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United’s Acquisition of Sierra Proceeds with Settlement of Medicare Advantage Antitrust Allegations

Feb.28.2008

The United States Department of Justice (the “Department”) and the Nevada Attorney General settled allegations on February 25, 2008 that UnitedHealth Group’s ("United") acquisition of Sierra Health Services ("Sierra") would harm competition in the sale of Medicare Advantage (“MA”) plans in the Las Vegas area. The acquisition closed later that same day. Crowell & Moring represented Sierra in the transaction.

Under a divestiture plan incorporated into proposed Final Judgments with both enforcement authorities, United will divest all assets dedicated to the administration and selling of United's Medicare Advantage plans in Clark and Nye County, Nevada (the extended Las Vegas metropolitan area). The divested business lines include the MA HMO plan that was marketed in 2007 under the brand "Secure Horizons" and in 2008 as Medicare Complete, with the endorsement of AARP. The divestiture must be completed within 45 days of the filing of the Complaint, dated February 25, 2008, unless an extension is granted, and must be done in such a way that the divestiture will "remedy the competitive harm alleged in the Complaint."

United and Sierra have also been competitors in commercial lines of business for large and small employers in Nevada, including HMO, POS, and PPO products. Neither Complaint alleges harm to competition in any commercial or other non-Medicare lines of business and no divestiture apart from the MA line of business is required.

Each of the two Complaints alleges that the combination of United's MA plans with the Sierra Senior Dimensions MA plans will “substantially increase concentration” in an already concentrated market that is defined as being “no broader than Medicare Advantage plans sold to senior citizens (‘seniors’) and other Medicare-eligible individuals in Clark and Nye Counties, Nevada (‘the Las Vegas area’).” According to the Complaints, the acquisition would decrease competition among Medicare Advantage (“MA”) plans in Las Vegas, and specifically eliminate competition between United and Sierra MA plans that had benefited Medicare beneficiaries for a number of years, potentially leading to higher prices and reductions in quality or breadth of benefits available to MA enrollees, in violation of section 7 of the Clayton Act, 15 U.S.C. § 18, and, the State of Nevada alleges, state antitrust laws. The Complaints also note that Congress intended to foster competition among MA plans, including requiring such plans to submit competitive bids.

The Complaints’ allegations essentially define the MA program, including PPO, HMO, “point of service” (POS) and “private fee for service” (PFFS) plan designs, as a separate market from the Medicare fee for service program. United and Sierra currently have 77,300 MA enrollees, with a market share that was alleged to be more than 94% of MA plan enrollees in the Las Vegas area. This number is less than 45% of all Medicare beneficiaries in Las Vegas, however, including beneficiaries who are enrolled in either the fee for service program or an MA plan. The Complaints allege that an insufficient number of MA enrollees would be likely to switch from an MA plan to the fee for service program in response to a small but significant increases in price to render such a price increase unprofitable. Thus, the Complaints allege that under the standards of section 7 of the Clayton Act, MA plans constitute a separate market.

In addition, the Complaints allege that competition from new MA entrants would be unlikely to offset the potential harm from the acquisition because of the substantial cost, reputation, and distribution disadvantages that would make them unlikely to restrain United from raising prices or decreasing benefits and services.

The proposed Final Judgments identify Humana as the entity to which United will first attempt to sell the divested plan assets, reflecting adoption of a “fix it first”-type remedy in connection with a required divestiture. Humana currently operates a PFFS plan in the Las Vegas area

The divestiture includes the following additional requirements:

  • United and Sierra cannot use the AARP brand through March, 2009, which means that for the rest of 2008 and for the open enrollment period for 2009, United cannot market its MA plans in Las Vegas under its AARP endorsement.
  • Similarly, United and Sierra cannot use the Secure Horizons brand through March, 2010. Moreover, the acquiring party of the MA assets must be permitted to license the Secure Horizons brand from United, with the approval of the Department.
  • United must provide transitional support services for claims processing, appeals and related operational aspects of running an MA plan, for a period of time not to exceed 12 months, if requested by the acquiring party.
  • United must assist the acquiring party in its negotiations with providers to assure access to substantially the same provider network that the United enrollees had access to under its MA plans, and certain medical groups are foreclosed under the Final Judgment from entering into agreements with United through March, 2010.
  • United must identify its top MA brokers to the acquiring party, and arrange introductions to facilitate a relationship between the broker and the acquiring party.

The remedial provisions under the proposed Stipulated Final Judgment with the Nevada Attorney General mirror the requirements of the Department’s. In addition, the Nevada Stipulated Final Judgment includes the following commitments on the part of United and/or Sierra:

  • The parties will not use an all products clause in provider contracts for a period of two years.
  • United and Sierra have agreed to refrain from entering into exclusive provider contracts in violation of state or federal antitrust laws, or contracts with most favored nations clauses, for a period of two years. Existing exclusive agreements with such provisions are not affected. Existing agreements with most favored nation clauses, if renewed, cannot contain a most favored nation clause for a period of two years after the renewal date of the existing agreement.
  • Small employers must be notified 60 days in advance of an intent by United to increase rates.
  • United agrees to participate in a health advocacy and assistance program to be established by the Governor's Office of Healthcare Assistance.
  • The agreement includes certain protections for University Medical Center, specifically related to the resolution of billing disputes.
  • United will make a $15 million charitable donation, to a charitable fund that will be controlled by the Attorney General.
  • For a period of two years, United agrees not to use the Ingenix Prevailing Healthcare Charges System Database to establish reasonable and customary fees to reimburse out-of-network providers that furnish services to enrollees of Health Plan of Nevada or Sierra Health and Life Insurance Company (the Sierra subsidiaries that issue HMO and PPO plans, respectively).

United and Sierra entered into a binding transaction agreement on March 11, 2007. The Nevada Department of Insurance entered an order approving the acquisition under the Nevada Holding Company Act on August 29, 2007.

For the Department of Justice documents, please go to: http://www.usdoj.gov/atr/cases/unitedhealth2.htm

For the Nevada Attorney General documents, please go to: http://ag.state.nv.us/

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