Insurers pressed on competition at merger hearing

HARRISBURG - When it comes to their proposed merger to create the state's largest insurer, executives at Independence Blue Cross and Highmark Inc. insist they won't play hardball when it comes to negotiating with doctors and hospitals over payments for their services, despite their market clout.

But the head of the Pennsylvania Medical Society, who testified yesterday at Insurance Department hearings on the merger, isn't buying it.

"It's like, 'Yeah, I'll love you in the morning,' " society president Peter Lund quipped in an interview after his testimony.

Lund, who practices medicine in Erie County, pointed to an example.

At the Lehigh Valley Hospital near Allentown, where there are several insurance companies, including Highmark, competing to include doctors and hospitals in their networks, Highmark pays $36,000 for a heart-valve operation.

But at Hamot Hospital in Erie, where Highmark is the dominant insurer, the reimbursement is $26,000, he said. That's the kind of negotiating power he thinks the two companies will have statewide if they merge.

Hearings on the proposal will continue Tuesday and Wednesday in Philadelphia.

Pennsylvania's insurance commissioner, Joel Ario, pressed the Blues yesterday on competitive issues.

Ario asked why, if Independence Blue Cross sells insurance through its AmeriHealth subsidiary in New Jersey, it doesn't try to sell insurance under a similar subsidiary in Pennsylvania.

"The investment that would be required to build a brand statewide" would detract from Independence Blue Cross' business in Philadelphia and the four surrounding counties, Independence chief executive Joseph A. Frick said.

Ario asked whether IBC's reluctance to compete statewide shows that the dominance of the Blues makes entry into the state by other companies very difficult.

Highmark chief executive Kenneth R. Melani countered that a relatively new competitor in Highmark's core Pittsburgh territory, UPMC Health Plan, has added more than 1.2 million subscribers in 12 years. Highmark provides coverage for 4.6 million in western and central Pennsylvania and the Lehigh Valley.

Among those speaking in favor of the merger yesterday was Bruce Schwartz, president of Columbus Supply House, a Cumberland County distributor of cleaning services and products. His company offers Highmark insurance, does business with Highmark and participates with the company in charitable works.

He worries that if the merger doesn't go through, the insurers "might become a likely acquisition target" for big for-profit out-of-state insurance companies.

"Such an outcome would prove detrimental for small businesses and charitable organizations," he said.

Also testifying were several legislators, including State Sen. Donald White, a Republican from Western Pennsylvania who heads the Banking and Insurance Committee.

"I'm extremely skeptical that long-term benefits will come from this merger," he said.