Critics Rip Hmo Takeover

Consumer and doctors groups urged state regulators Wednesday to block PacifiCare Health Systems’ takeover of FHP International Corp., which would create the largest Medicare-based managed care company.

PacifiCare wants to buy FHP in a $2.1 billion cash-and-stock deal. The merger of the two Southern California-based health maintenance organizations would create a giant with $8.6 billion a year in revenue. Of its 2.9 million members, 928,000 would be in Medicare, the federally funded health insurance program for the elderly and disabled.

Medicare is one of the most lucrative businesses for HMOs and the combined company would have a dominant position in its markets.

It would have 47 percent of the Medicare HMO market in Los Angeles County, 66 percent in Orange County and 70 percent in San Diego County, according to testimony at a Department of Corporations hearing.

That would lessen competition, offer fewer choices and services for consumers and could lead to price fixing, said Jamie Court, director of Consumers for Quality Care, a frequent HMO critic.

He said PacifiCare routinely places profits ahead of patients’ needs and doctors’ preferences.

“Bad corporate citizens should be put on probation, not granted new opportunities to bully patients and doctors,” he told Commissioner of Corporations Keith Bishop, who is reviewing the merger.

PacifiCare chief executive Alan Hoops and FHP’s CEO, Westcott W. Price III, said they will be able to save money by eliminating duplicate functions at their companies. The efficiencies would show up as better services or lower costs, they argued.

Approval by Bishop is the last regulatory hurdle to the deal. The Federal Trade Commission and the state attorney general’s office both investigated the merger on antitrust grounds without taking action.

The companies said Californians arguably enjoy the nation’s best and most available health care because HMOs are so prevalent in the state. They said the industry is consolidating so quickly into giant companies that the probable alternative to their merger would be sale to out-of-state companies.

Opponents include the California Medical Association, which said studies have shown that mergers of large companies yield few efficiencies.