Harvard Pilgrim


Breaking News: Harvard Pilgrim, Tufts Call Off Merger Talks

The Boston Globe reports that the courtship between the state’s second and third largest insurers, Harvard Pilgrim and Tufts Health Plan, is over.

The two companies, which have been conducting merger talks for a month, “have now determined that we are stronger as individual competitors than one company,” Eric Schultz, president of Harvard Pilgrim, said in a joint statement from the two insurers.

During their due diligence, the companies said, they concluded the savings and efficiencies they were seeking would be more difficult to achieve than initially thought, while integrating their organizations would prove more expensive and time-consuming.

Here’s the joint press release:

Boston – The Board of Directors of Harvard Pilgrim Health Care and Tufts Health Plan today announced that they will not pursue a merger of the two non-profit health plans. On January 25, 2011, Harvard Pilgrim and Tufts Health Plan signed a non-binding Memorandum of Understanding (MOU) as the first step in exploring a possible merger of the organizations. The MOU authorized a due diligence period for both organizations to internally review the merits of a potential transaction.

“We have spent the last six weeks in a vigorous process thoughtfully exploring the practical feasibility of combining our two organizations for the benefit of our customers, members and the many other people we aim to serve. As a result of this process, we have now determined that we are stronger as individual competitors than one company,” said Eric Schultz, president and chief executive officer of Harvard Pilgrim Health Care. “Both organizations will continue their work to keep high quality health care accessible and affordable, while at the same time investing in community programs and initiatives.”

During the due diligence period it became apparent that the savings and efficiencies both organizations were seeking would be more complex to achieve than initially envisioned and the integration of the two organizations would be more costly and time-consuming than anticipated when discussions first began.

“The due diligence process provided us with the opportunity to carefully explore whether our organizations are operationally compatible. We made the thoughtful determination that while we are in the same business, our operations are very different and, in many important aspects, not fully compatible without significant changes to existing processes and applications,” said James Roosevelt, Jr., president and chief executive officer of Tufts Health Plan. “Based on the information we have received in the due diligence process, we now believe this decision is in the best interest of those we serve: our members and customers. We walk away from these discussions with great respect for the leadership at Harvard Pilgrim and remain respectful competitors in the Massachusetts market.”

The two organizations are the highest ranking health plans in the nation for customer service and quality. As the #1 ranked health plan, Harvard Pilgrim Health Care operates in Massachusetts, Maine and New Hampshire; while Tufts Health Plan, ranked #2, operates in Massachusetts and Rhode Island.

Big Three Health Insurers All End Year In The Black

Considering the angst between insurers and regulators last year over capping premiums, the state’s top three health insurers all made out pretty well, according to year-end financial reports. WBUR’s Martha Bebinger offers a few details:

Tufts, the 3rd largest health insurer ended the year $65 million ahead with a slight increase in membership and no debt. Tufts paid CEO Jim Roosevelt, $1.2 million. Eric Schultz at Harvard Pilgrim earned just under $800,000 as did Andrew Dreyfus at Blue Cross Blue Shield. Harvard Pilgrim also added members and had a net income of $50 million dollars. Blue Cross Blue Shield membership was down slightly and the state’s largest insurer closed the books with $14.3 million in profits.

The fourth largest insurer, Fallon Community Health Plan, based on Worcester, posted a loss for the year and saw membership fall about 6%. CEO Patrick Hughes (who moved from division president of health plan operations to chief executive in February 2010) received $754,012 in total compensation in 2009 and $649,581 in 2010.

Cogent Comments On The Tufts/Harvard Pilgrim Merger

Just a sampling of favorites from the wonkosphere:

Harvard Business School professor Regina Herzlinger, author of “Who Killed Health Care?,” speaking on WBUR this morning about the danger of an arms race between insurers and hospitals:

“Here’s what happens: An 800-pound gorilla comes into your neighborhood and says, ‘Unless you pay me some money, I’m going to beat you up.’ So what are you going to do? You’re going to become an 800-pound gorilla yourself and then when that big insurer shows up and says, ‘Cut your prices or else,’ you’re going to say, ‘Or else what? I’m just as big as you. What the heck are you going to do to me?’”

Herzlinger pointed to a 2009 study of consolidation in other states. The National Bureau of Economic Research published an analysis showing that premiums increased 7 percent after two big health insurers merged. That’s because hospitals responded by banding together, and they were able to charge more for their procedures. So the insurers may want to bring down costs, but she said joining forces isn’t going to do it.

Paul Levy in Not Running A Hospital:A call for state-regulated transparency

Beyond survival, the Board members have to believe that the financial results for the combined entity would be greater than for each one standing alone. Some improvement in that regard can come from eliminating redundant positions and otherwise reducing administrative costs, and some can come from economies of scale in electronic processing of claims and payments. Some would likely come from increased leverage over providers, who will no longer be able to play off one firm against the other.

But what is to prevent some improvement from being derived by the market power of a duopoly, an improvement that would be solely based on extracting more from consumers than would otherwise be the case?

The answer here, as in other industries, must be state regulation….In essence, the insurance companies in the state have now positioned themselves as public utilities. The secrecy of rates, charges, premiums, actuarial methodology, and the like that have characterized the system have no place in a duopoly environment. To extent current law does not permit this kind of openness, the state should act to make it a condition for the future. Continue reading

Health Insurance Shakeup: Reaction, And What Does It Mean For You?

With news today that Harvard Pilgrim Health Care and Tufts Health Plan — the number two and number three insurers in the state — are planning to merge, we wondered what that might mean for consumers and how the competitive landscape might shift. (Here’s the press release. And a Tufts spokesperson summed up the immediate bottom line like this: “NO CHANGES for members or employers at this time.)

This morning, WBUR spoke with Jay McQuaide, a vice president at Blue Cross Blue Shield of Massachusetts, the top insurer in the state, who said the pending merger will provide “welcome” competition. But the real question is: Will the deal improve affordability of health care? “The central question in the community today is how do we as a community reduce the growth in healthcare costs, and I think that will be the measure by which the community considers this particular transaction,” McQuaide said.

Brian Rosman, research director of the consumer advocacy group Health Care for All, agrees that the major questions for state authorities who will review the merger proposal will be: What will the deal do for choice, access and competition? Here are his top three thoughts:

1. Consumers May Not Even Notice — At First

Rosman points out that both Harvard Pilgrim and Tufts are highly rated plans, and this is not a case where each brings its own network of vastly different providers (at least in Eastern Mass.) Actually, there is a great deal of overlap in these networks, in terms of access to doctors. Rosman himself said he switched from Harvard to Tufts and then back, and he never once had to switch physicians or specialists.

2. The Brave New World of Payment Reform Will Overshadow All

As we enter the world of payment reform, Rosman says, ACOs (you can read our primer on accountable care organizations here ) will have much more responsibility for arranging care and referrals, and which health plan you’ve got may matter less. Continue reading

Daily Rounds: Stem Cell Ruling; 'Car Talk' Medicine; Harvard Pilgrim On Costs

A federal judge’s ruling against stem cell research leads The New York Times today, and Children’s Hospital Boston’s George Q. Daley talks about how disruptive it will be to labs. But the real “reader” today is David Brooks on our mental flabbiness, beginning with a description of a 19th-century mastectomy.

How can we resist touting WBUR’s own Car Talk? Trisha Torrey, a “patient empowerment” blogger, explains how doctors should be more like Click and Clack.

The Boston Globe features the Harvard Pilgrim CEO talking about reducing health care costs:
Harvard Pilgrim on Costs