[Federal Register: March 10, 2008 (Volume 73, Number 47)]
[Notices]
[Page 12762-12774]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr10mr08-96]
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DEPARTMENT OF JUSTICE
Antitrust Division
United States v. UnitedHealth Group Incorporated; Proposed Final
Judgment and Competitive Impact Statement
Notice is hereby given pursuant to the Antitrust Procedures and
Penalties Act, 15 U.S.C. 16(b)-(h), that a Complaint, proposed Final
Judgment, Hold Separate and Asset Preservation Stipulation and Order,
and Competitive Impact
[[Page 12763]]
Statement have been filed with the United States District Court for the
District of Columbia in United States v. UnitedHealth Group
Incorporated, Civil Case No. 08-0322. On February 25, 2008, the United
States filed a Complaint alleging that the proposed acquisition by
UnitedHealth Group Incorporated (``United'') of Sierra Health Services,
Inc. (``Sierra'') would violate Section 7 of the Clayton Act, 15 U.S.C.
18. The Complaint alleges that the acquisition would substantially
reduce competition between the two largest health insurers selling
Medicare Advantage health insurance plans to senior citizens in the Las
Vegas, Nevada area, resulting in higher prices, less choice, and a
reduction in the quality of Medicare Advantage plans sold to the
Medicare-eligible population.
The proposed Final Judgment filed with the Complaint requires the
parties to divest United's individual Medicare Advantage business in
the Las Vegas area to a purchaser that will remain a viable competitor
in the market. Copies of the Complaint, proposed Final Judgment, and
Competitive Impact Statement are available for inspection at the
Department of Justice, Antitrust Division, Antitrust Documents Group,
325 7th Street, NW., Room 215, Washington, DC 20530 (202-514-2481), on
the Department of Justice's Web site at http://www.usdoj.gov/atr, and
at the Office of the Clerk of the United States District Court for the
District of Columbia. Copies of these materials may be obtained from
the Antitrust Division upon request and payment of the copying fee set
by Department of Justice regulations.
Public comment is invited within 60 days of the date of this
notice. Such comments, and responses thereto, will be published in the
Federal Register and filed with the Court. Comments should be directed
to Joshua H. Soven, Chief, Litigation I Section, Antitrust Division,
U.S. Department of Justice, 1401 H Street, NW., Suite 4000, Washington,
DC 20530 (202-307-0001).
Patricia A. Brink,
Deputy Director of Operations, Antitrust Division.
United States District Court for the District of Columbia, United
States of America, 1401 H Street, NW. - Suite 4000, Washington, DC
20530, Plaintiff,
v.
UnitedHealth Group Incorporated, 9900 Bren Road East, Minnetonka, MN
55343, and Sierra Health Services, Inc., 2724 North Tenaya Way, Las
Vegas, NV 89128, Defendants.
Civil No. 1:08-cv-00322
Judge: Ellen S. Huvelle
Filed: 2/25/2008
Complaint
The United States of America, acting under the direction of the
Attorney General of the United States, brings this civil action to
enjoin UnitedHealth Group Incorporated (``United'') from acquiring
Sierra Health Services, Inc. (``Sierra''), and alleges as follows:
1. Unless enjoined, United's proposed acquisition of Sierra will
substantially increase concentration in an already highly concentrated
market that is no broader than Medicare Advantage health insurance
plans sold to senior citizens (``seniors'') and other Medicare-eligible
individuals in Clark and Nye Counties, Nevada, (``the Las Vegas
area''). 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 account for
approximately 94 percent of the total enrollment in Medicare Advantage
plans in the Las Vegas area, which total accounts for approximately
$840 million in annual commerce.
2. Congress created the Medicare Advantage program as a private
market alternative to government-provided traditional Medicare. In
establishing the Medicare Advantage program, Congress intended that
vigorous competition among private Medicare Advantage insurers would
lead insurers to offer seniors richer and more affordable benefits than
traditional Medicare, provide a wider array of health insurance
choices, and be more responsive to the demands of seniors.
3. The acquisition will decrease competition substantially among
Medicare Advantage plans in the Las Vegas area and eliminate
substantial head-to-head competition between United (through the
PacifiCare health insurance business that United acquired in 2005) and
Sierra in the provision of such plans. The competition between United
and Sierra has, for years, benefited thousands of seniors. Through
competition, United's and Sierra's plans provide seniors with
substantially greater benefits than those available under traditional
Medicare alternatives, saving seniors thousands of dollars in yearly
health care costs. The proposed acquisition will end that competition,
eliminating the pressure that these close competitors place on each
other to maintain attractive benefits, lower prices, and high-quality
health care.
4. United's acquisition of Sierra 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, 15 U.S.C. 18.
Accordingly, the United States seeks an order permanently enjoining the
transaction.
I. Jurisdiction and Venue
5. The United States files this Complaint pursuant to Sections 15
and 16 of the Clayton Act, as amended, 15 U.S.C. 25 and 26, to prevent
and restrain the defendants from violating Section 7 of the Clayton
Act, as amended, 15 U.S.C. 18.
6. United and Sierra are engaged in interstate commerce and in
activities that substantially affect interstate commerce. The Court has
jurisdiction over this action pursuant to Section 15 of the Clayton
Act, as amended, 15 U.S.C. 25, and 28 U.S.C. 1331, 1337.
7. United and Sierra transact business and are found in the
District of Columbia. Venue is proper under 15 U.S.C. 22 and 28 U.S.C.
1391(c).
II. The Defendants and the Proposed Transaction
8. United is a corporation organized and existing under the laws of
Minnesota and has its principal place of business in Minnetonka,
Minnesota. United is the largest health insurer in the United States,
providing health insurance and other services to more than 70 million
people nationwide. In 2007, United reported revenues of approximately
$75 billion.
9. United's Medicare Advantage products are sold under the Secure
Horizons and AARP brands. United provides health insurance to
approximately 27,800 Medicare Advantage enrollees in the Las Vegas
area. Approximately 26,000 of these enrollees are individual enrollees
whose enrollment is not affiliated with an employer or other group. The
remainder are group retirees who enrolled in a United Medicare
Advantage plan through an employer or other group.
10. In the Las Vegas area, United has a well-established managed-
care network that United uses to provide services to enrollees in its
MA-HMO plans. Health care services provided by HealthCare Partners,
LLC, The Physicians IPA, Inc., and Summit Medical Group are an integral
part of United's managed-care network in the Las Vegas area.
11. Sierra is a corporation organized and existing under the laws
of Nevada and has its principal place of business in Las Vegas, Nevada.
Sierra is the largest health insurer in Nevada,
[[Page 12764]]
providing health insurance and other services to more than 655,000
people. In 2007, Sierra reported revenues of $1.9 billion.
12. Sierra sells Medicare Advantage plans under the Senior
Dimensions, Sierra Spectrum, Sierra Nevada Spectrum, and Sierra Optima
Select brands. Sierra provides health insurance to approximately 49,500
Medicare Advantage enrollees in the Las Vegas area.
13. Sierra owns Las Vegas's largest medical group, Southwest
Medical Associates, Inc. (``SMA''), which employs approximately 250
physicians and other health care professionals. SMA provides care
almost exclusively to Sierra members and provides a substantial portion
of the care delivered to Sierra's Medicare Advantage members.
14. On March 11, 2007, United and Sierra entered into a merger
agreement, whereby United agreed to acquire all outstanding shares of
Sierra. The transaction is valued at approximately $2.6 billion.
III. The Medicare Advantage Insurance Market
15. The federal government provides and facilitates the provision
of health insurance to millions of Medicare-eligible citizens through
two types of programs: traditional Medicare (also known as Original
Medicare) and Medicare Advantage. Under traditional Medicare, a
beneficiary receives hospital coverage under Medicare Part A and can
elect to receive coverage for physician and out-patient services under
Part B. For Part A, the government charges no monthly premium if the
beneficiary was in the workforce and paid Medicare taxes, but for Part
B, the government deducts a monthly premium (currently $96.40 for most
beneficiaries) from beneficiaries' Social Security checks. In addition,
beneficiaries must pay deductibles and/or co-insurance for doctor
visits and hospital stays. If beneficiaries want to limit potentially
catastrophic out-of-pocket costs, they need to purchase a separate
Medicare Supplement plan. For prescription drug coverage, seniors
enrolled in traditional Medicare must purchase Medicare Part D drug
coverage for an additional premium.
16. In contrast, Medicare Advantage plans are offered by private
insurance companies. These companies compete to offer the most
attractive Medicare Advantage benefits to enrollees in a region. Most
successful Medicare Advantage plans, including those in the Las Vegas
area, offer substantially richer benefits at lower costs to enrollees
than traditional Medicare, including lower co-payments, lower co-
insurance, caps on total yearly out-of-pocket costs, prescription drug
coverage, vision coverage, health club memberships, and other benefits
that traditional Medicare does not cover.
17. An insurance company that seeks to offer a Medicare Advantage
plan in a region must submit a bid to the Centers for Medicare and
Medicaid Services (``CMS'') for each Medicare Advantage plan that it
intends to offer. The bid must provide the insurer's anticipated costs
per member to cover the basic Medicare Part A and Part B benefits.
Those costs, including an anticipated profit margin, are compared to a
Medicare benchmark that reflects, in part, the government's likely cost
of covering the beneficiaries. If the insurer's bid for Medicare
benefits is lower than the benchmark, the Medicare program retains 25
percent of the savings and the insurer must use the other 75 percent to
provide supplemental benefits or lower premiums to enrollees.
Accordingly, the lower the insurer's projected costs, the more benefits
seniors enrolled in the insurer's plan will have available to them.
18. A sufficient number of seniors in the Las Vegas area would not
switch away from Medicare Advantage plans to traditional Medicare in
the event of a small but significant reduction in benefits under the
plans, or a small but significant increase in price, to render the
benefit decrease or price increase unprofitable. Accordingly, in the
Las Vegas area, the sale of Medicare Advantage plans is a relevant
product market and a line of commerce under Section 7 of the Clayton
Act, 15 U.S.C. 18.
IV. Relevant Geographic Market
19. Residents in the Las Vegas area (Clark and Nye Counties) may
only enroll in Medicare Advantage plans that CMS approves for the
county in which they live. Consequently, they could not turn to
Medicare Advantage plans elsewhere in the state or in other regions in
response to a reduction in competition between Sierra and United in the
Las Vegas area. Accordingly, the Las Vegas area is a relevant
geographic market or section of the country within the meaning of
Section 7 of the Clayton Act.
V. Market Concentration
20. The market for Medicare Advantage plans is highly concentrated
and would become significantly more concentrated as a result of the
proposed acquisition. Sierra accounts for approximately 60 percent of
Medicare Advantage enrollees in the Las Vegas area. United accounts for
approximately 34 percent. If consummated, the merger would give United
a 94 percent market share. The Herfindahl-Hirschman Index (``HHI'') (a
standard measure of market concentration defined and explained in
Appendix A) for the Las Vegas area Medicare Advantage market indicates
that the market is highly concentrated. The proposed merger would
increase concentration by 4,080 points, from 4,756 to 8,836.
21. Sierra and United (through PacifiCare) have accounted for well
over 90 percent of Medicare Advantage enrollment in the Las Vegas area
for each of the past seven years.
VI. Anticompetitive Effects
22. Under the Medicare Advantage program, private competition for
Medicare-eligible individuals has produced substantial benefits for
consumers throughout the country, including in the Las Vegas area.
23. Sierra and United have competed vigorously with each other to
improve their Medicare Advantage plans and attract members. They
monitor each other's benefits to stay competitive and consider each
other to be very important competitors.
24. United and Sierra compete against each other for newly
Medicare-eligible individuals, try to attract members from each other,
and seek to avoid losing members to each other, by offering plans with
zero premiums, reducing co-payments, eliminating deductibles, improving
drug coverage, offering desirable fitness benefits, and attempting to
make their provider networks more attractive to potential members. Such
competition will be lost in the Las Vegas area if the proposed
acquisition is completed, to the substantial detriment of tens of
thousands of seniors. After the acquisition, the combined United/Sierra
will not have the same incentive to improve benefits as the two
separate companies do today, and likely will raise prices or reduce
benefits and services.
25. Competition from existing providers of Medicare Advantage plans
and new entrants is unlikely to prevent anticompetitive effects. Such
firms face substantial cost, reputation, and distribution disadvantages
that will likely make them unable to prevent United from raising prices
or reducing benefits and services.
26. Accordingly, the proposed transaction likely will substantially
lessen competition in violation of Section 7 of the Clayton Act.
[[Page 12765]]
VII. Violations Alleged
27. United's acquisition of Sierra would likely substantially
lessen competition in the sale of Medicare Advantage health insurance
in the Las Vegas area, in violation of Section 7 of the Clayton Act, 15
U.S.C. 18.
28. The proposed transaction would likely have the following
effects, among others:
(a) Lessening substantially actual and potential competition in the
sale of Medicare Advantage insurance;
(b) eliminating actual and potential competition between United and
Sierra in the sale of Medicare Advantage insurance;
(c) increasing prices for Medicare Advantage insurance above those
that would prevail absent the acquisition; and
(d) decreasing the level of benefits and service associated with
Medicare Advantage insurance to levels below those that would prevail
absent the acquisition.
VIII. Prayer for Relief
The United States requests that this Court:
1. Adjudge the proposed acquisition to violate Section 7 of the
Clayton Act, 15 U.S.C. 18;
2. Permanently enjoin and restrain the defendants from carrying out
the Agreement and Plan of Merger between United and Sierra dated March
11, 2007, or from entering into or carrying out any agreement,
understanding, or plan by which United would merge with or acquire
Sierra, its capital stock, or any of its assets;
3. Award the United States the costs of this action; and
4. Award the United States such other relief as the Court may deem
just and proper.
Respectfully submitted,
Thomas O. Barnett (DC Bar 426840)
Assistant Attorney General
Antitrust Division
Deborah A. Garza (DC Bar 395259)
Deputy Assistant Attorney General
Antitrust Division
Patricia A. Brink
Deputy Director of Operations
Antitrust Division
Joshua H. Soven (DC Bar 436633)
Chief, Litigation I Section
Antitrust Division
Joseph Miller (DC Bar 439965)
Assistant Chief, Litigation I Section
Antitrust Division
Peter J. Mucchetti (DC Bar 463202)
Mitchell H. Glende
N. Christopher Hardee (DC Bar 458168)
Tiffany C. Joseph-Daniels
Barry J. Joyce
Ryan M. Kantor
John P. Lohrer (DC Bar 438939)
Richard S. Martin
Natalie A. Rosenfelt
Michelle Seltzer (DC Bar 475482)
Trial Attorneys, U.S. Department of Justice, Antitrust Division,
Litigation I Section, 1401 H Street, NW., Suite 4000, Washington, DC
20530, (202) 353-4211, (202) 307-5802 (fax).
Dated: February 25, 2008.
APPENDIX A
Herfindahl-Hirschman Index
``HHI'' means the Herfindahl-Hirschman Index, a commonly
accepted measure of market concentration. It is calculated by
squaring the market share of each firm competing in the market and
then summing the resulting numbers. For example, for a market
consisting of four firms with shares of 30%, 30%, 20%, and 20%, the
HHI is 2600 (302 + 302 + 202 + 202 = 2600). The HHI takes into
account the relative size distribution of the firms in a market and
approaches zero when a market consists of a large number of small
firms. The HHI increases both as the number of firms in the market
decreases and as the disparity in size between those firms
increases.
Markets in which the HHI is between 1000 and 1800 points are
considered to be moderately concentrated, and those in which the HHI
is in excess of 1800 points are considered to be highly
concentrated. See Horizontal Merger Guidelines 1.51 (revised Apr. 8,
1997). Transactions that increase the HHI by more than 100 points in
concentrated markets presumptively raise antitrust concerns under
the guidelines issued by the U.S. Department of Justice and Federal
Trade Commission. See id.
Certificate of Service
I hereby certify that I served a copy of the foregoing Complaint,
proposed Final Judgment, Competitive Impact Statement, Hold Separate
and Asset Preservation Stipulation and Order, and Explanation of
Consent Decree Procedures via e-mail and first class, United States
mail on February 25, 2008.
For Defendant Unitedhealth Group, Inc.:
Robert E. Bloch, Esq., Mayer, Brown, Rowe & Maw, LLP, 1909 K Street,
NW., Washington, DC 20006-1101.
Steven L. Holley, Esq., Sullivan & Cromwell, LLP, 125 Broad Street, New
York, NY 10004.
For Defendant Sierra Health Services, Inc.:
Arthur N. Lerner, Esq., Crowell & Moring, LLP, 1001 Pennsylvania Ave.
NW., Washington, DC 20004.
Peter J. Mucchetti, Attorney, Litigation I Section, U.S. Department of
Justice--Antitrust Division.
Final Judgment
Whereas, plaintiff, United States of America, filed its Complaint
on February 25, 2008, and the United States and Defendant UnitedHealth
Group Incorporated and Defendant Sierra Health Services, Inc., by their
respective attorneys, have consented to the entry of this Final
Judgment without trial or adjudication of any issue of fact or law and
without this Final Judgment constituting any evidence against or
admission by any party regarding any issue of fact or law;
And whereas, Defendants agree to be bound by the provisions of this
Final Judgment pending its approval by the Court; and whereas, the
essence of this Final Judgment is the prompt and certain divestiture of
certain rights and assets by Defendants to ensure that competition is
not substantially lessened in the sale of Medicare Advantage Plans to
senior citizens and others in the Las Vegas, Nevada area;
And whereas, the United States requires Defendants to make certain
divestitures for the purpose of remedying the loss of competition
alleged in the Complaint;
And whereas, Defendants have represented to the United States that
the divestiture required by this Final Judgment can and will be made,
and that Defendants will not later raise any claim of hardship or
difficulty as grounds for asking the Court to modify any of the
provisions of this Final Judgment;
Now Therefore, before any testimony is taken, without trial or
adjudication of any issue of fact or law, and upon consent of the
parties, it is ordered, Adjudged, and decreed:
I. Jurisdiction
This Court has jurisdiction over the subject matter of, and each of
the parties to, this action. The Complaint states a claim upon which
relief may be granted against Defendants under Section 7 of the Clayton
Act, as amended, 15 U.S.C. 18.
II. Definitions
As used in this Final Judgment:
A. ``Acquirer'' means the entity to whom the Divestiture Assets are
divested.
B. ``Clark County'' means Clark County, Nevada.
C. ``Clark County CMS Plans'' means the individual Medicare
Advantage plans offered under CMS Plan Nos. H2949-002, H2949-009, and
H2949-012, but does not include any Series 800 Medicare Advantage plans
offered to retirees through commercial customers or contracts.
D. ``Clark and Nye County CMS Plans'' means the Clark County CMS
Plans and the Nye County CMS Plans.
[[Page 12766]]
E. ``CMS'' means the Centers for Medicare and Medicaid Services, an
agency within the U.S. Department of Health and Human Services.
F. ``Divestiture Assets'' means all tangible and intangible assets
dedicated to the administration, operation, selling, and marketing of
the Clark and Nye County CMS Plans, including (1) all of United's
rights and obligations under United's Medicare Contract No. H2949 with
CMS relating to the Clark and Nye County CMS Plans, including the right
to offer the Medicare Advantage plan to individual enrollees pursuant
to the bids and Evidence of Coverage filed with CMS in 2007 for the
2008 contract year, and the right to receive from CMS a per member per
month capitation payment in exchange for providing or arranging for the
benefits enumerated in the bids and Evidence of Coverage, and (2)
copies of all business, financial and operational books, records, and
data, both current and historical, that relate to the Clark County CMS
Plans or the Nye County CMS Plans. Where books, records, or data relate
to the Clark County CMS Plans or the Nye County CMS Plans, but not
solely to these Plans, United shall provide excerpts relating to these
Plans. Nothing herein requires United to take any action prohibited by
the Health Insurance Portability and Accountability Act of 1996
(HIPAA).
G. ``Evidence of Coverage'' means the document that outlines an
enrollee's benefits and exclusions under a Medicare Advantage Plan.
H. ``HealthCare Partners'' means JSA Healthcare Nevada, LLC, a
Nevada limited liability company, and its affiliated entities,
including HealthCare Partners, LLC and Summit Medical Group.
I. ``Humana'' means Humana Inc., a Delaware corporation with its
headquarters in Louisville, Kentucky.
J. ``Las Vegas Area'' means Clark County and Nye County.
K. ``Medicare Advantage Line of Business'' means the operations of
United that implement and administer the Clark and Nye County CMS
Plans.
L. ``Medicare Advantage Plan'' means Medicare Advantage health
maintenance organization plans, Medicare Advantage preferred provider
organization plans, and Medicare Advantage private fee-for-service
plans, as defined by 42 U.S.C. 1395w-21(a)(2).
M. ``Nye County'' means Nye County, Nevada.
N. ``Nye County CMS Plans'' means the individual Medicare Advantage
plans offered under CMS Plan Nos. H2949-007 and H2949-011, but does not
include any Series 800 Medicare Advantage plans offered to retirees
through commercial customers or contracts.
O. ``PIPA'' means The Physicians IPA, Inc., a Nevada non-profit
corporation based in Las Vegas, Nevada.
P. ``Provider Network'' means all health care providers, including
physicians, hospitals, ancillary service providers, and other health
care providers with which United contracts for the provision of covered
medical services for United's Medicare Advantage Plans in the Las Vegas
area.
Q. ``Sierra'' means Defendant Sierra Health Services, Inc., a
Nevada corporation with its headquarters in Las Vegas, Nevada, its
successors and assigns, and its subsidiaries, divisions, groups,
affiliates, partnerships and joint ventures, and their respective
directors, officers, managers, agents, and employees.
R. ``Transaction'' means the merger contemplated by the Agreement
and Plan of Merger dated as of March 11, 2007, by and among United,
Sapphire Acquisition, Inc. and Sierra.
S. ``United'' means Defendant UnitedHealth Group Incorporated, a
Minnesota corporation with its headquarters in Minnetonka, Minnesota,
its successors and assigns, and its subsidiaries, divisions, groups,
affiliates, partnerships and joint ventures, and their respective
directors, officers, managers, agents, and employees.
III. Applicability
A. This Final Judgment applies to United and Sierra, and to all
other persons in active concert or participation with any of them who
receive actual notice of this Final Judgment by personal service or
otherwise.
B. If, prior to complying with Section IV and VI of this Final
Judgment, Defendants sell or otherwise dispose of all or substantially
all of their assets or of lesser business units that include the
Divestiture Assets, they shall require the purchaser to be bound by the
provisions of this Final Judgment. Defendants need not obtain such an
agreement from the Acquirer of the assets divested pursuant to this
Final Judgment.
IV. Divestiture of the Divestiture Assets
A. Defendants are ordered, within forty-five (45) calendar days
after the filing of the Complaint in this matter, to divest the
Divestiture Assets in a manner consistent with this Final Judgment to
an Acquirer acceptable to the United States in its sole discretion and
on terms acceptable to the United States in its sole discretion,
including any agreement for transitional support services entered into
pursuant to Section IV(J) of this Final Judgment. The United States, in
its sole discretion, may grant one or more extensions of this time
period, not to exceed sixty (60) calendar days in total, and shall
notify the Court in each such circumstance. Defendants shall accomplish
the divestiture of the Divestiture Assets as expeditiously as possible
and in such a manner as will allow the Acquirer to be a viable, ongoing
business engaged in the sale of Medicare Advantage Plans in the Las
Vegas Area.
B. If applications for approval have been filed with CMS and the
appropriate other governmental units within twenty (20) calendar days
after the filing of the Complaint in this matter, but these required
approvals have not been issued before the end of the period permitted
for Divestiture in Section IV(A), the United States may extend the
period for Divestiture until five (5) business days after all necessary
government approvals have been received.
C. The Divestiture shall be accomplished in such a way as to
satisfy the United States, in its sole discretion, that the Divestiture
Assets can and will be used by the Acquirer as part of a viable,
ongoing business engaged in the sale of Medicare Advantage Plans in the
Las Vegas Area. Defendants must demonstrate to the sole satisfaction of
the United States that the Divestiture will remedy the competitive harm
alleged in the Complaint. The Divestiture shall be:
(1) Made to an Acquirer that, in the United States's sole judgment,
has the intent and capability (including the necessary managerial,
operational, technical, and financial capability) to compete
effectively in the sale of Medicare Advantage Plans in the Las Vegas
Area; and
(2) Accomplished so as to satisfy the United States, in its sole
discretion, that none of the terms of any agreement between Defendants
and the Acquirer gives Defendants the ability unreasonably to raise the
Acquirer's costs, to lower the Acquirer's efficiency, or otherwise to
interfere with the Acquirer's ability to compete effectively.
D. Defendants shall not take any action that will impede in any way
the permitting, operation, or divestiture of the Divestiture Assets.
E. Defendants shall provide to the Acquirer, the United States, and
any Monitoring Trustee, information relating to the personnel primarily
involved in the operation of the Divestiture Assets to enable the
Acquirer to make offers of employment to those persons.
[[Page 12767]]
Defendants shall not interfere with any negotiations by the Acquirer to
employ any of those persons. For a period of two (2) years from the
filing of the Complaint in this matter, Defendants shall not hire or
solicit to hire any such person who was hired by the Acquirer, unless
the Acquirer has notified such person that the Acquirer does not intend
to continue to employ the person.
F. Defendants shall assist the negotiation of and entry into
agreement(s) between the Acquirer and HealthCare Partners that will
allow members of the Clark and Nye County CMS Plans to have continued
access to substantially all of United's Provider Network as of January
2008 on terms no less favorable than United's agreements as of January
2008.
G. Upon completing the Divestiture and through March 31, 2010,
Defendants shall have no agreements with HealthCare Partners or PIPA
that provide for access by United to HealthCare Partners or PIPA in
connection with enrollees in any type of individual Medicare Advantage
plan of Defendants in the Las Vegas Area.
H. Upon completing the Divestiture and through March 31, 2009,
Defendants shall not use the AARP brand, or any other substantially
similar brand, name, or logo, for any type of individual Medicare
Advantage plan of Defendants in the Las Vegas Area. Upon completing the
Divestiture and through March 31, 2010, Defendants shall not use the
SecureHorizons brand, or any other substantially similar brand, name,
or logo, for any type of individual Medicare Advantage plan of
Defendants in the Las Vegas Area.
I. At the Acquirer's option, and subject to approval by the United
States, Defendants will allow the Acquirer to license and use the
SecureHorizons brand, and any other substantially similar brand, name,
or logo, with the Divestiture Assets for twelve months upon completing
the Divestiture.
J. At the Acquirer's option, and subject to approval by the United
States, Defendants will provide transitional 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. Defendants shall not provide such transitional support services
for more than twelve months from the date of the completion of the
Divestiture unless the United States shall otherwise approve.
K. To ensure an effective transition and transfer of enrollees in
the Clark and Nye County CMS Plans to the Acquirer, Defendants shall
cooperate and work with the Acquirer in transition planning and
implementing the transfer of the Divestiture Assets.
L. Defendants will communicate and cooperate fully with the
Acquirer to promptly identify and obtain all consents of government
agencies necessary to divest the Divestiture Assets.
M. Defendants will communicate and cooperate fully with the
Acquirer to work in good faith with CMS to select a novation process
that is efficient and minimizes any potential disruption and confusion
to enrollees in the Clark and Nye County CMS Plans.
N. United shall warrant to the Acquirer that, since January 1,
2007, United has operated the Divestiture Assets in all material
respects in the ordinary course of business consistent with past
practices except for the global capitation agreement that United
entered into with HealthCare Partners effective January 1, 2008. United
shall also warrant that there has not been (a) any material loss or
change with respect to the Divestiture Assets; (b) any event,
circumstance, development, or change that has had a material adverse
effect on the Divestiture Assets; or (c) any change by United of its
accounting or actuarial methods, principles, or practices that is
relevant to the Divestiture Assets.
O. Defendants shall comply with all laws applicable to the
Divestiture Assets.
P. Defendants shall not take any action having the effect of
delaying the authorization or scheduling of health care services
provided to enrollees in the Clark and Nye County CMS Plans in a manner
inconsistent with Defendants' past practice with respect to the Clark
and Nye County CMS Plans.
Q. Defendants shall not make any material change to the customary
terms and conditions upon which it does business with respect to the
Medicare Advantage Line of Business that would be expected,
individually or in the aggregate, to have a materially adverse effect
on the Medicare Advantage Line of Business.
R. United shall identify its top ten independent insurance agents,
general agents, producers, and brokers (collectively, ``Brokers'') that
have entered into a Broker contract with respect to the Medicare
Advantage Line of Business along with the corresponding number of
enrollees produced by each such Broker. United will introduce the
Acquirer to any such Broker for the purpose of the Acquirer having an
opportunity, at the Acquirer's option, to negotiate an agreement with
the Broker to market and sell the Clark and Nye County CMS Plans after
the completion of the Divestiture.
S. Defendants shall first attempt to sell the Divestiture Assets to
Humana.
T. If Defendants fail to divest the Divestiture Assets by May 15,
2008, at the discretion of the United States, United shall be required
to submit all necessary filings to CMS to ensure that the Divestiture
Assets remain a viable, ongoing business, offering the same Medicare
Advantage Plans that United offered in 2008 with comparable benefits
and premiums.
V. Appointment of Monitoring Trustee
A. Upon the filing of this Final Judgment, the United States may,
in its sole discretion, appoint a Monitoring Trustee, subject to
approval by the Court.
B. The Monitoring Trustee shall have the power and authority to
monitor Defendants' compliance with the terms of this Final Judgment
and the Hold Separate and Asset Preservation Stipulation and Order
entered by this Court and shall have such powers as this Court deems
appropriate. Subject to Section V(D) of this Final Judgment, the
Monitoring Trustee may hire at the cost and expense of United any
consultants, accountants, attorneys, or other persons, who shall be
solely accountable to the Monitoring Trustee, reasonably necessary in
the Monitoring Trustee's judgment.
C. Defendants shall not object to actions taken by the Monitoring
Trustee in fulfillment of the Monitoring Trustee's responsibilities
under any Order of this Court on any ground other than the Monitoring
Trustee's malfeasance. Any such objections by Defendants must be
conveyed in writing to the United States and the Monitoring Trustee
within ten (10) calendar days after the action taken by the Monitoring
Trustee giving rise to the Defendants' objection.
D. The Monitoring Trustee shall serve at the cost and expense of
United, on such terms and conditions as the United States approves. The
compensation of the Monitoring Trustee and any consultants,
accountants, attorneys, and other persons retained by the Monitoring
Trustee shall be on reasonable and customary terms commensurate with
the individuals' experience and responsibilities.
E. The Monitoring Trustee shall have no responsibility or
obligation for the operation of Defendants' businesses.
F. Defendants shall assist the Monitoring Trustee in monitoring
[[Page 12768]]
Defendants' compliance with their individual obligations under this
Final Judgment and under the Hold Separate and Asset Preservation
Stipulation and Order. The Monitoring Trustee and any consultants,
accountants, attorneys, and other persons retained by the Monitoring
Trustee shall have full and complete access to the personnel, books,
records, and facilities relating to the Divestiture Assets, subject to
reasonable protection for trade secret or other confidential research,
development, or commercial information or any applicable privileges.
Defendants shall take no action to interfere with or to impede the
Monitoring Trustee's accomplishment of its responsibilities.
G. After its appointment, the Monitoring Trustee shall file monthly
reports with the United States and the Court setting forth the
Defendants' efforts to comply with their individual obligations under
this Final Judgment and under the Hold Separate and Asset Preservation
Stipulation and Order. To the extent such reports contain information
that the trustee deems confidential, such reports shall not be filed in
the public docket of the Court.
H. The Monitoring Trustee shall serve until the divestiture of all
the Divestiture Assets is finalized pursuant to either Section IV or
Section VI of this Final Judgment and any agreement(s) for transitional
support services described in Section IV(J) herein have expired.
VI. Appointment of Trustee
A. If Defendants have not divested the Divestiture Assets within
the time period specified in Section IV(A), Defendants shall notify the
United States of that fact in writing. Upon application of the United
States, the Court shall appoint a trustee selected by the United States
and approved by the Court to effect the divestiture of the Divestiture
Assets.
B. After the appointment of a trustee becomes effective, only the
trustee shall have the right to sell the Divestiture Assets. The
trustee shall have the power and authority to accomplish the
divestiture to an Acquirer acceptable to the United States at such
price and on such terms as are then obtainable upon reasonable effort
by the trustee, subject to the provisions of Sections IV, VI, and VII
of this Final Judgment, and shall have such other powers as this Court
deems appropriate. Subject to Section VI(D) of this Final Judgment, the
trustee may hire at the cost and expense of Defendants any investment
bankers, attorneys, or other agents, who shall be solely accountable to
the trustee, reasonably necessary in the trustee's judgment to assist
in the divestiture.
C. Defendants shall not object to a sale by the trustee on any
ground other than the trustee's malfeasance. Any such objections by
Defendants must be conveyed in writing to the United States and the
trustee within ten (10) calendar days after the trustee has provided
the notice required under Section VII.
D. The trustee shall serve at the cost and expense of Defendants,
on such terms and conditions as the United States approves, and shall
account for all monies derived from the sale of the assets sold by the
trustee and all costs and expenses so incurred. After approval by the
Court of the trustee's accounting, including fees for its services and
those of any professionals and agents retained by the trustee, all
remaining money shall be paid to Defendants and the trust shall then be
terminated. The compensation of the trustee and any professionals and
agents retained by the trustee shall be reasonable in light of the
value of the Divestiture Assets and based on a fee arrangement
providing the trustee with an incentive based on the price and terms of
the divestiture and the speed with which it is accomplished, but
timeliness is paramount.
E. Defendants shall assist the trustee in accomplishing the
required divestiture. The trustee and any consultants, accountants,
attorneys, and other persons retained by the trustee shall have full
and complete access to the personnel, books, records, and facilities
relating to the Divestiture Assets, and Defendants shall develop
financial and other information relevant to such business as the
trustee may reasonably request, subject to reasonable protection for
trade secret or other confidential research, development, or commercial
information. Defendants shall take no action to interfere with or to
impede the trustee's accomplishment of the divestiture.
F. After its appointment, the trustee shall file monthly reports
with the United States and the Court setting forth the trustee's
efforts to accomplish the divestiture ordered under this Final
Judgment. To the extent that such reports contain information that the
trustee deems confidential, such reports shall not be filed in the
public docket of the Court. Such reports shall include the name,
address, and telephone number of each person who, during the preceding
month, made an offer to acquire, expressed an interest in acquiring,
entered into negotiations to acquire, or was contacted or made an
inquiry about acquiring, any interest in the Divestiture Assets, and
shall describe in detail each contact with any such person. The trustee
shall maintain full records of all efforts made to divest the
Divestiture Assets.
G. If the trustee has not accomplished the divestiture ordered
under this Final Judgment within six months after its appointment, the
trustee shall promptly file with the Court a report setting forth (1)
the trustee's efforts to accomplish the required divestiture, (2) the
reasons, in the trustee's judgment, why the required divestiture has
not been accomplished, and (3) the trustee's recommendations. To the
extent that such reports contain information that the trustee deems
confidential, such reports shall not be filed in the public docket of
the Court. The trustee shall at the same time furnish such report to
the United States which shall have the right to make additional
recommendations consistent with the purpose of the trust. The Court
thereafter shall enter such orders as it shall deem appropriate to
carry out the purpose of the Final Judgment, which may, if necessary,
include extending the trust and the term of the trustee's appointment
by a period requested by the United States.
VII. Notice of Proposed Divestiture
A. Within two (2) business days following execution of a definitive
divestiture agreement, Defendants or the trustee, whichever is then
responsible for effecting the divestiture required herein, shall notify
the United States and any Monitoring Trustee of any proposed
divestiture required by Section IV or VI of this Final Judgment. If the
trustee is responsible, it shall similarly notify Defendants. The
notice shall set forth the details of the proposed divestiture and list
the name, address, and telephone number of each person not previously
identified who offered or expressed an interest in or desire to acquire
any ownership interest in the Divestiture Assets, together with full
details of the same.
B. Within fifteen (15) calendar days of receipt by the United
States of such notice, the United States may request from Defendants,
the proposed Acquirer, any other third party, or the trustee, if
applicable, additional information concerning the proposed divestiture,
the proposed Acquirer, and any other potential Acquirer. Defendants and
the trustee shall furnish any additional information requested within
fifteen (15) calendar days of the receipt of the request, unless the
parties shall otherwise agree.
C. Within thirty (30) calendar days after receipt of the notice or
within twenty (20) calendar days after the United States has been
provided the additional information requested from Defendants, the
proposed Acquirer, any
[[Page 12769]]
third party, and the trustee, whichever is later, the United States
shall provide written notice to Defendants and the trustee, if there is
one, stating whether or not it objects to the proposed divestiture. If
the United States provides written notice that it does not object, the
divestiture may be consummated, subject only to Defendants' limited
right to object to the sale under Section VI(C) of this Final Judgment.
Absent written notice that the United States does not object to the
proposed Acquirer or upon objection by the United States, a divestiture
proposed under Section IV or Section VI shall not be consummated. Upon
objection by Defendants under Section VI(C), a divestiture proposed
under Section VI shall not be consummated unless approved by the Court.
VIII. Financing
Defendants shall not finance all or any part of any Purchase made
pursuant to Section IV or VI of this Final Judgment.
IX. Hold Separate and Preservation of Assets
Until the divestiture required by this Final Judgment has been
accomplished, Defendants shall take all steps necessary to comply with
the Hold Separate and Asset Preservation Stipulation and Order entered
by this Court. Defendants shall take no action that will jeopardize any
divestiture ordered by this Court.
X. Affidavits and Records
A. Within twenty (20) calendar days of the filing of the Complaint
in this matter, and every thirty (30) calendar days thereafter until
the divestiture has been completed under Section IV or VI, Defendants
shall deliver to the United States and any Monitoring Trustee an
affidavit as to the fact and manner of its compliance with Section IV
or VI of this Final Judgment. Each such affidavit shall include the
name, address, and telephone number of each person who, during the
preceding thirty (30) calendar days, made an offer to acquire,
expressed an interest in acquiring, entered into negotiations to
acquire, or was contacted or made an inquiry about acquiring, any
interest in the Divestiture Assets, and shall describe in detail each
contact with any such person during that period. Each such affidavit
shall also include a description of the efforts Defendants have taken
to solicit buyers for the Divestiture Assets, and to provide required
information to prospective Acquirers, including the limitations, if
any, on such information. Assuming that the information set forth in
the affidavit is true and complete, any objection by the United States
to information provided by Defendants, including limitation on
information, shall be made within fourteen (14) calendar days of
receipt of such affidavit.
B. Within twenty (20) calendar days of the filing of the Complaint
in this matter, Defendants shall deliver to the United States and any
Monitoring Trustee an affidavit that describes in reasonable detail all
actions that Defendants have taken and all steps that Defendants have
implemented on an ongoing basis to comply with Section IX of this Final
Judgment. Defendants shall deliver to the United States and any
Monitoring Trustee an affidavit describing any changes to the efforts
and actions outlined in Defendants' earlier affidavits filed pursuant
to this section within fifteen (15) calendar days after the change is
implemented.
C. Defendants shall keep all records of all efforts made to
preserve and divest the Divestiture Assets until one year after such
divestiture has been completed.
XI. Compliance Inspection
A. For the purposes of determining or securing compliance with this
Final Judgment, or of determining whether the Final Judgment should be
modified or vacated, and subject to any legally recognized privilege,
from time to time authorized representatives of the United States
Department of Justice, including persons retained by the United States,
shall, upon written request of an authorized representative of the
Assistant Attorney General in charge of the Antitrust Division, and on
reasonable notice to Defendants, be permitted:
(1) To access during Defendants' office hours to inspect and copy,
or at the United States's option, to require that Defendants provide
hard copy and electronic copies of, all books, ledgers, accounts,
records, data, and documents in the possession, custody, or control of
Defendants, relating to any matters contained in this Final Judgment;
and
(2) to interview, either informally or on the record, Defendants'
officers, employees, or agents, who may have their individual counsel
present, regarding these matters. The interviews shall be subject to
the reasonable convenience of the interviewee and without restraint or
interference by Defendants.
B. Upon the written request of an authorized representative of the
Assistant Attorney General in charge of the Antitrust Division,
Defendants shall submit written reports, or responses to written
interrogatories, under oath if requested, relating to any of the
matters contained in this Final Judgment.
C. No information or documents obtained by the means provided in
this section shall be divulged by the United States to any person other
than an authorized representative of the executive branch of the United
States, which includes CMS, except in the course of legal proceedings
to which the United States is a party (including grand jury
proceedings), or for the purpose of securing compliance with this Final
Judgment, or as otherwise required by law.
D. If at the time information or documents are furnished by
Defendants to the United States, Defendants represent and identify in
writing the material in any such information or documents to which a
claim of protection may be asserted under Rule 26(c)(7) of the Federal
Rules of Civil Procedure, and Defendants mark each pertinent page of
such material, ``Subject to claim of protection under Rule 26(c)(7) of
the Federal Rules of Civil Procedure,'' then the United States shall
give Defendants ten (10) calendar days notice prior to divulging such
material in any legal proceeding (other than grand jury proceedings).
XII. No Reacquisition
Defendants may not reacquire any part of the Divestiture Assets
during the term of this Final Judgment provided, however, that this
Final Judgment shall not prohibit Defendants from offering individual
Medicare Advantage Plans in the ordinary course of business otherwise
in conformity with this Final Judgment.
XIII. Retention of Jurisdiction
This Court retains jurisdiction to enable any party to this Final
Judgment to apply to this Court at any time for further orders and
directions as may be necessary or appropriate to carry out or construe
this Final Judgment, to modify any of its provisions, to enforce
compliance, and to punish violations of its provisions.
XIV. Expiration of Final Judgment
Unless this Court grants an extension, this Final Judgment shall
expire ten (10) years from the date of its entry.
XV. Public Interest Determination
Entry of this Final Judgment is in the public interest. The parties
have complied with the requirements of the Antitrust Procedures and
Penalties Act, 15 U.S.C. 16, including making copies available to the
public of this Final Judgment, the Competitive Impact Statement, and
any comments thereon
[[Page 12770]]
and the United States's responses to comments. Based upon the record
before the Court, which includes the Competitive Impact Statement and
any comments and response to comments filed with the Court, entry of
this Final Judgment is in the public interest.
Court approval subject to procedures of Antitrust Procedures and
Penalties Act, 15 U.S.C. 16.
Date
United States District Judge
U
Competitive Impact Statement
Plaintiff United States of America (``United States''), pursuant to
Section 2(b) of the Antitrust Procedures and Penalties Act (``APPA'' or
``Tunney Act''), 15 U.S.C. 16(b)-(h), files this Competitive Impact
Statement relating to the proposed Final Judgment submitted for entry
in this civil antitrust proceeding.
I. Nature and Purpose of the Proceeding
Defendants entered into an Agreement and Plan of Merger dated March
11, 2007, whereby UnitedHealth Group, Inc. (``United'') agreed to
acquire all outstanding shares of Sierra Health Services, Inc.
(``Sierra''). The United States filed a civil antitrust Complaint on
February 25, 2008 seeking to enjoin the proposed acquisition. The
Complaint alleges that the proposed acquisition likely will
substantially lessen competition in the sale of Medicare Advantage
plans in Clark and Nye Counties, Nevada (``the Las Vegas area''), in
violation of Section 7 of the Clayton Act (``Section 7''), 15 U.S.C.
18. As defined by federal law, Medicare Advantage plans consist of
Medicare Advantage health maintenance organization (``MA-HMO'') plans,
Medicare Advantage preferred provider organization (``MA-PPO'') plans,
and Medicare Advantage Private Fee-for-Service (``MA-PFFS'') plans. See
42 U.S.C. 1395w-21(a)(2).
When the Complaint was filed, the United States also filed a Hold
Separate and Asset Preservation Stipulation and Order (``Hold Separate
Order'') and proposed Final Judgment. The proposed Final Judgment,
which is explained more fully below, would permit United to complete
its acquisition of Sierra but would require the divestiture of certain
assets (the ``Divestiture Assets'') relating to United's Medicare
Advantage line of business in the Las Vegas area and injunctive relief
sufficient to preserve competition in the sale of Medicare Advantage
plans in the Las Vegas area.
Until the divestiture of the Divestiture Assets has been
accomplished, the Hold Separate Order requires Defendants to take all
steps necessary to preserve the Divestiture Assets and ensure that
Sierra operates as an independent, ongoing, economically viable,
competitive business held entirely separate, distinct and apart from
United's other operations. Further, until the divestiture of the
Divestiture Assets, Defendants must take all steps necessary to ensure
that United's Medicare Advantage line of business in Las Vegas will be
maintained and operated as an ongoing, economically viable and active
line of business; that competition between United and Sierra in the
sale of Medicare Advantage plans in the Las Vegas area is maintained
during the pendency of the ordered divestitures; and that Defendants
preserve and maintain the Divestiture Assets associated with United's
Medicare Advantage line of business in the Las Vegas area. The Hold
Separate Order thus ensures that competition is protected pending
completion of the required divestitures and that the assets are
preserved so that relief will be effective.
The United States and Defendants have stipulated that the proposed
Final Judgment may be entered after compliance with the APPA. Entry of
the proposed Final Judgment would terminate this action, except that
the Court would retain jurisdiction to construe, modify, or enforce the
provisions of the proposed Final Judgment and to punish violations
thereof.
II. Description of the Events Giving Rise to the Alleged Violations
A. The Defendants and the Proposed Transaction
United is a Minnesota corporation and has its principal place of
business in Minnetonka, Minnesota. United is the largest health insurer
in the United States, providing health insurance and other services to
more than 70 million people nationwide. In 2007, United reported
revenues of approximately $75 billion. United provides health insurance
to approximately 27,800 Medicare Advantage enrollees in the Las Vegas
area under the Secure Horizons and AARP brands.
United has a well-established managed-care network in the Las Vegas
area that it uses to provide services to enrollees in Medicare
Advantage plans. Health care services provided by HealthCare Partners,
LLC (``HealthCare Partners''), The Physicians IPA, Inc., and Summit
Medical Group are an integral part of this network.
Sierra is a Nevada corporation with its principal place of business
in Las Vegas, Nevada. Sierra is the largest health insurer in Nevada,
providing health insurance and other services to more than 655,000
people. In 2007, Sierra reported revenues of $1.9 billion. Sierra
provides health insurance to approximately 49,500 Medicare Advantage
enrollees in the Las Vegas area. It sells Medicare Advantage HMO
products under the Senior Dimensions brand. Sierra sells Medicare
Advantage preferred provider organization (``PPO'') plans under the
Sierra Spectrum and Sierra Nevada Spectrum brands. Sierra also sells
MA-PFFS plans under the Sierra Optima Select brand.
Sierra owns the largest medical group in Las Vegas, Southwest
Medical Associates, Inc. (``SMA''), which employs approximately 250
physicians and other health care professionals. Sierra uses SMA to
provide a substantial portion of the care delivered to Sierra's
Medicare Advantage members, particularly HMO and PPO members.
On March 11, 2007, United and Sierra entered into an Agreement and
Plan of Merger whereby United agreed to acquire all outstanding shares
of Sierra. The transaction is valued at approximately $2.6 billion. The
transaction would give United a 94 percent share of Medicare Advantage
enrollees in the Las Vegas area.
B. The Relevant Product Market is No Broader Than the Sale of Medicare
Advantage Health Insurance in the Las Vegas Area
The Complaint alleges that United's proposed acquisition of Sierra
is likely to substantially lessen competition in a market no broader
than the sale of Medicare Advantage health insurance plans to senior
citizens (``seniors'') and other Medicare-eligible individuals in the
Las Vegas area, in violation of Section 7 of the Clayton Act. Due in
large part to the lower out-of-pocket costs and richer benefits that
many Medicare Advantage plans offer seniors over traditional Medicare,
seniors in the Las Vegas area would not likely switch away from
Medicare Advantage plans to traditional Medicare in sufficient numbers
to make an anticompetitive price increase or reduction in quality
unprofitable.
In a product market that consists of all Medicare Advantage plans,
the parties have a combined market share of approximately 94 percent.
In a product market of Medicare Advantage coordinated-care plans (MA-
HMO and MA-PPO plans), the parties have a
[[Page 12771]]
combined market share of approximately 99 percent.\1\
---------------------------------------------------------------------------
\1\ There may be a narrower product market that consists of
Medicare Advantage coordinated-care plans, but the Division did not
need to determine whether such a product market exists to conclude
that the merger is likely to substantially lessen competition and to
identify an appropriate remedy for the reduction in competition that
otherwise would have resulted from the merger.
---------------------------------------------------------------------------
1. Healthcare Options for Seniors
The federal government facilitates the provision of health
insurance to millions of Medicare-eligible citizens through two types
of programs: (1) government-provided traditional Medicare (also known
as Original Medicare) and (2) privately-provided Medicare Advantage.
Under traditional Medicare, a beneficiary receives hospital
coverage under Medicare Part A and can elect to receive coverage for
physician and out-patient services under Part B. For Part A, the
government charges no monthly premium if the beneficiary was in the
workforce and paid Medicare taxes. For Part B, the government deducts a
monthly premium (currently $96.40 for most beneficiaries) from
beneficiaries' Social Security checks. In addition, beneficiaries must
pay deductibles and/or co-insurance for doctor visits and hospital
stays. If beneficiaries want to limit potentially catastrophic out-of-
pocket costs, they need to purchase a separate Medicare Supplement
plan. For prescription drug coverage, seniors enrolled in traditional
Medicare must purchase Medicare Part D drug coverage for an additional
premium.
Medicare Advantage plans are offered by private insurance
companies. In establishing the Medicare Advantage program, Congress
intended that vigorous competition among private insurers would lead
insurers to offer seniors richer and more affordable benefits, provide
a wider array of health-insurance choices, and be responsive to the
demands of seniors. In fact, most successful Medicare Advantage plans,
including those in the Las Vegas area, offer substantially richer
benefits at lower costs to enrollees than traditional Medicare.
2. CMS Regulation of Medicare Advantage Plans
An insurance company that seeks to offer a Medicare Advantage plan
in a region must submit a bid to the Centers for Medicare and Medicaid
Services (``CMS'') for each Medicare Advantage plan that it intends to
offer. The bid must provide the insurer's anticipated costs per member
to cover the basic Medicare Part A and Part B benefits. Those costs,
including an anticipated profit margin, are compared to a Medicare
benchmark that reflects, in part, the government's likely cost of
covering the beneficiaries. If the insurer's bid for Medicare benefits
is lower than the benchmark, the Medicare program retains 25 percent of
the savings and the insurer must use the other 75 percent to provide
supplemental benefits or lower premiums to enrollees. Accordingly, the
lower the insurer's projected costs, the more benefits seniors enrolled
in the insurer's plan will have available to them.
CMS's role in approving bids for Medicare Advantage plans does not
displace or reduce competition among participating health insurance
companies. Rather, the structure of the Medicare Advantage program
encourages insurers to compete against each other to attract Medicare
beneficiaries by providing low prices and more benefits.
3. Medicare Advantage Plans Provide Better Benefits Than Traditional
Medicare
As stated above, many Medicare Advantage plans, including the
United and Sierra plans offered in the Las Vegas area, provide
substantially richer benefits at lower costs to enrollees than
traditional Medicare. They offer lower co-payments, lower co-insurance,
caps on total yearly out-of-pocket costs, prescription drug coverage,
vision coverage, health club memberships, and other benefits that
traditional Medicare does not cover.
A sufficient number of seniors in the Las Vegas area would not
switch away from Medicare Advantage plans to traditional Medicare in
the event of a small but significant reduction in benefits under the
plans, or a small but significant increase in price, to render the
benefit decrease or price increase unprofitable. Accordingly, the sale
of Medicare Advantage plans is a relevant product market and a line of
commerce in the Las Vegas area under Section 7 of the Clayton Act.
C. The Las Vegas Area Is a Relevant Geographic Market
Medicare-eligible residents in the Las Vegas area (Clark and Nye
Counties) may only enroll in Medicare Advantage plans that CMS approves
for the county in which they live. Consequently, they could not turn to
Medicare Advantage plans elsewhere in the United States. Because
Medicare-eligible residents in the Las Vegas area cannot purchase
substitute Medicare Advantage plans sold in other geographic areas, the
Las Vegas area is a relevant geographic market within the meaning of
Section 7 of the Clayton Act.
D. Anticompetitive Effects of the Proposed Transaction
The relevant market is highly concentrated and would become
significantly more concentrated as a result of the proposed
acquisition. Sierra accounts for approximately 60 percent of Medicare
Advantage enrollees in the Las Vegas area. United accounts for
approximately 34 percent. If consummated without divestiture relief,
the merger would give the merged company a 94 percent market share.
The acquisition of Sierra by United would eliminate substantial
head-to-head competition between United and Sierra that for years has
benefited thousands of seniors. United and Sierra have competed with
each other to sell Medicare Advantage plans that provide seniors with
substantially greater benefits than those available under traditional
Medicare, saving seniors thousands of dollars in yearly health care
costs. The proposed acquisition would end that competition, eliminating
the pressure that these close competitors place on each other to
maintain attractive benefits, lower prices, and high-quality health
care.
United and Sierra have competed against each other for newly
Medicare-eligible individuals, sought to attract members from each
other, and worked to avoid losing members to each other, by offering
plans with zero premiums, reducing co-payments, eliminating
deductibles, improving drug coverage, offering desirable fitness
benefits, and attempting to make their provider networks more
attractive to potential members. They have monitored each other's
benefits to stay competitive and have considered each other important
competitors. After the acquisition, the combined United/Sierra would
not have the same incentive to improve benefits of Medicare Advantage
plans as the two separate companies do today, and likely would raise
prices or reduce services.
Competition from existing competitors with small market shares that
offer Medicare Advantage plans or new entrants would be unlikely to
prevent anticompetitive effects. Such firms face substantial cost,
reputation, and distribution disadvantages that would likely prevent
them from expanding membership sufficiently to prevent United from
raising prices or reducing services.
[[Page 12772]]
III. Explanation of the Proposed Final Judgment
A. The Divestiture Assets
The proposed Final Judgment is designed to eliminate the
anticompetitive effects identified in the Complaint by requiring United
to divest its 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. The divestiture, as contemplated in
the proposed Final Judgment, is designed to allow the acquirer of the
assets to offer uninterrupted care to subscribers of United's divested
Medicare Advantage plans, including the ability of subscribers to
continue to see the same health care professionals available to them
under the United Medicare Advantage plans.
The Divestiture Assets do not include assets relating to
approximately 1,800 group enrollees who enrolled in a Medicare
Advantage plan through an employer or other group. The United States
concluded that divesting these assets was not necessary to eliminate
the transaction's anticompetitive effects and could be disruptive to
those beneficiaries.
The divestiture eliminates the anticompetitive effects of the
merger by requiring United to divest all of its individual Medicare
Advantage business in the Las Vegas area to an acquirer that can
compete vigorously with the merged United-Sierra. The divestiture must
be accomplished by selling or conveying the Divestiture Assets to an
acquirer that, in the sole discretion of the United States, will be a
viable, ongoing competitor in the Las Vegas area Medicare Advantage
market. The divestiture shall be (i) made to an acquirer that 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 (ii) accomplished so as to satisfy
the United States that none of the terms of any agreement between
United and any acquirer gives United the ability to interfere with the
acquirer's ability to compete effectively.
B. Selected Provisions of the Proposed Final Judgment
In antitrust cases involving mergers in which the United States
seeks a divestiture remedy, it requires completion of the divestiture
within the shortest time period reasonable under the circumstances. A
quick divestiture has the benefits of restoring competition lost in the
acquisition and reducing the possibility of dissipation of the value of
the assets. Section IV(A) of the proposed Final Judgment requires
Defendants to divest the Divestiture Assets as a viable, ongoing
business within 45 days after the filing of the Complaint. \2\
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\2\ Section IV(A) of the proposed Final Judgment provides that
the United States, in its sole discretion, may grant one or more
extensions to the 45-day period, not to exceed sixty calender days
in total. The United States will notify the Court if such an
extension is granted.
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United has proposed to sell the Divestiture Assets to Humana Inc.,
and the United States has tentatively approved of Humana as the
acquirer. Consequently, Section IV(S) of the proposed Final Judgment
requires United first to attempt to sell the Divestiture Assets to
Humana.
Other provisions of the proposed Final Judgment require Defendants
to take several steps to enable the acquirer to provide prompt and
effective competition in the Medicare Advantage market. Section IV(F)
requires that Defendants assist the acquirer of the Divestiture Assets
to enter into an agreement with 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 agreement with HealthCare
Partners. Section IV(J) also requires that, at the acquirer's option,
and subject to approval by the United States, Defendants provide
transitional 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.
Defendants will not provide these transitional support services for
more than twelve months without approval from the United States.
Likewise, if Defendants fail to divest the Divestiture Assets by May
15, 2008, Section IV(T) requires United, at the discretion of the
United States, to submit all necessary filings to CMS to ensure that
the acquirer of the Divestiture Assets (or United, prior to sale of the
assets) would be able to continue to offer Medicare Advantage plans in
the Las Vegas area.
From the date that United sells the Divestiture Assets until March
31, 2010, Section IV(G) of the proposed Final Judgment prohibits United
from entering into agreements with HealthCare Partners, Physicians IPA,
Inc., or Summit Medical Group for any type of individual Medicare
Advantage plan of Defendants in the Las Vegas area. Currently, these
health care providers participate in United's Medicare Advantage
network, but do not participate in Sierra's. The purpose of this
requirement is to insure that the acquirer of the Divestiture Assets is
placed in the same competitive position with respect to the merged
company as United has today with respect to Sierra.
In addition, Section IV(H) prohibits United from using the AARP
brand for any of its individual Medicare Advantage plans in the Las
Vegas area from the date that United sells the Divestiture Assets until
March 31, 2009, and from using the SecureHorizons brands for any
individual Medicare Advantage plans in the Las Vegas area from the date
that United sells the Divestiture Assets until March 31, 2010. This
prohibition will give the acquirer of the Divestiture Assets time to
establish its own brand and reduce beneficiary confusion as to which
company operates the plan in which the beneficiary is enrolled.
Section V of the proposed Final Judgment permits the appointment of
a Monitoring Trustee by the United States in its sole discretion,
subject to the Court's approval. If appointed, the Monitoring Trustee
will have the power and authority to monitor Defendants' compliance
with the terms of the Final Judgment and the Hold Separate Order. The
Monitoring Trustee will have access to all personnel, books, records,
and information necessary to monitor such compliance, and will serve at
the cost and expense of United. The Monitoring Trustee will file
monthly reports with the United States and the Court setting forth
Defendants' efforts to comply with their obligations under the proposed
Final Judgment and the Stipulation.
Section VI of the proposed Final Judgment provides that in the
event the Defendants do not accomplish the divestiture within the
period prescribed in the proposed Final Judgment, the Court will
appoint a trustee selected by the United States to effect the
[[Page 12773]]
divestitures. If a trustee is appointed, the proposed Final Judgment
provides that Defendants will pay all costs and expenses of the
trustee. The trustee's commission will be structured so as to provide
an incentive for the trustee based on the price obtained and the speed
with which the divestitures are accomplished. After his or her
appointment becomes effective, the trustee will file monthly reports
with the Court and the United States setting forth his or her efforts
to accomplish the divestiture. At the end of six months, if the
divestitures have not been accomplished, the trustee and the United
States will make recommendations to the Court, which shall enter such
orders as appropriate, in order to carry out the purpose of the trust,
including extending the trust or the term of the trustee's appointment.
IV. Remedies Available to Potential Private Litigants
Section 4 of the Clayton Act, 15 U.S.C. 15, provides that any
person who has been injured as a result of conduct prohibited by the
antitrust laws may bring suit in federal court to recover three times
the damages that the person has suffered, as well as costs and
reasonable attorneys' fees. Entry of the proposed Final Judgment will
neither impair nor assist the bringing of any private antitrust damage
action. Under the provisions of Section 5(a) of the Clayton Act, 15
U.S.C. 16(a), the proposed Final Judgment has no prima facie effect in
any subsequent private lawsuit that may be brought against defendants.
V. Procedures Available for Modification of the Proposed Final Judgment
The United States and defendants have stipulated that the proposed
Final Judgment may be entered by the Court after compliance with the
provisions of the APPA, provided that the United States has not
withdrawn its consent. The APPA conditions entry upon the Court's
determination that the proposed Final Judgment is in the public
interest.
The APPA provides a period of at least sixty days preceding the
effective date of the proposed Final Judgment within which any person
may submit to the United States written comments regarding the proposed
Final Judgment. Any person who wishes to comment should do so within
sixty days of the date of publication of this Competitive Impact
Statement in the Federal Register or the last date of publication in a
newspaper of the summary of this Competitive Impact Statement;
whichever is later. All comments received during this period will be
considered by the United States Department of Justice, which remains
free to withdraw its consent to the proposed Final Judgment at any time
prior to the Court's entry of judgment. The comments and the response
of the United States will be filed with the Court and published in the
Federal Register.
Written comments should be submitted to:
Joshua H. Soven, Chief, Litigation I Section, Antitrust Division,
U.S. Department of Justice, 1401 H Street, NW., Suite 4000, Washington,
DC 20530.
The proposed Final Judgment provides that the Court retains
jurisdiction over this action, and the parties may apply to the Court
for any order necessary or appropriate for the modification,
interpretation, or enforcement of the Final Judgment.
VI. Alternatives to the Proposed Final Judgment
The United States considered, as an alternative to the proposed
Final Judgment, a full trial on the merits against defendants. The
United States could have continued the litigation and sought
preliminary and permanent injunctions against United's acquisition of
Sierra. The United States is satisfied, however, that the divestiture
of the assets and other relief contained in the proposed Final Judgment
will preserve competition in the product and geographic markets
identified in the Complaint. Thus, the proposed Final Judgment would
achieve all or substantially all of the relief the United States would
have obtained through litigation, but avoids the time, expense, and
uncertainty of a full trial on the merits of the Complaint.
VII. Standard of Review Under the APPA for the Proposed Final Judgment
The Clayton Act, as amended by the APPA, requires that proposed
consent judgments in antitrust cases brought by the United States be
subject to a sixty-day comment period, after which the Court shall
determine whether entry of the proposed Final Judgment ``is in the
public interest.'' 15 U.S.C. 16(e)(1). In making that determination,
the court, in accordance with the statute as amended in 2004, is
required to 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). In considering these statutory
factors, the court's inquiry is necessarily a limited one, as the
government is entitled to ``broad discretion to settle with the
defendant within the reaches of the public interest.' '' United States
v. Microsoft Corp., 56 F.3d 1448, 1461 (D.C. Cir. 1995); see generally
United States v. SBC Commc'ns, Inc., 489 F. Supp. 2d 1 (D.D.C. 2007)
(assessing public interest standard under the Tunney Act).\3\
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\3\ The 2004 amendments substituted ``shall'' for ``may'' in
directing relevant factors for court 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.
16(e) (2004), with 15 U.S.C. 16(e)(1) (2006); see also SBC Commc'ns,
489 F. Supp. 2d at 11 (concluding that the 2004 amendments
``effected minimal changes'' to Tunney Act review).
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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
Microsoft, 56 F.3d at 1458-62. 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; United States v. Alcoa, Inc., 152
F. Supp. 2d 37, 40 (D.D.C. 2001). 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
[[Page 12774]]
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).\4\
In determining whether a proposed settlement is in the public interest,
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).
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\4\ 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' '').
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Courts have greater flexibility in approving proposed consent
decrees than in crafting their own decrees following a finding of
liability in a litigated matter. ``[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, and does not authorize the court 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,
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, 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 language wrote into the statute
what Congress intended when it enacted the Tunney Act in 1974, as
Senator Tunney 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.\5\
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\5\ 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''); 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.''); United States v. Mid-Am. Dairymen, Inc., 1977-1 Trade
Cas. (CCH) 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.'').
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VIII. Determinative Documents
There are no determinative materials or documents within the
meaning of the APPA that were considered by the United States in
formulating the proposed Final Judgment.
Dated: February 25, 2008.
Respectfully Submitted,
Peter J. Mucchetti (DC Bar 463202)
Mitchell H. Glende
N. Christopher Hardee (DC Bar 458168)
Tiffany C. Joseph-Daniels
Barry J. Joyce
Ryan M. Kantor
John P. Lohrer (DC Bar 438939)
Richard S. Martin
Natalie A. Rosenfelt
Michelle Seltzer (DC Bar 475482)
Attorneys, Litigation I Section, Antitrust Division, United States
Department of Justice City Center Building, 1401 H Street, NW.,
Suite 4000, Washington, DC 20530, (202) 307-0001, (202) 307-5802
(facsimile).
[FR Doc. E8-4393 Filed 3-7-08; 8:45 am]
BILLING CODE 4410-11-M