgia, the only other area of the
state where Aetna will have a significant share of the HMO-POS
market, Aetna's share will increase only minimally (by approximately
4%) from the acquisition of Prudential, and will continue to be
dwarfed by Georgia Blue, with 62% of the market.
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The proposed acquisition of Georgia Blue by WellPoint, MAG's second
concern, was not announced until after the parties reached agreement on
the proposed Revised Final Judgment, and our review of the proposed
transaction was on the basis of the market structures existing at the
time. However, as MAG acknowledges, Wellpoint currently has only a
minimal presence in Georgia (less than 2% of the HMO-POS market). Its
acquisition of Georgia Blue is therefore unlikely to have a substantial
anticompetitive effect or alter our analysis of the effects of the
Aetna-Prudential transaction.\4\
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\4\ MAG's concerns with Wellpoint's ``unparalleled focus on its
managed care products'' and ``pattern of abusive [but unspecified]
managed care practices,'' as well as with the fact that Georgia Blue
``would no longer be a Georgia-based company, would no longer be
owned primarily by Georgians and would have little if any allegiance
to Georgians,'' are not related to this action and need not be
addressed here.
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In arguing that the proposed Revised Final Judgment is inadequate
because it does not address the harm in Georgia from Aetna's
acquisition of Prudential (or Wellpoint's acquisition of Georgia Blue),
MAG is, in fact, requesting that the Court assess not the propriety of
the relief in light of the allegations of the Complaint, but the
propriety of the Complaint itself. This it may not do:
In part because of the constitutional questions that would be
raised if courts were to subject the government's exercise of its
prosecutorial discretion to non-deferential review, we have
construed the public interest inquiry narrowly. The district court
must examine the decree in light of the violations charged in the
complaint and should withhold approval only if any of the terms
appear ambiguous, if the enforcement mechanism is inadequate, if
third parties will be positively injured, or if the decree otherwise
makes ``a mockery of judicial power.''
Massachusettts School of Law at Andover, Inc. v. United States, 118
F.3d 776, 783 9D.C. Cir. 1997) citing Microsoft, 56 F.3d at 1457-59,
1462).
D. Additional Relief Regarding Certain Clauses in Physician Contracts
Is Not Necessary
The American Medical Association, joined by the Texas Medical
Association and the Dallas and Harris County Medical Societies,
submitted a comment generally supportive of the proposed revised Final
Judgment but requesting that the relief be expanded to enjoin Aetna
from enforcing for five years certain provisions in its contracts with
participating physicians in Dallas and Houston, in particular its ``All
Products'' and ``Practice Closure'' clauses.\5\ The Genesis Physician
Group, Inc. and Genesis Physicians Practice Association (collectively
``Genesis'') also submitted a comment requesting that Aetna's use of
its ``All Products'' clause be prohibited for five years, and further
expressing concern with Aetna's practice of reserving, in its contracts
with physicians, ``the power unilaterally to amend * * * material terms
of the contract without any requirement that Aetna notify physicians.''
The American Podiatric Medical Association, Inc. (``APMA'') also
submitted a comment requesting that the proposed revised Final Judgment
be modified to prevent Aetna's continued use of its ``All Products''
and ``Practice Closure'' clauses.\6\
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\5\ The AMA and its co-signatories also expressed concern that
the divestiture of the NYLCare assets be carefully monitored to
ensure that the result is a viable competitor in the HMO market.
This issue is addressed in Subsec. F, below.
\6\ The APMA also expressed concern that the increasing
concentration of managed care companies generally will diminish the
availability of podiatric services for consumers and reduce the
demand for podiatrists. Our investigation did not disclose any
evidence that the transaction would diminish the availability or
demand for podiatric services.
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[[Page 66650]]
Aetna's ``All Products'' clause requires physicians to participate
in all of Aetna's current and future health plans as a precondition to
participating in any current Aetna health plan. Thus, a physician who
serves on the provider panels of two different Aetna health plans
(e.g., an Aetna PPO and an Aetna HMO) cannot terminate his or her
participation in only one of those plans without giving up the revenue
he or she earns from both. The ``All Products'' clause, as a result,
enhances Aetna's bargaining power in its negotiations with physicians
by ``significantly increas[ing] the volume of business that a physician
would lose if he or she rejected [an Aetna contract demand].''
(Complaint, para.31.) Aetna's ``Practice Closure'' clause, on the other
hand, hinders a physician who wishes to limit his or her dependence on
Aetna by requiring that a physician accept Aetna's HMO patients if he
or she is accepting HMO patients from other payers, i.e., a physician
may not selectively close his or her practice to Aetna's HMO patients.
As alleged in the Complaint, Aetna's proposed acquisition of
Prudential would have further enhanced Aetna's bargaining leverage in
its contract negotiations with Houston and Dallas physicians. The
acquisition would have added to the substantial proportion of a
physician's total patient revenue already at stake in a physician's
negotiations with Aetna (i.e., all of that physician's Aetna and
NYLCare business) a significant additional share of that physician's
total patient revenue--his or her Prudential patients. In addition, the
acquisition of Prudential would make it even more difficult for a
Houston or Dallas physician to replace the lost revenue if he or she
were to reject Aetna's contract demands. Post-transaction, Aetna
(including NYLCare and Prudential) would account for a significantly
larger share of all local health plan enrollees, thereby diminishing
the pool of potential replacement patients.
The United States believes that the proposed Revised Final Judgment
fully addresses the concerns raised to the extent they are a product of
the proposed transaction. It requires Aetna to divest its NYLCare
businesses in Houston and Dallas as a pre-condition for acquiring
Prudential and, as a result, physicians in those areas will have
essentially the same proportion of their revenue at stake in future
negotiations with Aetna as they did before the proposed transaction.
Aetna's acquisition of Prudential will not increase its bargaining
power vis-a-vis physicians in those areas.\7\
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\7\ Similarly, the ``Practice Closure'' contract provision
discussed by the American Medical Association, the Texas Medical
Association and the Dallas and Harris County Medical Societies, MAG,
and the APMA, the provision reserving for Aetna the right to
unilaterally amend the provider contract, discussed by Genesis, and
the various other provisions discussed by MAG, all involve
contracting practices of Aetna which predate the transaction with
Prudential. They are not the result of the proposed transaction, nor
are they impacted significantly by the proposed Revised Final
Judgment. They are clearly beyond the scope of the Complaint and
thus beyond the scope of this proceeding.
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The comments of the AMA, Genesis, and the APMA, however, were not
limited to addressing the harm arising from this particular
transaction. They also address the possible consequences of the ``All
Products'' clause independent of any proposed transaction--in
particular, its effect on physicians who currently derive a large share
of their total patient revenue from an Aetna PPO health plan and who
may be forced by the ``All Products'' clause to agree to participate in
Aetna's HMO health plans.
The Complaint in this action is clearly limited to redressing the
anticompetitive effects of Aetna's proposed acquisition of Prudential.
Aetna's ``All Products'' clause was considered only in the context of
that transaction. The United States did not purport to investigate--or
remedy through the proposed Revised Final Judgment--all possible
anticompetitive behavior by Aetna, and the proposed Revised Final
Judgment is to be evaluated in that context. See Massachusetts School
of Law, 118 F.3d at 783 (the proper role in determining whether the
public interest would be served is to assess the adequacy of the relief
obtained in light of the case brought, not to determine the appropriate
relief had a different case been brought).\8\
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\8\ It is worth noting that nothing in the proposed Reviewed
Final Judgment limits the ability of the United States or the State
of Texas to look into Aetna's ``All Products'' clause or other
contractual provisions in the future, nor does it restrict in any
way the rights of private parties to pursue the full range of
remedies available under the antitrust laws.
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E. The Plaintiff Is Not Required To Seek Alternative Relief That a
Third Party Prefers
Robert D. Gross, M.D., of Forth Worth, Texas, suggests there is a
better remedy than requiring Aetna to divest its interests in NYLCare-
Gulf Coast and NYLCare-Southwest before being permitted to acquire
Prudential. Dr. Gross believes that Prudential's organizations in the
Houston and Dallas areas are of substantially higher quality than the
former NYLCare organizations, and that Prudential had ``made an
extraordinarily strong commitment to quality in the Dallas-Ft. Worth
market.'' \9\ He suggests that it would be less disruptive to the
health care markets and patient populations in those two areas if Aetna
divested its Prudential assets rather than its NYLCare assets in those
areas.\10\
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\9\ Our investigation revealed that many other physicians as
well as employers and health care consultants/brokers do not share
this view.
\10\ Dr. Gross is also concerned with NYLCare's viability as an
effective competitor. That issue is addressed in Subsec. F, below.
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The goal of the proposed Revised Final Judgment is to return the
markets in the Houston and Dallas areas to the status quo ante. As
discussed in Subsection B, above, the United States believes that the
proposed remedy will do so. Indeed, it believes that the divestiture of
NYLCare will result in an overall larger and stronger competitor than
if Prudential had remained independent.11 Dr. Gross'
suggestion that there is an alternative to the proposed Revised Final
Judgment that he thinks would be preferable is not sufficient reason to
reject the settlement negotiated in this case. See United States v.
Microsoft Corp., 56 F.3d at 1460 (a court is not empowered to reject
remedies agreed to in a consent decree merely because it believes other
remedies are preferable).
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\11\ As noted above, Prudential had approximately 172,000
enrollees in Houston and 171,000 in Dallas in its HMO-POS plans. In
contrast, Aetna is required to divest the approximately 260,000 HMO-
POS enrollees in Houston and 167,000 HMO-POS enrollees in Dallas
covered by NYLCare. Since Aetna has also decided to divest NYLCare's
HMO-POS enrollees outside the Dallas and Houston areas, as well as
approximately 12,000 enrollees in Preferred Provider Organization
(``PPO'') plans, it will be selling a total of approximately 526,000
enrollees.
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F. The Judgment Adequately Protects the Viability and Independence of
the NYLCare Businesses To Be Divested
The American Medical Association along with the Texas Medical
Association and the Dallas and Harris County Medical Societies also
expressed concern about the viability of the NYLCare businesses in
Houston and Dallas to be divested, and requested that the United States
closely monitor this aspect of the divestiture.
The proposed Revised Final Judgment and the Revised Hold Separate
Agreement require Aetna to take ``all steps necessary to ensure that
NYLCare-Gulf Coast and NYLCare-Southwest are
[[Page 66651]]
maintained and operated as independent, on-going, economically viable,
and active competitors until completion of the divestitures ordered by
this Revised Final Judgment * * *.'' (proposed Revised Final Judgment,
Sec. IV H.) Those steps include, but are not be limited to, the
appointment of experienced senior management and the creation of
separate and independent sales, provider relations, patient management/
quality management, commercial operations, network operations, and
underwriting organizations for the NYLCare entities. (Id.) Aetna is
also required to provide specified transitional services, as well as
such additional services requested by the management of NYLCare as may
be necessary to ensure NYLCare's viability, including the funding of
service quality guarantees. (Id.) Aetna is also required to fund an
incentive pool of at least $500,000, which will be available to
management of the NYLCare entities if they meet certain membership
targets as of the closing date for the sale of the NYLCare entities.
(Id.)
In addition, the proposed Revised Final Judgment (and the Revised
Hold Separate Stipulation and Order) obligate Aetna to ``cause NYLCare-
Gulf Coast and NYLCare-Southwest to maintain contracts or agreements
for coverage of approximately two hundred sixty thousand (260,000)
commercially insured HMO and HMO-based POS plan enrollees in Houston
and contracts or agreements for coverage of approximately one hundred
sixty seven thousand (167,000) commercially insured HMO and HMO-based
POS plan enrollees in Dallas through the date of signing the definitive
purchase and sale agreement(s) for the divestiture of the two NYLCare
entities.'' (Id. Sec. IV B; Revised Hold Separate Stipulation and
Agreement at Sec. III B.)
The United States believes the procedures provided in the proposed
Revised Final Judgment and the Revised Hold Separate Stipulation and
Order are fully adequate to ensure that Aetna will divest its NYLCare
businesses in Houston and Dallas as viable and independent competitors.
No further additions or changes to the proposed Revised Final Judgment
are necessary.
III. The Legal Standard Governing the Court's Public Interest
Determination
Section 2(e) of the Antitrust Procedures and Penalties Act, 15
U.S.C. 16(e), requires that the proposed Revised Final Judgment be in
the public interest. The Act permits a court to consider, among other
things, the relationship between the remedy secured and the specific
allegations set forth in the government's complaint, whether the decree
is sufficiently clear, whether enforcement and compliance mechanisms
are adequate, and whether the decree may harm third parties. See
Microsoft, 56 F.3d at 1461-62.
Consistent with Congress' intent to use consent decrees as an
effective tool of antitrust enforcement, the Court's function is ``not
to determine whether the resulting array of rights and liabilities is
the one that will best serve society, but only to confirm that the
resulting settlement is within the reaches of the public interest.''
Id. at 1460 (internal quotations omitted); see also United States v.
Bechtel Corp., 648 F.2d 660, 666 (9th Cir. 1981), cert. denied, 454
U.S. 1083 (1981). As a result, a court should withhold approval of a
proposed consent decree ``only if any of the terms appear ambiguous, if
the enforcement mechanism is inadequate, if third parties will be
positively injured, or if the decree otherwise makes `a mockery of
judicial power.' '' Massachusetts School of Law at Andover, Inc. v.
United States, 118 F.3d 776, 783 (D.C. Cir. 1997) (quoting Microsoft,
56 F.3d at 1462).
None of these conditions are present here. The proposed Revised
Final Judgment is closely related to the allegations of the Complaint,
the terms are unambiguous, the enforcement mechanism adequate, and
third parties will not be harmed by entry of this Judgment. The
specific acquisition investigated--Aetna's purchase of certain health
insurance-related assets from Prudential--is full remedied in the
proposed Revised Final Judgment. The fact that Aetna may be acting in
other ways detrimental to competition is simply not the issue here and
can be addressed by means still available to the plaintiffs and others.
IV. Conclusion
The United States has concluded that the proposed Revised Final
Judgment reasonably, adequately, and appropriately addresses the harm
alleged in the Complaint. As required by the APPA, the United States
will publish the public comments and this response in the Federal
Register. After such publication, the United States will move this
court for entry of the proposed Revised Final Judgment.
Dated: November 9, 1999.
Respectfully submitted,
Paul J. O'Donnell,
John B. Arnett, Sr.,
Steven Brodsky,
Deborah A. Brown,
Claudia H. Dulmage,
Dionne C. Lomax,
Frederick S. Young,
Attorneys, U.S. Department of Justice, Antitrust Division, Health Care
Task Force, 325 Seventh St. N.W., Suite 400, Washington, D.C. 20530,
Tel: (202) 616-5933, Facsimile: (202) 514-1517.
July 14, 1999.
Attn: Joel L. Klein
Asst. Attorney General
Fax: 202-514-4371
Re: Aetna Inc. acquisition of Prudential Health Care
From: Charlene L. Toews
1057 Boca Cove Lane
Highland Beach, Florida 33487
Fax: 561-278-1306
Dear Mr. Klein: Please find attached some quotes from Molly Ivans
regarding the acquisition by Aetna Inc of Prudential Health Care--which
I totally agree with. PLEASE reconsider your approval of this
acquisition. The citizens of the United States are NOT being served by
this approval.
``Late last month, the Justice Department, showing the
spinelessness for which it is so noted in these matters, approved the
merger of Aetna and Prudential. The merged company will provide health
care for one in every eleven Americans, and that makes it big enough to
downsize services, hike prices and force doctors to accept unreasonable
contract provisions and reimbursement rates.''
``Just a few years ago there were 18 big HMO's; today there are
seven.''
``All seven of the giants decided--independently of course--on the
very same day last year to dump rural seniors on Medicare. They also
decided, in perfect concert, to cut back on the prescription drug
benefits and no co-pay policy that got the seniors into the HMO's in
the first place.''
``And every one of the seven has substantially hiked premiums for
all their patients this year. And just over a week ago, they announced
they were dumping another 250,000 Medicare patients, as well as cutting
benefits and raising premiums.''
``We were supposed to be able to keep HMO's in line by quitting
ones that provided poor service or cost too much, but it hasn't worked
out that way. Only 17 percent of employers offer workers a choice of
plans. Everybody else is stuck with whatever the company chooses; and
the company chooses by cost of premiums, not by quality of care. As USA
Today recently noted, ``Even without consolidation in the industry,
patient choice has been slowly but inexorably vanishing.''
Mr. Klein, when are the people that ``we the people'' put in place
to serve going to actually SERVE ``the people'' and put OUR best
interests first?
[[Page 66652]]
Sincerely,
Charlene L. Toews.
October 18, 1999.
Gail Kursh, JD,
Chief, Professions and Intellectual Property Section, Health Care Task
Force, Department of Justice, 600 E Street, NW, Room 9300, Washington,
DC 20530.
Re: Proposed Acquisition of Prudential by Aetna
Dear Ms. Kursh: Please accept this letter as the written comments
of the Medical Association of Georgia on the proposed acquisition
(hereinafter ``the Acquisition'') by Aetna, Inc. (hereinafter
``Aetna'') of the Prudential Insurance Company of America's healthcare
business (hereinafter ``Prudential'').
The Medical Association of Georgia (``MAG'') is a non-profit,
voluntary professional association of Georgia physicians. MAG was
founded in 1849, is a part of the American Medical Association and is
the largest physicians' association in Georgia. Presently, MAG has over
8,000 members--more than 5,000 of whom are physicians actively
practicing medicine in the State of Georgia.
MAG was founded to promote the art and science of medicine and the
improvement of public health. With these ends in mind. MAG actively
works to advocate physician and patient positions in the United States
Congress, the Georgia General Assembly, the courts of this State and
the United States, as well as before a variety of state and federal
regulatory agencies.
The purpose of this letter is to formally OBJECT to the proposed
acquisition of Prudential by Aetna. Our reasons for this objection are
numerous and are presented in the following paragraphs. Additionally,
we hereby adopt as our own as if stated herein, the positions and
rationale proffered by the State of Texas in the civil lawsuit in which
that sovereign state joined the United States of America, alleging that
the acquisition would violate Section 7 of the Clayton Act and would be
detrimental to patients and physicians throughout much of this country.
1. Two Primary Reasons MAG Opposes the Acquisition
A. Increased Market Strength Will Have Adverse Impact on Patient Care
The primary basis for the Medical Association of Georgia's
objection to the acquisition of Prudential by Aetna lies in the fact
that Aetna has shown a propensity to impose onerous contract provisions
that have the effect of adversely impacting the quality of care
patients receive. Historically, physicians have played the role of
patient advocate. In fact, it is the public policy of the State of
Georgia that physicians are encouraged to advocate on behalf of the
best interests of their patients.\1\ Unfortunately, physicians are
unable to fully exercise this role in today's healthcare market.
---------------------------------------------------------------------------
\1\ O.C.G.A. Sec. 33-20A-7(b). ``No healthcare provider may be
penalized by a managed care plan for providing testimony, evidence,
records, or any other assistance to an enrollee who is disputing a
denial, in whole or in part, of a health care treatment or service
or claim therefore.''
---------------------------------------------------------------------------
In today's healthcare market, physicians have no bargaining power
whatsoever when it comes to negotiating with health insurance plans
regarding the obligations of the insurers, or those of the physicians,
under the insurance plans. Given the current antitrust laws applicable
to the contracting process between health insurers and physicians,
physicians have no ability to collectively bargain on behalf of their
patients or themselves. As such, they have no bargaining strength
against the health insurers who are able to submit contracts to
physicians virtually on a ``take it or leave it.'' basis. The
Acquisition will only exacerbate that problem for Georgia physicians
and patients as it will further empower Aetna to impose onerous
contract provisions on physicians and other healthcare providers,
eventually ``lead[ing] to a reduction in the quantity or a degradation
in the quality of physician services'' provided to patients.\2\
---------------------------------------------------------------------------
\2\ [See, Competitive impact Statement. U.S.A. and the State of
Texas v. Aetna, Inc., Et al., USDC Northern District of Texas, CA 3-
99CV1398-H (1999)].
---------------------------------------------------------------------------
B. The Double Whammy Effect of the Aetna/Prudential Acquisition Plus
the Georgia Blue/Wellpoint Merger
The second major basis for the Medical Association of Georgia's
objection to the Aetna/Prudential Acquisition is that is comes at the
same time that Georgia is about to suffer the effects of a merger
between the state's largest and oldest health insurer, Blue Cross/Blue
Shield of Georgia (hereinafter ``Georgia Blue'') and Wellpoint Health
Networks, Inc. The combination of Blue Cross/Blue Shield of Georgia and
Wellpoint will place more than 32% of the Georgia health insurance
market in the hands of one of the nation's largest publicly traded
managed care insurance behemoths. The corporate entities that will
follow the Aetna/Prudential acquisition and the Georgia Blue/Wellpoint
merger will control nearly 60% of the HMO/POS markets in Georgia. The
concurrence of these two transactions will dramatically reduce the
competition among carriers and, therefore, the healthcare options
available to all Georgians.
II. What Is There To Fear About an Enlarged Aetna?
Given the monopsony position of some insurers in some locales (such
as the position Aetna would enjoy in Georgia if the acquisition were
approved), many plans use this ``unlevel playing field'' to issue
contracts to physicians on a ``take it or take it'' basis. The
physicians are not in a position to negotiate any of the terms of the
contract. For example, physicians' objections to gag clauses usually go
unheeded. Reimbursement rates may not be disclosed in some contracts,
much less negotiated. Yet, because of the number of patients that they
have under the dominant insurer's plans, they cannot afford--
financially or ethnically--to abandon their patients by rejecting the
contract submitted to them by the insurer, regardless of how onerous
some of the contents of the contract are. Their only option is to
``take it.'' Stated differently, when a physician's revenue from a
single insurer gets to a certain point, i.e., a certain percentage of
the overall revenue, that physician is ``locked in'' to the plan and
has no bargaining power whatsoever. At that point, the plan's contract
becomes a contract of adhesion and the physician has no ability to
negotiate for his or her patients' rights and no opportunity to reject
the contract.
Aetna has incorporated into their physician agreements many of the
most onerous contract provisions popular among the managed care
industry today. Some of the provisions that Aetna has used to control
the quality and quantity of care that physicians provide to their
patients include the following:
Aetna's Infamous ``All Products'' Clause
Perhaps the single worst contract provision used by Aetna is its
often criticized ``all products'' clause. ``All products'' clauses
provide that if a physician participates in any of the carrier's plans,
he or she must participate and take patients covered under all of their
plans, now and in the future. These clauses, like most of the
provisions discussed below, are usually non-negotiable. They are
objectionable for many reasons. Health plan products differ
substantially in operation. A physician may feel comfortable
participating in a PPO product, but may have very valid reasons for not
wanting to participate in an HMO product,
[[Page 66653]]
which is a dramatically different product that requires physicians to
assume certain risks. Those risks may not be viable for smaller
practices with smaller patient bases because of practice size, patient
mix or other valid actuarial and business concerns. Yet, these clauses
require physicians to participate in products despite the existence of
legitimate concerns.
Moreover, imposing these clauses on physicians (especially as a
unilateral amendment to an existing contract) may sever existing
patient-physician relationships. This has been seen most vividly in
Texas where Aetna US Healthcare enforced its ``all products'' clause
and terminated a large physician group that refused to take new
patients under one of the insurer's HMO products. This resulted in
thousands of patients losing access to their physicians and, for many
of them, having to change doctors in mid-treatment. An additional
concern with ``all products'' clauses is that where plans have
significant market share (such as the 58% share WellPoint/Georgia Blue
and Aetna/Prudential would have in Georgia), the non-negotiable ``all
products'' clauses will operate to further limit patient choice by
facilitating a conscious push of patients into HMO products and away
from other options.
``All products'' clauses also harm premium-payers. An insured who
selects a PPO product, usually does so in order to have access to a
more attractive panel of physicians and other healthcare providers.
Typically, that insured has to pay for that privilege with a higher
premium than the basic HMO member will pay. Yet, if a physician agrees
to be an authorized provider under Aetna's PPO plan, and is subject to
the ``all products'' clause contained therein, that physician has to
take Aetna HMO patients, as well as PPO patients. So, the HMO member
will have the same access to that doctor as the higher premium-paying
PPO member. Thus, the PPO member paid the higher premium but got
nothing for the higher cost. Is this fair to patients? Is this fair to
employers who purchase health insurance for their employees?
Aetna's Ability To Determine What Is ``Medically Necessary''
Among the other more egregious contract provisions found in many
managed care contracts, especially Aetna's, is the provision that
authorizes the health plan to make the determination as to what is
``medically necessary'' for a patient. Testifying in support of managed
care reform before a subcommittee of the United States House of
Representatives in 1996 and again before a Georgia State Senate
committee just this past March, Dr. Linda Peeno, M.D., a former medical
executive for several managed care companies across the country, stated
that ``the definition of `medical necessity' is the `smart bomb' of
managed care.'' She explained that managed care companies can appear to
offer all sorts of options and decision-making power to their insureds
and providers but as long as they retain control over the definition of
what is, and what is not, medically necessary, they have unfettered
control over what medical treatment they will pay for on behalf of
their insureds, despite the fact that the insured has paid to have the
service covered by their plan.
Many insurance plan contracts in existence today, including most
Aetna contracts, allow the insurer to supersede a treating physician's
determination regarding the necessity of medical services without any
consideration whatsoever of that physician's judgment or the patient's
true needs. Aetna accomplishes this by retaining for itself the
unfettered discretion to determine what they will, and what they will
not, pay for--all under the guise of the service not being, ``medically
necessary.'' For example, Aetna's contract with physicians provides as
follows:
1.1 Provision of Covered Services * * * It is understood and
agreed that Company, or when applicable, the Payor, shall have final
authority to determine whether any services provided by Provider were
Covered Services * * *
12.4 Covered Services. Those Medically Necessary Services which a
Member is entitled to receive under the terms and conditions of the
Plan.
12.7 Medically Necessary Services. * * * Health care services that
are appropriate and consistent with the diagnosis in accordance with
accepted medical standards and which are likely are result in
demonstratable [sic] medical benefits, and which are the least costly
of alternative supplies or levels of service which can be safely and
efficiently provided to the patient.
Hold Harmless Clauses
Aetna has unfairly shifted the legal liability associated with its
policies to physicians through hold harmless clauses, clauses limiting
their liability and clauses shortening the applicable statue of
limitations. Aetna has insulated itself from liability by inserting
hold harmless clauses in its contracts with physicians in blatant
disregard of statutory prohibitions contained in some state's laws.
Certainly, health plans should not be allowed to shift their own legal
liabilities onto the physician while simultaneously deciding how and
under what circumstances physicians can provide care. That is exactly
what Aetna does when they have the right to decide what is, and what is
not, ``medically necessary.'' Is there any reason to believe that Aetna
will adhere to Georgia's newly enacted statutory prohibition against
hold harmless clauses.\31\
---------------------------------------------------------------------------
\3\ See O.C.G.A. Sec. 51-1-48(b).
---------------------------------------------------------------------------
Clauses Which Allow Aetna To Amend Unilaterally the Contract
Without the Physician's Consent and Sometimes Knowledge
Another onerous provision found in managed care plan contracts
today is the clause that allows a plan to amend the contract entirely
on its own and exclusively within its unfettered discretion. While
traditionally such clauses have been utilized by insures to alter very
minor features of an insurance contract--e.g., changing the address
where claim forms are to be sent, changing the payment dates, and other
elements of a clerical nature--managed care plans have more recently
been using these unilateral amendments to make major changes in the
fundamental, core obligations of the parties which constitute the very
essence of the contractual agreement between the insurer and the
physicians. These fundamental obligations include the nature of the
services that the physicians are to provide under the contract, the
physician services that are to be paid for and the method by which
reimbursements are to be calculated.
Moreover, the unilateral changes being made today by insurance
plans, including those of Aetna, involve not only fees, but also
utilization review/case management policies, which, in essence, dictate
whether and under what circumstances patients are able to obtain
medically necessary services.
Requirements That Force Physicians To Participate in Other
Insurers' Plans About Which the Physicians Know Noting
In light of the fact that physicians have no bargaining power
whosoever with respect to contracting with health insurers about the
contents of their plans, fairness certainly seems to require that the
physicians at least be allowed to know with which plans they are
contracting. Aetna's contracts have provisions that retain for Aetna
the right to require that their physicians also
[[Page 66654]]
participate with a network of plan ``affiliates'' or otherwise
participate in other insurers' plans. Under such contractual
provisions, physicians are not permitted to review the additional
contracts to know or understand their terms and conditions. Physicians
are not authorized to accept or reject these other insurers' contracts.
When patients who are insured under the affiliate plans come to the
physician's office for treatment, the physician must provide covered
medical treatment to the patient and can only expect to be paid at the
same discounted rates Aetna has imposed upon them in their contract.
Further, physicians are required to accept payment not from Aetna, but
from the ``affiliate'' insurer. If the affiliate insurer does not pay
the physician, the only remedy is to seek payment from the patient.
Moreover, when the physician treats the insured patient under the
affiliate plan, the physician must follow that plan's definition of
what is medically necessary.
Provisions Which Impose Unfair Penalties Upon Physicians
Aetna, like many managed care health plans, reserves the right to
punish physicians who do not follow certain plan rules and regulations.
These contractual ``punishments'' often bear no relationship to alleged
wrongdoing, run the potential of jeopardizing quality care, and are of
questionable legality. Under the Aetna contract, if a physician fails
to obtain appropriate prior authorization, he or she shall have their
reimbursement reduced for all medical services provided to all patients
that they treat after notification by Aetna. This provision is often
referred to as a `'contamination'' clause--the theory being that if one
patient goes out of plan, a physician's payment for all patients will
be ``contaminated,'' i.e., reduced
Sometimes physicians do not comply with utilization review
requirements (such as prior approval rules) because they are not in a
patient's best interest. Sometimes the noncompliance is inadvertent. In
many cases, there was no mistake at all. Given the proliferation of
managed care throughout Georgia and given the fact that physicians
contract with numerous health plans, all with different procedures and
requirements, billing for medical services has become cumbersome,
complex and confusing. This scenario has placed an incredible burden on
physicians (and their office staffs). So, it is understandable that
some physicians' offices may fail on an isolated occasion to meet each
and every billing, utilization review, or other procedure imposed by
each and every one of the myriad health plans with which they have
contracted. Healthcare insurance company acquisitions and mergers that
further empower insurers to impose sanctions against physicians in this
manner should not be allowed to occur. This type of disproportionate
punishment provision should not be tolerated.
Further, penalizing physicians for failing to comply with a plan's
utilization review program in order to advocate for medically necessary
treatment or care is contrary to Georgia law. Is there any reason to
believe that Aetna will abide by this newly enacted provision of
Georgia law? Other managed care companies have continued to enforce
such provisions against physicians in direct violation of some states'
laws. Is this what Georgia patients and physicians deserve?
The Georgia General Assembly has spoken unequivocally (and nearly
unanimously) on this point. With the passage of O.C.G.A. Sec. 33-30A-
7(b), the legislature made it clear that it is the public policy of the
State of Georgia that a physician should be allowed, in fact
encouraged, to advocate for medically appropriate health care for his
or her patients. If Aetna is allowed to violate state law by penalizing
physicians for such advocacy, as other companies have done (e.g., the
way Wellpoint Health Networks, Inc. has done in violation of California
law), then such important patient advocacy will be severely chilled and
could result in a dangerous threat to patient care in Georgia.
III. The Double Whammy Effect Of Aetna/Prudential and Georgia Blue/
Wellpoint
The second major reason for our objecting to the Acquisition is the
fact that it comes at the same time that Georgia's largest and oldest
health insurer, Blue Cross/Blue Shield of Georgia, is merging with
WellPoint Health Networks, Inc., one of the nation's largest publicly
traded managed care insurance behemoths. The combination of Blue Cross/
Blue Shield of Georgia and WellPoint Health will control more than 32%
of the health insurance market in Georgia [1.8 million persons]. The
consequences of having one of the largest managed care networks in the
country, which is not Georgia-based, take over one-third of the Georgia
healthcare insurance market would be troubling enough for Georgia
patients, Georgia physicians and other healthcare providers interested
in providing the best quality of healthcare to their patients. However,
the ill effects of that merger will be compounded by the fact that it
will occur at the same time that Aetna and Prudential, the third and
fourth largest health insurers in Georgia are dissolved into one. The
concurrence of these two transactions will dramatically reduce the
competition among carriers and, therefore, the healthcare options
available to all Georgians. It will directly affect nearly 59% of the
HMO/POS market in Georgia and more than 52% of that same market in the
Metropolitan Atlanta area.\4\ Because of the unfair market share that
the two resulting insurance carriers will have, however, the effects
will be hard felt throughout the entire state's health insurance
market. The following market share chart shows how these two
consolidating transactions will affect the health insurance market
share landscape in Georgia.
---------------------------------------------------------------------------
\4\ All statistics are based on information contained in the
latest update of Harkey & Associates' 1999 report on managed care
insurers operating in Georgia.
[In percent]
----------------------------------------------------------------------------------------------------------------
Market share
affected by
Market share for combination of
Market share as Market share as Aetna/Prud Aetna/Prud
HMO/POS market of 07/01/99 for of 07/01/99 for following the acquisition and
Aetna Inc. Prudential acquisition merger of BC/BS
of GA with
WellPoint
----------------------------------------------------------------------------------------------------------------
Market Share for all of Georgia..... 10.08 15.95 26.03 58.62
Market Share for Metropolitan 9.35 18.13 27.48 52.34
Atlanta Area.......................
----------------------------------------------------------------------------------------------------------------
[[Page 66655]]
The merger of Georgia Blue with WellPoint would increase
WellPoint's market share in Georgia from less than 2% of the market
[100,000 persons insured currently under Wellpoint's subsidiary,
UNICARE] to nearly 32% of the private health insurance market [1.8
million persons]. While the market share increase for Georgia Blue
following the merger would appear to be fairly minimal, the dynamics of
having one of the largest managed care networks in the country, which
is California-based, take over one-third of the Georgia market will be
extremely consequential for Georgia insureds and Georgia physicians and
other healthcare providers interested in providing the best quality of
healthcare to their patients.
The merger between Georgia Blue and WellPoint is worrisome in
several respects. First, Georgia Blue would no longer be a Georgia-
based company, would no longer be owned primarily by Georgians and
would have little, if any, allegiance to Georgians. The influence and
presence of California-based WellPoint, as a dominant managed care
player, would be significant. WellPoint would immediately assume a
dominant position in the Georgia health care insurance market. With
this advantage, WellPoint would be expected to rapidly increase its
market share in Georgia.
Furthermore, considering WellPoint's unparalleled focus on its
managed care products and its dominant power in the managed care
industry, it is reasonable to expect that the managed care portion of
Georgia Blue will grow at an even faster rate in Georgia than it
otherwise would have and with a concomitant decrease in their attention
to the traditional indemnity market needs of Georgians. Patients will
be faced with a marketplace that is less competitive and that offers
far less choice.
If the merger is approved, Georgia Blue, in a period of less than 5
years, will have transformed from a Georgia-based, not-for-profit
insurer that was loyal to its insured patients and that was accountable
to the people and State of Georgia, into an indivisible piece of one of
the nation's largest publicly traded managed care behemoths.
While the corporate entity that would follow the merger of Georgia
Blue and WellPoint would not be an illegal monopoly in Georgia, it most
certainly would constitute a monopsony with significant market share
dominance. Given WellPoint's history of using abusive tactics in
California and the significant market share that they would acquire
from Georgia Blue, the merger between the two can only spell trouble
for Georgia patients and their health care providers. The combination
of market share dominance and a pattern of abusive managed care
practices could be a lethal dose of bad medicine for Georgians.
Although the Medical Association of Georgia and its members
acknowledge that managed care is here to stay, the amount of abuse that
is already present in the managed care industry--even in Georgia--
presents a significant concern. Thus, it is our obligation, by whatever
means are appropriate, to raise the issues and concerns of our members
and their patients whenever quality care is threatened by the managed
care industry. We strongly feel that allowing the state's third and
fourth largest healthcare insurers to merge at the same time the
state's largest healthcare insurer is being taken over by one of the
nation's largest managed care companies certainly constitutes just such
a threat to Georgia patients.
Conclusion
In summary, Aetna, through the use of numerous onerous contract
provisions, already constitutes a threat to quality care in Georgia and
elsewhere. Allowing it to consume an even larger segment of the
healthcare insurance market will only further empower Aetna to drive
the delivery of healthcare in any direction that its financial
incentives may dictate, regardless of the needs of patients. Aetna has
shown in many ways (E.g., by its unrepentant use of its definition of
``medical necessity''), that its primary, if not singular, emphasis is
in producing returns for its shareholders' investments--all to the
detriment of their insureds and without regard for same. The larger
they are allowed to become, the greater their dominance over the
healthcare market will be and the less physicians and other healthcare
providers will be able to determine what care patients can receive.
The concurrence of this Acquisition at the same time that Georgia's
largest healthcare insurer and its tremendous market share are being
turned over to one of the nation's largest managed care companies can
only spell trouble for Georgia patients and physicians. Together, the
two resulting corporate giants will control more than 58% of the
Georgia HMO/POS markets. With that combined ability, the two insurers
will dictate what care is provided throughout all of Georgia and they
will lower the standard of healthcare services to that which is ``the
least costly,'' just as Aetna says in its definition of ``medically
necessary.'' Is this really the single criterion that should control
the quality and quantity of healthcare that will be made available in
Georgia or anywhere else in the United States? The Medical Association
of Georgia arduously submits that it should not be.
Accordingly, and for the many reasons articulated above, the
Medical Association of Georgia and its 8,000 Georgia physicians
respectfully request that the proposed acquisition by Aetna of
Prudential Insurance Company's healthcare insurance business be
disapproved.
Thank you for your consideration in this matter that is of great
importance to all Georgians.
Sincerely,
David A. Cook,
General Counsel.
William T. Clark,
Associate General Counsel.
September 7, 1999.
Gail Kursh, JD,
Chief, Professions and Intellectual Property Section, Health Care Task
Force, Department of Justice, 600 E. Street, NW, Room 9300, Washington,
DC 20530.
Re: Comments of the American Medical Association, Texas Medical
Association, Dallas County Medical Society, and Harris County (Houston)
Medical Society to the Proposed Revised Final Judgment pending in
United States v. Aetna, Inc., Civil Action no. 3-99CV 1398-H
Dear Ms. Kursh: The American Medical Association (AMA), along with
the Texas Medical Association (TMA), the Dallas County Medical Society,
and the Harris County (Houston) Medical Society (collectively, ``the
Texas medical societies'') submit these comments regarding the proposed
consent decree (``consent decree'') entered into by the United States
Department of Justice, the Texas Attorney General (collectively, ``the
Government''), and Aetna/U.S. Healthcare (``Aetna'') and Prudential
Insurance Company of America (``Prudential'') in a complaint and final
judgment submitted to the United States District Court for the Northern
District of Texas on June 22, 1999.
Our organizations submit these comments in order to state to the
Government our desire for a fair and balanced healthcare marketplace,
including access by patients to the physicians our organizations
represent. Our organizations have a first-hand familiarity will
marketplace realities and the potential impact of this proposed merger
on physicians and patients. During the course of the investigation of
this proposed merger,
[[Page 66656]]
the AMA and the Texas medical societies have worked in partnership to
respond to requests from the United States Department of Justice (DOJ)
for information on the impact of this merger on physicians and patients
in the Dallas and Houston area.
The AMA is a not-for-profit association of approximately 275,000
physicians in all areas of specialization throughout the United States
and is the largest medical society in the United States. The Texas
Medical Association (TMA) is a not-for-profit association of 36,000
physicians and medical students practicing in all areas of
specialization in the State of Texas. TMA represents more than 83% of
all licensed physicians in Texas. The Harris County Medical Society
represents 8500 physicians, 80% of all physicians practicing in all
areas of specialization in Harris County. The Dallas County Medical
Society represents 6000 physicians practicing in Dallas County, 80% of
all physicians practicing in all areas of specialization in the county.
The foundation of all our organizations is the promotion of the science
and art of medicine (including quality of care) and the betterment of
public health. We also advocate on behalf of our physicians and their
patients at all levels of state and federal government and in the
private sector.
The underlying focus of our joint effort is our commitment to the
preservation of quality medical care and the patient-physician
relationship. The AMA and the Texas medical societies believe that in a
well-balanced marketplace, patients and physicians will have the best
opportunity to make informed decisions as to the appropriateness of
care.
We are filing these comments because we believe there is a strong
factual basis for the action taken by the Government to require Aetna
to divest its NYLCare business in the Houston and Dallas markets.
However, we also believe the consent decree should be broadened to
address Aetna/U.S. Healthcare's contracting practices that directly
impact and lessen competition in the Dallas and Houston marketplaces.
Moreover, we are concerned that the Government continue to closely
oversee the divestiture of NYLCare to ensure that there is a viable
competitive alternative for patients and physicians in Dallas and
Houston.
We also fully support the Government's allegations that the merger
of Aetna and Prudential, if unchallenged, would lead to violations of
the antitrust law because (1) it would substantially lessen competition
in the fully-funded Health Maintenance Organization (HMO) and HMO Point
of Service (POS) markets in Dallas and Houston resulting in increased
price or decreased quality, thereby increasing prices for or decreasing
the quality of services; and (2) it would result in consolidation over
purchasing of physician services in Dallas and Houston, giving Aetna
the ability to depress physicians' reimbursement rates, and allow Aetna
to dictate all terms and conditions in its contracts, which is likely
to result in a reduction in the quality or degradation in the quality
of those services.
I. The AMA and the Texas medical societies believe that there is a
strong factual basis for the Government's findings regarding the
anticompetitive impact of the proposed merger in the Dallas and Houston
HMO and HMO Point of Service markets
The AMA and the Texas medical societies believe there is a strong
factual basis for the allegations that in the Houston and Dallas
markets, the HMO and HMO-POS plans are an appropriate relevant product
market and that an unchallenged merger would result in a reduction in
competition in the sale of HMO and HMO-POS plans in Dallas and Houston.
This is a significant shift from a number of litigated cases where the
courts refused to recognize a separate market for HMO products and
instead defined the relevant product market as all health care plans. A
more flexible case-by-case approach that evaluates the actual dynamics
of an individual marketplace is necessary to assure that a given
marketplace remains competitive in a time of rapid market
consolidation.
II. The AMA and the Texas medical societies support the Government's
findings regarding the anticompetitive impact of the merger in the
market for the purchase of physician services in Dallas and Houston and
the potential impact on quality and/or quantity of care
The AMA and the Texas medical societies agree that the Government
correctly identified the relevance of and the anticompetitive impact of
Aetna's post-merger purchasing power over physician services in Dallas
and Houston. There is a strong factual basis for the Government's
allegations that physician services constitute a relevant product
market within which to assess the likely effects of the proposed
acquisition of Prudential by Aetna.
There is a strong factual basis to support the Government's
contention that without divestiture. Aetna's consolidated purchasing
power over physicians' services will enable the merged entity to unduly
reduce the rates paid for those services. This will likely lead to a
reduction in quantity and/or degradation in quality of physician
services. The Government's recognition of the unique aspects of
physician services (compares to other tangible services) that make it
very difficult for physicians to replace lost business quickly are
consistent with our experience of market realities.
Consistent with that, the Government correctly alleges that the
contract terms a physician can negotiate with a health plan depend on
the physician's ability to terminate his or her contract if the company
demands unfavorable terms. In other words, if a physician cannot ``walk
away'' from a contract, he or she has no ability to reject unfavorable
terms--including those with clear patient care implications.
We believe there is a strong factual basis for the Government's
allegation that in the Dallas and Houston markets, physicians' limited
ability to encourage patient switching and consequent inability to
reject Aetna's contracts post-merger will result in a violation of the
Section 7 of the Clayton Act by giving Aetna the ability to reduce
physician reimbursement rates, which will have a negative impact on the
quality and/or quantity of physicians services.
In response to requests from the Department of Justice relating to
the investigation of this proposed merger, the Texas Medical
Association (TMA) developed a physician practice cost model that
simulates the effects of the loss or termination of a family practice
physician's managed care contract. Based on this model, should a
physician terminate a managed care contract that accounts for 20
percent of total practice revenue, the physician would experience a
loss of approximately $40,000 of net medical income. Where a plan
accounts for a significant percentage of a physician's practice
revenue, the prospect of severe financial repercussions greatly
reduces--if not eliminates--the physician's ability to walk away from
an unreasonable contract with that plan.
At the request of the Department of Justice (DOJ), the Harris
County (Houston) and Dallas County Medical Societies went further and
performed a survey to collect practice revenue data to determine the
actual impact of the merger at the practice level. The results of the
survey showed the impact would create tremendous market imbalance.
Before the proposed acquisition of Prudential, 62% of Dallas County
physicians limited their exposure to the combined Aetna/NYLCare entity
to
[[Page 66657]]
under 20% of total practice revenue. However, after the acquisition, if
NYLCare were not spun off, only 43% of Dallas physicians would be able
to limit their exposure to the merged Aetna/Prudential entity to under
20% of total practice revenue.
In Houston, the results are more dramatic. Prior to Aetna's
acquisition of NYLCare, 91% of Houston physicians were able to limit
contract exposure to Aetna to under 20%. Subsequent to Aetna's
acquisition of NYLCare and Prudential and without the spin-off of
NYLCare, only 27% of Houston physicians could still limit exposure to
the Aetna entity to under 20%.
Given the substantial financial damage to a physicians' practice
that would result from declining an Aetna contract in these
circumstances, it is reasonable to conclude that the 57% of Dallas
physicians and 73% of Houston physicians with 20% or more practice
revenues dependent on the merged Aetna/Prudential entity could not walk
away from the Aetna contract.
III. The AMA and the Texas medical societies believe that additional
relief is needed to guard against Aetna's ability to exercise
anticompetitive power in the purchase of physician services in Dallas
and Houston
The AMA and the Texas medical societies believe that the proposed
divestiture is an appropriate first step to ward off the
anticompetitive impact of the proposed merger in the combined HMO and
HMO-POS market. However, we do not believe that the remedy adequately
guards against Aetna's ability to exercise anticompetitive power in its
purchase of physician services in the relevant geographic markets.
This is because Aetna's contracts include provisions that operate
to ``lock-in'' physicians making it extremely difficult if not
impossible to walk away from an Aetna contract that is disadvantageous
to them or to their patients. The continuing threat that these
provisions will enable Aetna to exert monopsonistic power in spite of
the divestiture warrants modification of the Revised Final Judgment to
include further relief.
The ``all products'' policy is the first and most obvious of these
provisions. Under this ``take-it-or-leave-it'' policy, Aetna requires a
physician to participate in all of Aetna's current and future health
plans as a condition of participating to any current Aetna plan. Aetna
has publicly stated that this provision is non-negotiable.
The consent decree recognizes the anticompetitive nature of this
policy by noting that in Dallas and Houston, the policy ``significantly
increases the volume of business that a physician would lose if he or
she rejected (an Aetna Contract). Terminating the provider relationship
thus would mean that a physician not only would lose his or her own
patients who participate in the plan, but also access to other patients
in that plan.'' Although the ``all products'' policy played a
significant role in the Government's finding that the merger would
result in an antitrust violation in the market for purchase of
physician services, it is not addressed in the Revised Final Judgment.
Based on market realities, the AMA and Texas medical societies
believe that the ``all products'' policy enhances Aetna's market power,
operates to ``lock-in'' physicians to Aetna contracts, and therefore
raises serious anticompetitive concerns in the Dallas and Houston
markets for purchase of physician services. The ``all products'' policy
enhances Aetna's market power by ensuring that physicians are funneled
through the HMO product to have access to Aetna's patient populations
within other products such as a PPO.
From a physician's perspective, Aetna's HMO product therefore
serves as a ``gateway'' to Aetna's patient populations enrolled in
other products. The provision ensures that Aetna becomes a sizable
percentage of a physician's business even if a physician wishes to
participate in only one of Aetna's products for legitimate business
reasons (such as lack of access to information systems needed to manage
risk contracts) or quality of care concerns. The ``all products''
policy seriously undercuts the ability of Houston and Dallas physicians
to walk away from an Aetna contract, a key concern set forth in the
Complaint.
Moreover, Aetna's ability to force this provision on Dallas and
Houston physicians is further evidence of its anticompetitive market
share. The substantial differences between HMO and PPO products from
the Physicians' standpoint are poorly understood by most Americans.
However, it is critical to understand this difference in order to fully
grasp the pernicious nature of Aetna's ``all products'' policy,
particularly as it would operate in Dallas and Houston.
A shorthand explanation is that under an HMO contract, physicians
are compensated in a variety of ways. While many are paid using a
substantially discounted fee schedule, some are paid on a ``capitated''
basis which means that the financial risk of insuring HMO members is
passed from the insurer--in this case Aetna--to the treating physician.
While risk-bearing by physicians in some settings may result in the
provision of cost-effective quality medical care, managing insurance
risk is a highly complex task that involves equally complex actuarial
assumptions that are generally undertaken by large entities.
Entering into risk contracts is inadvisable for physicians without,
among other things, (1) Access to the underlying acturial data on which
the capitaton rate is based, (2) data to match costs related to
patients with reimbursement received from them under a capitated
contract; and (3) a large enough patient base to ``spread the risk.''
It is indisputable that entering into an HMO risk contract without a
careful evaluation can have severe financial repercussions for a
physician's practice, and potentially adversely impact the care that a
physician can provide his or her patients.
Our organizations (as well as many other organizations) have
developed educational information to assist physicians in deciding
whether entering into an HMO risk contract is advisable for their
practice and in evaluating capitation rates. Attached are Capitation:
The Physician's Guide: (American Medical Association 1997) and The Law
of Managed Care, Chapter 5, ``Risk Contracting'' (Texas Medical
Association, 1997) which provide a more in-depth discussion of the many
variables that physicians must consider.
Moreover, in 1997, the AMA Council on Ethical and Judicial Affairs
(CEJA) issued a report on Financial Incentives and the Practice of
Medicine (attached) which has been adopted by the AMA House of
Delegates and Incorporated into the AMA Code of Ethics (see especially
Section E-8.051, ``The Ethical Implications of Capitation,'' adopted
June 1997) (attached). The Code of Medical Ethics unambiguously states
that physicians have an ethical obligation to ``evaluate a health
plan's capitation payments prior to contracting with the plan to assure
that the quality of patient care is not threatened by inadequate
rates.'' It also recommends, for example, that financial incentives be
applied across broad physician groups so that an individual physician's
incentive to inappropriately limit care is minimized.
The Aetna ``all products'' policy prohibits physicians from making
any of these necessary evaluations. Instead, they are forced to blindly
accept risk contracts (without even knowing what they are accepting as
capitated risk) that they may be ill-equipped to manage. There is no
opportunity for any type of
[[Page 66658]]
evaluation. Any physician who wishes to participate in any Aetna
contract--including a PPO contract which does not involve sharing
financial risk--must accept HMO risk contracts under terms set
unilaterally by Aetna (which may be changed by Aetna unilaterally) with
absolutely no opportunity to make the critical analysis outlined in the
above-referenced document. Even worse, physicians' must agree to
participate in future products--which may subject physicians to higher
levels of insurance risk--under whatever conditions Aetna sets. Any
reasonable attorney, business consultant, or ethicist would advise a
client against agreeing to this type of blind risk-sharing contract,
particularly a solo or small group practice for whom this kind of
arrangement is even riskier.
In addition, another aspect of the Aetna contract works in concert
with the ``all products'' policy to further ``lock-in'' the physician
and significantly undercuts, if not eliminates any real ability of
physicians to withdraw from an Aetna contract. This provision states
that:
``To prevent discrimination against Company or its Members
for such time as Provider declines to accept new Members as patients,
Provider shall not accept as new patients additional members from any
other health maintenance organization.''
This bar on closing a practice to new Aetna patients prevents a
physician from being able to ameliorate the harsh effects of any Aetna
policy by accepting patients in other plans or being available to see
patients covered by a new entrant. Under this provision, a physician
has no ability to limit exposure or reduce exposure to Aetna by
increasing his or her participation level with another plan. It
undercuts the ability of physicians to manage their ``book of
business'' and thus establish an effective balance between revenue
sources. This further exacerbates their dependence on Aetna.\1\
---------------------------------------------------------------------------
\1\ Another aspect of Aetna's business conduct recently brought
to the attention of the AMA is worth noting in this respect. At
least in some parts of the country (if not nationally) Aetna is
requiring physicians groups and independent practice associations to
enter into a two-tiered contract. The group of IPA must agree to
secure individual contracts between Aetna and each individual
physician member of the group or network that will bind the
individual physician to Aetna if there is a termination between
Aetna and the group or IPA. We believe that this practice is
designed to defeat any leverage physicians have gained by forming
legitimate groups and networks, and also in part due to the highly
publicized contract disputes Aetna has encountered over the ``all
products'' policies in at least three states--including Texas--with
IPAs. When linked with the ``two tiered'' contracting approach, the
all products policy becomes even more onerous because, as noted, it
is much more difficult for a solo or small group practice to take on
risk or capitated contracts for under any circumstances for obvious
actuarial reason, particularly when Aetna requires the group to do
so without ever stating the price it is willing to pay for risk or
capitated contracts.
---------------------------------------------------------------------------
Because the divestiture does not limit Aetna's ability to impose
both of these contract provisions on physicians, the Final Judgment
does not provide a sufficient remedy to the monopsonistic power that
Aetna will wield in the Dallas and Houston markets for physicians post-
merger. To better address the anticompetitive effects of these contract
provisions, the AMA and the Texas medical societies propose that the
Government modify the Final Judgment to enjoin the use or enforcement
of these provisions in any Aetna physician contract with a physician
practicing in the Dallas and Houston markets for a period of five years
following the proposed divestiture. This remedy is addressed toward the
type of future injury to competition that Section 2 of the Clayton Act
is designed to prevent.
An injunction would preserve a physician's ability to terminate or
credibly threaten to terminate his or her relationship with Aetna if
Aetna should seek to reduce the prices it pays to physicians in a
manner likely to lead to a reduction in the quantity or a degradation
in the quality of physician services in those geographic markets. The
injunctive relief that the AMA and the Texas medical societies propose
is consistent with prior injunctions that courts have issued to prevent
enforcement of contract provisions in unlawful restraint of trade or to
prevent the maintenance of a monopoly. See, e.g., Cass Student
Advertising Inc. v. National Educational Advertising Services, Inc. 537
F. 2d 282 (7th Cir. 1976) (affirming injunction that prohibited
defendant from enforcing a provision in its contracts that gave the
defendant exclusive rights to represent college newspapers in student
advertising).
It should also be noted that the ``all-products'' and ``practice-
closure'' provisions also serve as substantial barriers to entry in
light of Aetna's still significant position in the Dallas and Houston
health care markets. The provision of managed care in a particular
market is heavily dependent on maintaining a quality physician network.
To justify the expense of developing and maintaining the network, there
must be potential for competitors to generate some critical level of
market penetration.
By using the ``all-products'' policy and barring participating
physicians from reducing the amount of Aetna business in favor of
another plan, Aetna's market share is self-perpetuating, and these
policies operate to bar the entry of other plans in the Dallas and
Houston markets. It is simply too difficult to put together the
requisite provider network to compete in this situation. In the future,
this may enable Aetna to extract monopoly prices or reduce quality of
care to the detriment of consumers.
IV. It is critical that the Government closely monitor the divestiture
of NYLCare.
The AMA and the Texas medical societies have serious concerns about
the potential viability of a divested NYLCare entry. Prior to the
divestiture agreement, Aetna representatives had informed us that they
were well underway in their efforts to fully integrate NYLCare's Texas
operations into their primary organization. It is our understanding
that they had substantially dismantled NYLCare's separate
administration, data processing, and claims processing and payment
functions.
Although the Hold Separate Provisions require Aetna to recreate
separate administrative, sales, provider relations, quality management,
operations and underwriting departments for the NYLCare entity, the
magnitude of this task is such that it would be very difficult to
complete within the time frame specified in the Revised Final Judgment.
Furthermore, Aetna will be subject to serious conflicts of interest in
regard to its efforts to reassign appropriate staff and resources to
NYLCare.
It will be extremely difficult for the Government to determine
whether the recreated administration and operations will function
effectively enough to preserve NYLCare's viability as a market
competitor. Because of the inherent conflict of interest, the plans'
assurances in that regard might not be sufficient evidence. We urge the
Government to require NYLCare to demonstrate its viability over some
reasonable period of time before it allows Aetna to consolidate the
merger with Prudential.
We support the Government's action in the Revised Final Judgment to
define the number of covered lives that must be divested with the
NYLCare business. We are concerned, however, about what appears from
Texas Department of Insurance figures to be a 10% decline in NYLCare
covered lives in the Houston Market since the fourth quarter of 1998. A
decline of this size is material and could be a signal of some ongoing
deterioration of NYLCare's market position. Such deterioration could
[[Page 66659]]
signal the beginning of an ongoing decline in market position caused by
Aetna's actions prior to the divestiture agreement.
If that is the case, the ongoing loss of market share might
continue into the fall reenrollment period, in spite of any current
reparative actions undertaken by the new NYLCare administration. For
example, we do not know to what extent Aetna may have already (prior to
the divestiture agreement) encouraged providers and customers to sign
agreements with Aetna in lieu of their former agreements with NYLCare.
We urge the Government to monitor NYLCare's covered lives through the
fall enrollment period in order to assure that the divested NYLCare
business will include the requisite number of covered lives in the
Houston market.
We consider the viability of NYLCare's provider network to be
essential to NYLCare's overall viability as a competitor in the Houston
and Dallas markets. We urge the Government to closely monitor this
aspect of the divestiture because of many unknown factors relating to
the current Aetna/NYLCare provider network. If the divestiture is to be
meaningful, the provider networks that were previously in place for
NYLCare business will need to be preserved or, if necessary, re-
assembled.
We support the Government's requirements that a buyer for the
NYLCare business must be capable of competing effectively and be
substantially independent of Aetna. We would further advocate that the
buyer be capable of assuming all support services for NYLCare, so that
the divested entity would not be dependent on Aetna for critical
operations. For example, the Revised Final Judgment allows Aetna to
continue to provide ``support services'' to NYLCare until the
divestiture, including software and computer operations support. To the
extent that NYLCare continues to rely on Aetna for crucial business
functions such as processing, pricing, and paying claims, it will not
function as a separate entity and will not b e capable of standing
alone as a viable entity. Any potential buyer should be capable of
providing NYLCare with these support services without reliance on
Aetna. Furthermore, a buyer should be required to have the demonstrated
ability to comply with all state laws including those concerning
reserves and timely claims payment, and offer a credible plan to
continue to comply after absorbing the NYLCare business.
We would advocate that the Government carefully monitor the NYLCare
divestiture process in order to assure that the divested plan has a
viable administration and operating structure, and that it maintains
its provider networks and customer base. Until the new NYLCare
administration and operations have been shown to be effective and
independent, acquisition of Prudential should not be allowed to
proceed. We also suggest that the Final Judgment give this Court the
power to evaluate the effectiveness of the divestiture one year from
its conclusion.
V. Conclusion
The Proposed Consent Decree and Proposed Revised Final Judgment
take a significant and needed step towards addressing the
anticompetitive impact of the proposed acquisition of Prudential Health
Insurance by Aetna/U.S. Healthcare. However, failure to address the
contracting practices that play a key role in the alleged violations of
the antitrust laws will undercut the effectiveness of the Consent
Decree. Moreover, a commitment by the Government to carefully monitor
the divestiture of NYLCare is also essential to achieving the purposes
of the proposed settlement.
Sincerely,
Thomas R. Reardon, MD,
President, American Medical Association.
Gordon Green, MD,
President, Dallas County Medical Society.
Alan C. Baum, MD,
President, Texas Medical Association.
Carlos R. Hamilton, Jr., MD,
President, Harris County Medical Society.
September 21, 1999.
Steve Brodsky,
Antitrust Division, Department of Justice, 950 Pennsylvania Ave, NW,
Suite 3101, Washington, D.C. 20530.
Re: AetnaUS Healthcare/Prudential Merger.
Dear Mr. Brodsky: This letter is written on behalf of Genesis
Physicians Group, Inc. and Genesis Physicians Practice Association
(collectively, ``Genesis'') and is a supplement to our earlier letters
on the above matter. GPG believes that some of the current contracting
activities related to the merger of AetnaUS Healthcare (``Aetna'') and
Prudential HealthCare (``Prudential'') are anti-competitive and hopes
that the information presented below will be helpful to you in your
review of these post-merger activities.
Physician Office Practice
Earlier submissions to the Department of Justice have suggested
that, once a payor becomes 20% of a physician's practice, the physician
is unable to resist the unfair pressures of that payor. This is known
as the ``lock-in'' percentage for physicians and, for primary care
physicians (``PCPs''), Genesis believes that this figure is correct. As
for specialist physicians (``SPCs''), Genesis believes that the ``lock-
in'' figure is more like 10% because of the different referral patterns
between PCPs and SPCs, particularly in the HMO contracts which Aetna
has stated is its growth product. This lock-in percentage is important
because, when it is reached, physicians are not able to resist the
unfair contracting and operational activities of Aetna, some of which
are described below.
Aetna/Prudential Contracting Activities
It is important to note that Prudential is requesting all
physicians to sign individual contracts, even if they are in a group
practice. This request is clearly aimed at isolating individual
physicians from their lawfully constituted groups and utilizing the
unequal bargaining power of a large insuror against an individual
physician. Thus, as Genesis predicted, the size of Aetna/Prudential has
led to coercive marketing and contracting activities. Although Aetna
and Prudential are offering different contracts to physicians, the
terms are very coercive and both result in threats to patient care.
Genesis will summarize only two of those terms in this submission, i.e.
the all products clause and the unilateral right to change the basic
terms of the contract.
All Products Clause
This is the clause that requires physicians to participate in all
products of Aetna in order to participate in any Aetna product. Because
the contracts that Aetna is presenting to physicians contain a
provision for unilateral imposition of a capitation (``risk'')
reimbursement methodology, physicians may be forced into operational
and financial constraints that will adversely affect patient care.
Capitation payments shift the cost and administrative risk to the
physician, generally with a lower reimbursement to the physicians.
Under ``risk'' products, physicians have higher overhead costs because
of the increased medical management and other administrative burdens by
the payors. Increased physician overhead is, for example, due to more
detailed medical management protocols, longer waiting times for payor
pre-certification and referral procedures and more personnel to handle
the increased administrative burden. Common sense dictates that
physicians would not want to sign a contract that gives such unilateral
rights to Aetna.
[[Page 66660]]
Coupled with the lack of full disclosure about the financial risks of
capitation payment methodology, it is clear that the ``all products''
clause is a deceptive practice that could adversely affect patients, as
well as physicians.
Aetna has libelled physicians by stating that their opposition to
this clause is based on a desire to avoid treating poor patients that
Aetna claims is the primary user of HMOs. Aetna has no evidence that
Dallas-area physicians discriminate on the basis of HMO participation
nor that only poor people use HMO products. The truth is that the all
products clause (with its imposition of capitation reimbursement
methdology) is a mechanism to shift costs and risks to the physicians
without proper disclosure of the material aspects of the ``risk''
products offered by Aetna. Such cost and risk shifting is done to
enhance shareholder value, not patient care.
Unilateral Right To Change Contract Terms
Under its proposed contract with physicians, Aetna has the power
unilaterally to amend certain material terms of the contract without
any requirement that Aetna notify physicians. In addition, the contract
lacks a price term, which in a contract for services is an essential
term. The power to unilaterally amend has major potential impact on
patients. By reserving the right to unilaterally amend all terms,
including clinical protocols, the contract gives Aetna very real power
to impose barriers to care and to decrease medical expenses, especially
if it is under financial pressure to meet shareholder expectations.
These barriers can result in delays and denial of care to patients.
Aetna's National Focus on HMO Growth
Aetna has stated publicly that its growth will be in HMO contracts
and that it is actively pursuing this aspect of their business. With
this product's added burdens of onerous medical management, random
reimbursement changes and other interference in the patient/physician
relationship, the 20% lock-in threshold becomes even more important.
Physicians believe that there must be a balance between insuror's rules
and regulations and the objective decisions made by a physician for
his/her patient's best interest. At the 20% level, that becomes
problematic from the standpoint of the physician being able to say no
to an onerous contract.
Aetna seeks to use its market position to require physicians who
may wish to participate in a PPO product, to participate in an HMO--a
substantially different product. This pressure occurs despite the fact
that the physician may have ethical, operational or clinical objections
to capitated HMO plans, and even if the practice is not in a position
to accept the substantial amount of insurance risk involved in such HMO
products.
Conclusion
The pressure on employers to offer HMO plans means more pressure on
primary care physicians since they are a necessary element of any
successful HMO strategy by Aetna. Because of the current method of
financing premiums, either through Medicare or employer payments, there
is a limit to the physicians' ability to influence payors and patients.
Thus, patients--the true consumer of health care--have very little
control over choice of plan. Physicians have an ethical and legal
obligation to their patients and the clinical decisions made in the
course of the patient-physician relationship, not the insurer/insured
relationship. Consequently, physicians will always play a critical role
as patient advocate in an increasingly financially-driven health care
system. This role can be easily undermined when a physician has no
leverage in the face of an antagonistic and monopsonistic health plan.
Because Aetna has exhibited such anti-patient and anti-physician
behavior, it is obvious that their market power in selected markets
will lead to increased use of their anti-competitive contractual
provisions. Genesis requests that the Department of Justice prohibit
the use of the ``all products'' clause for 5 years and to require more
balanced contractual provisions, all in an effort to protect patients,
physicians and employers, particularly small business owners, from the
power of Aetna.
Sincerely,
J. Scott Chase.
October 8, 1999.
Gail Kursh,
Chief, Health Care Task Force, Antitrust Division, U.S. Department of
Justice, 325 Seventh Street, N.W., Suite 400, Washington, D.C. 20530.
Re: Comment of the American Podiatric Medical Association to the
Proposed Revised Final Judgment in United States, et al. v. Aetna,
Inc., et al. (No. 3-99 CV 1398-H).
Dear Ms. Kursh: This comment is being submitted by the American
Podiatric Medical Association (APMA), the oldest and largest
association representing podiatrists in the United States. These
comments are submitted regarding the proposed Revised Final Judgment
entered into by the plaintiffs, the United States of America and the
State of Texas, and the defendants, Aetna, Inc. and The Prudential
Insurance Company of America. Notification of the 60-day comment period
regarding the consent decree and Revised Final Judgment was published
in the Federal Register on August 18, 1999.
Podiatric medicine is the profession of the health sciences
concerned with the diagnosis and treatment of conditions affecting the
human foot and ankle. The podiatric medical education is based upon
accepted principles of allopathic medicine. Podiatrists may employ both
surgical and non-surgical modalities in the treatment of the ailments
of the human foot and ankle. Since the late 1960s, foot and ankle
services provided by doctors of podiatric medicine have been covered by
Medicare. Podiatrists are recognized as physicians by Medicare and
under many state licensure acts.\1\
---------------------------------------------------------------------------
\1\ Unless otherwise made plain by the context, the term
``podiatrist'' and ``physician'' are used interchangeably.
---------------------------------------------------------------------------
The APMA is a non-profit organization representing over 10,000
licensed doctors of podiatric medicine in the United States; this
number represents more than 80% of those licensed to practice podiatry.
There are component state organizations for each of the 50 states,
District of Columbia and Puerto Rico, and for those podiatrists
employed by the federal government. The APMA is in a unique position in
the field of podiatry to comment upon the subject matter of this
litigation.
The general concern raised by the APMA is that a concentration of
market power by insurance companies in general, and in this case by
Aetna through its acquisition of The Prudential Life Insurance Company,
is harmful to the provision of quality podiatric medical care. Patient
care and the welfare of the patient is paramount in the practice of
podiatry, as in other health care professions. The corporate interests
of Aetna, in its accountability to its shareholders, is not necessarily
compatible with the provision of the highest quality of care and the
broadest availability of services to the public-at-large. The
concentration of too much economic power in any one market reduces,
rather than enhances, health care options and may lead to distortions
to, and even interference in, the physician/patient relationship. The
APMA has serious concerns when third parties, whose interests may not
coincide with that of the patient, are
[[Page 66661]]
making financial decisions which ultimately impact on the availability
and quality of care.
In addition, podiatrists are often confronted with other problems
which are exacerbated when there is a concentration of power in the
hands of third-party payors. As noted above, there are more than 10,000
podiatrists who are members of the APMA throughout the United States.
By way of comparison, there are over 14,000 allopathic physicians
practicing in Harris County and Dallas County alone; there are 145
podiatrists in the Houston area and 128 podiatrists in the Dallas area.
Because of the relatively small number of podiatrists, as compared with
the allopathic/osteopathic physicians, podiatrists have had the added
burden of fighting for access to managed health care plans. The concern
among podiatrists is that a concentration of power would restrict
rather than enhance the ability of podiatrists to provide quality,
cost-effective care to its patients within managed care plans. When HMO
and HMO-POS plans prevent podiatrists from participating in their
programs, it limits the choices of the patient in the health care
market with the potential of harm to the patient's well-being and care.
It is for those reasons that the APMA, on behalf of its members, files
these comments with the Department of Justice.
I. The Complaint of the Department of Justice and the State of Texas is
Justified Regarding the Potential Anti-Competitive Effects of the
Merger of the Aetna and Prudential HMO and HMO-POS Plans
The concerns of the Antitrust Division of the U.S. Department of
Justice and the State of Texas were well-founded regarding the anti-
competitive effects of the proposed merger. As alleged by the
Department of Justice and the State of Texas, the proposed transaction
is part of a clear trend towards the increasing consolidation among
health insurance companies. Managed care companies are clearly engaged
in a separate market from fee-for-service-based plans. While all facets
of the health care industry are concerned regarding rising health care
costs, managed care programs (such as HMOs), which place limits on
treatment options, restrict access to out-of-network providers, and use
primary physicians as gatekeepers, are in a greater position to affect
the physician/patient relationship. The concern that the insurance
companies are making decisions that may interfere in the course of
treatment and the management of patient care is real. Any aggregation
of power which would reduce the competition among HMO and HMO-POS plans
or consolidate the purchasing power of a managed care plan over
podiatric services, would be inimical to the well-being of the patient
consumer and, ultimately, contrary to the provision of the lowest,
cost-effective provision of health care services to the public.
The Justice Department complaint amply demonstrates the economic
power that Aetna would acquire in the Houston and Dallas markets if
corrective action were not taken. In Houston, Aetna presently has 44%
and Prudential has 19% of the HMO and HMO-POS enrollees. After the
merger, without divestiture, almost two-thirds of the enrollees in the
Houston metropolitan area would be enrolled under the Aetna HMO-
controlled plans. In Dallas, while not as large, the numbers are
nonetheless quite substantial. The combination of Aetna's current 26%
of the HMO and HMO-POS enrollees with the 16% now controlled by
Prudential totals 42% in the Dallas metropolitan area. These numbers,
in and of themselves, represent significant market penetration by one
insurer.
The experience of podiatrists in the Houston and Dallas area, as
well as elsewhere, indicate that the concerns regarding a potential
reduction in the quantity or in the degradation in the quality of
physician services provided to patients are genuine. Due to a number of
factors, most health insurance is provided to consumers by employers.
In an effort to reduce costs, as more and more employers move to
managed care programs, podiatrists are finding that their patients are
not able to maintain their relationships with their chosen podiatrists
because of the limitations in the managed care plans. As the number of
fee-for-service programs shrink, there is not a readily available pool
of other patients waiting to fill the slots of those patients who have
been restricted in their access to podiatrists.
Further, as will be discussed more fully later, the experiences of
podiatrists are that the managed care programs, where they utilize
podiatric services, engage closed panels to perform such services.
Fewer and fewer podiatrists are performing more and more services. The
natural effect is to ultimately reduce the availability of podiatric
services to the public-at-large. This is the very degradation in both
the quantity and quality of services which the Justice Department was
rightly concerned. The divestitures of NYLCare, and the maintenance of
a separate plan until NYLCare is sold, is clearly warranted in the
Houston and Dallas markets.
II. The Concentration of Economic Power in the Hands of a Few Managed
Care Companies Creates the Potential for Greater Exclusion of
Podiatrists in the Health Care Market Place
One of the principal concerns of podiatrists throughout the
country, as well as in the affected markets in this case, is the
propensity of managed care organizations to prohibit access to
podiatrists or to offer podiatric services through such a small number
of podiatrists that it acts as a barrier to the participation of
podiatrists in the HMO and HMO-POS markets.
Large scale participation of podiatrists on hospital staffs is a
relatively recent phenomenon, having principally occurred since the
1960s within the United States. With the development of managed care
programs, podiatrists have found that in a number of plans, again
particularly initially, podiatric services were not included within the
benefits offered by the plans. With the passage of time, podiatric
participation in managed health care plans, including HMOs and HMO-POS
plans, has increased. Nonetheless, there are numbers of plans which do
not include podiatric services or so limit the number of podiatrists
included in the panel as to effectively foreclose large numbers of
podiatrists from participating in the managed care plans.
The APMA undertook a nationwide survey of its members to determine
what participation barriers exist in the managed care market. The most
recent data available, from the 1993 survey, provided that 60% of those
podiatric physicians who responded indicated that major HMO and PPO
organizations had prevented, limited, or attempted to prevent or limit,
them from participating in such plans. Aetna, U.S. Health Care, and
Prudential were all prominently mentioned in the survey. Of those who
responded, 73% found that there were closed panels of podiatrists (a
small number of podiatrists who could exclusively handle the foot care
needs under the plan) or that the plans were closed to podiatrists
entirely. In a 1998 survey, of those podiatrists who reported that
there net income decreased from the prior year, 44.7% indicated it was
because of the impact on managed care.
To the extent that there is a concentration of ownership and
operation of these managed care plans in any one area, such as in
Dallas or Houston, it necessarily follows that the number of options
available to consumers (either employers or individual patients) will
be limited. The more limited the options within the
[[Page 66662]]
HMO and HMO-POS plans, such limitations may lead to a further reduction
in the number of podiatrists participating in such plans.
While podiatrists provide many services which may be classified as
primary care, podiatrists frequently receive referrals because of the
specialist nature that they provide for the treatment of the human
foot. Many general practitioners, whether allopathic or osteopathic,
make referrals to podiatrists to handle specific foot ailments which
require certain treatment (including surgeries) that the general
practitioner believes in the best interest of a patient should be
treated by a specialist. To the extent that an HMO neither permits
podiatric participation or so limits the number of podiatrists on its
panel, such limitation reduces the availability of podiatric services
and may prevent the referring physician from making the referral to the
podiatrist best-suited to handle the particular condition.
Again, it is for these reasons that the APMA believes that
divestiture, as set forth in the Revised Final Judgment, and for the
purpose of maintaining competition, is the minimum condition to be
imposed in order to permit the merger to proceed.
III. Anti-Competitive Provisions of the Aetna Contracts, Which Operate
to Lock in Physicians and Reduce the Ability of Physicians to Provide
Quality Health Care Should Be Purged
While highlighted by the U.S. Department of Justice and the State
of Texas in their complaint, the proposed remedy of divestiture does
nothing as it relates to certain onerous contract provisions
incorporated in the Aetna contracts. The APMA joins the American
Medical Association and others in urging that these provisions be
stricken as a further condition of approval for the merger.
Certain of Aetna's contract provisions have the effect of binding a
physician, whether or not a podiatrist, to the Aetna plans, whether or
not such continued participation is in the physician's best interest.
Aetna includes an ``all products'' policy which requires that if you
are a member of one plan you must participate in all of Aetna's plans.
In the Dallas and Houston area, Aetna does permit podiatric
participation in its plans. Like other physicians, once a podiatrist is
included in the plan, the podiatrist must participate in all of the
Aetna plans.
The result of this is that in a number of the Aetna plans, there
are circumstances and conditions which make the provision of care
unprofitable and there are certain requirements which arguably
interfere in the physician/patient relationship. Without this all-
products policy, podiatrists might choose not to treat patients under
such circumstances. However, because that policy is in place,
podiatrists are required to provide services at times for less than
cost and to go through procedures which may not necessarily be in the
best interest of the patient. A provision such as the all-products
policy is not in the best interest of the consumer or the physician,
particularly if the Aetna line of business represents a very
significant portion of the podiatrist's practice.
Further, while a relatively innocuous anti-discrimination provision
is included in the contract, its effects is likewise to restrict
choices by podiatrists. The anti-discrimination provision provides that
if a physician declines to accept new Aetna patients under the HMO or
HMO-POS plans, that podiatrist ``shall not'' accept as new patients
additional members from any other health maintenance organization. That
is, regardless of the unprofitability or the concerns that a provider
may have as it relates to the strictures on treatment as imposed by
certain plans, if the podiatrist refuses to accept any new Aetna
enrollees, podiatrists cannot provide services to members of any other
HMOs. In conjunction with the ``all products'' policy, once a
podiatrist is in the plan, if that podiatrist desires to treat
participants of any other HMO program, that podiatrist must always be
willing to accept participants under any Aetna HMO or HMO-POS program.
These ``lock-in'' provisions do nothing to enhance quality of care
or to enhance or to further the physician/patient relationship. There
effect is to virtually eliminate any of the bargaining power that
providers, whether or not podiatrists, need when dealing with these
plans. In addition to the requirement of divestiture, the Justice
Department should require that these clauses be stricken from the Aetna
contracts.
IV. Conclusion
The Revised Final Judgment, with the requirements of the
maintenance of the NYL-HMO and HMO-POS plans with the specified number
of enrollees, addresses the anti-competitive impact posed by the
original Aetna/Prudential merger. It is requested that the clauses
highlighted above be deleted as well in order to further reduce the
anti-competitive effect of this merger.
Sincerely,
Ronald S. Lepow, DPW,
President, American Podiatric Medical Association.
Glenn B. Gastwirth, DPM,
Executive Director, American Podiatric Medical Association.
June 25, 1999.
Ms. Gail Kursh,
Chief, Healthcare Task Force, Antitrust Division, U.S. Department of
Justice, 325 Seventh Street, NW--Suite 400, Washington, DC 20530.
Re: Proposed consent decree allowing acquisition of Prudential
Healthcare by Aetna in the Dallas-Fort Worth market.
Dear Ms. Kursh: I wish to express my disappointment in and
opposition to the proposed consent decree requiring Aetna to divest
NYLCare in the Dallas-Fort Worth and Houston markets.
As you are aware, NYLCare has already been absorbed by Aetna. As is
usually the case when Aetna absorbs another company, all of the best
management staff within the absorbed organization, such as NYLCare, are
not kept with the new entity. This destroys all of the previous
relationship that the absorbed entity had established in the
marketplace and replaces them with less desirable Aetna relationships.
This has led to contract terminations and disruption of care for
countless NYLCare members, both in terms of their access to physicians
and in terms of their access to hospitals.
On the other hand, it just so happens that Prudential Healthcare
has made an extraordinarily strong commitment to quality in the Dallas-
Fort Worth market. The medical director and associate medical directors
of the Dallas-Forth Worth Prudential operation represents the ``who's
who'' among medical directors in our region. They are individuals of
the highest ethical and professional caliber. Their approach to
managing care runs counter to Aetna's previous track record.
It makes no sense to dissemble a high quality operation which is
serving its members well and then have Aetna divest a now disemboweled
shell of a former HMO devoid of its experienced leadership. There is no
rational basis for allowing Aetna to take over another HMO and give up
one that has already taken over. The membership in question is
approximately the same and Aetna should be allowed to retain its
ownership of NYLCare in Dallas-Fort Worth and should be prohibited from
absorbing Prudential Healthcare in this market.
In many consent decrees organized by your division it is not
uncommon for
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corporations to take over another corporation and then be required to
sell that corporations holdings in only specific markets. It is my
premise that the Department of Justice would be serving the healthcare
needs of the patient population in the Dallas-Fort Worth market in a
much better way and with much less disruption by simply allowing Aetna
to continue business as it has been with NYLCare and require them to
divest the Dallas-Forth Worth Prudential Healthcare portion of their
new acquisition with the requirement that they make no changes in its
management or business prior to sale.
In my view, this would create a much more level playing field and
provide for significantly improved quality and continuity of care for
managed care patients in the Dallas-Fort Worth market.
Your consideration of these comments is appreciated.
With best regards,
Sincerely yours,
Robert D. Gross, MD
Certificate of Service
I hereby certify that on this 9th day of November, 1999, I caused a
copy of the Response of the United States to Public Comments to be
served on counsel for all parties by U.S. First Class Mail, at the
following addresses:
Mark Tobey, Esq.
Assistant Attorney General, Chief, Antitrust Section, State Bar No.
20082960, Office of the Attorney General, P.O. Box 12548, Austin, Texas
78711-2548.
Robert E. Bloch, Esq.,
Mayer, Brown & Platt, 1909 K Street, N.W., Washington, DC 20006.
Michael L. Weiner, Esq.,
Skadden, Arps, Slate, Meagher & Flom LLP, 919 Third Avenue, New York,
NY 10022.
Paul J. O'Donnell.
[FR Doc. 99-30832 Filed 11-26-99; 8:45 am]
BILLING CODE 4410-11-M
This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.