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WELLESLEY, MA – Harvard Pilgrim Health Care and Tufts Health Plan signed a memorandum of understanding in January to explore a merger of the two health plans, If it happens, the merger would combine the second and third largest health plans in Massachusetts and provide a significant competitor for dominant player Blue Cross Blue Shield.
"Harvard Pilgrim Health Care is continually looking for ways to improve quality and control rising costs while serving our members, and this is the right time to explore how we might share that goal as a combined organization," said Eric Schultz, president and CEO of Harvard Pilgrim, in a statement announcing talks between the two plans. "We feel that a regional health plan will create value for the customers, employers and the communities we serve as well as the broader healthcare marketplace."
The companies expect the merger talks will last a couple of months, while industry watchers anticipate a deal will be done, as a merged organization would be able to use the might of its nearly 1.8 million members – nearly one in three Massachusetts residents – as leverage with providers across the state. Market leader Blue Cross Blue Shield has more than 2.9 million members.
"I think Tufts and Harvard Pilgrim competing with each other and trying to differentiate from each other has been pretty inefficient," said Rosemary Day, president of Boston-based Day Health Strategies and former deputy director and COO of the Commonwealth Health Insurance Connector Authority. "When you think about IT investments and other things that need to be done in this new environment, it is very hard for them to compete with a lower membership base."
Ultimately, it will be up to government authorities as to whether the companies will be allowed to merge. Massachusetts Attorney General Martha Coakley and the state insurance commission would need to approve any merger agreement. Scrutiny of the deal would likely focus on whether the combination would strengthen or weaken competition.
"The real issue in healthcare is how do we drive costs down and that is the real key to this (deal)," said Paul Guzzi, president and CEO of the Greater Boston Chamber of Commerce and vice chairman of the Blue Cross Blue Shield board of directors. "Is this going to be part of a healthy process to focus on quality and the affordability of healthcare? That is what the merged entity will need to demonstrate."
But it is the effect on the members of both plans that should be paramount, said Amy Whitcomb Slemmer, executive director of Massachusetts-based healthcare advocacy group Health Care For All.
"It's important that in the middle of these talks we also keep the patients in mind, to make sure they will continue to have the same access to quality care should the two merge," she said.
According to the memorandum between the two health plans, should the talks lead to a merger, current Tufts CEO Jim Roosevelt would hold the position of CEO of the merger entity with Eric Schultz president and COO. Two years after the merger, Roosevelt would become executive board chairman and Schultz would assume the position of president and CEO.