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The Daily News of Los Angeles

Proposed health care mega-merger gets OK from nation's regulators

by Evan Pondel, Staff Writer
February 27, 2004

U.S. regulators approved Anthem's multibillion-dollar acquisition of WellPoint Health Networks on Friday, a significant step toward forming the largest health plan in the nation.

The Federal Trade Commission decided the deal was not in violation of antitrust rules, essentially leaving the transaction's approval up to state officials, shareholders and the national Blue Cross Association. The cash and stock deal was last valued at $14.3 billion in October.

"This is just part of a long regulatory process and we look forward to completing it," said Ken Ferber, spokesman for Thousand Oaks-based WellPoint. "Whether it's the federal government or shareholders, all have a significant role in this."

Concerns have surfaced as to whether the combination of the two largest Blue Cross-Blue Shield operators would deter competition in the health care sector. When combined, the companies will provide health care benefits for more than 26 million people in the United States.

WellPoint's chief executive officer has also received criticism as his salary is expected to swell by tens of millions of dollars should the company's merger receive approval.

Leonard Schaeffer's WellPoint holdings include 3.3 million shares, which have vaulted in value by more than $70 million, according to a Securities and Exchange Commission filing. Shares of WellPoint have been teetering near a 52-week high, rising $1.05 to close at $108.77 on Friday on the New York Stock Exchange.

The Federal Trade Commission's decision "is more bad news for patients," said Jerry Flanagan, a lead advocate of health care reform at The Foundation for Taxpayer and Consumers Rights in Santa Monica. "Although HMOs argue that consolidation in the industry means greater efficiency, we've only seen premiums increase because of this."

Anthem operates in Colorado, Connecticut, Indiana, Kentucky, Maine, Ohio, New Hampshire, Nevada and Virginia. WellPoint has operations in California, Georgia, Missouri and Wisconsin.

Analysts said the deal bodes well for WellPoint shareholders, but could pose some logistical problems for the companies. Anthem and WellPoint have extensive claims-processing technologies that might be difficult to coordinate should they combine, Adam Miller, analyst with Williams Capital Group in New York, said in a previous interview.

WellPoint and Anthem share certain characteristics, most notably their reputations for acquiring Blue Cross-Blue Shield plans throughout the country. Miller said the plans are enticing because they are generally less expensive to purchase, and already have a pool of loyal medical members.

The "Blues" have evolved since their inception almost 70 years ago, dropping their nonprofit status to become public companies. That evolution has provided them with greater access to capital, while enhancing the market breadth of companies like Anthem and WellPoint. Both companies are part of a federation of 42 independent, locally operated Blue plans that belong to an association.