[Senate Hearing 110-90]
[From the U.S. Government Publishing Office]
S. Hrg. 110-90
EXAMINING HEALTH CARE MERGERS IN PENNSYLVANIA
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HEARING
before the
COMMITTEE ON THE JUDICIARY
UNITED STATES SENATE
ONE HUNDRED TENTH CONGRESS
FIRST SESSION
__________
APRIL 9, 2007
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PHILADELPHIA, PENNSYLVANIA
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Serial No. J-110-26
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Printed for the use of the Committee on the Judiciary
______
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COMMITTEE ON THE JUDICIARY
PATRICK J. LEAHY, Vermont, Chairman
EDWARD M. KENNEDY, Massachusetts ARLEN SPECTER, Pennsylvania
JOSEPH R. BIDEN, Jr., Delaware ORRIN G. HATCH, Utah
HERB KOHL, Wisconsin CHARLES E. GRASSLEY, Iowa
DIANNE FEINSTEIN, California JON KYL, Arizona
RUSSELL D. FEINGOLD, Wisconsin JEFF SESSIONS, Alabama
CHARLES E. SCHUMER, New York LINDSEY O. GRAHAM, South Carolina
RICHARD J. DURBIN, Illinois JOHN CORNYN, Texas
BENJAMIN L. CARDIN, Maryland SAM BROWNBACK, Kansas
SHELDON WHITEHOUSE, Rhode Island TOM COBURN, Oklahoma
Bruce A. Cohen, Chief Counsel and Staff Director
Michael O'Neill, Republican Chief Counsel and Staff Director
C O N T E N T S
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STATEMENT OF COMMITTEE MEMBER
Page
Specter, Hon. Arlen, a U.S. Senator from the State of
Pennsylvania................................................... 1
WITNESSES
Buckley, James R., President, Delaware Valley Health Care
Coalition, Inc., Philadelphia, Pennsylvania.................... 16
Burns, Lawton R., James Joo-Jin Kim Professor, Professor of
Health Care Systems and Management, and Director, Wharton
Center for Health Management and Economics, Wharton School,
University of Pennsylvania, Philadelphia, Pennsylvania......... 11
Casey, Hon. Robert P., a U.S. Senator from the State of
Pennsylvania................................................... 3
Frick, Joseph A., President and Chief Executive Officer,
Independence Blue Cross, Philadelphia, Pennsylvania............ 4
Marshall, Joseph W. ``Chip'', III, Chairman and Chief Executive
Officer, Temple University Health System, Philadelphia,
Pennsylvania................................................... 19
Melani, Kenneth R., M.D., President and Chief Executive Officer,
Highmark, Inc., Pittsburgh, Pennsylvania....................... 7
Rendell, Hon. Edward G., Governor, State of Pennsylvania......... 2
Rodriguez, Pedro, Executive Director, Action Alliance of Senior
Citizens, Philadelphia, Pennsylvania........................... 17
Schott, C. Richard, M.D., Vice Chair, Board of Trustees,
Pennsylvania Medical Society, Harrisburg, Pennsylvania......... 14
White, Hon. Don, State Senator, 41st District, Pennsylvania,
Indiana, Pennsylvania.......................................... 9
QUESTIONS AND ANSWERS
Responses of Joseph Frick to questions submitted by Senator
Specter........................................................ 32
Responses of Kenneth Melani to questions submitted by Senator
Specter........................................................ 43
SUBMISSIONS FOR THE RECORD
American Medical Association, Washington, D.C., statement........ 56
Buckley, James R., President, Delaware Valley Health Care
Coalition, Inc., Philadelphia, Pennsylvania, statement......... 59
Burns, Lawton R., James Joo-Jin Kim Professor, Professor of
Health Care Systems and Management, and Director, Wharton
Center for Health Management and Economics, Wharton School,
University of Pennsylvania, Philadelphia, Pennsylvania,
statement...................................................... 62
Frick, Joseph A., President and Chief Executive Officer,
Independence Blue Cross, Philadelphia, Pennsylvania, statement. 68
Marshall, Joseph W. ``Chip'', III, Chairman and Chief Executive
Officer, Temple University Health System, Philadelphia,
Pennsylvania, statement........................................ 75
Melani, Kenneth R., M.D., President and Chief Executive Officer,
Highmark, Inc., Pittsburgh, Pennsylvania, statement............ 83
Rodriguez, Pedro, Executive Director, Action Alliance of Senior
Citizens, Philadelphia, Pennsylvania........................... 90
Schott, C. Richard, M.D., Vice Chair, Board of Trustees,
Pennsylvania Medical Society, Harrisburg, Pennsylvania,
statement...................................................... 93
White, Hon. Don, State Senator, 41st District, Pennsylvania,
Indiana, Pennsylvania, statement............................... 97
THE HIGHMARK/INDEPENDENCE BLUE CROSS MERGER: EXAMINING COMPETITION AND
CHOICE IN PENNSYLVANIA'S HEALTH INSURANCE MARKETS
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MONDAY, APRIL 9, 2007
United States Senate,
Committee on the Judiciary,
Washington, DC.
The Committee met, Pursuant to notice, at 9:30 a.m., in the
Kirby Auditorium, The Constitution Center, Philadelphia,
Pennsylvania, Hon. Arlen Specter, presiding.
Present: Senators Specter and Casey.
OPENING STATEMENT OF HON. ARLEN SPECTER, A U.S. SENATOR FROM
THE STATE OF PENNSYLVANIA
Senator Specter. Good morning, ladies and gentlemen. The
hearing of the Senate Judiciary Committee will now convene. We
will be considering today the proposed merger of Independence
Blue Cross and Highmark, two very large companies which provide
health care insurance for Pennsylvania--Independence Blue Cross
in the eastern part of the State and Highmark in the west.
We all know the importance of health care. Health is our
No. 1 capital asset. Without good health, there is nothing any
of us can do. And I am Exhibit A on that proposition and
thankfully enjoying good health because of excellent medical
care. But we need to provide that medical care for all
Americans, and this proposed merger has very major implications
for people in the Commonwealth of Pennsylvania.
These two companies are enormous in their importance in the
State. Independence Blue Cross has 64,000 employees, serves
about 3.4 million Pennsylvanians, has arrangements with more
than 16,000 physicians and more than 70 hospitals. Highmark,
similarly, had a dominant share of the market in western
Pennsylvania, covering 4.6 million Pennsylvanians, 30,000
physicians, and takes care of approximately--or has
arrangements with approximately 100 hospitals.
There are real concerns, which have been expressed from
time to time, about the financial undertakings of these two
companies, especially with respect to the surpluses. Highmark
has a surplus of some $2.6 billion, Independence Blue Cross a
surplus of $1.2 billion. There is a recognition that surpluses
are necessary for unanticipated costs, but there is a real
question as to whether that is excessive.
When you take a look at executive compensation--and all of
this on the public table--compensation for the CEO of Highmark
is $896,000, $2 million in bonuses, and another $315,000. And
when you are looking at nonprofits, candidly, there is a
question as to whether it really is nonprofit.
There is a projection that there will be a saving of some
$1 billion in consolidation and efficiencies. Well, that raises
the question as to where that $1 billion is going to go. And to
move the hearings along, I wrote to the CEOs of these two
companies asking them for the specifics as to where the $1
billion would go. They talk about covering the uninsured. If
that were to be the case, that would be very salutary. We have
many Pennsylvanians, in accordance with the national picture,
who do not have health insurance.
We have a real concern about the bargaining power and
dealing with the hospitals and dealing with doctors. Last year
I presided at a hearing in the Judiciary Committee where the
doctors are looking for an antitrust exemption so that they
have more bargaining power in dealing with Independence Blue
Cross and Highmark. So these are all major, major issues.
We are joined today by the distinguished Governor of
Pennsylvania, Edward Rendell, and the distinguished Senator--
maybe both Senators are distinguished, but I will certainly say
Senator Casey is distinguished. Senator Casey has been in the
Senate only a short time, but he is already on the Judiciary
Committee, at least on occasion.
We have eight witnesses. Many people wanted to testify. We
do not expect to be able to answer all of the questions today,
but today is a start. To give the key players a chance to
express themselves, we are going to ask everybody to observe
the time limits very closely. I am at 4\1/2\ minutes on an
opening and will close in less than 30 seconds. We have
allocated an hour and a half, and we are going to have to move
right along and focus on the issues to stay within the time
limits.
All prepared statements will be made a part of the record,
and now I am pleased to yield to my distinguished colleague and
friend, Governor Rendell.
STATEMENT OF HON. EDWARD G. RENDELL, GOVERNOR, STATE OF
PENNSYLVANIA
Governor Rendell. Well, thank you, Senator, and I will be
very brief. As most of you know, Senate bill 550, sponsored by
Senator White, who is with us today, passed the Senate and is
in the House, and it will give the Insurance Commissioner the
broad power to approve or disapprove mergers for nonprofits, a
power that the Insurance Commissioner has for for-profits at
this time. You never can predict what happens in the
legislature, but whether that bill passes or not, the Insurance
Commissioner has the power to conduct hearings around the
State, and we will conduct hearings in four or five different
locations, fairly exhaustive hearings, over the next several
months.
Of course, the law allows for and requires public comment
to go on the record, and there will be ample opportunity for
that as well. So both through the public comment process and
through the hearing process, we hope to get exhaustive input
before any final decisions are made on this issue.
However, I do want to compliment Senator Specter and
Senator Casey for taking the lead here and bringing some of
these issues to light early, because I think it is important
that the public understand what is at stake and what the intent
of the parties is in this merger.
I, too, share--and I am sure Senator Casey does as well--
two great concerns: what this merger will do to competitiveness
in terms of the consumer, the businesses who buy and provide
health care for their employees, the employees who pay
premiums, those who are self-insured as well. That is of great
concern to me. Pennsylvania presently does not have enough
competition, and the question of a price point, we have tried
to do things to engender that competition. But our competition
is limited, and we want to determine what, if any, effect this
has on the competitive process from that angle.
But, second, as the Senator said, we very much care about
our physicians and our hospitals. Physicians have been squeezed
on pricing because in many areas there is a dominant carrier
and that carrier sets the price for a procedure, and it is
essentially take it or leave it for that physician. We want
there to be greater flexibility and greater competition from
that standpoint as well.
Having said that, I would be remiss if I did not also say,
however, that the two companies who come before us today are,
in my judgment, superb corporate citizens of the State of
Pennsylvania. They contribute in so many different ways, and
when we sought 2 years ago, Senator, to expand our adult basic
care program, which is the existing program for working
Pennsylvanians, these companies took the lead in reaching an
agreement with the head of the Office of Health Care Reform,
Rosemarie Greco, to put significant dollars--significant
dollars--into the very significant expansion of the ABC
program. When we outlined this year our prescription for
Pennsylvania, which will cover over the course of the next 5
years, the remaining 757,000 Pennsylvanians that do not have
health care, these companies stood forthright and supported
those efforts.
When we pushed a bill to cover all of our children in
Pennsylvania, a bill that I signed in October of 2006, both
companies were very supportive of those efforts. We appreciate
that, and they are good corporate citizens. They are excellent
employers. So they start off with, in my book, a solid
presumption. However, the issues that Senator Specter has
raised and the issues that I have highlighted are very
significant and must be resolved in a satisfactory way.
Senator Specter. Thank you, Governor Rendell.
Senator Casey?
STATEMENT OF HON. ROBERT P. CASEY, A U.S. SENATOR FROM THE
STATE OF PENNSYLVANIA
Senator Casey. Senator, thank you very much.
I first of all want to thank Senator Specter for bringing
us together today for a lot of reasons. One is because of the
nature of this question for the people of Pennsylvania, but
also I want to commend his leadership on so many aspects of
health care, which is such a critical issue for the State and
for the country. And we are honored by the presence of the
Governor and his work to expand health insurance in
Pennsylvania.
We face, I think, in the country a real challenge on
obviously a lot of aspects of health care--cost being principal
among them--but I think there is an opportunity this year in
the Congress. Senator Specter and I have worked very hard to
make sure that at the Federal level the Children's Health
Insurance Program is expanded, so-called SCHIP. Governor
Rendell is an example of someone who is trying to expand health
care coverage in Pennsylvania by a significant number. At the
same time, the Federal Government, at least the Bush
administration, wants to go in the opposite direction if their
budget proposal is any indication--which it is.
So it is a critical issue for the State, and I think when
it comes to this question of Independence Blue Cross and
Highmark, obviously we have some real concerns about the
potential anti-competitive nature of this arrangement. We are
concerned about, as Senator Specter said, the level of surplus
that both companies have right now. And we are also concerned
in a broader way about the impact that this merger would have
on health care and jobs in Pennsylvania.
We will not reach conclusions today necessarily. We will
not be able to ask and answer every question. But it is a very
good start, and I think this hearing and others like it, in
conjunction with the State, the hearings that Governor Rendell
referred to at the State level, I think will inform and
enlighten the people of Pennsylvania about this. And I join
Governor Rendell in commending a lot of the work that has
already been done by these two firms to expand the number of
Pennsylvanians who are covered and to provide quality health
care for the people of the State.
But I think we have real opportunities this year in terms
of the Federal budget and legislation, and also we want to make
sure that we get this right when it comes to the impact of this
merger on the people of Pennsylvania.
Senator, thank you again.
Senator Specter. Thank you very much, Senator Casey.
We turn now to our first witness, Mr. Joe Frick, President
and CEO of Independence Blue Cross. Thank you very much for
joining us today, Mr. Frick, and we look forward to your
testimony. I might just say that each witness will be allowed 5
minutes, and then there will be rounds of questioning at 5
minutes each.
STATEMENT OF JOSEPH A. FRICK, PRESIDENT AND CHIEF EXECUTIVE
OFFICER, INDEPENDENCE BLUE CROSS, PHILADELPHIA, PENNSYLVANIA
Mr. Frick. Well, thank you again, Senator Specter and
Senator Casey and Governor Rendell, for the opportunity to
speak to you today about why the combination of Highmark and
Independence Blue Cross into a new company is good for
Pennsylvania and how it will create value for our customers,
for health care providers, the communities we serve, and, most
of all, for the people of our great Commonwealth.
I am very pleased to be here today on a panel with
recognized leaders in our community and hear their perspectives
on this important matter.
The unanimous vote 10 days ago by the boards of Highmark
and IBC to combine our two companies begins an extensive review
process. We look forward to working cooperatively with State
and Federal regulatory agencies and with public officials who
want to understand the impact of this combination on the people
of Pennsylvania. Today we will continue the open dialogue we
have already begun with key stakeholders in health care about
how this combination will enable us to better serve their
needs. We welcome your participation.
You know, every major national and local survey in the last
year has shown that the No. 1 issue on people's minds is the
availability of affordable health care coverage. It is no
wonder. Every year employees shoulder more of the cost of
health insurance, fewer employers offer health coverage, and
there are more uninsured. Our mission at Independence Blue
Cross and at Highmark is to provide access to quality,
affordable health care.
We strongly believe this combination is mission driven and
will not reduce competition or choice in the health insurance
marketplace in the Commonwealth. First and foremost, the
combined companies will generate more than $1 billion in
additional resources over 6 years for health care in
Pennsylvania. This is new money, and it goes beyond any
commitments we have today. These additional resources will come
largely through savings from business efficiencies that the two
companies cannot produce individually. The savings will enable
us to invest in new market-leading capabilities that are
increasingly important to consumers and providers.
The combined company will avoid duplicating future
investments in costly technology and administrative
requirements. These savings will fund and allow us to more
quickly take advantage of cutting-edge technology to improve
the quality of care, such providing electronic personal health
records or e-prescribing tools.
We will also achieve significant savings by consolidating
computer systems used for claims processing, enrollment,
medical management, and provider transactions. One new
capability this will allow us to pursue is real-time claims
adjudication, a major benefit for both patient and physician.
By using the best practices of Highmark and IBC to perform
more efficiently, the combined company will have the resources
to expand wellness initiatives that keep people healthy and
disease management programs that help the chronically ill lead
healthier lives.
We also listened to our customers' concern about ever-
increasing pharmacy costs. The combined company will reduce
prescription drug costs by launching initiatives that capture
higher rebates, pharmacy discounts, and lower the cost of
administration--economies possible only with a larger
membership base--and these savings of approximately $285
million will go directly to our customers.
Since we do not have shareholders or investors like our
publicly traded competitors, the combined company will be able
to reinvest this $1 billion in savings into the health care
needs of our customers and community. Our first priority is to
direct more than $650 million to expand access to health
insurance for Pennsylvania's uninsured and underinsured--$650
million over and above our current commitments. The increasing
number of uninsured in the Commonwealth drives up health care
costs for all of us. We will spend roughly $350 million to
extend for 3 years the Community Health Reinvestment agreement
we have with the Commonwealth. Another $300 million will fund
other programs or newly developed products to expand health
care coverage in Pennsylvania.
Most of our customers' premium dollar, more than 85 cents
of every dollar, pays for the medical care our members receive.
Less than 10 cents of each premium dollar goes to
administrative fees. The combined company will not increase
administrative fees for 2 years--direct savings to our
customers' premiums of almost $300 million that would not be
possible without an IBC/Highmark combination.
There has been much speculation about what our ultimate
plans are. I assure you both our boards and executive teams are
committed to our Pennsylvania-based, not-for-profit status as
one of the key factors that differentiates us. In 2006,
Highmark and IBC contributed over $200 million to support
community health and education programs, such as those focused
on fighting hospital-acquired infections, providing clinics for
the uninsured, increasing the supply of nurses through
scholarships, and preventing childhood obesity. These efforts
are increasingly important and will continue.
The proposed combination will not reduce competition.
First, Highmark and IBC do not compete and never have--
Senator Specter. Mr. Frick, how much more time will you
need?
Mr. Frick. Less than a minute, Senator.
Senator Specter. Proceed.
Mr. Frick. Thank you. We are both licensees of the Blue
Cross Blue Shield Association, a brand that is second to none
and proudly insures one out of every three Americans. We have
worked closely together for more than 50 years. However, we
have virtually no geographic or customer overlap. So, by
combining, we are not reducing competition. It is worth noting
that today Pennsylvania is one of only five States in America
with more than one Blue plan. With the Federal Government
developing regions for Medicare PPOs and the Commonwealth
exploring statewide risk pools, it is important for us to offer
seamless statewide products, networks, and services.
Highmark and IBC have major competition: national, publicly
traded, highly capitalized companies--Aetna, Cigna, Coventry,
United. All have access to capital to buy companies and add
capabilities. Sierra Health Plan was recently purchased for
$2.6 billion by United, one of our top competitors, with more
than 33 million members and $71.5 billion in annual revenue. In
2005, Aetna spent $400 million to acquire ActiveHealth, a
clinical data analytics company.
When we began talking with Highmark almost 2 years ago
about the possibility of working together, we had one goal in
mind: access to quality, affordable health care. Today we are
very energized by the possibilities we see ahead.
Thank you.
[The prepared statement of Mr. Frick appears as a
submission for the record.]
Senator Specter. Thank you, Mr. Frick.
We turn now to the President and CEO of Highmark, Dr.
Kenneth Melani. Prior to joining Highmark, he was President of
West Penn Cares, certified in internal medicine, summa cum
laude from Washington and Jefferson, and medical degree from
Wake Forest.
Thank you for being with us today, Dr. Melani, and the
floor is yours.
STATEMENT OF KENNETH R. MELANI, M.D., PRESIDENT AND CHIEF
EXECUTIVE OFFICER, HIGHMARK, INC., PITTSBURGH, PENNSYLVANIA
Dr. Melani. Thank you, Senator Specter, Senator Casey, and
Governor Rendell, for the opportunity to speak to you today
about why the proposed combination of Highmark and Independence
Blue Cross into a new company is good for Pennsylvania and how
it will create value for the communities in which we operate,
for our customers, for health care providers, and, most of all,
for the people of Pennsylvania.
We recognize that this hearing is the start of what may be
an extended review process involving State and Federal
regulatory agencies with input from the Pennsylvania General
Assembly and the U.S. Congress, and we welcome the opportunity
to discuss the proposed combination of Highmark and
Independence Blue Cross and are committed to working
cooperatively to help ensure that this process is open.
Before the announcement of this agreement to combine the
two companies, we had been regularly briefing key stakeholders
in Pennsylvania on the status of the discussions between the
two companies, and we will continue this open dialogue as we
move forward.
We expect some individuals and organizations may have some
apprehension and some pointed questions about the potential
impact of this agreement. Because there are still many details
that have to be decided about how to integrate the two
companies, we may not be able to answer all of your questions
today. I assure you that we will provide you with updates about
the new company as important business issues are decided.
We ask that members of this Committee, other people here
today, and all Pennsylvanians keep an open mind and look at the
big picture in weighing the merits of this agreement. The
boards of directors of the two companies took this approach
during their thorough review of this transaction and concluded
that the combination of the two companies is good for
Pennsylvania. In fact, both the Highmark and Independence Blue
Cross boards unanimously approved the agreement to combine the
two companies.
Why will this new company be good for Pennsylvania? Joe
Frick addressed many of the reasons in his remarks, but in
addition to helping improve access to affordable, high-quality
health care, the new company will serve as an engine for the
Pennsylvania economy for years to come. Currently the two
companies have a total annual business impact of $4.2 billion
on the State's economy, representing monies generated in
Pennsylvania because of Highmark and Independence Blue Cross.
We employ more than 18,000 Pennsylvanians, and we help produce
jobs for another 54,000 people in businesses that provides
goods and services to the two companies.
Although we are both nonprofit corporations, we provide
substantial tax revenue for the State with our subsidiaries
paying $113.6 million in State taxes in 2006.
In the future, the new company has the potential to become
an even larger contributor to the State's economy. I believe we
will be able to grow our business to meet the shifting needs of
our current customers and new customers, not only in the area
of health insurance but also in our dental and vision
businesses and other related services through partnerships with
other Blue Cross Blue Shield companies throughout the country.
The additional revenues generated through the business growth
means we can bring back more money to Pennsylvania, create more
jobs in the State, and stimulate additional business
opportunities for Pennsylvania-based companies.
Equally important, while we anticipate gaining operating
efficiencies as a result of the combination, we expect that any
potential impact on employment will be managed through
attrition and business growth. In other words, we plan to use
our collective workforces to meet the changing needs of our
customers and provide employees with opportunities for
professional growth.
Now, as Joe has discussed, the new company will generate $1
billion in economic benefits that will be used to achieve
savings for our customers and to expand access to health
insurance for Pennsylvania's uninsured population. What I would
like to talk about is why this combination is a plus for health
care providers, including physicians.
As a physician, I, too, am concerned about the changes
taking place in the financing and delivery of health care and
how they may be affecting the physician-patient relationship
and the quality of patient care. For a number of reasons,
however, I believe the new company will have a positive effect
on physicians, primarily because it will allow them to spend
more time with patient care versus administrative tasks of a
medical practice. The new company will work to identify best
practices to help simplify administrative transactions with
physicians and hospitals, using the most effective means of
electronic connectivity, and at the same time, we will continue
to approach health care on a region-by-region basis. Because
the delivery of health services is a local issue, we will
concentrate on maintaining our well-established relationships
with physicians to address unique medical needs of our
customers--their patients--in each region.
The new company's commitment of $650 million to expand
access to health insurance for Pennsylvania's uninsured will
also benefit hospitals, physicians, and other health care
professionals by providing more revenue for the medical
services they provide. Physicians have been a valued partner in
both Highmark's and IBC's longstanding missions, and we want to
continue that spirit of collaboration, especially with the
development of an electronic personal health record to help
address quality, patient safety, and cost issues.
I would also like to take a moment to address a question in
your recent letter relating to concerns raised by physicians,
hospitals, and other health care providers about reimbursements
to health care providers.
Physicians and hospitals will be important to the new
company's success as they have been for decades to the success
and longstanding missions of Highmark and Independence Blue
Cross. One of the principal ways that we have met our
customers' expectations in the marketplace is by offering
health benefit programs that include access to the broadest
networks of physicians, hospitals, and other providers. To help
achieve broad provider networks, we have strived to fairly
reimburse providers for medical care provided to our customers.
I want to be very clear on one other point. The new company
will continue to maintain fair and reasonable provider payment
levels. The $1 billion in economic benefits that Joe has
discussed and I have been discussing today will not result from
changes in physician and hospital reimbursement levels.
All of us must recognize that the rising cost of health
care is straining the country's system of employer-sponsored
health insurance. For this reason, the new company will strive
to balance fair and reasonable provider payment levels--
Senator Specter. Dr. Melani, how much more time will you
need?
Dr. Melani. Ten seconds.--with the need to maintain
comprehensive and affordable health benefit programs for
consumers.
In closing, the two companies are coming together to be
better able to serve the people of Pennsylvania with a focus on
providing access to affordable, high-quality health care
coverage. The new company will achieve operating efficiencies,
freeing resources to invest in programs and services that will
benefit our group customers, individual customers, physicians,
hospitals, and the communities in which we operate.
For these reasons, Highmark and Independence Blue Cross
have agreed to combine to build a better company for
Pennsylvania, and I welcome the opportunity to respond to any
questions you may have.
[The prepared statement of Dr. Melani appears as a
submission for the record.]
Senator Specter. Thank you very much, Dr. Melani.
Our next witness is Senator Don White. We very much
appreciate his joining us here. He represents the 41st District
of Pennsylvania and has since 2000. He serves as Chairman of
the Senate Committee on Banking and Insurance. Bachelor's
degree from Juniata College in 1972 and a real leader in this
field.
Thank you for being with us today, Senator, and the floor
is yours.
STATEMENT OF HON. DON WHITE, STATE SENATOR, 41ST DISTRICT,
INDIANA, PENNSYLVANIA
Senator White. Thank you, Senator Specter. Senator Casey,
always a pleasure. Governor, good to see you here. It is an
honor to be invited by Senator Specter to testify at this
important public hearing, and I want to applaud him for
scheduling this event.
I appreciate the opportunity to provide the Judiciary
Committee with a perspective of the Highmark/Independence Blue
Cross merger from the State government level and discuss the
concerns I--and others--have regarding this proposal. The
potential effect on the availability and quality of health care
coverage in Pennsylvania could be profound.
You have already heard from the principal players in the
merger, as well as from officials from the health care
industry, and are fully aware of the magnitude of this
proposal. The questions Senator Specter posed to Highmark and
IBC prior to this hearing are most appropriate and accurately
summarize the concerns we all should have.
The State legislature is moving rapidly to ensure maximum
review and oversight over this proposed merger when it occurs.
Currently, under the Commonwealth's GAA Amendments Act and the
Insurance Holding Companies Act, the Pennsylvania Department of
Insurance is empowered to review proposed mergers of for-profit
health care providers. Such review is intended to protect the
interest of both policyholders in the marketplace by directing
the Department of Insurance to protect the integrity of the
insurance market through a review of corporate transactions for
anticompetitive effect.
Unfortunately, under current law the Highmark IBC deal,
because it involves two Blues organizations, is not subject to
the same scrutiny.
In response, I introduced Senate bill 550, which as the
Governor mentioned has passed the Senate, and it would provide
the Pennsylvania Insurance Department with oversight power over
mergers involving nonprofit health care insurers, such as Blue
Cross Blue Shield. Senate bill 550 will ensure this proposal
comes under the same scrutiny as if they were for-profit
corporate transactions.
If the existing gap in the department's regulatory
authority is allowed to persist, the department will remain
unable to protect the interest of the Blue plans' policyholders
in ruling on corporate transactions or a review of any pending
transaction involving the parent Blue plans for anticompetitive
effect. However, I am confident we will correct this gap in a
very timely manner. The State Attorney General must have
authority necessary to review this proposed merger, and I am
working with his office to ensure that is the case.
I am encouraged by this Committee's concern about the
quality and availability of health care coverage in
Pennsylvania. From what I understand, there is a potential for
a review of this merger at the Federal level under the Hart-
Scott-Rodino Antitrust Improvements Act. I would assume
Highmark and IBC will file an advanced notice of this merger
with both the FTC and the Department of Justice since its value
greatly exceeds the thresholds that trigger this Federal
requirement.
I strongly urge this Committee to recommend to those
Federal agencies that they scrutinize this merger for its
impact on competition in the health insurance market and share
their work with the State legislature, the Insurance
Department, and our Attorney General. While Pennsylvania does
not have a State antitrust law, our Attorney General can take
action under the Federal law. Therefore, coordination between
State and Federal review is essential.
While economies of scale and efficiencies might be achieved
by this merger and result in positive short-term benefits,
there must be some concern over its long-term effects. Creating
the third larger insurer in the Nation with specifically
defined geographic territory is not, I believe, in the best
interest of competition, and the reality is competition is in
the best interest of the consumers. There is no better
regulator than a competitive marketplace in terms of bringing
better service, better products, and better prices to consumers
and in terms of giving consumers and providers real and fair
choices.
In my own district, I have seen the problems providers and
consumers face from a lack of competition in health insurance.
I spent 27 years in the industry. It can lead to some real
predatory practices. We need to make sure practices are not
spread across the Commonwealth through this merger.
Highmark and IBC contend the merger should be approved
based on the premise that it will result in savings. If so,
then there needs to be ironclad assurances that those savings
will occur not only in the short term, but also in the long
term. Further, any savings should not be used to support
growing operations in other States or in lines of business
outside of insurance. Moreover, we need to make sure those
savings do not come at the cost of consumers' accessibility to
needed health care and to the doctors, hospitals, pharmacists,
and others who provide that care. Finally, this merger must not
undercut the social mission obligation that Highmark and IBC
have--an obligation that is part of their being excused from
premium taxes and affords them other statutory advantages under
Pennsylvania law.
Again, thank you, Senator Specter, Governor Rendell, and
Senator Casey, for your interest in this critical issue, and I
look forward to working with you on this matter in the months
ahead.
[The prepared statement of Mr. White appears as a
submission for the record.]
Senator Specter. Thank you very much, Senator White.
Our next witness is Professor Lawton Burns, Professor of
Health Care Systems at the University of Pennsylvania Wharton
School, a graduate of Haverford, a doctorate and MBA from the
University of Chicago.
We appreciate your coming in today, Professor Burns, and we
look forward to your testimony.
STATEMENT OF LAWTON R. BURNS, JAMES JOO-JIN KIM PROFESSOR,
PROFESSOR OF HEALTH CARE SYSTEMS AND MANAGEMENT, AND DIRECTOR,
WHARTON CENTER FOR HEALTH MANAGEMENT AND ECONOMICS, WHARTON
SCHOOL, UNIVERSITY OF PENNSYLVANIA, PHILADELPHIA, PENNSYLVANIA
Mr. Burns. Thank you, Senator. In the interest of
transparency, I should say that I have been a happy enrollee of
Independence Blue Cross for the last 12 years. However, last
week they sent me an Explanation of Benefits form that
overcharged me $100 in deductibles, so I think I can present a
balanced viewpoint here today.
I have reviewed the statement issued by Highmark and
Independence Blue Cross about the benefits of the merger. I
think what is missing is any sort of explication or a road map
as to how those benefits are to be achieved. And, frankly, as I
look at it, most of these benefits may not be attainable for
the following sets of reasons:
First, the merger is characterized as a ``combination,''
and there is nothing in the statement that talks about the
actual integration or consolidation of the infrastructure of
these two health plans. And as a result, it is hard to envision
where any savings or efficiencies are going to spring from,
from this combination and, in fact, there may be duplication.
Most mergers achieve savings, at least in the short run, by
combining administrative functions or reducing administrative
head counts. That does not seem to be the case here because one
of the goals of the mergers is to create jobs.
Second, the most efficiencies and synergies that result
from corporate mergers result from defined pre- and post-merger
integration efforts, and there is no detail here in the
statement regarding how these efforts are going to be
conducted, both pre- and post-merger integration. Also, to the
extent that these benefits and synergies exist at all, they may
already be attainable by two very large-size independent
corporations right now.
Third, even in the presence of such efforts and defined
post-integration strategies, scale economies and merger
efficiencies are difficult to achieve. The econometric
literature shows that scale economies among health plans are
reached at a much smaller size than these two plans currently
exist at. As a result, there may be minimal economies of scale
for these two plans to reap. In addition, the econometric
evidence also shows that there is very little economies of
scope in health plans. And so combining operations to serve a
diverse population may not result in any additional savings
either.
Another reason why these benefits may not be attainable is
that the recent historical experience with mergers of managed
health care plans and other types of enterprises does not
reveal any long-term efficiencies. Indeed, a recent Wall Street
analysis of the mergers of investor-owned health plans in the
last few years shows that the majority of these mergers
underperform the market within 2 years after the merger. More
broadly, the literature and corporate strategy shows that the
majority of corporate mergers, 60 to 70 percent of them, fail.
What explains the low success rate for corporate mergers? One
major problem is the failure to deliver on the sources of
value, which is extremely difficult to do. And, in fact, the
literature shows that mergers of two evenly sized larger firms
are perhaps the most difficult to pull off altogether.
So, if all of this is true, why then do mergers continue to
occur? Well, there are a number of reasons, but I think the one
reason that we ought to consider here is the fact that a merger
reduces the number of competitors or potential competitors in
the market by at least one. What is so important about the
sheer number of competitors? Well, econometric evidence shows
that in the managed care field, an increase in the number of
competitors is associated with both lower costs and lower
premiums. Conversely, a decrease in the number of competitors
is associated with an increase in costs and an increase in
premiums.
The evidence also shows that the sheer number of
competitors exerts a stronger influence on these outcomes than
does the penetration levels of managed care in a local market.
The most significant effect of the Highmark/IBC proposed merger
is the removal of one potential competitor from the
Pennsylvania health plan landscape. One might then wonder what
this landscape looks like statewide, and, in fact, the
Commonwealth has four Blue Cross plans. If you look at the
respective market shares of these four Blue Cross plans,
Highmark dominates the western part of the State, Independence
Blue Cross dominates the southeastern part of the State, and
Highmark has a significant presence in terms of joint operating
agreements with the Northeast Pennsylvania Blue Cross plan up
in the northeast sector of the State.
In effect, Highmark controls not only the western portion
of the State, but also a solid piece of the northeast, and with
the pending merger with Independence Blue Cross, Highmark would
control not only the western portion but most of the eastern
portion as well.
Now, as noted, this would not lead to any further
concentration in any of the specific regions within the State,
and one reason is because they have historically operated in
their own separate territories. Another reason why is that most
of these regions are already concentrated. It is already not
very competitive in each of these regions.
So the net effect of a Highmark/Independence Blue Cross
merger might then be a nearly statewide confederation of Blue
Cross plans controlled by Highmark with strong domination in
each region. What has changed is not so much the local market-
level concentration but, rather, the common ownership and
control of the plans that enjoy this concentrated market power.
Is this a cause for concern? Well, one would think that
this might have a potentially deleterious effect on the health
care plans in the center of the State that would--
Senator Specter. Professor Burns, how much more time will
you need?
Mr. Burns. I will be done in 30 seconds, Senator.
Senator Specter. Thank you.
Mr. Burns. This might have a deleterious effect on the
plans that operate in the central part of the State. It might
also have a deleterious effect on potential entry into the
State by investor-owned health care plans from outside of the
State. And it is widely believed that the Blue Cross plans fear
entry into the Pennsylvania market by these States because of
their access to capital, as has been mentioned here.
At present, there is little econometric evidence to support
the presumed benefits and synergies of the merger. To date, the
two firms have failed to provide a convincing rationale and
game plan for extracting the value from this combination.
Thank you, Senator.
[The prepared statement of Mr. Burns appears as a
submission for the record.]
Senator Specter. Thank you, Professor Burns.
Our next witness is the Vice Chairman of the Pennsylvania
Medical Society, Dr. C. Richard Schott. Board-certified in
cardiovascular disease, Clinical Assistant Professor of
Medicine at both Hahnemann and Temple, medical degree from
Hahnemann.
We appreciate your being here, and the floor is yours, Dr.
Schott.
STATEMENT OF C. RICHARD SCHOTT, M.D., VICE CHAIR, BOARD OF
TRUSTEES, PENNSYLVANIA MEDICAL SOCIETY, HARRISBURG,
PENNSYLVANIA
Dr. Schott. Good morning. I am C. Richard Schott, Vice
Chair of the Pennsylvania Medical Society Board of Trustees.
Let me begin by thanking Senator Specter, Senator Casey, and
Governor Rendell for inviting the Pennsylvania Medical Society
to speak at today's hearing on the proposed merger of IBC and
Highmark.
As you already know from the news reports, the proposed
IBC/Highmark merger is a mega-merger. It would form the third
largest health insurance company in the country. The new
company would control 53 percent of the Pennsylvania health
delivery market. Based on the enrollee figures, the combined
IBC/Highmark company is estimated to have 8 million enrollees.
The majority would be Pennsylvanians. This new company would
ensure the majority of our State's residents. Prior to
announcing their intentions, the Pennsylvania Medical Society
was able to meet with the CEOs of both companies, and we
continue our dialogue with them.
Historically, the Pennsylvania Medical Society has
expressed concerns when mergers are announced. We are not
rushing to judgment until we have all the questions answered.
Similarly, we hope that regulators and others will not push
this marriage down the aisle until we can ensure it does no
harm to the public.
Some believe the growing trend at consolidation within the
health insurance market has the potential to imperil
competition, which threatens both health care quality and
patients' access to care. Highmark and IBC currently do not
compete in the same areas of the State, but that does not mean
that their proposed merger could not do harm. There are
patients, employers, and physicians who live along those non-
compete Blue lines that define their territories, who presently
do have some choice and do, to some extent, drive pricing. A
merger of this size could deter new competition in these
markets.
Will the size of this merger stop other health insurers
from entering the Pennsylvania market? In theory, the new IBC/
Highmark company should gain economies of scale. Will those
economies of scale benefit the public? And after those
economies of scale are initially realized, then what happens?
Highmark and IBC stated that the new combined company will
have the resources to hold administrative fees flat for 2
years. Then what? Published studies show that health insurers
exhaust their economies of scale at 100,000 to 150,000
enrollees. Insurers with 1 million, 2 million, 5 million, or 8
million enrollees are not any more efficient and may, in fact,
lose efficiency as they become larger.
After 2 years, can we expect a big jump in the merged
companies' operating costs? Will any competition still exist in
Pennsylvania to keep their costs in check, or will competition
in Pennsylvania be stifled?
Competition generally improves pricing, consumer choice,
clinical quality, and service quality. Reduction in competition
could negatively impact everyone--patients, hospitals, health
care professionals, and the Government. With an expanded
insurance monopoly, the new company could exclusively control
the insurance market that now allows for premium competition.
Similarly, this could create a huge monopsony in which there is
only one buyer of health care goods and services in the market.
This would negatively impact health care professionals and
hospitals, giving them little opportunity to play on a level
playing field.
Let me say that again: A level playing field.
This concern leads us to our most important question. If
this merger goes there, will there ever be a level playing
field between health insurers and health care professionals who
already are not able to collectively negotiate the terms of
their contracts? Will we be able to select insurance products
we accept, or will the single mega-company dictate that
providers participate in all their products? The all-products
clause. Will there be fair contracts, or will the current
standard of ``take it or leave it'' become ``take it or
leave''?
All this comes at a time when we are already not
competitive in the national market to attract and retain high-
quality young physicians here in Pennsylvania. Will insurers
focus even more on cost-cutting mechanisms with less regard to
patients' needs? Who will be here to speak for their needs?
The lack of competition among health insurers, as well as
the consolidation of health insurers across the Nation, raises
very serious concerns for the provision of quality patient
care. As a patient advocate, physicians are often undermined by
dominant insurers who prevent them from ordering necessary or
the most appropriate testing. We feel we have already a
dysfunctional market with annual double-digit health insurance
premiums, unilateral decisions about hospital payments, below-
market hospital fees, below-market physician fees schedules
that are unilaterally imposed, and yet substantial profit
levels for insurers.
Based on the 1997 Federal Trade Commission/Department of
Justice Horizontal Merger Guidelines, Pennsylvania would
already be categorized as ``concentrated.''
Senator Specter. Dr. Schott, how much more time do you
need?
Dr. Schott. Thirty seconds, please.
Senator Specter. Thank you.
Dr. Schott. Under the guidelines, a merger of markets that
raises the HHI index, which is what the Government uses to
measure the effects of competition, Pennsylvania already has an
HHI that is over 1,500, which is concentrated. We feel this
number is even distorted because of the regionalization at the
present time, that it looks at Pennsylvania as if the
competition were uniform across the State. We feel strongly
that this will exceed the FTC guidelines, and we would
emphasize that, quoting from the guidelines, ``As the HHI
market concentration increases, competition and efficiency
decreases. The chances of collusion and monopoly increases.''
In conclusion, I ask: Will the proposed IBC/Highmark merger
be good for Pennsylvania? At first glance, maybe. But below the
surface, there are some serious questions that need to be
investigated. That is why something this immense needs the
attention of the Federal Government through the Department of
Justice and the Federal Trade Commission.
Thank you for your concerns.
[The prepared statement of Dr. Schott appears as a
submission for the record.]
Senator Specter. Thank you, Dr. Schott.
We now turn to Mr. James Buckley, President of the Delaware
Valley Health Care Coalition. A graduate of St. Joseph's
University, previously served in various positions as managing
the pension and health and welfare fund for Plumbers Local 690.
Thank you for being with us, Mr. Buckley, and we look
forward to your testimony.
STATEMENT OF JAMES R. BUCKLEY, PRESIDENT, DELAWARE VALLEY
HEALTH CARE COALITION, INC., PHILADELPHIA, PENNSYLVANIA
Mr. Buckley. Senator Specter, Senator Casey, Governor
Rendell, thank you very much for allowing us to be here. The
Delaware Valley Health Care Coalition is a group of
union health and welfare funds that have joined together to
take advantage of discount pricing. Currently, we represent 91
funds in the Commonwealth of Pennsylvania, 190,000 members, and
over 400,000 lives. In 2006, a very conservative estimate of
our total spent was $1.5 billion.
At this point in time, the Delaware Valley Health Care
Coalition has no position regarding the planned merger between
Highmark Blue Cross--Highmark--and Independence Blue Cross--
IBC. This is simply due to the fact that there is very little
information concerning the potential effects of this merger
available to health care consumers and providers.
We have learned some information from the various press
organizations and speaking to representatives of the Blues, and
what we understand is this merger is going to take from 3 to 5
years to complete. There will be an infusion or an allocation
of $650 million to the State government, bringing the total
amount given to the State government of $1.1 billion. There
will be a 2-year cap on the administrative fees by both
Highmark and IBC. There is going to be a $285,000 infusion of
cash into the Blue Cross prescription drug program in fee
reductions and drug cost reductions.
The new corporation will be nonprofit. It will be
headquartered in Camp Hill, Pennsylvania, and there will be no
layoffs. All employee reductions will be achieved through
attrition. Also, there will be no buyouts or golden parachutes.
Although at this time the DVHCC has no official position, I
am here on behalf of our directors to express our profound
concern and hope that certain questions regarding this merger
will be answered through the Committee's review process. Our
concerns and questions focus on whether the resulting entity
will foster greater competition in the Commonwealth to the
benefit of health care consumers, payers, and providers, or
stifle competition to the detriment of these groups.
Both organizations have a tremendous amount of money in
reserves, both being owed in part to their nonprofit status, to
be used for the uninsured in our Commonwealth. In 2005, it was
reported that the reserves of Highmark Blue Cross and
Independence Blue Cross were $2.8 billion and $1.43 billion,
respectively.
By combining the Blues organizations and the hopeful
efficiencies created, our directors are concerned with how
excess reserves will be utilized. Will these reserves be used
to create better and more affordable health care systems for
the citizens of our Commonwealth? Or will they be used to
finance predatory pricing practices of the new merged company?
Will the excess reserves and economies of scale created by the
unified insurer be used to smooth rates from year to year? Will
there be guidelines that control what reserves may be used for?
And if so, who will be charged with the oversight of these
reserves? Will the anticipated reduction of 9,000 jobs through
attrition eventually resulting in approximately $450 million
per year upon completion of the workforce reductions pay for
runouts for employees' health care whose employer becomes
insolvent or disease management for all insured? Further, will
the reductions in the workforce affect service provided and,
consequently, the quality of care provided in the Commonwealth?
Of great concern to our member directors is whether or not
the new entity, with its integrated systems, will provide a
greater flow of information concerning quality of care
providing by hospitals and physicians in the Commonwealth and
payment information? It is our sincere hope that there will be
a mandate for transparency with regard to information on
hospitals and physicians and, further, and more importantly,
that this information will be shared with the Pennsylvania
Health Care Cost Containment Council, an organization that has
compiled an invaluable knowledge base on health care quality in
the Commonwealth, and who, I might add, without renewed
enabling legislation will cease to exist in 2008.
It is our sincere hope that these questions will be
answered and the issues be addressed when this merger is
scrutinized by the Committee and the Department of Justice, as
well as the Insurance Department of the Commonwealth of
Pennsylvania.
Thank you again for allowing me to be here. I will take any
questions when the time comes.
[The prepared statement of Mr. Buckley appears as a
submission for the record.]
Senator Specter. Thank you, Mr. Buckley.
We now have our next witness the Executive Director of the
Action Alliance of Senior Citizens of Greater Philadelphia, Mr.
Pedro Rodriguez. He had been Legislative Director for
Philadelphia City Council. Bachelor's degree from the State
University of New York in Economics.
We appreciate your being here, Mr. Rodriguez, and we look
forward to your testimony.
STATEMENT OF PEDRO RODRIGUEZ, EXECUTIVE DIRECTOR, ACTION
ALLIANCE OF SENIOR CITIZENS, PHILADELPHIA, PENNSYLVANIA
Mr. Rodriguez. Thank you, Senator Specter. Good morning,
Senator Casey, Governor Rendell. Thank you for this opportunity
to add a consumer perspective to the pending merger of
Independence Blue Cross of Southeastern Pennsylvania and
Highmark of Western PA.
The planned Blue Cross merger in Pennsylvania is a
potential disaster for Pennsylvania consumers. It is a mega-
corporate reshuffling of the deck chairs on our sinking Titanic
health care system. It demonstrates once and for why all
Americans need a program like Medicare or a single-payer health
care insurance system.
This proposed merger poses more questions than answers. It
also, in a very tragic way, points to the failure in
Pennsylvania for government and consumers to have a place to
ask those questions and try to get some answers and clarity,
questions such as: Is this the first step toward a for-profit
conversion? According to a report by Community Catalyst of
Boston, the Blues' charitable commitment, such as the provision
of coverage to children and other low-income individuals, has
been decreasing since 2000. Will the merger reverse the trend
or make it worse?
Already, Independence Blue Cross is a de facto for-profit
corporation, having transferred most of its assets to its for-
profit subsidiaries. IBC admitted that 90 percent of its
revenues come from the for-profit companies it owns.
There are no clear and substantial benefits to the public
from this merger. The Blues will not commit to premium
reductions or pledge to put a ceiling on premiums. Rising Blue
Cross premiums will contribute significantly to the increasing
rate of those without insurance, particularly older people who
are not yet eligible for Medicare. There are no guarantees that
individuals with flat incomes, who are dropping coverage, or
``buying down'' to coverage with reduced benefits or increased
deductibles will realize a better deal with this merger.
The Blues' statutorily mandated charitable obligations will
not be expanded under this merger. The Blues have cleverly
misrepresented in their press release that $650 million will go
to expanded coverage for the uninsured. This is a bald-faced
misrepresentation to the public because they did not clarify
that most of this money had already been obligated under a
binding agreement with Governor Rendell signed in the fall of
2004 requiring annual charitable payments beginning in 2005
under the Annual Community Health Reinvestment (ACHR) program.
There appears to be no substantial expansion of charitable
payments coming from this proposed merger.
In addition, no one can say the proposed merger is in the
public interest unless there are guarantees that the new
entities pay fairly for services. It is not in consumers'
interests if as result of the merger the Blues are able to low-
ball payments to doctors and hospitals, causing them to end up
closing their medical practices or hospital doors. No matter
how low the cost of health insurance, if services are
unavailable, the savings are worthless.
To determine whether the proposed merger is in the public
interest, we need to know how it will lower health care costs,
and whether it will allow more people to afford health care and
make it easier for the State to grow jobs and eliminate
unnecessary bureaucracies. The merger is not in the public
interest if all it does is free up more money for the Blues to
start more for-profit subsidiaries. I don't think anyone can
say it is in the public interest unless we see how much savings
are being projected and to whom the savings flow. Will those
savings go to huge salaries for top executives or to provide
increased access to health care for working people in
Pennsylvania?
What is also of grave concern is the appalling absence of
any decent consumer protection law or enforcement within the
State and Federal Governments. The catch-up bills of Senator
Don White and Representatives Todd Eachus and Phyllis Mundy
would finally amend the State's Insurance Holding Company Act
to include the Blues with other insurance companies so that a
planned merger would now need Insurance Department approval.
The Department for the first time would be able to determine if
the Blues merger would ``substantially lessen competition,''
but this, again, is grossly inadequate.
We should have a body of laws that require the Blues, and
other insurance companies, to first demonstrate a substantial
benefit to the public before any merger is approved--a standard
that has been effectively used for utility companies in
Pennsylvania for a long time.
Because the Pennsylvania Insurance Department has always
been a paper tiger or a captive of the insurance and Blues
industry, consumers need much more in protections. Consumers
need a right to have standing to intervene in Insurance
Department proceedings, have rights to discovery, and have
their fees and costs paid by the insurance company if they make
a ``substantial contribution'' to the result--as provided for
in California law.
To conclude, Pennsylvania has 2.8 million people without
health insurance or underinsured. That is a whopping 27 percent
of the non-elderly population. The proposed merger does not
promise to solve this crisis. We appeal to Washington to lend
the consumers of Pennsylvania a hand and to come and ask the
tough questions about this proposed merger.
Thank you.
[The prepared statement of Mr. Rodriguez appears as a
submission for the record.]
Senator Specter. Thank you, Mr. Rodriguez.
Our final witness is Joseph ``Chip'' Marshall, Chairman and
CEO of Temple University Health System. Bachelor's degree and
law degree from Temple University.
Thank you for coming in today, Mr. Marshall, and the floor
is yours.
STATEMENT OF JOSEPH W. ``CHIP'' MARSHALL III, CHAIRMAN AND
CHIEF EXECUTIVE OFFICER, TEMPLE UNIVERSITY HEALTH SYSTEM,
PHILADELPHIA, PENNSYLVANIA
Mr. Marshall. Thank you. Good morning, Senator Specter,
Senator Casey, and Governor Rendell. I am Chip Marshall,
Chairman and CEO of the Temple University Health System. On
behalf of all of our employees, physicians, and patients, thank
you for the opportunity to testify today on the Highmark/
Independence Blue Cross Merger--a matter of significance to the
Temple University Health System, the southeast Pennsylvania
region, and the entire Commonwealth.
At the outset, let me share with you some background on the
Temple University Health System, whose hospitals have
steadfastly provided their communities with compassionate,
high-quality care for more than 150 years. The Temple
University Health System is comprised of five hospitals,
including Temple University Hospital, Temple University
Children's Medical Center, the Temple-Episcopal Campus, Jeanes
Hospital, and Northeastern Hospital.
Last year, we handled a quarter-million emergency
department visits, admitted approximately 60,000 inpatients,
provided over a half-million outpatient visits, and delivered
more than 6,000 babies.
Temple University Hospital and Temple Children's serve as
the chief clinical training sites for the Temple University
School of Medicine. Together, these hospitals are the region's
only Level I Trauma Center for adults, children, and burn
victims.
Our Health System family also includes the Temple Transport
Team, our state-of-the-art ground transport unit that provides
rapid transport from central Pennsylvania to the New Jersey
coast. Temple Physicians, Inc., our network of community-based
doctors' offices, serves Philadelphia, Bucks, and Montgomery
counties.
When I joined the Health System as CEO, I established a
goal for the health system to become a high-quality, regional
health care provider. We are entirely committed to excellence,
as evidenced by our continued investment in our professional
workforce, facility improvements, and advanced medical
technologies.
It is with this background that I offer my views on the
proposed merger of Highmark and Independence Blue Cross. As
both an IBC network provider and as a purchaser of its
insurance product for an 8,000-employee health system, thank
you for bringing national focus to this important matter
affecting competition and choice in the Pennsylvania insurance
market.
I realize that at this early stage, we do not have
sufficient information to make firm declarations or
recommendations. Over the next several months, however,
hospitals, physicians, consumers, employers, and other
stakeholders will closely monitor merger developments. As they
do, it will become clear that the benefits promised by Highmark
and IBC will not be self-executing simply as a result of this
merger. Benefits of a consolidated plan will be achieved only
with strong efforts of all stakeholders in the health care
industry. Only if done right could the combination of Highmark
and IBC offer opportunities for efficiencies in the insurance
market and a deeper commitment to the social missions of these
plans.
Ultimately, the issue is whether stakeholders in the health
care delivery system will benefit from or be disadvantaged by
the combination of Highmark and IBC. To help resolve this, I
believe it is imperative that several questions be explored.
First and foremost, how would a consolidation of Highmark
and IBC affect access to care? If hospitals and physicians are
not compensated fairly for their services, or they are closed
out of provider networks, then the supply of vital services
will be restricted at the expense of those who need care.
Second, would a consolidation of Highmark and IBC damage or
destroy the social missions of these plans? In eastern
Pennsylvania, IBC is an important part of the community and is
highly valued for its corporate leadership and financial
support of many worthy causes. Temple Health System, for
example, has collaborate with IBC in our joint roles with the
Philadelphia Chamber of Commerce, Select Greater Philadelphia,
and the CEO Council for Growth, as well as many outreach
activities designed to improve the health status of our
communities. We hope this civic partnership will be preserved.
In western Pennsylvania, stakeholders will have their own
questions as to how a merger would be managed with high
expectations from a strong Philadelphia area market.
Third, how do we balance the benefits of price competition
with the financial and social burdens imposed on hospitals,
which are required to provide 24-hour access to all who present
to their emergency rooms?
Fourth, how will financial benefits that accrue to a
combined Highmark/IBC plan be shared with patients, hospitals,
physicians, and the communities they serve? Will employers and
consumers benefit from lower premium costs and improved
products that might be offered by a stronger, more efficient,
and effective company?
Finally, what impact would a consolidation have on an
already fragile health care system? As we consider this issue,
we must be vigilant in balancing the competing interests of
hospitals, physicians, insurers, employers, consumers, and
patients. A market change of this magnitude must fortify, not
weaken, Pennsylvania's health care delivery system. A
consolidated company must be steadfastly dedicated to working
with providers to ensure their continued ability to offer
quality care to our patients, for it is the patients around
whom we are all centered.
In closing, let me emphasize that the standard economic
competitive analysis might not be entirely sufficient in
considering the impact of a consolidated Highmark and IBC. The
dominant IBC market share in the region, the overall complexity
of the health care market, including the virtual inability of
providers to sell their services directly to consumers, thus
necessitating that insurers be an efficient and effective
component of the delivery system are all factors that have to
be carefully considered in evaluating a possible consolidation.
On that note, we must keep in mind that with time,
Pennsylvania's health care system requirements will change.
What is efficient and effective today did not exist 10 years
ago and will change over the next 10 years. Pennsylvania--
Senator Specter. Mr. Marshall, how much more time will you
need?
Mr. Marshall. Just 30 seconds, Senator. Again, it is too
early to take a position for or against the proposed
consolidation. We would not want to oppose a merger simply
because of possible downsides. If carefully executed, with
constructive involvement from hospitals, physicians, employers,
consumers, and other stakeholders, a consolidation could
provide an opportunity to stabilize Pennsylvania's health care
system, preserve the economic stability of its businesses, and
ensure access to care for all its citizens. We at Temple Health
System are committed to working with all stakeholders on this
important issue.
Again, thank you, Senators and Governor Rendell, for your
leadership on this issue and for allowing me to testify today.
[The prepared statement of Mr. Marshall appears as a
submission for the record.]
Senator Specter. Thank you, Mr. Marshall, and thank you
all.
We now turn to 5-minute rounds from the panel, and I would
begin with you, Dr. Melani. When we talk about nonprofits,
there is a real question as to exactly what that means. Right
now Congress is wrestling with a pay increase for Federal
judges, who earn $165,000 a year. When we look at executive
compensation at Highmark in excess of $3 million, and when we
look at a surplus of $2.6 million, would there be savings
potentially to premium payers if that surplus was not
maintained or the level of executive compensation if nonprofit
really has to have some significance in terms of not being for-
profit?
Dr. Melani. Yes, Senator, let me address your question. The
number of lives that Highmark covers across the Nation is
actually 28 million, not 4.6 million. It is 4.6 million in the
State of Pennsylvania who have health insurance. We service 28
million individuals around the United States. So if you were to
charge our customers for my compensation, it is about 50 cents
per customer per year--I should say 10 cents per customer per
year, is what it comes out to be. So that would be the savings
to the customer. I guess that was part of your question, what
would the savings be if I received zero income. It would be
about 10 cents per customer per year.
Senator Specter. Well, Dr. Melani, whatever the saving
would be, there would be a saving. But what I am sort of
groping for is really what does ``nonprofit'' mean. We have had
some concerns expressed that this might be a precursor to
having Highmark and go profit, as WellPoint did, the second
biggest health carrier in the United States. And I am not sure
that being for-profit would necessarily be more profitable than
nonprofit. But can you assure us that that is not in the offing
to go for-profit?
Dr. Melani. We have no intent to go for-profit. Not-for-
profit for us is two things: One is a corporate structure, and
it is a corporate structure that exists for purposes of taxing
and other things. And, frankly, our not-for-profit status is a
bit of a misnomer because we pay just about every corporate tax
there is--property taxes, all of those things. So we get very
little in the way of tax forgiveness as a not-for-profit in the
State of Pennsylvania.
What it really means for us is a philosophy in the way we
manage. It is the corporate mission. It is a community-focused
mission. It is the ability to actually look at the community as
a whole and work on initiatives for the community for the long
term, without concern about shareholders, without returning
value to shareholders other than the people of the Commonwealth
of Pennsylvania. Our shareholders are the people we serve in
Pennsylvania, the people in Pennsylvania. So everything we do
as a not-for-profit is geared around trying to make health care
more affordable, more accessible for the people of
Pennsylvania, and that is our not-for-profit mission. That is
our not-for-profit status.
We do not intend to veer from that. Corporately, we enjoy
that structure. We enjoy the purpose for which we exist. Our
employees are engaged. I as the chief executive am engaged in
that. We do not have any intent to convert to a for-profit
organization.
Senator Specter. I am going to have to move on to Mr.
Frick. We do not have a whole lot of time here.
Mr. Frick, Dr. Melani testifies about you have fair and
reasonable premiums, but is it better to rely upon competition
to hold down premium costs? And would you favor an antitrust
exemption for doctors and hospitals to negotiate with
Independence Blue Cross?
Mr. Frick. Well, the first question about our provider
reimbursements and competition, as I mentioned in our
testimony, over 85 cents of every dollar that we take in in
revenue from our customer goes directly out the door to pay for
health care services to the hospital community and the
physician community on behalf of our members. We are proud of
that. That is a number that is much higher than the publicly
traded competitors that we referenced earlier.
Senator Specter. Well, if you have this kind of a merger,
would you say that it would be fair to give a little more
bargaining power to doctors and hospitals not to be restrained
by antitrust in negotiating with Independence Blue Cross and
Highmark? That is my last question. I only have a few seconds
left.
Mr. Frick. Well, Senator Specter, I think the leverage is
joint today. We need quality providers to render care, and we
look every year at fair and reasonable compensation. We had a
30-percent increase in the last 5 years in our payments to
providers, and actually, the number of participating providers
in our network has increased 11 percent. So I think all of us
are aligned more today than ever in terms of fair and
reasonable compensation, and also to make sure that the fees we
pay reflect quality and performance and the health status of
all of our members. I think that is the priority.
Senator Specter. Thank you, Mr. Frick.
Senator--Governor Rendell? I almost demoted you.
Governor Rendell. That is all right. I am sorry to the
other panelists to address these questions almost exclusively
to Mr. Frick and Dr. Melani, but it is the nature of where we
are, and I did have one question for Senator White, which I
cannot resist since I have got him here.
To Dr. Melani or Mr. Frick, there has been a lot of talk
about what the increases in level, the $1 billion increase, but
I think it is very important that we start from understanding
what the baseline is. And I know we do not have a lot of time,
but can you give us an understanding of the baseline of the
charitable commitments that IBC and Highmark make right now?
And it is my understanding--Mr. Rodriguez said that this would
just be money going to fulfill the commitment you made to us on
the adult basic care program. It is my clear understanding that
that is not the case; this is above and beyond the existing
commitment. But can you both give us an idea of your baseline?
Mr. Frick. Well, our obligation in 2006, Governor, was a
total of $52.4 million, and $29 million of that was directed
specifically to adult basic. And as you know as the architect
of that agreement, the Community Health Reinvestment Agreement
is scheduled to expire in 2010. So the $350 million that I
alluded to is to extend that agreement for an additional 3
years, but through operational and technology savings, we
believe we can also generate an additional $300 million in
savings that we believe is most appropriate to direct to access
and reducing the uninsured, because every stakeholder we talk
to, that is the single most important issue in Pennsylvania,
although Pennsylvania, I think, because of the historic
partnerships between our government and the Blues, the rate of
uninsured in Pennsylvania is much lower than the national
average. And while I do feel good about that, because I believe
it reflects the history of the Blues and our progressive
leadership, I think with the additional commitent we would make
as part of the consolidation, we can do better.
Governor Rendell. We are the seventh lowest in the Nation
in terms of percentage of uninsured. That is correct.
Dr. Melani, do you want to comment on that? Give us an idea
of your baseline.
Dr. Melani. I agree with what Joe says, that the Community
Health Reinvestment initiative sunsets in 2010, so a portion of
this is the extension of the Community Health Reinvestment
initiative. But there is $300 million of additional funds over
6 years that will be applied to the uninsured. That is in
addition to continuing our community commitments. Last year,
combined, we committed over $250 million back to the community.
Without the merger, those funds will not be available.
Governor Rendell. And just so I am clear, as you know, the
Commonwealth, at least the administration, is asking the
legislature to adopt something called ``Prescription for
Pennsylvania'' that would ensure health care for all the
uninsured. Adult basic care would phase out under that, and the
money that is currently programmed for adult basic care would
go into the pot that would pay for the increase in covering all
the uninsured. It goes without saying that those payments would
go to that program as well, the ABC payments.
Mr. Frick. And the additional funding that I spoke about,
$300 million, would go to whatever new programs or products we
jointly believe the administration, the legislature, and us as
Blues would best provide increased access to small employers
and reduce the uninsured rate. Absolutely.
Governor Rendell. And I have one question for Senator
White. Senator White deserves a great deal of credit for taking
this issue head on and Senate bill 550 would remedy, I think,
something that needed to be remedied by giving the Insurance
Commissioner the right to approve or reject mergers between
nonprofits.
But as you know, Senator, we also have a proposal in
Prescription for Pennsylvania to allow the Insurance
Commissioner to rate-set for health care, both for-profits and
nonprofits. I hope you would be supportive of that because one
of the things that has been expressed here is the concern by
Senator Specter, Mr. Rodriguez, and others is what is going to
happen to premiums and rates. Certainly we will be in a better
position if the Insurance Commissioner has the ability to
reject rate increases.
Senator White. Governor, you are absolutely right, and I
think everybody--you are to be commended and lauded for
Prescription for Pennsylvania, and you are getting a lot of
support in the legislature for all parts of it. But I am
sitting between these two giants here, and I feel a little
squeezed.
[Laughter.]
Senator White. But, you know, the community mission part of
this is wonderful, and it is a great concept. And while it is
helping the Commonwealth with the uninsured, which is, you
know, a pretty staggering figure, 800,000 people, let's not
forget that we have 11.2 million people that do have insurance,
and they want to know where the benefits are coming from, too.
Also, sometimes I have a problem--the reserve part of this
I guess is something that I need to be better educated on
because, Governor, as far as I am concerned, in my own mind I
classify these as basically excess premiums. And we all pay
into that.
Governor Rendell. Well, just to follow up, the legislature
should understand the reserve issue as it is ruled on by
Pennsylvania, and other States as well, and I agree. And we
should do that as part of this process.
But don't you agree that in terms of protecting those 11.2
million who do have health care, it is important to give the
Insurance Commissioner the ability to set rates?
Senator White. Absolutely, Governor.
Governor Rendell. Thank you.
Senator Specter. Senator Casey?
Senator Casey. Thank you, Senator.
I think my first question is directed to both Mr. Frick and
Dr. Melani, and it is a question, I think, that a number of
speakers today, a number of people in their testimony, as well
as in the questions, spoke to either directly or indirectly,
and that is the standard, the basic standard, which may not be
required of both companies in this merger situation, but I
think is a good standard for us to follow here in the State. So
whether it is the mandatory legal standard or not, I think it
is important to answer this question. And it is the basic
overarching question of the so-called affirmative showing of
substantial public benefits from this merger.
I would ask both of you to answer that as best you can in
the short period of time we have today, but also to supplement
or amplify your answer in writing as part of the record of this
Committee, and I would ask Senator Specter's permission to do
that, because I think that is one of the overarching questions:
What are the substantial public benefits of this merger? If you
could both answer, maybe Mr. Frick first.
Mr. Frick. Senator Casey, sure. I guess one of the reasons
for the 2-year process between IBC and Highmark to come to this
day today is because we both recognize our standing and
importance--not just in health care in Pennsylvania, but for
the local communities. Our local communities want to make sure
we preserve jobs. Our employer communities want to make sure
that we keep rates affordable. Our partners in Government want
to make sure we can continue to insure as many people as
possible. Our provider partners want to make sure that
reimbursement is aligned and fair and reasonable.
So we have multiple stakeholders, and what Highmark and IBC
believe is that by avoiding duplicative investments, cutting
down on unnecessary administrative spending, every dollar that
we can achieve from this consolidation, Senator, will go
directly to make health care work better in Pennsylvania. That
is our primary objective. We are not out-of-State companies. We
are looking to be more efficient so we can reinvest whatever
dollars we can accrue to make health care work better for all
of our stakeholders--employers, the uninsured, our provider
partners. That is our objective, and I believe that we do have
to prove that to you or this combination should not happen. But
that is how committed we are.
Senator Casey. Doctor?
Dr. Melani. Yes, Senator Casey, I think Joe articulated the
answer quite well, but I will just restate that there are
definitely economic benefits that will be derived, both direct
and indirect. Direct benefits we talked about, which is the $1
billion that we will get back to the community over the first 6
years of operations, and those will continue in perpetuity from
that point forward. But in the first 6 years, that is $1
billion of economic benefit that otherwise would not have been
received, about half of which will go back directly to
customers in savings through health care cost or administrative
cost savings, and the other half will go toward the uninsured
to help get them access to health care services that they need.
The indirect is really the benefit we talked about which
our companies bring to Pennsylvania every day. It is the
employment that we have, the 18,000 employees we have located
here in Pennsylvania. Unlike other companies that compete in
Pennsylvania, you know, our employees are based here servicing
the people of Pennsylvania and those nationwide, and we intend
to continue that.
In addition, the way we operate, we purchase in
Pennsylvania. Over 85 percent of all of our services are
purchased here in Pennsylvania from Pennsylvania-based
companies who employ people here, another 54,000 jobs created
by way of that.
Also, our surplus, the way we use our surplus to generate
economic benefit to the Commonwealth through procurement of
services and companies that we have put in place servicing
others across the Nation, those jobs are back here in
Pennsylvania. Again, no cost to the Commonwealth, done by us. A
great benefit to the Commonwealth.
I do not want to also understate, though, the quality
value, working with the providers in the community. We have
historically had a 70-year relationship with providers in the
community. We were started by providers, started by the
Hospital Association, started by the Pennsylvania Medical
Society. We have a rich tradition of working closely with the
provider community in our markets.
Yes, today things are tough. There is a tension because of
health care costs. But we will continue that rich tradition of
working face to face to improve quality of care and to try to
make health care more affordable by advancing technologies, the
personal health record, by looking at ways to increase our
passthrough in our claims, by doing real-time claims
adjudication, improving cash flow for physicians and hospitals.
We will continue to look at initiatives on transparency, pay
for performance--all those things that are critically
important, that we will not be duplicating and confusing to the
provider community or customers. One time, one place.
Senator Casey. I would just urge you in the future, as you
did today but I think we need more detail, to be very specific
about the benefits and remember that part of that standard has
the word ``substantial,'' and that means something that is
going to have a phenomenal effect, a substantial effect on
everyone's life, and that means both health care coverage and I
think it also means the question of cost.
So I think when you are making your list and you are
submitting for the record, not just for this hearing but for
any filing, that you think about it in very specific and in
broad terms what the word ``substantial'' actually means. I
think that is what people are looking for.
We are out of time.
Senator Specter. Thank you, Senator Casey. We have time for
one more round of 4 minutes and still make our 11 o'clock
termination time.
Senator White, there have been some rumors that if this
merger goes through, some current competitors will withdraw
from the State; other potential competitors will not enter the
State. How would you evaluate that? Would there be a
significant impact on competition for similar competitors?
Senator White. The best way I can answer that, Senator, is
to say that, you know, there are so many--whether this merger
goes through or not, we are still in a state where, when you
combine all the Blues coverage in Pennsylvania, they have--this
did not happen overnight. This happened and developed over a
20-, 25-year period. And a lot of it had to do with broken
unions and the fact that the unions always wanted the Blues.
The Blues were always the No. 1 choice, and that has helped to
generate this growth.
I think right now what you have is the entry barriers for
commercial businesses coming into Pennsylvania with the
environment that we have today is not real positive. There are
just so many barriers. They are going to continue to dominate
the market, and I think this is something--this is a good step.
I think something should have been done maybe along these lines
in 1996, which we sort of just let it slip under our nose.
But the point is that from a commercial end, when I was in
the business, a lot of the times in the rural parts of
Pennsylvania, Senator, you had--if I had my little companies
that I represented, I actually did not want to handle health
care. I handled the property/casualty or life or disability or
annuities and pensions. I did not want to handle health care
because if my client was unhappy and then the next year I came
back with a 20-percent increase in his premium, and I could not
explain it to him, I had to go back to the same company,
Highmark, and just get a cheaper plan. And that is the extent.
There is no network in the area that I represent in
Pennsylvania for--
Senator Specter. Dr. Schott, if this merger goes through,
what impact will there be on the bargaining power of doctors
and hospitals? How does this affect your interest in having an
antitrust exemption for doctors and hospitals to join together
to negotiate with Independence Blue Cross and Highmark?
Dr. Schott. Physicians find themselves at this point
clearly at the bottom of the economic power structure in
dealing with third-party payers and even at times in dealing
with hospital systems. The reimbursement market for physicians
is an important issue, not so much that I can take home
salaries that some of our CEOs enjoy, but to retain and attract
people to this market. And we have been progressively unable to
do that because of both the economic and to a large extent the
tort climate that we face in Pennsylvania, especially in
southeastern Pennsylvania.
The national average for third-party payer reimbursement
for evaluation and management services, which is what most
internists spend their life doing, is substantially above
Medicare, while in southeastern Pennsylvania we have expected
our doctors to work here at substantially below Medicare.
Senator Specter. I am going to ask for a show of hands,
with only 20 seconds left, of those on the panel who think
there should be an antitrust exemption for doctors and
hospitals to negotiate. You do not have to be yes or no if you
have not had time to think about it. I would understand an
abstention. But everybody on the panel who thinks that if this
merger goes through, it would be appropriate to have an
antitrust exemption for doctors and hospitals. If you favor
that, raise your hand. Opposed?
[Four in favor.]
Governor Rendell. Can I ask one question? Basically a yes
or no answer.
Senator Specter. No, no. You can ask several.
Governor Rendell. I thought we were out of time.
Senator Specter. You have got 4 minutes.
Governor Rendell. Doctor, I hear what you say. Mr. Frick
just told us that the increase in physician reimbursement has
been 30 percent over the last 5 years. Correct or incorrect?
Dr. Schott. I do not know that that number is absolutely
true. I cannot substantiate that number. There are different
issues that play into that number, and I know we are time-
limited, but the ability of any given physician to be able to
survive in this environment has been very marginal.
The fact that southeastern Pennsylvania has high demands on
service is an issue that we share the concern with IBC. When we
are taking care of a patient, they frequently are probably
sicker than the average and require a lot more services, and
the system, as it has evolved, including the system where
primary care physicians now are not given any advantage to go
to the hospital to see their patients because their only
revenue comes from what they do in their office.
So there are a lot of factors here. I realize time is very
limited, and I would be happy to spend as much time as any of
you want to spend at any time to further discuss this.
Governor Rendell. Could the objective that Senator Specter
is trying to reach with antitrust, would that not have been
reached had the legislature approved the legislation on
provider groups? Maybe you want to explain that to the Senator,
the legislation that failed.
Dr. Schott. Well, the Senator is well aware of the Campbell
bill, which was the national bill after which both the Texas
bill and the Pennsylvania bill were patterned. That would have
the ability for physicians to collectively bargain under the
oversight of the Department of Health or the Insurance
Commissioner or some State-based agency.
It is cumbersome. The process for doing that we would
certainly like to address and tweak, but we would certainly be
in favor of moving forward with that as a trade-off for the
bargaining power that we are not going to have when we have one
monopsonistic corporation.
Governor Rendell. And there were efforts in the
Pennsylvania legislature to achieve that, and they failed.
Dr. Schott. Absolutely.
Governor Rendell. I will not say ``miserably,'' but they
failed.
Senator Specter. Senator Casey?
Senator Casey. I have one question for Professor Burns with
regard to duplication. You were making assertions about what
may happen to both economies of scale and efficiency and
duplication. I was curious to have you explain at least the
duplication assertion as to how this merger would, in fact,
lessen the possibility that we could reduce duplication.
Mr. Burns. Well, Senator, the insurance business is a
labor-intensive industry. It is not a capital-intensive
industry. And so when you put together two firms that are
located 300 miles apart, you are not going to really be
generating job savings or efficiencies by combining those two
companies because you will still have the same number of people
doing the same number of things in both locations.
I think we have some historical experience we can draw on
here, and I do not mean to bring up some unpleasant memories,
but 10 years ago we tried to pull together a huge hospital
system here in Pennsylvania that had one part of it in
Pittsburgh and the other part of it here in Philadelphia, and
that was the Allegheny system. And they made many of the same
claims here, and they had the same difficulties that I have
outlined in my report on trying to achieve these kinds of
efficiencies.
You have two labor-intensive markets--hospitals and health
plans--operating 300 miles apart. It is hard to pull those
together and automate them.
Senator Casey. One last question. As the Governor
apologized, I will, too, to direct these to the two principals
for today, but it is important. Children's health insurance, we
have 9 million kids in the country with no health insurance at
all. This State does a much better job than most States. The
Governor is trying to expand it. But how do you see this merger
impacting the question of children's health insurance, meaning
how many are covered? And do you see it as having a positive
impact on the number of children who are covered?
Mr. Frick. I do not think there is any greater priority
than health insurance for children, and Highmark and IBC were
pioneers with the administration in the CHIP program that has
now become a national model. And I think why we are allocating
a large percentage of the savings is for two things: one, no
one in America should be without health insurance; and, No. 2,
those who are are increasing costs for everyone else.
So no matter what stakeholder we talk to, creating more
access to health insurance is good for everyone, and there is
no single greater priority for us.
Senator Casey. Thank you, Senator.
Senator Specter. Well, thank you all for the testimony
today. The record will be held open for 1 week in accordance
with Judiciary Committee rules for the submission of written
questions. I think the hearing has been very fruitful in
exploring quite a number of issues--oh, Mr. Rodriguez, you had
your hand up a few moments ago and wanted to say something in
addition?
Mr. Rodriguez. Thank you, Senator. I just want to emphasize
some of the comments made by some of the principals of the
Blues about the commitment that they were not going to turn
into for-profit corporations in the near future. I think if
that is the case--and they are very nice people, and I think we
can take them at their word--they will have no problem in
signing some binding agreement that they would not do so for 10
years.
In addition to that, I believe that it would be in the best
interest of consumers in Pennsylvania if part of the surplus is
used to up the ante in terms of the $650 million that we have
on the table, to increase that to about $1.2 or $1.5 billion to
provide health insurance for Pennsylvanians.
Senator Specter. Thank you very much, Mr. Rodriguez, and I
thank--I see a hand in the audience. We would like to take
questions, but we are at 10:59.
Governor Rendell. Fifteen seconds.
Senator Specter. Go ahead.
Audience Member. Mental health coverage, separate, not
equal. Magellan in Georgia, bean counters handling Blue Cross'
covering of--
Senator Specter. And your question is?
Audience Member. My question is, if we are going to have
more Magellans with this big thing, or are we going to take a
look at what--
Senator Specter. Okay. We have your question.
Mr. Frick?
Mr. Frick. Well, as she alluded to, Magellan is our third-
party provider for mental health and behavioral health services
for Independence Blue Cross. Highmark does not use them now.
Our comprehensive integration plan over the next 12 months
will look at every aspect of our company to understand what is
the best practice in that particular care area administration,
and what we will deliver to the marketplace is what we believe
is the best.
Senator Specter. If anybody else has any questions, see
Mike Oster, my executive director in Philadelphia, and we will
be glad to ask them for the record. And if you have any
questions generally, just communicate with my office, and I am
sure Senator Casey would say the same, as would Governor
Rendell.
Governor Rendell. Can I just say one thing on that?
On that quick question, Prescription for Pennsylvania does
require, unlike ABC, Adult Basic Care, mental health coverage,
behavioral health coverage, and substance abuse coverage. So it
is an improvement. The product in Prescription for Pennsylvania
is a step up because it includes generic brand prescription
coverage, which ABC does not, and it includes behavioral
health, which ABC does not.
Senator Specter. Gentlemen, thank you all very much for
coming in today. As I said, this is just the beginning. There
will be more questions.
I want to thank the National Constitution Center for
opening up this beautiful auditorium, and thank especially Joe
Torsella, the President.
That concludes our hearing.
[Whereupon, at 11:01 a.m., the Committee was adjourned.]
[Questions and answers and submissions for the record
follow.]
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