At&T Inc

Patricia A. Brink,

Deputy Director of Operations, Antitrust Division.

In the matter of: United States District Court for the District of Columbia; United States of America, Plaintiff, v. UnitedHealth Group Incorporated and Sierra Health Services, Inc., Defendants.

[Case No. 1:08-cv-322-ESH]

Response of Plaintiff United States to Public Comments

Pursuant to the requirements of the Antitrust Procedures and Penalties Act ("APPA" or "Tunney Act"), 15 U.S.C. 16(b)-(h), the United States hereby files the four public comments that the United States received concerning the proposed Final Judgment in this case and the United States' response to those comments. The United States will move the Court for entry of the proposed Final Judgment after the comments and this Response have been published in the Federal Register , pursuant to 15 U.S.C. 16(d).

On February 25, 2008, the United States filed the Complaint in this matter alleging that the proposed merger of UnitedHealth Group Incorporated ("United") and Sierra Health Services, Inc. ("Sierra") would violate Section 7 of the Clayton Act, 15 U.S.C. 18. Simultaneously with the filing of the Complaint, the United States filed a proposed Final Judgment and a Hold Separate and Asset Preservation Stipulation and Order ("Stipulation") signed by the United States and Defendants consenting to the entry of the proposed Final Judgment after compliance with the requirements of the Tunney Act. *1 Pursuant to those requirements, the United States filed a Competitive Impact Statement ("CIS") in this Court on February 25, 2008; published the proposed Final Judgment and CIS in the Federal Register on March 10, 2008, see 73 FR 12762 (2008); and published summaries of the terms of the proposed Final Judgment and CIS, together with directions for the submission of written comments relating to the proposed Final Judgment, in the Washington Post for seven days beginning on March 16, 2008 and ending on March 22, 2008, and in the Las Vegas Review-Journal for seven days beginning on March 8, 2008 and ending on March 14, 2008. The 60-day period for public comments ended on May 15, 2008, and the United States received the four comments described below and attached hereto.

*1 The merger closed on February 25, 2008. In keeping with the United States' standard practice, neither the Stipulation nor the proposed Final Judgment prohibited closing the merger. See ABA Section of Antitrust Law, Antitrust Law Developments 406 (6th ed. 2007) (noting that "[t]he Federal Trade Commission (as well as the Department of Justice) generally will permit the underlying transaction to close during the notice and comment period"). Such a prohibition could interfere with many time-sensitive deals and prevent or delay the realization of substantial efficiencies.

I. The United States' Investigation and the Proposed Final Judgment

On March 11, 2007, United and Sierra entered into an agreement, whereby United agreed to acquire all outstanding shares of Sierra. Over the next eleven months, the United States Department of Justice (the "Department") conducted an extensive, detailed investigation into the competitive effects of the proposed transaction. As part of this investigation, the Department obtained substantial documents and information from the merging parties and issued numerous Civil Investigative Demands to third parties. In response, the Department received and considered more than 2.5 million pages of material. The Department conducted approximately 150 interviews with customers, hospitals and physician groups, insurance companies, and other individuals with knowledge of the industry.

After conducting a detailed analysis of the acquisition, the Department concluded that the combination of United and Sierra likely would substantially lessen competition in the Las Vegas, Nevada area (consisting of Clark and Nye Counties, Nevada) in a product market no broader than the sale of Medicare Advantage health-insurance plans to senior citizens and other Medicare- eligible individuals. As defined by federal law, Medicare Advantage plans consist of Medicare Advantage health maintenance organization plans ("MA- HMO"), Medicare Advantage preferred provider organization plans ("MA-PPO"), and Medicare Advantage private fee-for-service plans ("MA-PFFS"). See 42 U.S.C. 1395w-21(a)(2). United and Sierra together would have accounted for approximately 94 percent of the total enrollment in Medicare Advantage plans in the Las Vegas area, which accounts for approximately $840 million in annual commerce. United markets and sells its Medicare Advantage products under the Secure Horizons and AARP brands. Sierra markets and sells its Medicare Advantage products under the Senior Dimensions, Sierra Spectrum, Sierra Nevada Spectrum, and Sierra Optima Select brands.

As more fully explained in the CIS, the Stipulation and proposed Final Judgment in this case are designed to preserve competition in the sale of Medicare Advantage health-insurance plans in the Las Vegas area by requiring United to divest its individual Medicare Advantage line of business in the Las Vegas area. The Stipulation and proposed Final Judgment also require United to take several steps to assist the acquirer in providing prompt and effective competition in the Medicare Advantage market, including assisting the acquirer to enter into agreements that will allow members of United's Medicare Advantage plans to have continued access to substantially all of United's provider network of physicians, hospitals, ancillary service providers, and other health care providers on terms no less favorable than United's existing agreements. United must also provide transition support services for medical- claims

[Page Number 49835]

processing, appeals and grievances, call-center support, enrollment and eligibility services, access to form templates, pharmacy services, disease management, Medicare risk-adjustment services, quality-assurance services, and such other services as are reasonably necessary for the acquirer to operate the Divestiture Assets.

On February 25, 2008, United and Humana Health Plan Inc. ("Humana") signed an agreement providing for Humana to purchase United's Las Vegas Medicare Advantage line of business for approximately $185 million. After receiving approval from the Centers for Medicare and Medicaid Services ("CMS") and the Nevada Division of Insurance, Humana completed the acquisition of United's Las Vegas Medicare Advantage line of business on May 1, 2008. In the Department's judgment, the divestiture of United's Las Vegas Medicare Advantage line of business to Humana, along with the other requirements contained in the Stipulation and proposed Final Judgment, are sufficient to eliminate the anticompetitive effects identified in the Complaint.

II. Standard of Judicial Review

Upon the publication of the Comment and this Response, the United States will have fully complied with the Tunney Act and will move for entry of the proposed Final Judgment as being "in the public interest" 15 U.S.C. 16(e)(l), as amended.

The Tunney Act states that, in making that determination, the Court shall consider:

(A) the competitive impact of such judgment, including termination of alleged violations, provisions for enforcement and modification, duration of relief sought, anticipated effects of alternative remedies actually considered, whether its terms are ambiguous, and any other competitive considerations bearing upon the adequacy of such judgment that the court deems necessary to a determination of whether the consent judgment is in the public interest; and

(B) the impact of entry of such judgment upon competition in the relevant market or markets, upon the public generally and individuals alleging specific injury from the violations set forth in the complaint including consideration of the public benefit, if any, to be derived from a determination of the issues at trial.

15 U.S.C. 16(e)(1)(A)-(B); see generally United States v. AT&T Inc., 541 F. Supp. 2d 2, 6 n.3 (D.D.C. 2008) (listing factors that the Court must consider when making the public-interest determination); United States v. SBC Commc'ns, Inc., 489 F. Supp. 2d 1, 11 (D.D.C. 2007) (concluding that the 2004 amendments to the Tunney Act "effected minimal changes" to scope of review under the Tunney Act, leaving review "sharply proscribed by precedent and the nature of Tunney Act proceedings"). *2

*2 The 2004 amendments substituted "shall" for "may" in directing relevant factors for courts to consider and amended the list of factors to focus on competitive considerations and to address potentially ambiguous judgment terms. Compare 15 U.S.C. [Section] 16(e) (2004), with 15 U.S.C. [Section] 16(e)(1) (2006).

As the United States Court of Appeals for the District of Columbia Circuit has held, under the APPA, a court considers, among other things, the relationship between the remedy secured and the specific allegations set forth in the government's complaint, whether the decree is sufficiently clear, whether enforcement mechanisms are sufficient, and whether the decree may positively harm third parties. See United States v. Microsoft Corp., 56 F.3d 1448, 1458-62 (D.C. Cir. 1995). With respect to the adequacy of the relief secured by the decree, a court may not "engage in an unrestricted evaluation of what relief would best serve the public." United States v. BNS, Inc., 858 F.2d 456, 462 (9th Cir. 1988) (citing United States v. Bechtel Corp., 648 F.2d 660, 666 (9th Cir. 1981)); see also Microsoft, 56 F.3d at 1460-62. Courts have held that:

[t]he balancing of competing social and political interests affected by a proposed antitrust consent decree must be left, in the first instance, to the discretion of the Attorney General. The court's role in protecting the public interest is one of insuring that the government has not breached its duty to the public in consenting to the decree. The court is required to determine not whether a particular decree is the one that will best serve society, but whether the settlement is "within the reaches of the public interest." More elaborate requirements might undermine the effectiveness of antitrust enforcement by consent decree.

Bechtel, 648 F.2d at 666 (emphasis added) (citations omitted). Cf. BNS, 858 F.2d at 464 (holding that the court's "ultimate authority under the [APPA] is limited to approving or disapproving the consent decree"); United States v. Gillette Co., 406 F. Supp. 713, 716 (D. Mass. 1975) (noting that, in this way, the court is constrained to "look at the overall picture not hypercritically, nor with a microscope, but with an artist's reducing glass"). See generally Microsoft, 56 F.3d at 1461 (discussing whether "the remedies [obtained in the decree are] so inconsonant with the allegations charged as to fall outside of the 'reaches of the public interest' ").

The government is entitled to broad discretion to settle with defendants within the reaches of the public interest. AT&T Inc., 541 F. Supp. 2d at 6. In making its public-interest determination, a district court "must accord deference to the government's predictions about the efficacy of its remedies, and may not require that the remedies perfectly match the alleged violations." SBC Commc'ns, 489 F. Supp. 2d at 17; see also Microsoft, 56 F.3d at 1461 (noting the need for courts to be "deferential to the government's predictions as to the effect of the proposed remedies"); United States v. Archer-Daniels- Midland Co., 272 F. Supp. 2d 1, 6 (D.D.C. 2003) (noting that the court should grant due respect to the United States' prediction as to the effect of proposed remedies, its perception of the market structure, and its views of the nature of the case).

Court approval of a consent decree requires a standard more flexible and less strict than that appropriate to court adoption of a litigated decree following a finding of liability. "[A] proposed decree must be approved even if it falls short of the remedy the court would impose on its own, as long as it falls within the range of acceptability or is 'within the reaches of public interest.' " United States v. Am. Tel. & Tel. Co., 552 F. Supp. 131, 151 (D.D.C. 1982) (citations omitted) (quoting United States v. Gillette Co., 406 F. Supp. 713, 716 (D. Mass. 1975)), aff'd sub nom. Maryland v. United States, 460 U.S. 1001 (1983); see also United States v. Alcan Aluminum Ltd., 605 F. Supp. 619, 622 (W.D. Ky. 1985) (approving the consent decree even though the court would have imposed a greater remedy). To meet this standard, the United States "need only provide a factual basis for concluding that the settlements are reasonably adequate remedies for the alleged harms." SBC Commc'ns, 489 F. Supp. 2d at 17.

Moreover, the Court's role under the APPA is limited to reviewing the remedy in relationship to the violations that the United States has alleged in its complaint, rather than to "construct [its] own hypothetical case and then evaluate the decree against that case." Microsoft, 56 F.3d at 1459. Because the "court's authority to review the decree depends entirely on the government's exercising its prosecutorial discretion by bringing a case in the first place," it follows that "the court is only authorized to review the decree itself," and not to "effectively redraft the complaint" to inquire into other matters that the United States did not pursue. Id. at 1459-60. As this Court recently confirmed in SBC Communications,

[Page Number 49836]

courts "cannot look beyond the complaint in making the public interest determination unless the complaint is drafted so narrowly as to make a mockery of judicial power." SBC Commc'ns, 489 F. Supp. 2d at 15.

In its 2004 amendments to the Tunney Act, Congress made clear its intent to preserve the practical benefits of utilizing consent decrees in antitrust enforcement, adding the unambiguous instruction that "[n]othing in this section shall be construed to require the court to conduct an evidentiary hearing or to require the court to permit anyone to intervene." 15 U.S.C. 16(e)(2). The amendments codified what Congress intended when it passed the Tunney Act in 1974, as Senator Tunney then explained: "[t]he court is nowhere compelled to go to trial or to engage in extended proceedings which might have the effect of vitiating the benefits of prompt and less costly settlement through the consent decree process." 119 Cong. Rec. 24,598 (1973) (statement of Senator Tunney). Rather, the procedure for the public-interest determination is left to the discretion of the court, with the recognition that the court's "scope of review remains sharply proscribed by precedent and the nature of Tunney Act proceedings." SBC Commc'ns, 489 F. Supp. 2d at 11. *3

*3 See United States v. Enova Corp., 107 F. Supp. 2d 10, 17 (D.D.C. 2000) (noting that the "Tunney Act expressly allows the court to make its public interest determination on the basis of the competitive impact statement and response to comments alone"); United States v. Mid-Am. Dairymen, Inc., 1977-1 Trade Cas. (CCH) [paragraph] 61,508, at 71,980 (W.D. Mo. 1977) ("Absent a showing of corrupt failure of the government to discharge its duty, the Court, in making its public interest finding, should * * * carefully consider the explanations of the government in the competitive impact statement and its responses to comments in order to determine whether those explanations are reasonable under the circumstances."); S. Rep. No. 93-298, 93d Cong., 1st Sess., at 6 (1973) ("Where the public interest can be meaningfully evaluated simply on the basis of briefs and oral arguments, that is the approach that should be utilized.").

III. Summary of Public Comments and the United States' Response

During the 60-day comment period, the United States received comments from the Service Employees International Union Local 1107 (the "SEIU comment"), the American Medical Association, Nevada State Medical Association, and the Clark County Medical Society (collectively, the "AMA comment"), the Honorable Nydia M. Velazquez, Chairwoman, United States House of Representatives Committee on Small Business (the "Velazquez comment"), and the Honorable Chris Giunchigliani, Commissioner, Board of Commissioners--Clark County, Nevada (the "Giunchigliani comment"). Those comments are attached to this Response.

After reviewing the comments, the United States has determined that the proposed Final Judgment remains in the public interest. The commenters raise two main concerns: (A) that the United States should have alleged and remedied harm to competition in additional product markets other than the Medicare Advantage market alleged in the United States' Complaint and (B) that the proposed Final Judgment does not adequately remedy the harms to competition alleged in the Complaint. The United States addresses these concerns below.

A. Comments That the United States Should Have Alleged and Remedied Additional Competitive Concerns

1. Summary of Comments

Each of the commenters argue that the United States should have alleged and remedied competitive concerns that are not addressed in the Complaint in this matter. They argue that the United States should have pursued a case of harm to competition in a commercial health-insurance market in Clark County, Nevada. (AMA comment at 12; SEIU comment at 4; Velazquez comment at 3; Giunchigliani comment at 1-2). The commenters also express concern that the United-Sierra merger will harm competition in the sale of various types of commercial health insurance, such as the provision of HMO policies, HMO and PPO policies, and the provision of commercial insurance to employers with 50 or fewer employees. (AMA comment at 12; SEIU comment at 4; Velazquez comment at 4; Giunchigliani comment at 1).

The AMA and Velazquez also argue that the United States should have alleged that the transaction would harm physicians and sought an appropriate remedy. They maintain that the merged company will control a sufficient share of the purchases for physicians services in Clark County such that the merged company will be able to reduce payments to physicians below competitive levels. (AMA comment at 5; Velazquez comment at 4). Similarly, the SEIU argues that the merged company will control a sufficient share of purchases of hospital services such that the merged company will be able unilaterally to reduce reimbursement rates to hospitals. (SEIU comment at 4). The SEIU argues that such lower reimbursement rates to hospitals will result in higher patient-to- nurse ratios and place patient safety and quality of care in jeopardy. (SEIU comment at 3-4).

2. The United States' Response

The comments that the United States should have alleged harm to competition for the sale of various types of health insurance or for the purchase of physician or hospital services, which are not addressed in the Complaint, are outside the scope of this APPA proceeding. The Department's decision to allege a harm in a specific market is based on a case-by-case analysis that varies depending on the particular circumstances of each product and geographic market The Department investigated the transaction's potential competitive effects on each of the types of health insurance identified by the commentators, and on the purchase of physician and hospital services, and concluded that it should not allege harm in these markets. As explained by this Court, in a Tunney Act proceeding, the district court should not second- guess the prosecutorial decisions of the Department regarding the nature of the claims brought in the first instance; "rather, the court is to compare the complaint filed by the United States with the proposed consent decree and determine whether the proposed decree clearly and effectively addresses the [anticompetitive harms initially identified." United States v. Thomson Corp., 949 F. Supp 907, 913 (D.D.C. 1996); accord, Microsoft, 56 F.3d at 1459 (in APPA proceeding, "district court is not empowered to review the actions or behavior of the Department of Justice; the court is only authorized to review the decree itself"); BNS, 858 F.2d at 462-63 ("the APPA does not authorize a district court to base its public interest determination on antitrust concerns in markets other than those alleged in the government's complaint"). This court has held that "a district court is not permitted to "reach beyond the complaint to evaluate claims that the government did not make and to inquire as to why they were not made.' " SBC Commc'ns, 489 F. Supp. 2d at 14 (quoting Microsoft, 56 F.3d at 1459) (emphasis in original). Nor does the fact that the State of Nevada obtained terms of settlement different from those obtained by the United States alter the ordinary Tunney Act standard of review.

The AMA's contention that the 2004 Amendments to the Tunney Act overruled precedent in this court and require a more extensive review of the United States' exercise of its prosecutorial judgment conflicts with this Court's holding in SBC Communications, supra. (AMA

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comment at 4). In SBC Communications, this Court held that "a close reading of the law demonstrates that the 2004 amendments effected minimal changes, and that this Court's scope of review remains sharply proscribed by precedent and the nature of [APPA] proceedings." SBC Commc'ns, 489 F. Supp. 2d at 11. This Court continued that because "review [under the 2004 amendments] is focused on the 'judgment,' it again appears that the Court cannot go beyond the scope of the complaint." Id. The 2004 amendments to the APPA, as interpreted and applied by this Court in SBC Communications, require the Court to evaluate the effect of the "judgment upon competition" in a Medicare Advantage market in the Las Vegas area. 15 U.S.C.16(e)(1)(b). Because the United States did not allege that the United's acquisition of Sierra would cause harm in additional markets, it is not appropriate for the Court to seek to determine whether the acquisition will cause anticompetitive harm in such markets.

B. Comment That the Proposed Final Judgment Does Not Adequately Address the Harms to Competition Alleged in the Complaint

1. Summary of Comment

The AMA states that the remedies in the proposed Final Judgment are inadequate to maintain competition in the sale of Medicare Advantage health- insurance plans in the Las Vegas area. (AMA comment at 13). The AMA argues in its comment that the proposed Final Judgment should include five additional remedies: (1) A permanent injunction on United's use of "most-favored-nations" clauses in healthcare-provider contracts; (2) a permanent injunction on United's use of "all-products" clauses in healthcare-provider contracts; (3) a divestiture of United's commercial health-insurance business in Clark County; (4) a requirement that United convey the use of certain trademarks to the acquirer of the Medicare Advantage line of business for at least five years; and (5) the immediate use of a monitoring trustee to ensure compliance with the proposed Final Judgment. (AMA comment at 13-15).

2. The United States' Response

The additional remedies proposed by the AMA are not necessary to ensure that competition will remain in the market alleged in the Complaint. Rather, the proposed Final Judgment is in the public interest because it is properly designed to eliminate the anticompetitive effects alleged in the Complaint. First, the proposed Final Judgment requires United to divest its entire individual Medicare Advantage line of business in the Las Vegas area to an acquirer approved by the United States and on terms acceptable to the United States. This line of business covers approximately 25,800 individual Medicare Advantage beneficiaries. As described in Section IV of the proposed Final Judgment, United is required to divest all tangible and intangible assets dedicated to the administration, operation, selling, and marketing of its Medicare Advantage plans to individuals in the Las Vegas area ("the Divestiture Assets"), including all of United's rights and obligations under the relevant United contracts with CMS. Thus, the acquirer will have the benefit of entering the Medicare Advantage market with United's entire individual Medicare Advantage line of business.

Second, the Stipulation and Sections IV(A) and (B) of the proposed Final Judgment required United to divest the Divestiture Assets within the shortest time period reasonable under the circumstances. A quick divestiture has the benefits of maintaining competition that would otherwise be lost in the acquisition and reducing the possibility of dissipation of the value of the assets while the sale is pending. Per these requirements, United divested the Divestiture Assets to Humana on May 1, 2008.

Third, the divestiture eliminates the anticompetitive effects of the merger by requiring United to divest the Divestiture Assets to an acquirer that can compete vigorously with the merged United-Sierra. The United States approved Humana as the acquirer of the Divestiture Assets because Humana is well positioned to be a strong competitor in the Medicare Advantage market in the Las Vegas area. Humana is an established health-insurance competitor with total annual revenue of $26 billion and a market capitalization of $8.3 billion. Humana is the second largest provider of Medicare Advantage plans in the nation after United. The company has 1.27 million Medicare Advantage enrollees nationwide. In the United States' judgment, Humana has the intent and capability (including the necessary managerial, operational, technical, and financial capability) to compete effectively in the sale of Medicare Advantage products, and the asset purchase agreements between United and Humana do not give United the ability to interfere with Humana's ability to compete effectively.

Fourth, the proposed Final Judgment requires Defendants to assist the acquirer in providing prompt and effective competition in the Medicare Advantage market and uninterrupted care to subscribers of United's Medicare Advantage plans by mandating that the Defendants adhere to the following requirements:

. Section IV(F) requires the Defendants to assist the acquirer to enter into an agreement with HealthCare Partners, LLC ("HealthCare Partners") that will allow members of United's Medicare Advantage plans to have continued access to substantially all of United's provider network of physicians, hospitals, ancillary service providers, and other health care providers on terms no less favorable than United's pre-existing agreement with HealthCare Partners.

. Section IV(J) requires that, at the acquirer's option, and subject to approval by the United States, Defendants provide transition support services for medical claims processing, appeals and grievances, call-center support, enrollment and eligibility services, access to form templates, pharmacy services, disease management, Medicare risk-adjustment services, quality- assurance services, and such other transition services that are reasonably necessary for the acquirer to operate the Divestiture Assets.

. Section IV(G) of the proposed Final Judgment prohibits United, until March 31, 2010, from entering into agreements with healthcare providers who, prior to the transaction, participated in United's Medicare Advantage network, but did not participate in Sierra's.

. Sections IV(F) and (G) collectively ensure that Humana, but not the Defendants, will have access to these healthcare providers, which places Humana in the same competitive position with respect to the merged company as United was in with respect to Sierra prior to the merger of United and Sierra.

. Section IV(H) prohibits United from using the AARP brand for any of its individual Medicare Advantage plans in the Las Vegas area until March 31, 2009, and from using the SecureHorizons brands for any individual Medicare Advantage plans in the Las Vegas area until March 31, 2010. The Department has determined that Section IV(H) will give Humana sufficient time to establish its own brand in the Las Vegas area so that it can effectively compete for the provision of Medicare Advantage plans and reduce beneficiary confusion as to which company operates the Medicare Advantage plan in which the beneficiary is enrolled.

In short, the United States has determined that the remedies in the proposed Final Judgment are sufficient to allow Humana to be an effective

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competitor and maintain competition in the Las Vegas Medicare Advantage market. As the United States now explains, the additional remedies that the AMA suggests are not needed to preserve the public interest.

a. Most-Favored-Nations Clauses

The AMA states that the proposed Final Judgment should permanently enjoin United from using "most-favored-nations" ("MFN") clauses in its contracts with healthcare-providers. (AMA comment at 13). As explained in the affidavit of Professor David Dranove, submitted by the AMA, an MFN clause would require a healthcare provider to offer United rates no less favorable than those offered to other insurers. (AMA comment, Attachment A at 8.) MFNs may be anticompetitive or procompetitive, depending on the circumstances. Federal Trade Comm'n & U.S. Dept. of Justice, Improving Health Care: A Dose of Competition (Jul. 2004), ch. 6, p. 20, available at http://www.usdoj.gov/atr/public/health_care/204694.htm. MFN clauses may harm competition by, for example, discouraging healthcare providers from aggressively discounting to competing insurers who might be seeking to enter or expand in a market. Id.

It is not necessary to prohibit United from using MFN clauses to ensure that Humana can compete and maintain the premerger level of competition in Medicare Advantage plans. Pursuant to Section IV(F) of the proposed Final Judgment, on February 29, 2008, Humana entered into an agreement that gives Humana access to United's existing provider network of physicians, hospitals, ancillary service providers, and other healthcare providers on comparable terms to those enjoyed by United at the time of the acquisition. Accordingly, United could not use MFN clauses to attempt to prevent Humana from competing in the Medicare Advantage market. Of course, the United States remains free to challenge arty anticompetitive conduct of United, including MFN clauses, that the United States determines harm competition.

b. All-products Clauses

The AMA states that the proposed Final Judgment should permanently enjoin United's use of "all-products" clauses in healthcare-provider contracts. (AMA comment at 13.) An all products clause is a contractual provision that requires a physician or other healthcare provider to agree to participate in the networks for every one of a health-insurance company's products (e.g., commercial health insurance and Medicare Advantage) as a condition for participating in the network of any one of that health-insurance company's products.

The AMA does not make clear how a prohibition on United's use of all- products clauses would help maintain competition in a Medicare Advantage market. (AMA comment at 13.) The AMA comment refers to the affidavit of Professor David Dranove, submitted by the AMA, for an explanation of how all- products clauses can be anticompetitive. (AMA comment, Attachment A at 8.) Although Professor Dranove states in his affidavit that the proposed Final Judgment should prohibit all-products clauses to remedy harm in a market for the purchase of physician services, the Complaint did not allege or identify competitive harm in such a market. (Attachment A at 8.) To the extent that the AMA advocates a prohibition on all-products clauses to remedy harm in a market for the purchase of physician services, such remedies are outside the scope of this APPA proceeding as discussed in Section III.A. of this Response.

c. United's Commercial Health-insurance Business in Clark County

The AMA argues that the proposed Final Judgment should require United to divest its commercial health-insurance business in the Las Vegas area in addition to United's Medicare Advantage line of business because a Medicare Advantage business operating without a commercial component "faces a significant risk of failure." (AMA comment at 13.) The AMA asserts that "[t]here are significant economies of scope and scale that exist when both commercial and Medicare Advantage businesses are combined" Id. The AMA, however, does not identify what these economies of scope and scale are nor why their absence creates a risk of failure.

The United States has considered this issue and concluded that Humana has the resources needed to effectively compete for the provision of Medicare Advantage plans in the Las Vegas area. Further, even assuming that there are benefits to providing both commercial and Medicare Advantage products, Section IV(F) of the proposed Final Judgment addresses this concern by ensuring that Humana has access to United's existing healthcare provider network on terms no less favorable than United's premerger terms. That provision and the other provisions of the proposed Final Judgment ensure that Humana will have a cost structure similar to United's premerger cost structure and be an effective competitor that maintains competition in the Las Vegas Medicare Advantage market.

d. Use of Certain Trademarks

The AMA argues that the acquirer of the Divestiture Assets should have use of certain United trademarks (AMA comment at 13-14). Section IV(H) of the proposed Final Judgment prohibits United from using the AARP brand for any of its individual Medicare Advantage plans in the Las Vegas area until March 31, 2009, and from using the SecureHorizons brands for any individual Medicare Advantage plans in the Las Vegas area until March 31, 2010. The AMA argues that the United States should extend these provisions to last at least five years because "trademarks are of particular importance to continue to secure customer loyalty." (AMA comment at 13-14.)

The AMA, however, does not provide any facts to support its assertion that a longer prohibition period on United's use of the AARP and SecurdHorizons brands is necessary to allow Humana to be an effective competitor and maintain competition in the Las Vegas Medicare Advantage market. In the United States' judgment based on a review of the terms for the sale of the Divestiture Assets, its assessment of Humana's capabilities, and its investigation of the Las Vegas Medicare Advantage market, the brand prohibitions in the proposed Final Judgment are reasonable in light of their intended purpose--to give Humana time to establish its own brand in the Las Vegas area and reduce beneficiary confusion as to which company operates the plan in which the beneficiary is enrolled. See SBC Commc'ns, 489 F Supp. 2d at 17 (a district court "must accord deference to the government's predictions about the efficacy of its remedies").

e. Use of a Monitoring Trustee

The AMA argues that the proposed Final Judgment should require the immediate use of a monitoring trustee to ensure United's compliance with the proposed Final Judgment (AMA comment at 15). Section V of the proposed Final Judgment allows the United States, in its sole discretion and subject to approval by the Court, to appoint a monitoring trustee that would have the power to monitor Defendants' compliance with the terms of the proposed Final Judgment. Section V(H) of the proposed Final Judgment provides that, if a monitoring trustee is appointed, it shall serve until United has divested the Divestiture Assets and any agreements for transition support services have expired.

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In the United States' judgment, the immediate use of a monitoring trustee is not necessary to ensure United's compliance with the proposed Final Judgment for at least three reasons. First, United has already complied with many of the provisions of the proposed Final Judgment. United has completed the divestiture of the Divestiture Assets and assisted Humana in entering into an agreement with HealthCare Partners that gives Humana access to healthcare providers on terms no less favorable than United's pre-existing agreement with HealthCare Partners. In addition, Humana and United have entered into a transition services agreement as contemplated by Section IV(J) of the Final Judgment. Second, the United States has reviewed the Humana-United transition services agreement and concluded that the agreement provides Humana with contractual rights such that a monitoring trustee is not currently necessary to ensure United's compliance with the terms of that agreement. Third, should United fail to comply with the terms of the transition support agreement, the United States remains free to appoint a monitoring trustee, subject to the Court's approval.

IV. Conclusion

The issues raised in the four public comments were among the many considered during the United States' extensive and thorough investigation. The United States has determined that the proposed Final Judgment as drafted provides an effective and appropriate remedy for the antitrust violations alleged in the Complaint, and is therefore in the public interest. The United States will move this Court to enter the proposed Final Judgment after the comments and this response are published in the Federal Register .

Dated: July 7, 2008.

Respectfully Submitted,

Peter J. Mucchetti (D.C. Bar # 463202), Mitchell H. Glende,

Natalie A. Rosenfelt,

Trial Attorneys, Litigation I Section--Antitrust Division, United States Department of Justice; 1401 H Street NW, Suite 4000, Washington, DC 20530, (202) 353-4211, (202) 307-5802 (facsimile).

In the matter of: In the United States District Court for the District of Columbia; United States of America, Plaintiff, v. Unitedhealth Group Incorporated and Sierra Health Services, Inc., Defendants.

Judge: Ellen S. Huvelle.

Filed: 2/25/2008

[Civil No. I:08-cv-00322]

Tunney Act Comments of SEIU Local 1107 on the Proposed Remedy in United Health Group Inc.'s Acquisition of Sierra Health Services Inc.

The Service Employees International Union ("SEIU") Local 1107 provides these comments on the proposed final judgment in United Health Group Inc.'s ("United Health") acquisition of Sierra Health Services Inc. ("Sierra"). As described herein the SEIU believes the proposed remedy in this matter is inadequate and unlikely to prevent the substantial anticompetitive effects raised by the merger. As we explain below, the proposed merger is likely to reduce competition substantially in numerous markets, including the delivery of healthcare at hospitals. By creating a dominant health insurer in Clark County. Nevada, the merger will enable UnitedHealthcare to substantially lower reimbursements to hospitals. which, as demonstrated below, will ultimately harm patient care. We believe this provided a substantial basis for the Antitrust Division, Department of Justice ("DOJ") to challenge the merger under Section 7 of the Clayton Act, and contend that DOJ's decision to enter into the consent decree was in error. We respectfully request that the proposed consent decree is rejected and the Department of Justice sue to enjoin the merger.

The SEIU is an organization of more than 1.9 million members united by the belief in the dignity and worth of workers and the services they provide. SEIU is the nation's largest union of health care workers representing over 900,000 caregivers and hospital employees, including 110,000 nurses and 40,000 doctors in public, private, and non-profit medical institutions. SEIU is dedicated to improving the lives of all workers and their families. In Nevada, SEIU Local 1107 represents more than 17,000 registered nurses, health care workers and public employees dedicated to improving the lives of workers, their families and their communities. Our members have chosen to dedicate their lives to serving the public, and provide the first line of health care service to thousands of patients in hospitals in Nevada. In that role we experience first hand how health insurance consolidation can harm consumers by restricting the ability of all health care providers to provide high quality health care. Ultimately, when health insurers acquire and exploit their power patients and health care workers suffer.

The SEIU submits these comments on the Proposed Final Judgment ("PFJ") pursuant to the Antitrust Procedures and Penalties Act. 15 U.S.C. 16(b-e) (known as the "Tunney Act"). The Tunney Act requires that "[b]efore entering any consent judgment proposed by the United States * * *, the court shall determine that the entry of such judgment is in the public interest., 16 U.S.C. 15(e)(1). In applying this "public interest" standard the burden is on the government to "provide a factual basis for concluding that the settlements are reasonably adequate remedies for the alleged harms." United States v. SBC, 489 F.Supp.2d 1, 16 (D.D.C. 2007), citing United States v. Microsoft Corp., 56 F.3rd 1448, 1460-61 D.C.Cir, 1995).

The Court plays a vital role in determining the proposed decree fulfills the public interest. As Judge Greene observed in approving the AT&T settlement:

[i]t does not follow * * * that courts must unquestionably accept a proffered decree as long as it somehow, and however inadequately, deals with the antitrust and other public policy problems implicated in the lawsuit. To do so would be to revert to the "rubber stamp" role which was at the crux of the congressional concerns when the Tunney Act became law.

U.S. v American Telephone and Telegraph, 552 F.Supp. 131, 151 (D.D.C. 1982), aff'd sub nom., Maryland v. U.S., 460 U.S. 1001 (1983).

As detailed below, SE1U believes that the PFJ fails to meet the public interest standard. This merger will lead to an unprecedented level of consolidation and will create a dominant health insurer in Clark County. which is the largest county in Nevada and where Las Vegas is located. Allowing one health insurance company this kind of market control will harm the quality of care patients will receive in hospitals and further weaken the fragile health care system in Clark County. In particular, the merger will

. jeopardize patient safety and quality of care by reducing payments to hospitals;

. jeopardize the health care safety net;

. have a particularly adverse effect on rural hospitals;

. and, increase the number of uninsured and harm the delivery of care to the elderly.

I. The Merger Will Result in Dangerously High Nurse to Patient Staffing Ratios, Placing Patient Safety and Quality of Care in Jeopardy

The impact of the acquisition of Sierra by UnitedHealth on the quality of care in hospitals will be severe. This merger will lead to an unprecedented level of concentration, In the Clark County HMO

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market UnitedHealth's market share will increase from 14% to 94%. If PPOs are included, UnitedHealth's market share increases from 9% to 60%. Even with the divestiture of the United Medicare Advarnage business as included in the PFJ. UnitedHealth's market share is over 50%. With such a dominant position UnitedHealth will be able to reduce reimbursement rates to hospitals unilaterally. Simply, hospitals will be unable to reject a "take it or leave it" offer from UnitedHealth.

When hospitals are forced to reduce reimbursement rates, the delivery of health care suffers. Reduced reimbursement leads to cut backs in services, less investment in equipment, and lower staffing levels. While these Comments will focus on the impact on nurses and, in turn, the impacts on patient care, these concerns are illustrative of the type of competitive problems that will arise overall from the reduction of compensation of reimbursement to hospitals.

Reductions in reimbursement force hospitals to reduce their expenses. Staff is the largest expense for hospitals, and Registered Nurses ("RNs") represent hospitals' single largest labor expense. In Southern Nevada in particular, salaries and benefits represent 48.0% of total operating expenses, *1 and RNs comprise 76.9% of the hospital workforce. *2 Therefore, if hospitals are forced to accept low reimbursement rates, they will look to recoup their losses by cutting costs in the most logical place--their RN staff. *3 The result can be dangerously high patient-to-nurse staffing ratios.

*1 Hospital Quarterly Reports. Calendar Year 2006 Summary Financial Report. Table A07 "Operating Expenses" and Table A08 "Other Operating Expenses." Utilization and Financial Reports. Center for Health Information Analysis. University of Nevada Las Vegas. http://www.unlv.edu/Research_Centers/chia/NHQR/Financial/NHQR_Financial_Output CY2006%200822.xls (Retrieved on October 15. 2007).

*2 Hospital Quarterly Reports. Calendar Year 2006 Summary Utilization Reports. Table F02 "FTE Hospital Hours" Utilization and Financial Reports. Center for Health Information Analysis. University of Nevada Las Vegas. http://www.unlv.edu/Research_Centers/chia/NHQR/Utilization/NHQR_Utilization_Ou tput_CY2006%200702.xls (Retrieved on October 15. 2007).

*3 Kosel, Keith and Tom Olivo. "The Business Case for Work Force Stability." VHA Research Series, 2002.

The detrimental impact of a high patient-to-nurse ratio on patient safety and quality of care has been amply demonstrated in several markets by a recent set of academic studies, A comprehensive study conducted in 2002 and published in the Journal of the American Medical Association found that the risk of death increases by 7% for every patient in a nurse's care above a 4:1 patient to nurse ration, and increases by 16% when that ratio increases to 6:1; the study also concluded, most significantly, that there is 31% greater risk of dying in hospitals that force a single nurse to care for eight or more patients. *4 Moreover, according to a report by the Joint Commission, Health Care at the Crossroads: Strategies for Addressing the Evolving Nurse Crisis, understaffing is a contributing factor in 24% of sentinel events (unexpected occurrences that result in death or serious injury). *5 Indeed, patients in hospitals with fewer intensive care unit ("ICU") nurses are more likely to suffer from complications after surgery and to have a longer length of stay in the hospital than patients in hospitals with a greater number of ICU nurses. It is also worth noting that patients are not the only ones who suffer harm to their health as a result of short-staffing: nurses are two to three times more likely to have a needle-stick injury in hospitals with low nurse staffing levels. *6

*4 Aiken. Linda H.; Clarke, Sean P.; Sloane, Douglas M.; Sochalski, Julie; Silber, Jeffrey H. "Hospital Nurse Staffing and Patient Mortality, Nurse Burnout, and Job Dissatisfaction." Journal of the American Medical Association, 10/23/2002, Vol. 288 Issue 16.

*5 Joint Commission on Accreditation of Health Care Organizations. "Health Care at the Crossroads: Strategies for Addressing the Evolving Nurse Crisis." 2003. http://www.jointcommission.org/NR/rdonlyres/5C138711-ED76-4D6F-909F- B06E0309F36D/0/health_care_at_the_crossroads.pdf (Retrieved on 3/6/07.)

*6 Id.

Studies have also demonstrated that there can be better health care outcomes with adequate staffing levels. A recent study estimated that 6,700 in-hospital patient deaths could he avoided by increasing nurse staffing levels. The study further concluded that simply increasing nurse staffing levels would result in approximately 70,000 fewer adverse outcomes, including decreases in urinary tract infections, pneumonia and shock or cardiac arrest. *7

*7 Needleman, Jack, Peter I. Buerhaus, Maureen Stewart, Katya Zelevinsky and Soeren Mattke. "Nurse Stafling in Hospitals: Is there a Business Case for Quality?" Health Affairs, Vol. 25. No. 1. January/February 2006.

Nurses in Nevada are already forced to work with dangerously high nurse-to- patient ratios. In 2000. Nevada ranked last among the states in RNs per capita and in per capita health services employment. *8 In 2005 Nevada ranked 49th among the states in per capita registered nurses, with only 579 RNs for every 100,000 residents, which is far below the national average of 799 RNs per 100,000 residents. *9 The RN-to-population ratios are higher in the northern part of the state and lower in Clark County. Although the number of registered nurses in Nevada has grown steadily, it has not kept pace with the state's population growth. *10 The average number of newly-minted RNs over the last five years has only been 1,264. *11 However, over the last three years, Nevada's population increased by 11.4%. *12

*8 U.S. Department of Health and Human Services, Health Resources and Services Administration, Bureau of Health Professions. "State Health Workforce Profiles Highlights: Nevada. http://bhpr.hrsa.gov/healthworkforce/reports/statesummaries/nevada.htm (Last viewed 12/7/07).

*9 Kaiser State Health Facts. Nevada. Providers & Service Users. "Nevada: Total Registered Nurses as of May 2005." http://www.statehealthfacts.org/profileind.jsp?ind=438&cat=8&rgn=30 (last viewed 12/7/07).

*10 Packham, John, Tabor Griswold, Jake Burkey, Chris Lake. 2005 Survey of Licensed Registered Nurses in Nevada. November 2005. http://www.nvha.net/papers/nursesurvey.pdf Last viewed on 12/8/07.

*11 Nevada State Board of Nursing Annual Reports for years ending June 30, 2001--June 30, 2005. Includes new licenses created by examination and by endorsement.

*12 U.S. Census Bureau. American Fact Finder. Population Finder. "Population for all Counties in Nevada, 2000 to 2006." http://factfinder.census.gov/servlet/GCTTable?_bm=y&-geo&_id=0400US32&- _box_head_nbr=GCT-T1&-ds_name-PEP_2006_EST&-_lang=en&-format=ST-2&-sse=on (Last viewed 12/7/07).

Academic studies have shown that, much like the rest of the country, the epidemic of nurse understaffing in Nevada is due not to a shortage of registered nurses, but rather a shortage of registered nurses willing to work under the current conditions in Nevada hospitals. In 2000, active licenses were held by 12,900 registered nurses in Nevada but only 10,400 were employed in nursing. *13 In 2004 and 2005, Valley Hospital in Las Vegas reported that 206 registered nurses left employment at the hospital (Valley Hospital has approximately only 540 RNs employed at any given time). *14 At Desert Springs Hospital in Las Vegas, 137 registered nurses left employment in 2004 and 2005 (Desert Springs employs approximately only 290 RNs at any given time). *15 A case study of RNs in Nevada found that the number one reason that RN graduates leave their first job is due to patient care concerns such as unsafe patient ratios, not having

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enough time to spend with patients, and working conditions that are not conducive to safe patient care. *16 Job dissatisfaction among hospital nurses is four times greater than the average for all U.S. workers. Forty percent of hospital nurses report burnout levels that exceed the norm for health care workers and 1 in 5 hospital nurses intend to leave their current jobs within a year. Job stress and dissatisfaction increase when nurses are taking care of more patients. Each additional patient over four per nurse is associated with a 23% chance of job burnout and a 15% chance increase in odds of job dissatisfaction. *17

*13 U.S. Department of Health and Human Services, Health Resources and Services Administration, Bureau of Health Professions. "State Health Workforce Profiles Highlights: Nevada." http://bhpr.hrsa.gov/healthworkforce/reports/statesummaries/nevada.htm (Last viewed 12/7/07).

*14 Data provided pursuant to collective bargaining information request.

*15 Data provided pursuant to collective bargaining information request.

*16 Bowles, Cheryl and Lori Candela. "First Job Experiences of Recent R.N. Graduates." Journal of Nursing Administration. 2005.

*17 Aiken, Linda H., Sean P. Clarke, Douglas M. Stone, Julie Sochalski and Jeffrey H. Silber. "Hospital Nurse Staffing and Patient Mortality, Nurse Burnout and Job Dissatisfaction." Journal of the American Medical Association, Vol. 288. No. 16, 10/23/2002.

Nurses also bear the brunt of the predictable results of short-staffing: every time a nurse goes to work when there are too few nurses working that shift, she puts her nursing license in jeopardy. Pursuant to Nevada statute (NAG [Section] 632.895), a registered nurse can be subject to disciplinary action from the Nevada State Nursing Board if a patient suffers harm as a consequence of an act or an omission that could have been reasonably foreseen, up to and including suspending or revoking a nurse's license. *18 We have already explained the link between low nurse staffing levels and adverse patient outcomes including an increased risk of mortality. Yet another comprehensive study has found that rates of "failure to rescue" deaths increased when registered nurses were responsible for too many patients. ("Failure to rescue," is the death of a patient from complications including pneumonia, shock or cardiac arrest, upper gastrointestinal bleeding, sepsis or deep venous thrombosis.) Given that early identification of medical problems can decrease the risk of death in "failure to rescue" mortalities, inadequate staffing levels further increases the risk of harm to patients, thereby increasing the risk of a registered nurse being held responsible and losing his or her professional license. *19 In the context of this crisis, further staffing cuts as a result of this merger will drive even more Nevada nurses out of the profession.

*18 Nevada Administrative Code. Chapter 632. http://www.leg.state.nv.us/NAC/NAC-632.html.

*19 Needleman, Jack and Peter Buerhaus, Soeren Mattke, Maureen Stewart and Katya Zelevinsky, "Nurse Staffing Levels and the Quality of Care in Hospitals." New England Journal of Medicine, Vol. 346, No. 22. 5/30/2002.

These problems will be even more severe in Southern Nevada, where 71.1% *20 of the hospital market is controlled by for-profit companies. This concentrated for profit environment is almost unique in the U.S. A comprehensive review of clinical data from more than 4,000 hospitals in the United States found that for-profit hospitals consistently have worse outcomes than non-profit hospitals on three common medical conditions: congestive heart failure, heart attack and pneumonia. *21 The difference in quality may be attributed to the difference in accountability, while publicly-owned and non- profit hospitals are accountable to the community. for-profit hospitals are only accountable to their shareholders and, as a result, focus on strategies that increase profitability rather than strategies to benefit the community. *22

*20 Quality Care Nevada. "Hospitals and Health Systems." http://www.qualitycarenevada.org/index.asp?Type=B_BASIC&SEC={7707D6CB-3079- 4EF0-A9D6-B81FB8D31E7F}.

*21 Landon, Bruce E.. Sharon-Lise T. Normand, Adam Lessler, A. James O'Malley, Stephen Schmaltz, Jerod M. Loeb and Barbara McNeil. "Quality of Care for the Treatment of Acute Medical Conditions in U.S. Hospitals." Arch Intern Med, Vol. 166, Dec 11/25, 2006.

*22 Physicians for a National Healthcare Program. "New England Journal of Medicine Article Says Evidence Against For-Profit Hospitals Now Conclusive." August 1999. http://www.pnhp.org/news/1999/august/new_england_journal_.php (Last viewed on 12/7/07).

The result of this concentration of for-profit hospital ownership is a relatively poor level of healiheare quality in Clark County. A Medicare Quality Improvement Organization, dedicated to tracking quality measures in medical settings, routinely ranks Clark County hospitals in the bottom half of our nation's hospitals in a wide-range of quality measures. In fact. some Clark County hospitals scored as low as the 6th and 7th percentile of all U.S. hospitals. *23

*23 Health Insight. http://www.healthinsight.org (Last viewed on 10/31/07).

The PFJ approving the United/Sierra merger will exacerbate these problems and diminish the level of health care quality. The ability of patients and doctors to determine the appropriate level of care will be weakened. Nurses that are working with inadequately low staffing levels will be faced with an additional risk to staffing levels and safe, quality patient care will be needlessly jeopardized.

II. Sierra Health Services & HCA: A Case Study of Anticompetitive Impact on Qualily & Access in Nevada

History demonstrates how the dominance of one health insurer in this market can harm the health care of children and families in our community. In Las Vegas we have already experienced the impacts of a health insurance company using its market dominance to increase their profits. In January 2007, after a contentious and public contract fight between Sierra Health Services and HCA hospitals in Clark County, Sierra Health Services terminated its contract with HCA hospitals because HCA refused to agree to the low reimbursement rates Sierra was demanding. When the contract was terminated, Sierra's 620,000 members were no longer able to access services at the three HCA hospitals in Clark County.

Children have been harmed the most by Sierra's decision. Sunrise Hospital, which is owned by HCA, specializes in pediatric care. Children are no longer able to access pediatric neurologists or pediatric radiologists in Clark County and may have to travel as far as Los Angeles to receive this level of specialized care. Children with cancer are no longer eligible to participate in protocol treatments at Sunrise Hospital. Patients who come to the Emergency Room at Sunrise Hospital who are covered by Sierra Health Services' products have to be transferred to a different hospital as soon as they are stabilized, including women in labor. Patients are sometimes forced to move from hospital to hospital to access all the care they need. We know of one patient, for example, who had to go to Sunrise Hospital to have a pacemaker removed and was then transferred to another hospital to have a new one inserted due to insurance demands.

After Sierra Health Services dropped HCA, Sierra Health Services required their enrollees to be directed to other hospitals in Clark County. Our nurses who work at the other hospitals saw first hand the impact of having 620,000 consumers suddenly redirected to their hospitals. A nurse at Valley Hospital reported that their Intensive Care Units, Emergency Room and Operating Room became overwhelmed with heart patients and other critically ill patients. Universal Health Services, the for-profit corporation that owns Valley Hospital, is already known for short staffing its Registered Nurses, so when Sierra's decision took effect, Operating Room and Recovery Room RNs and techs were on call at the hospital for 16-20 hours

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every day. Emergency Room RNs had to take 4 to 8 patients each, and patients were forced to stay in the Emergency Room for 2-3 days before they were able to he transferred to a bed in Intensive Care.

Sixteen months have passed since the contract between Sierra Health Services and HCA hospitals in Clark County was severed, and patients are still not able to access care at these hospitals. At Sunrise Hospital, the census and case load continue to be low and patients continue to be refused treatment. Nurses who work at HCA hospitals have seen their hours cut and face the threat of layoffs. Many registered nurses have had to find work at other facilities or have used up all of their vacation time because there is not enough work for them. Registered Nurses have had to quit working at Sunrise Hospital because there have not been enough hours for them to work and they have been unable to pay their mortgage.

SEIU Local 1107 believes that the HCA example demonstrates the likely anticompetitive effects from the UnitedHealthcare/Sierra merger. When an insurance company is in a dominant position, it can demand dramatically lower reimbursement rates from hospitals. Most hospitals have few alternatives but to accept a take-it-or-leave-it offer from dominant health insurer. But even if they reject such an offer, it is important to recognize that the harm to consumers will not be limited simply to UnitedHealthcare/Sierra consumers. For those consumers, there is one less hospital outlet available for them to access care. But for all consumers the termination of a hospital from an insurer network imposes significant costs. Ultimately, the increased costs of serving Sierra patients at other hospitals are spread to all consumers who use those alternative hospitals as the level of care diminishes.

III. The Merger Will Create a Crisis for the Clark County's Safety Net Services by Placing Additional Strain on Nevada's Only Public Hospital

The United/Sierra merger will also harm Clark County's health care safety net by creating a crisis for Nevada's sole public hospital, University Medical Center (UMC), located in Las Vegas.

University Medical Center has served Southern Nevada for 75 years. It operates Nevada's only Level 1 Trauma Center, Nevada's only burn care facility and the only HIV inpatient unit in Southern Nevada. It also serves as the primary clinical campus for University of Nevada School of Medicine, Its Primary and Quick Care network provides primary and urgent care access to more than 300,000 patients each year. *24

*24 Lewin Group. Clark County Final Summary Presentation," February 20, 2007, Slide 54.

UMC treats the vast majority of the uninsured in Clark County and serves as the community's safety net hospital in Las Vegas. UMC cares for 44% of all of Clark County's Medicaid patients and 48% of Clark County's self-pay patients and has provided $280 million in charity care in the last 5 years. At the same time, UMC cares for less than 11% of the market for each of the better paying Medicare and commercial insurance.

UMC's ability to provide essential services is continuously threatened by its poor payer mix and the financial instability that that brings. UMC operates near capacity, with an occupancy rate of 84.5%, but its average operating margin for the last four years has been -3.9% because of its poor payer mix. UMC's expenses have been increasing at a higher rate than revenue since 2001, and with the rate of uninsured predicted to increase by 24% by 2021 in Clark County, this deficit is expected to continue. *25 In fiscal year 2006 UMC incurred an operating deficit of approximately $34.3 million and the operating deficit is projected to reach $60 million in fiscal year 2007. *26 Given UMC's precarious circumstances, if one insurance company were permitted to obtain market dominance, any actions that increase the number of uninsured or underinsured will severely undermine the ability of UMC to meet its obligations in providing a community safety net for Nevadans. For example, if as a result of the merger, United-Sierra dramatically raises premiums and increases the numbers of uninsured and underinsured individuals (which we discuss further below), this will only increase the demand on UMC's already over-taxed services.

*25 Lewin Group. Clark County Final Summary Presentation," February 20, 2007, slide 5, 7 & 63.

*26 University Medical Center Public Outreach Summary Report." Presented to the Clark County Board of County Commissioners on 9/4/2007.

Yet another way UMC will be harmed if only one insurance company insures a large percentage of the patients at a single hospital is in the area of claims resolution. Any difficulties in resolving outstanding claims will have a significant impact on the ability of the public hospital to meet its public service obligations. In fact, UMC has already had precisely this kind of trouble with UnitedHealth. Modern Healthcare reported that since UnitedHealth took over PacifiCare in 2005, UMC has had trouble with UnitedHealth's claims payment process and has had difficulty getting claims resolved. *27 If this merger is approved and these problems persist, the effects will be on a much bigger scale and it will put essential medical services at risk. UMC cannot afford the financial and operational havoc that unpaid or unresolved claims could have on their ability to provide services.

*27 Benko, Laura B. "All Bets are Off: Bigger, Yes, But Better?" Modern Healthcare. 3/19/2007.

IV. The Merger Will Exacerbate the Condition of Nevada's Most Vulnerable Populations: the Uninsured and Underinsured, and the Elderly

The acquisition of Sierra Health Services by UnitedHealth will result in UnitedHealth dominating a faction of the market and possessing the power to unilaterally set the price for health insurance premiums. If individuals and/or employers are unable to afford the premiums, they will have no other health insurance options available to them and we will see an increased number of uninsured in Las Vegas.

Approximately 18% of Nevadans live without insurance, which is higher than the national average of 16%. Seventeen percent of children in Nevada live without health insurance, higher than the national average of 12%. *28 The uninsured rate in Clark County grew 31% from 2000-2006 and is expected to grow at least another 24% in the next 15 years. *29

*28 Kaiser Family Foundation. State Health Facts. "Health Coverage & Uninsured." http://www.statehelathfacts.org/profilecat.jsp?rgn=30&cat=3 (Last viewed on 10/30/07).

*29 Lewin Group. "Clark County Final Summary Presentation." February 20, 2007, slide 37 & 38.

When patients do not have insurance they are more likely to delay seeking treatment and they are more likely to obtain their care in the emergency room. When we see them in the hospital they are much sicker than they would have been otherwise. They are more likely to have a longer length of stay. If their insurance will not cover their care they need while they are in the hospital they are more likely to have a delayed recovery and make repeat visits to the hospital.

Living without insurance can have dire consequences. In rural Nevada, there are a high number of uninsured pregnant women. When laboring moms come to the hospital with no medical records because they were unable to afford prenatal visits, a danger is posed to the mother and the child.

This merger will increase the number of underinsured in Clark County. If UnitedHealth decides that they will no

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longer provide coverage for certain kinds of care than that decision will leave more than 808,000 people in Nevada. *30 approximately 32.4% of the population, *31 with a choice of either going without necessary care or paying for that care out of their own pocket. SEIU Local 1107 members represent a large number of UnitedHealth's potential consumers; approximately 74.0% of SEIU Local 1107 members currently have Health Plan of Nevada (Sierra's HMO product) as their only HMO option.

*30 Robison, Jennifer. "Mergers and Acquisitions: Official OKs Sierra Health buyout." Las Vegas Review Journal. 8/28/2007.

n U.S. Census Bureau. Population Finder. Nevada. Population estimates in 2006: 2,495, 529. http://factfinder.census.gov/servlet/SAFFPopulation?_event=Search&_name=&_stat e=04000US32&_country=&_cityTown=&_zip=&_sse=on&ang=en&pctxt=fph (Last viewed on 10/30/07)

Increasing the number of uninsured and underinsured will lengthen emergency room wait times and impact the quality of the care we provide at our hospitals. Hospitals are mandated by law to provide care to anyone who asks for medical treatment and, because of this, people use the ER for everyday medical problems. We are inundated with non-emergent patients that have no other place to go to receive health care. The burden takes nurses and doctors away from treating truly emergent, life-threatening patients and creates emergency room wait times that can last 6 to 8 hours. If ones insurer provides coverage to a large percentage of people in the community and that insurer decides to raise premiums, the number of uninsured or underinsured residents will increase, and all of the problems associated with that will increase as well.

Clark County is already in a perilous position of being unable to provide the appropriate level of care to elderly and disabled residents. Clark County hospitals are short staffed and do not have enough nurses to provide necessary care, The County is also suffers from a shortage of doctors, dentists and almost every other health care professional. *32 A Veterans Administration official stated that these shortages will eventually lead to premature deaths, intense strain on families and missed diagnosis that will cause patients to suffer. *33

*32 Hidalgo, Jason, 6/17/2007.

*33 Hidalgo, Jason, 6/17/2007.

* * *

We believe that the PFJ thus to address the substantial competitive concerns raised by UnitedHealth's acquisition of Sierra and should he rejected by the Court.

Respectfully submitted,

Jane McAlevey, Executive Director,

Service Employees International Union,

Local 1107.

Chris Giunchigliani, Commissioner, Board of County Commissioners, Clark County Government Center, 500 S Grand Central Pky, Box 551601 Las Vegas, NV 89155- 1601, (702) 455-3500 Fax: (702) 383-6041

May 14, 2008.

Joshua H. Soven, Chief, Litigation I Section, U.S. Department of Justice, Antitrust Division, 1401 H Street, NW, Ste. 400, Washington, DC 20530

RE: Tunney Act Comments, United States v. UnitedHealth Group, Civil Case No. 08-0322

Dear Mr. Soven:

As an individual Commissioner of Clark County, I am submitting these comments to express my serious concerns with the proposed final judgment entered into by the U.S. Department of Justice ("DOJ") with UnitedHealth Group, Inc. and Sierra Health Services, Inc. over the UnitedHealth/Sierra acquisition. I believe that this proposed final judgment is inadequate to resolve the very serious competitive concerns raised by this merger.

UnitedHealth's acquisition of Sierra will create a single health insurance company that will dominate the Clark County market. By combining these two companies, a single firm will have over a 50% share of the commercial health insurance market. This single firm will have substantial power to dictate the terms and conditions in which employers, particularly small employers, will be forced to purchase health insurance. Clark County is a significant distance from other major metropolitan markets arid the commercial health insurance market has traditionally been dominated by a small group of firms.

The DOJ's decree is inadequate because it fails to recognize the potential competitive harm from the merger on employers who purchase insurance, and uninsured and underinsured individuals in Clark County. Clark County is the largest county in Nevada with a population of 2 million individuals, over 300,000 of which are uninsured, over 17% of the Clark County population. This merger is of particular concern for the county, which because it operates the largest public hospital in Nevada, University Medical Center ("UMC"). UMC is the safety net healthcare facility for the county. Uninsured and underinsured individuals use UMC as their primary source of healthcare services.

This merger, by permitting the creation of a single dominant health insurer in Clark County will substantially increase the costs of numerous commercial health insurance products, ultimately harming the consumers in Clark County.

This, in turn, will increase the number of uninsured individuals. This impact will be particularly felt by relatively small employers in Clark County. As the cost of insurance increases substantially, small employers will be increasingly unable to provide health insurance to their employees, and in turn this will further substantially increase the number of uninsured individuals in the county. Those individuals must rely on UMC for most of their healthcare services. Thus, the merger will ultimately increase the cost of healthcare services in Clark County. Moreover, this merger will diminish the service and quality of health care that patients receive as more demand is placed on the services of UMC.

The Nevada State Attorney General filed a complaint and a final judgment simultaneous to the DOJ action. The Attorney General was able to secure some modest relief to address the concerns of UMC, including the payment of overdue claims for UMC. Although these remedies aim to solve some ongoing problems between UnitedHealth and UMC, they do not provide any long-term relief to protect the interests of UMC, the uninsured, or Clark County. Now that the merger is consummated. Clark County is left dealing with an incredibly powerful health insurance company that can unilaterally reduce reimbursement, which in turn will significantly diminish the ability of the county to deliver adequate services to both insured and uninsured individuals.

I believe that the DOJ's proposed enforcement action should be rejected, and the Department should re-open its investigation to secure adequate relief to protect the uninsured individuals in Clark County and the concerns of the County itself.

Sincerely,

Chris Giunchigliani,

Commissioner.

Congress of the United States

U.S. House of Representatives

Committee of Small Business

2561 Rayburn House Office Building

Washington, DC 20515-0315

May 15, 2008.

VIA E-MAIL

The Honorable Thomas O. Barnett, Assistant Attorney General for Antitrust, c/o Joshua H. Soven, Chief, Litigation I Section, U.S. Department of Justice, Antitrust Division, 1401 H Street, N.W., Suite 4000, Washington, DC 20530

RE: Tunney Act Comments, United States v. UnitedHealth Group Incorporated, Civil Case No. 08-0322 Dear Assistant Attorney General Barnett: These comments are submitted pursuant to the Tunney Act *1 regarding the Proposed Final Judgment (PFJ) filed by the U.S. Department of Justice (DOJ) with the U.S. District Court for the District of Columbia in United States v. UnitedHealth Group Incorporated, Civil Case No. 08-0322.

*1 15 U.S.C. [Subsection] 16(b)-(h).

The Tunney Act requires the Court to determine whether the PFJ is in the public interest. *2 In making this determination, the Court must carefully consider the fact that entry of the PFJ will profoundly reduce competition in the health care markets of Clark County and the State of Nevada, and pose significant risks to consumers, physicians and small businesses. The public

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benefit arising from entry of the PFJ is not readily apparent.

*2 15 U.S.C. [Section] 16(e).

While the Department of Justice (DOJ) took steps to protect senior citizens by requiring the divestiture of Medicare Advantage related assets, I am concerned the PFJ does not adequately protect the rest of the public, including small businesses, healthcare providers and patients.

On October 25, 2007, the Committee on Small Business held a hearing entitled Health Insurer Consolidation--The Impact on Small Business. The Committee heard from witnesses representing small businesses, the medical community and consumers who expressed concern regarding the growing trend of consolidation in the health insurance industiy.

Witnesses made the following comments at the hearing:

"* * * consolidation has left physicians with little leverage against unfair contract terms that deal with patient care and little control over their own employees rising health insurance premiums." *3

*3 Statement of Dr. William G. Plested, III, Immediate Past President. American Medical Assn.

"The lack of competition among health insurers absolutely affects my insurance cost, as well as the quality and scope of coverage. Our state's [Illinois] non-competitive health care insurance environment, due to the monopoly of one or two carriers, places all the leverage in the hands of the insurers. I can't vote with my feet and dollars if I have no alternatives from which to select." *4

*4 Statement of Robert Hughes. President of the National Association for the Self-Employed (quoting a member).

"Consolidation of health insurance plans have [sic) created a profound imbalance that hurts the ability of family physicians to negotiate contracts. This is harmful to our practices. but also means that many of our patients cannot find the primary care physicians who accept their insurance." *5

*5 Statement of Dr. James D. King, President, American Academy of Physicians.

"Health insurance consolidation has in part created a take it or leave it market for small businesses. Reduced competition through consolidations both of insurance carriers and health insurance carrier provider networks has led to increased pricing (and) fewer choices for small businesses and their employees." *6

*6 Statement of James R. Office, General Counsel, Victory Wholesale Grocers.

The hearing record is included as part of this comment.

Access to health insurance is an area of key concern to small businesses. The rising cost of health care is regularly cited by small firms as one of their biggest worries. Small businesses need to have choices in the health insurance marketplace. In addition, mergers should not be permitted that enable a health insurer to reduce compensation to physicians below competitive rates. If the playing field for health care providers is not level, quality of care declines and patients ultimately suffer.

The health insurance marketplace has become increasingly consolidated in recent years. Consolidation has left small businesses with fewer choices and physicians with diminished leverage to negotiate with plans. Econometric evidence shows that in the managed care field, an increase in the number of competitors is associated with lower health plan costs and premiums; conversely, a decrease in the number of competitors is associated with higher health plan costs and premiums. *7 In the majority of metropolitan areas, a single insurer now dominates the marketplace. If individuals and small businesses cannot get coverage through the dominant insurer in these areas, they may not be able to find alternatives.

*7 Examining Health Care Mergers in Pennsylvania: Hearing Before the Senate Judiciary Committee, 110th Congress (April 9, 2007) Statement of Lawton Burns, Professor, Wharton School of Business.

Because mergers of health insurers affect access to health care and influence the quality of medical services to consumers, they command great scrutiny.

To maintain competition in the marketplace, the proposed acquisition of Sierra Health Services, Inc. ("Sierra") by UnitedHealth Group Incorporated ("United") requires the divestiture of more assets than merely those related to United's Medicare Advantage business in the Las Vegas area. Sierra is United's largest rival in the state of Nevada. The level of concentration posed by this merger is tremendous. A combined United-Sierra would have a nearly 80 percent share of the commercial HMO market in Nevada and almost a 94 percent share of the commercial HMO market in Clark County.

DOJ notes that "United and Sierra together account for approximately 94 percent of the total enrollment in Medicare Advantage plans in the Las Vegas area," and that the "acquisition is likely to reduce competition substantially in the sale of Medicare Advantage plans in the Las Vegas area in violation of Section 7 of the Clayton Act." *8 Similar effects on competition will likely arise both in the commercial HMO market, which will see virtually the same levels of concentration as the Medicare Advantage market, and the market for the purchase of physician services. The PFJ fails to address this diminishment of competition in these markets in Las Vegas and the State of Nevada.

*8 73 Federal Register 12763 (March 10, 2008).

It is critical that the Court consider the following factors in evaluating the PFJ:

The PFJ Could Enhance United's Market Power and Hurt Small Businesses

United will go from having a 12 percent share of the HMO market in the state of Nevada to an 80 percent share. In Clark County, the market share will surge from 14 percent to 94 percent. By allowing the two largest competitors in the state to merge, small businesses will face severely diminished options in health insurance plans. The insurance marketplace in Nevada and Clark County is already highly concentrated--which necessitates an even higher level of scrutiny. With such a dominant market position, a combined United-Sierra could attain market power to raise prices to small businesses above competitive levels. Small businesses will have few alternatives to a combined United-Sierra and as a consequence, will be stuck with higher premium costs. If costs rise above competitive levels more small firms will stop providing coverage to employees, increasing the number of Nevada's uninsured.

Additionally, it is important to contemplate that existing barriers to entry in the HMO market are extremely high. It is unlikely that a combined United-Sierra will face any new competitors in Nevada in the near future.

The PFJ Could Enhance United's Monopsony Power and Hurt Physicians and Patients

With such an overwhelming market share, the combined United-Sierra could reduce compensation for providers to the point where it is below competitive levels. Lower service, poorer quality and reduced access to health care could result. Physicians and other providers may not have sufficient alternatives to allow them to circumvent the compensation decreases of a combined United- Sierra. The costs for physicians to switch to other health care insurers are substantial as physician time is valuable and it can be difficult for a physician to quickly replace lost patients. With such a dominant market share and high switching costs, physicians may find that, when faced with lower reimbursement, they are unable to switch from a combined United-Sierra to another insurer. If this is the case, a combined United-Sierra could exercise market power against health care providers.

I appreciate consideration of the above mentioned issues. I am concerned that the PFJ does not adequately preserve competition in the health insurance marketplace for small businesses, physicians and consumers.

Sincerely,

Nydia M. Velazquez,

Chairwoman.

Full Commi1tee Hearing on Health Insurer Consolidation--The Impact on Small Business

Committee on Small Business

United States House of Representatives

One Hundred Tenth Congress

First Session

October 25, 2007.

Serial Number 110-55

Printed for the use of the Committee on Small Business

Available via the World Wide Web: http://wwwaccess.gpo.gov/congress/house

U.S. Government Printing Office

39-376 PDF Washington : 2007

For sale by the Superintendent of Documents, U.S. Government Printing Office

Internet: bookstore.gpo.gov Phone toll free (866) 512-1800; DC area (202) 512- 1800

Fax: (202) 512-2104 Mail: Stop IDCC, Washington, DC 20402-0001

House Committee on Small Business

Nydia M. Velazquez, New York, Chairwoman

Heath Shuler North Carolina

Charlie Gonzalez, Texas

Rick Larsen, Washington

[Page Number 49845]

Raul Grijalva, Arizona

Michael Michaud, Maine

Melissa Bean, Illinois

Henry Cuellar, Texas

Dan Lipinski, Illinois

Gwen Moore, Wisconsin

Jason Altmire, Pennsylvania

Bruce Braley, Iowa

Yvette Clarke, New York

Brad Ellsworth, Indiana

Hank Johnson, Georgia

Joe Sestak, Pennsylvania

Brian Higgins, New York

Mazie Hirono, Hawaii

Steve Chabot, Ohio, Ranking Member

Roscoe Bartlett, Maryland

Sam Graves, Missouri

Todd Akin, Missouri

Bill Shuster, Pennsylvania

Marilyn Musgrave, Colorado

Steve King, Iowa

Jeff Fortenberry, Nebraska

Lynn Westmoreland, Georgia

Louie Gohmert, Texas

Dean Heller, Nevada

David Davis, Tennessee

Mary Fallin, Oklahoma

Vern Buchanan, Florida

Jim Jordan, Ohio

Michael Day, Majority Staff Director

Adam Minehardt, Deputy Staff Director

Tim Slattery, Chief Counsel

Kevin Fitzpatrick, Minority Staff Director

Standing Subcommittees

Subcommittee on Finance and Tax

Melissa Bean, Illinois, Chairwoman

Raul Grijalva, Arizona

Michael Michaud, Maine

Brad Ellsworth, Indiana

Hank Johnson, Georgia

Joe Sestak, Pennsylvania

Dean Heller, Nevada, Ranking

Bill Shuster, Pennsylvania

Steve King, Iowa

Vern Buchanan, Florida

Jim Jordan, Ohio

Subcommittee on Contracting and Technology

Bruce Braley, Iowa, Chairman

Henry Cuellar, Texas

Gwen Moore, Wisconsin

Yvette Clarke, New York

Joe Sestak, Pennsylvania

David Davis, Tennessee, Ranking

Roscoe Bartlett, Maryland

Sam Graves, Missouri

Todd Akin, Missouri

Mary Fallin, Oklahoma

Subcommittee on Regulations, Health Care and Trade

Charles Gonzalez, Texas, Chairman

Rick Larsen, Washington

Dan Lipinski, Illinois

Melissa Bean, Illinois

Gwen Moore, Wisconsin

Jason Altmire, Pennsylvania

Joe Sestak, Pennsylvania

Lynn Westmoreland, Georgia, Ranking

Bill Shuster, Pennsylvania

Steve King, Iowa

Marilyn Musgrave, Colorado

Mary Fallin, Oklahoma

Vern Buchanan, Florida

Jim Jordan, Ohio

Subcommittee on Urban and Rural Entrepreneurship

Heath Shuler, North Carolina, Chairman

Rick Larsen, Washington

Michael Michaud, Maine

Gwen Moore, Wisconsin

Yvette Clarke, New York

Brad Ellsworth, Indiana

Hank Johnson, Georgia

Jeff Fortenberry, Nebraska, Ranking

Roscoe Bartlett, Maryland

Marilyn Musgrave, Colorado

Dean Heller, Nevada

David Davis, Tennessee

Subcommittee on Investigations and Oversight

Jason Altmire, Pennsylvania, Chairman

Charlie Gonzalez, Texas

Raul Grijalva, Arizona

Louie Gohmert, Texas, Ranking

Lynn Westmoreland, Georgia

Contents

Opening Statements

Velazquez, Hon. Nydia M.

Chabot, Hon. Steve

Witnesses

Plested III, Dr. William G., American Medical Association

Huges, Robert, National Association for the Self-Employed

King, Dr. James D, American Academy of Family Physicians

Office, James R., Victory Wholesale Grocers

Scandlen, Greg, Consumers for Health Care Choices

Appendix

Prepared Statements:

Velazquez, Hon. Nydia M.

Chabot, Hon. Steve

Altmire, Hon. Jason

Plested III, Dr. William G., American Medical Association

Huges, Robert, National Association for the Self-Employed

King, Dr. James D., American Academy of Family Physicians

Office, James R., Victory Wholesale Grocers

Scandlen, Greg, Consumers for Health Care Choices

Statements for the Record:

Consumer Federation of America, Consumers Union and US PIRG

Full Committee Hearing on Health Insurer Consolidation--The Impact on Small Business

Thursday, October 25, 2007.

U.S. House of Representatives,

Committee on Small Business,

Washington, DC.

The Committee met, pursuant to call, at 9:30 a.m., in Room 2360 Rayburn House Office Building, Hon. Nydia Velazquez [Chairwoman of the Committee] presiding.

Present: Representatives Velazquez, Gonzalez, Cuellar, Altmire, Clarke, Ellsworth, Sestak, Higgins, Chabot, Bartlett, and Fallin.

Opening Statement of Chairwoman Velazquez

Chairwoman Velazquez. Good morning. I call this hearing to order to address Health Insurer Consolidation--The Impact on Small Business.

Access to health insurance is an area of concern to small businesses. The rising costs of health care are regularly cited by small firms as one of their biggest worries. Small businesses need to have choices in the health insurance marketplace. It is imperative that the marketplace is diverse and competition flourishes.

It is also critical that small medical providers are able to continue offering services. Physicians and other providers must be able to operate on a level playing field with health insurers and be reimbursed at fair rates. If not, quality of care will decline, and it is the patient who ultimately will suffer.

Consolidation in the health insurance industry is one area of special concern that has a direct impact on these issues. Because these mergers affect access to care and influence the quality of medical services, they command careful scrutiny by regulators. Unfortunately, the health insurance industry, like a number of other industries, has seen a general lack of enforcement of antitrust laws.

Earlier this year, The Wall Street Journal reported that the Federal Government has nearly stepped out of the antitrust enforcement business. While some mergers benefit consumers and increase the competitiveness of U.S. companies, others pose substantial risks to competition and innovation.

The health insurance marketplace has become increasingly concentrated in recent years. Consolidation has left small businesses with fewer choices, and physicians with diminished leverage to negotiate. In the majority of metropolitan areas, a single insurer now dominates the marketplace. If individuals and small businesses cannot get health coverage through the dominant insurer, they may not be able to find alternatives.

Recent mergers in the health insurance industry have tended to not generate efficiencies that have lower costs for small businesses or improved coverage. Premiums for small businesses have continued to increase without a corresponding increase in benefits. Consumers are facing increased deductibles, co-payments, and co-insurance, which have reduced the scope of their coverage.

When operating in highly concentrated markets, physicians often find they are stuck with take it or leave it contracts. The Department of Justice has recognized that physicians face special difficulties in dealing with health insurers--namely, it is very costly for them to switch from one insurer to another.

Replacing lost business for a physician by attracting new patients from other sources is very difficult in our current health care system. Physicians face barriers in attracting potential new HMO patients, since they are filtered through an HMO plan. Physicians struggle to maintain the quality of care in the

[Page Number 49846]

face of reduced reimbursement--a large administrative burden.

When physicians are forced to spend less time on each appointment, ultimately it is the patients that suffer. It is essential that competition remains vibrant in the health insurance marketplace. Not surprisingly, studies have found that when competition declines premium costs generally go up. The rising costs of health care are leading to greater numbers of uninsured, and less small businesses and individuals can afford to pay premiums.

Small businesses continue to be burdened by the high cost of health care. These rising costs of health insurance is one of the primary reasons the ranks of the 46 million uninsured Americans continue to grow. Tragically, 18,000 Americans lose their lives each year because of a lack of health insurance. We need to ensure that providers are on a level playing field, and small businesses and individuals have choices when it comes to health care.

I yield now to Ranking Member Chabot for his opening statement.

Opening Statement of Mr. Chabot

Mr. Chabot. Thank you very much, Madam Chairwoman. I want to apologize for being a couple of minutes late. It was one of those mornings where just too many things were scheduled and I just couldn't make it to everything on time. So I apologize.

And I want to thank the Chairwoman for holding this important hearing on the impact of mergers and increasing concentration in the health insurance market. This hearing continues this Committee's examination of the cost of health care on small businesses, both as purchasers of health care and as providers.

The Supreme Court has stated that "The unrestrained interaction of competitive forces will yield the best allocation of our economic resources, the lowest prices, the highest quality, and the greatest material progress." In short, competitive markets represent the cornerstone of American progress and the success of our democracy. Antitrust laws were established to protect these precious values. By providing a mechanism to ensure that competition is not unreasonably hindered, the antitrust laws can be seen as further bracing the competition foundation of this country.

When mergers occur, that may reduce competition. It behooves the Justice Department or the Federal Trade Commission to closely assess the value of these mergers. That is particularly crucial in the context of health care. When the members of this Committee travel back to their districts, they are put face to face with constituents and small business owners that struggle every day to cope with the rising costs of obtaining or providing health care.

If the number of companies that supply health insurance continues to decrease, basic economics suggest that costs of obtaining health care coverage will increase. It then becomes vital to assess the impact of industry consolidation on small business owners who already have significant difficulty in obtaining health insurance coverage.

Today, we have witnesses that represent small business purchasers of health care who will inform the Committee of the increasing difficulty that they have in obtaining health care coverage at reasonable costs that are not made any easier as concentration in the industry increases. In addition to the obvious effects on purchasers of health care coverage, it is important to remember that many providers of health care are small businesses.

If concentration increases in the health insurance industry, then the multitude of providers are faced with the market power of a very large single purchaser that will be able to dictate prices and the service rendered. And if the prices do not cover the physician's costs, physicians will stop seeing patients, thus reducing choice even more. Of course, in addition to the bulwark of antitrust laws to protect competition, another avenue is to increase competition in the provision of health insurers.

This Committee, under the former Chairman, Mr. Talent, took the lead in promoting competition in the health insurance market by creating association health plans. The House, on a number of occasions--I believe six times in a five-year period--passed association health plan legislation that unfortunately died in the Senate.

The Chairwoman, Chairwoman Velazquez, should be commended for her courageous votes in support of association health plans. Given their potential to reduce costs and increase competition, I think the Committee seriously needs to investigate the resuscitation of that concept.

I look forward to a thoughtful discussion from the panel of witnesses, a very distinguished panel I might add that we have here today, and their ideas on how to protect and improve competition in the health insurance markets. And, again, I want to thank the Chairwoman for holding this important hearing, and I yield back my time.

Chairwoman Velazquez. Thank you, Mr. Chabot.

And we are going to start with our first witnesses, and let me just take this opportunity to thank all of you for being here today. We are going to have a timer in front of you. Green means you go, and then the red one means five minutes are up. Each one of you will have five minutes to make your presentation.

Dr. Plested, Dr. William Plested, is our first witness. He served as the President of the American Medical Association from June 2006 to June 2007. Dr. Plested is a cardiovascular surgeon and has been in private practice in Santa Monica, California, for more than 35 years. The American Medical Association is the nation's largest physician group and advocates on issues vital to the nation's health.

Thank you, and welcome.

Statement of Dr. William G. Plested, III, Immediate Past President, American Medical Association, Brentwood, California

Dr. Plested. Thank you, Madam Chair. My name is Bill Plested. I am a past president of the American Medical Association and a cardiac surgeon from Santa Monica, California. I want to thank you very kindly for inviting me to testify today and for holding a hearing on this exceedingly important issue--health insurance consolidation.

Consolidation in the health insurance market is critical to the AMA, because physicians are both patient advocates and small business owners. Physicians have primary responsibility for advocating for their patients, and they also are small business that want to provide health care insurance for their employees.

Physicians' ability to perform either of these vital functions, however, has been severely compromised by growing consolidation in the for-profit health insurance market. This consolidation has left physicians with little leverage against unfair contract terms that deal with patient care and little control over their own employees' rising health insurance premiums.

As you all know, our market performs optimally when consumers have a choice of competing products and services. Increasingly, however, choice in the health insurance market has been severely restricted as health plans have pursued aggressive acquisition strategies to assume dominant positions.

In the past decade, there have been over 400 mergers. Contrary to claims of greater efficiency and lower cost, these mergers in fact have led to higher premiums and decreased patient access to care. If the current trend continues, we fear it will lead to a health care system dominated by a few companies that, unlike physicians, have an obligation to shareholders, not to patients.

Our worst fears may be realized in Nevada where we have urged the Department of Justice to block the merger of the United Health Group and Sierra Health Systems. This merger would have a devastating impact on Nevada's patients and physicians and would reverberate throughout the health care system as a harbinger of unrestricted consolidation, would drastically reduce competition, and severely limit health insurance choice for employers and individuals in Nevada.

The United-Sierra merger would give United a 94 percent HMO market--share of the HMO market in Clark County and an 80 percent share of the HMO market in the entire State of Nevada. Nevada is in need of more competition, not less. The State currently ranks 47th in the country for access to care and 45th in access to physicians. This merger would push Nevada even further down these lists by exacerbating physician shortages.

Competition is essential to the delivery of high quality health care services, and this merger would serve only to further disadvantage an already challenged Nevada health care system. Consolidation is not benefiting patients. Health insurers are recording record high profits while patient health insurance premiums continue to rise. In fact, United and Wellpoint have had seven--seven years of consecutive double-digit profit growth that has ranged to 20 to 70 percent year after year.

In addition to compelling results of the AMA's annual competition study, many areas across the country exhibit characteristics typical of uncompetitive markets and growing monopolistic behavior.

[Page Number 49847]

These include significant barriers to entry for new health insurers, the ability of large entrenched insurers to raise premiums without losing market share, and the power of dominant insurers to coerce physicians into accepting unreasonable and unjust contracts.

The AMA believes that the Federal Government must take steps to address the serious public policy issues raised by unfettered health insurer consolidation. The current situation in Nevada is emblematic of the total absence of boundaries and enforcement currently applied to health plan mergers.

Therefore, we respectfully encourage this Committee to urge the DOJ to enjoin the merger of United and Sierra. By so doing, the Committee would be taking a meaningful step on behalf of America's patients towards correcting the existing inequities in the health care market.

Thank you.

[The prepared statement of Dr. Plested may be found in the Appendix on page 27.]

ChairwomanVelazquez. Thank you, Dr. Plested.

Our next witness is Mr. Robert Hughes. He is the President of the National Association for the Self-Employed. Mr. Hughes has managed his own accounting practice, Hall & Hughes, in Dallas/Fort Worth, for the past 20 years. NASE represents hundreds of thousands of entrepreneurs and microbusinesses and is the largest non-profit, non-partisan association of its kind in the United States.

Welcome.

Statement of Robert Hughes, President, National Association for the Self- Employed

Mr. Hughes. Thank you very much. It is our pleasure to be here this morning, and thank you, Ms. Chairwoman, for the invitation. As a representative of over 250,000 microbusinesses across the country, the NASE is committed to addressing the issue of affordable health coverage. I am here to tell you that health care costs and coverage premiums are adversely affecting microbusiness and impairing their ability to grow, compete, and succeed.

In addition to the high cost of health coverage, it has a serious personal impact on business owners and their employees. Oftentimes, the small business will sacrifice saving for retirement, putting money aside for their children's education, and addressing other personal needs to redirect funds to health coverage in order to stay insured. Of course, the worst result of mounting premiums is dropping coverage all together, which puts their business, their employees, their family, and themselves at risk when they face even a minor medical event.

In a 2005 survey, the NASE found that the majority of microbusiness owners, those businesses with 10 or less employees, do not have for themselves, nor do they offer, health insurance to their employees. Most alarming is the rate at which premiums for microbusinesses have been increasing. In a similar health study conducted in 2002, microbusinesses indicated the median premium increase for the year before was a little over 11 percent.

In 2005, microbusiness owners were experiencing a median premium increase of over 17 percent. Premium costs are the single most important factor that determines whether a business owner will insure himself and provide coverage for employees. Thus, the key question here today is if the increasing number of mergers among health insurers is playing a role in premium increases.

The self-employed and microbusinesses purchase health insurance in either the small group market or the individual market. The small group market is much more restrictive and regulated, which reduces, in our opinion, competition and availability. The NASE believes that minimization of insurance carriers due to consolidation, compounded with a concern of high risk in the small group segment, and excessive state regulation leave small business with minimal options to set up small group health plan, and is a factor contributing to high premiums in insurance markets.

A 2005 GAO report highlighted that the median market share of the largest carrier in the small group market was 43 percent, up 10 percent from just three years earlier. The five largest carriers in the small group market, when combined, represented three-quarters or more of the market in 26 of the 34 states that participated in the GAO study. The dominance of a few carriers in the small group market was also supported by studies from the AMA and leading health insurance experts.

How, then, is this lack of competition affecting insurance premiums? Well, let me give you a quote from one of our members, a freelance writer from Geneva, Illinois. "The lack of competition among health insurers absolutely affects my insurance cost, as well as the quality and scope of coverage I can barely afford. Our state's non-competitive health care insurance environment, due to the monopoly of one or two carriers, places all of the leverage in the hands of the insurers. I can't vote with my feet and dollars if I have no alternatives from which to select."

David, along with other microbusiness owners, will tell you that competition plays a central role in improving quality, spurring innovation, and keeping prices down. Research has indicated that health plans have increased premiums consistently above the rate of growth in costs. Cumulative, the premium increases for the last six years have exceeded 87 percent, which is more than three times the overall increase and medical inflation of 28 percent.

Why have insurance companies increased rates at these paces? I guess the simple answer is: they can. I believe that the current state regulatory climate plays an even more critical role in keeping costs high and impairing competition. State mandates are an issue. Some believe that state mandates increase insurance premiums by as much as 20 percent or even more.

Microbusiness owners have long been a proponent of market-based solutions for dealing with our health care system. However, competition without competitors will not deliver the desired incentive for health care improvement. The NASE urges Congress to address the disparities in individual and group markets. There are over 20 million non-employer firms in America. Certainly, they have access to, and choice of, health care coverage at a very limited basis, and that issue should be addressed.

Increasing insurer competition for the strong economic market segment, addressing state insurance regulation and mandates, and creating equitable federal tax treatment for these non-employer firms, are key to increasing access to affordable health coverage.

[The prepared statement of Mr. Hughes may be found in the Appendix on page 39.]

Chairwoman Velazquez. Thank you, Mr. Hughes.

Our next witness is Dr. James D. King. He is the President of the American Academy of Family Physicians. Dr. King is in private practice in the rural community of Selmer, Tennessee. He serves as the Medical Director of Chester County Health Care Services. The American Academy of Family Physicians is one of the largest national medical organizations with more than 94,000 members in 50 states, the District of Columbia, Puerto Rico, the Virgin Islands, and Guam.

Welcome.

Statement of Dr. James D. King, President, American Academy of Family Physicians, Selmer, Tennessee

Dr. King. Thank you. On behalf of the Academy, I appreciate the concern about the effect of consolidated health plans on family physicians. We are members of the small business community, and also are professionals concerned about the effective delivery of health care to our patients.

Consolidation of health insurance plans have created a profound imbalance that hurts the ability of family physicians to negotiate contracts. This is harmful to our practices, but also means that many of our patients cannot find the primary care physicians who accept their insurance.

According to the industry analysis, between 1992 and 2006 the number of health insurance companies dropped from 95 to 7. The American Medical Association reports that 280 U.S. markets, at least one-third of the covered lives, are members of a single largest insurer in that market. In the U.S., only two insurance companies cover one-third of all insured Americans.

This market concentration gives health plans huge power to determine the coverage and payment terms. Let me give you a snapshot of how this affects the individual member. Nearly two-thirds of the patients of a solo family physician in Colorado are insured by one commercial payer. This situation occurred because of a merger. When this doctor made the case for a payment increase to keep pace with inflation, he was told by the insurance company, "As a solo physician, you are the weakest economic unit and must take what we decide to give."

That single statement bluntly and accurately describes our problem. As the economic heavyweights, health plans have no incentive to agree to physician requests. When a doctor doesn't agree to the terms of the contract, the plan just removes the

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practice from the network. This means that patients essentially are denied access to their physicians.

In most cases, family doctors stick to their patients and sign untenable contracts. These contracts can affect many aspects of the practice. They dictate treatment decisions, require the use of special labs, require peer-to- peer requests for prior authorizations, demand completion of multiple-page forms, and delay payment while requiring responses to endless questions.

Many insurance contracts even allow the health plan to change the terms at any time without notifying the physician simply by posting new information on their web site. These business practices may increase the profit--may increase the profits of the insurance company, but they create enormous burdens for our small and solo practices and may hurt patient care.

As a result, more primary care physicians are driven to work in other settings, such as emergency rooms, in cash only practices. Some leave medical practice all together. Worst of all, payment rates and other contract terms are unrelated to quality of care.

Let me give you another quick story. A family physician who had been honored several times as the best physician in Arizona, who had more than 100 physicians as his patients, and who received the highest possible rating from his health plans for quality and efficiency, is taking more than $100,000 out of his savings each year just to keep his practice afloat. Despite his good work, he has been unable to negotiate high