February 5, 1999

By Richard Karel

The proposed merger of health care giants Aetna Inc. and Prudential Insurance Co. is anticompetitive and would further limit the authority of physicians to make medical decisions based on the physicians' best judgment, AMA Executive Vice President E. Ratcliffe Anderson Jr., M.D., said in a letter to the Department of Justice in late December.

"The market power that would be created or exacerbated by this merger would limit the choices of patients and employers, reduce competition, and further erode the ability of physicians to make medical decisions based on science and the medical needs of their patients, not share price," Anderson said in his letter to Assistant Attorney General Joel Klein, J.D., head of the Justice Department's antitrust division.

"The proposed Aetna/Prudential merger would create a dominant entity by any measure," Anderson continued. "This new firm, covering at least one in every 10 Americans, would be large enough to dictate premium prices and plan options to employers and patients."

In response to Anderson's letter, the Department of Justice asked the AMA to submit data buttressing its contention that the merger would be anticompetitive and would adversely affect the quality of care, an AMA spokesperson told Psychiatric News. The AMA anticipated submitting those data at press time.

APA President Rodrigo Muņoz, M.D., praised the AMA action. "I applaud the AMA for a strong position on this critical issue," he told Psychiatric News. "APA may soon see itself having to take action with the Department of Justice about emerging monopolies among the so-called behavioral health companies."

The emergence of increasingly powerful monopolies among health care insurers "threatens the autonomy of medical institutions and the ability of our patients to participate in health care decisions," Muņoz commented. "The enormous empire resulting from the Aetna/Prudential merger can and will influence research, education, and clinical practice in American medicine. This is intrusive and potentially dangerous. We must make every effort to challenge the increasing concentration of health care decision making."

Lawrence Kline, M.D., chairs APA's Council on Economic Affairs. The proposed merger "may be even more anticompetitive for behavioral health care than for general medical care," he remarked. The reason, Kline explained, is because Prudential, through Magellan Behavioral Health, already has controlled a "substantial part" of behavioral health care. Now, with Aetna acquiring Prudential, there is an even greater potential for the monopolization of mental health care.

"What many psychiatrists and their patients don't understand is that many of the apparently diverse carveouts they use are actually owned by one or the other large insurance concern," Kline said.

Although the big picture may sometimes be confusing, said Kline, "it certainly is relevant to us as mental health care providers. I hope the Justice Department will take a look at the specific impact on behavioral health of the potential merger."

Because Prudential has been a "major player in managed Medicaid," the merger will "very much impact on the choices that governmental entities have in terms of choosing a purveyor of managed Medicaid services," said Kline. "To the extent that it reduces competition, the states may have to pay more for health care."

APA is weighing alternatives to traditional insurance, such as medical savings accounts (MSAs) or an improved, expanded version of Medicare, according to Kline. These alternatives "might ultimately provide the kind of competition that large insurance companies need," he continued. "If patients could opt out of the system and instead have an MSA or if employers could buy into Medicare," that would make a difference.

The AMA opposition to the proposed merger is "great news," according to Joanne Ritvo, M.D., chair of APA's Committee on Managed Care. Recent news reports have revealed a pattern of rising health care costs under managed care, she noted.

"That raises questions about whether managed care has done anything that it has promised about keeping down costs," said Ritvo. If the merger could be prevented, it would be "great news for our patients [and] great news for our psychiatrists," she said.

As fewer companies cover more lives, it "appears to give those remaining in the marketplace much more power to increase health care costs arbitrarily," she observed. The AMA opposition to the merger gives APA an opportunity to decide "whether we want to join with them," said Ritvo. "It also gives our AMA delegates an important role."

The APA leadership will be assessing what to do, said Ritvo. "We know our members are interested in any and every opportunity to decrease mental health care costs and to increase access. But at the same time we don't want to sell our members short. The promise of lowering health care costs through managed care, which people thought was really occurring over the last few years, really seems questionable now." Businesses rarely use a market advantage "to make less money," she noted.

The AMA's concern over the merger is based in part on Aetna's track record, according to Anderson. Aetna has a "demonstrated corporate policy of requiring physician compliance with its medical policies while rejecting any attempt to hold itself legally accountable for those policies," Anderson said in his letter to the Justice Department. Given increased market power, Aetna would "continue to drive medical decisions based on financial and stockholder expectations" since Aetna's ultimate responsibility is to its shareholders rather than to its patients, said Anderson. Aetna has already used its market clout "to impose unreasonable contract provisions on physicians" by defining medically necessary services as "the least costly of alternative supplies or levels of service." By further increasing Aetna's market position, the proposed merger would greatly amplify this trend, Anderson concluded.

The proposed merger, in which Aetna would acquire Prudential for $1 billion, would make Aetna the nation's largest health insurer, with approximately 22.4 million members, and the nation's largest managed care company with 18.4 million managed care members, according to information provided by Aetna. Barring unforeseen developments, the merger is expected to be completed by the second quarter of this year, according to Aetna.

Aetna's acquisition of Prudential, if approved by the Justice Department, would be Aetna's third major acquisition within three years. Aetna purchased U.S. Healthcare for $8.9 billion in 1996. In 1998 Aetna acquired NYLCare for $1.05 billion in cash.