MP: In Pennsylvania we have essentially one predominant commercial health care payer – Blue Cross products – across the various markets in the state. Our concern with any merger is that, although Independence and Highmark don’t directly compete with each other, they will end up controlling 50 to 75 percent of the commercial marketplace and we think that this should raise concerns about an anti-competitive insurance marketplace and how it is going affect, not only hospitals and physicians, but more so consumers in terms of their premiums and the products that are available to them. Right now I would have to say, in defense of the Blues, it appears that they do a reasonable and fair job, in looking at their medical loss ratios and the accessibility of their products. What’s not all that transparent is that the premiums in Pennsylvania are very high. The number of commercial insureds seems to be going down, premiums are rising at a very high rate, and we’re not sure how much that is a response to having dominant players or to unique cultural aspects of Pennsylvania, particularly having two very large urban training regions that may be high utilizers of health care services. We’re hoping that someone outside, such as the U.S. Department of Justice or the state, can take a hard economic look at Pennsylvania to see if indeed our markets are functioning in a fair manner even though they may not be competitive and, if they’re not, what needs to be done. Having a merger of this size is certainly going to allow an entity to be a barrier to others entering into the marketplace. That may be good or bad – it’s hard to say. Certainly having a financially strong insurer is a good thing – to have the Blues healthy and not worrying about them going under – but not having competition is worrisome as well. Competition may not necessarily be in the best interest of hospitals and physicians, but it certainly would be in the best interest of our businesses and patients for the products they purchase. How it’s going affect physicians and hospitals is a little bit more difficult to say for sure.

MP: In looking at the Blues merger proposal, the economies of scale that they’re hoping to achieve may be difficult because most health care economics studies show that once you get to a certain level of insureds, the economies of scale start to disappear and you start to see some diseconomies of scale when you get too big. We understand that there’ll be some technology aspects that they may be able to share that would save them some money. But for the most part, a competitive marketplace helps drive down premiums because they have to competitively bid to the businesses that buy their products. When you only have one supplier, and that would probably be the Blues at this point, the market may not be that competitive for businesses and therefore the pricing of premiums will go up. And that could be a problem for us. It certainly makes Pennsylvania a lot less competitive in terms of our ability to attract businesses.

The other side of a competitive marketplace is that their purpose is to drive down to marginal costs – including decreasing the prices that any industry is going to pay to its suppliers – that would be us, the physicians. So theoretically, if there are a lot of players in the market who want to gain market share, they’re going to have to price their products lower, and they can only do that by paying less to their suppliers, that being us. Although it would be nice to have of lot of different insurers in the marketplace with which to contract, having more competition in that market may enable us to say no to contracts and therefore force insurers to be better with reimbursements to physicians and hospitals. But on the other side it also could drive the price down. I don’t know which way it would go.

MP: If you look at metropolitan service areas that are similar to ours in terms of size – one to three million people – pricing tends to be lower than areas where the markets are less populated. That might just reflect utilization in urban areas. However, in most similar demographic markets that are more diverse in terms of insurer competition, it does appear that reimbursements to providers, hospitals and physicians is higher than it is in Pennsylvania. However, I’m unable to secure payment data in various markets because of antitrust reasons. I really can’t find out what physicians are paid across the Commonwealth because I’m not allowed to know. That’s one of the reasons why we think an independent reviewer such as the Department of Justice would be able to get these contracts and find out. For all I know, we’re paid well. I don’t think it’s good for any market that we don’t know what our insurers are paying hospitals or certain physicians because of antitrust or contract secrets that can’t be known. These are health care costs that we all share. I think we should know what they are. Our hope is that, by going through a state and maybe even federal regulatory oversight that these contracts can see the light of day and we can find out exactly where our money is going and how it’s being spent. It is community money and if our hospitals have ludicrously favorable contracts compared to other hospitals in the nation, that should be known.

We know what our Medicare payments are and there are two codes: the Philadelphia code and the rest of the state. The rest of the state, I believe, is a little bit lower than average. Philadelphia is a little higher. Our Medicaid reimbursements are some of the worst in the country, we know that. In looking at the Blues, however, from what we’ve been able to ascertain, certain Evaluation and Management codes in the southeast market are low in their reimbursement but some of the procedural codes are high. Also, Independence does contract their physician compensation schedules individually, whereas Highmark does not. Highmark’s fee schedule is pretty much set no matter what the market position is for physicians. Not so for hospitals. But in the southeast there are negotiations based on your ability to leverage, so there are multiple fee schedules in the southeast market and it’s harder to compare one to the other because some are weighted more on non-procedural codes, some are weighted higher on procedural codes.

MP: I’m sure that once you start losing competitors, those issues will be intensified. I understand from an insurer’s perspective that it makes their ability to provide coverage to their subscribers easier knowing they can go any provider if they have any one of their plans. But as a small business person, these plans have different costs and profits for a physician. For example, some HMOs carry considerably more costs than other PPO products and you may be able to see a certain proportion of your business at that price but not other proportions. When you’re put into a position where all of your business can be shifted into a product that you can’t afford to handle that amount of volume, then you run into problems. A dominant payer could get you to agree to all products and gradually try to force business into the product that’s most detrimental to your business. The flip side, of course, is that the Blues have no interest in driving physicians out of Pennsylvania either. That’s part of their business, as well.

MP: I think it’s fair to say that the field won’t be balanced. It doesn’t mean that it can’t work. Someone once said a monopoly, in and of itself, is not bad as long as it doesn’t act like one. That’s kind of the way we feel here: that you can have very large dominant players in any particular market. That’s happened before but it doesn’t necessarily mean that it’s bad for consumers unless they act as a large dominant market player. We don’t have that level playing field now and certainly we won’t have one if the merger goes through, but that isn’t necessarily a bad thing unless they use that market position to treat other market players unfairly. If you look at market power, physicians and patients have almost none. Hospital systems and the large insurers have most of it. So, we like to think we’re speaking for subscribers too, who won’t have much of a balanced playing field either when they’ve got to go and buy a policy.

MP: Benefits would certainly be economies of scale, simplicity of billing, having the ability to start implementing more electronic opportunities, maybe even an electronic health network. If you only have one payer, you’d be able to implement those in physician practices. We certainly hope that they would go down that route. That would be one way to absorb a cost that many individual practices can’t afford, particularly with multiple insurers. Having one very large, financially sound insurer certainly protects against insolvency, which is always a worry when you’re looking at something as important as health care. Their ability to be prepared for disasters is a factor as well. Other effects might be your ability to travel throughout the state and not have to worry about contracts, where you get your health care, your choice of hospital. Those may be some opportunities a merger would bring.

MP: I think that the state Department of Insurance should have oversight, but realistically the Department of Justice is probably the one most prepared to review the Pennsylvania markets to be sure that they are balanced and operating fairly. My assumption is that’s their job: to be sure that monopolistic or monopsonistic activities are not occurring to the detriment of the consumer, and we would ask them to do their job. We certainly have, according to their statistical analysis, markets that are way disproportionate in terms of market power and scale. We certainly think that they should use their power to evaluate markets to be sure that they’re behaving properly. We don’t believe government should be changing markets, but occasionally they have to step in and tweak things when they go out of balance. They need to look at the contracts between Blues, hospital systems and physicians and be sure that the money collected is being appropriately spent on health care, that there are no disincentives in the system that one larger market player may be using to their advantage – whether increasing premiums or cutting reimbursements below market value. Just how is the market affecting the consumer? We know that our premiums are higher than anywhere else in the country and our utilization is high. Someone outside needs to take a look at that because it certainly is a consumer detriment right now in terms of their ability to purchase commercial health insurance in Pennsylvania.

MP: The purpose of the meeting was not so much to address concerns but to let us know what their boards had intended to do. It was more us listening to them, hearing about where they plan to go and how it may or may not affect us. We did articulate some things that we would like to see done, should they proceed with the merger. We did make them aware that we will probably ask for some outside scrutiny because we don’t have the resources to do that to be sure that the market is fair. We also said that at this point, until more is known about how the merger will affect our hospital systems, physicians and patients, we would reserve any opinion on whether the merger should go through or not. At this point we’re actually having a better working relationship with the Blues in terms of our ability to dialogue and to start looking critically at questions of reimbursement, their costs, access, quality, redesign of how they deliver insurance, their quality measures, and their pay-for-value systems. So we do have a dialogue with them and we want to make sure that those relationships would not be changed. We’re going to be pretty sensitive to that because no matter what comes about, we’re still going to have two big Blues payers, even if they don’t merge, that we are still going to have to work with. We want to make sure that we can still work towards keeping premiums reasonable, keeping doctors in the state, and keeping quality high. That was most of what we wanted to articulate with them: that we can still maintain that relationship to preserve those initiatives that we’ve been working on for the past couple of years.