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It was just over a month ago when the second- and third-largest health insurers in Massachusetts announced they were exploring a merger. Now, Harvard Pilgrim Health Care and Tufts Health Plan say they just want to be friends.
The courtship started out promisingly enough. Executives from both firms said they felt a merger could help them provide better care at a lower cost. In a statement on Friday, however, the companies said the more they got to know one another, the more they realized a merger would cost more and take longer than either side realized.
WBUR's All Things Considered host Sacha Pfeiffer spoke with Eric Schultz, president and CEO of Harvard Pilgrim Health Care, and James Roosevelt Jr., president and CEO of Tufts Health Plan, about why the proposed merger fell apart.
SACHA PFEIFFER: When you announced your possible merger, it was as if you had done some dating and things seemed to be going well, so you started to plan a wedding, but then at some point in the wedding planning process you ultimately decided not to get married. So what happened that made you decide you weren't so compatible after all?
JAMES ROOSEVELT: Well, you know, Sacha, in the business world, dating is referred to as due diligence, and we entered into this in a very active way over the last month and a half and determined that, yes, there was value in both lowering costs and increasing health status and better outcomes for our members in our coming together, but that the costs of bringing us together were just too great.
Was one of the issues, in terms of costs, that there may have had to be too many cuts, too many job losses that would have had to happen to make this merger work?
ERIC SCHULTZ: Actually, it just started adding up that, as our understanding of what it would take to bring the organizations together became much clearer, there were greater and greater risks in multiple areas. And we said: it's not worth it to eventually produce something that takes away value from the marketplace.
I recall that when news of this merger broke, you hadn't even had the opportunity to tell your employees yet. Was this a merger that you never really felt quite ready to move on? And did this going public make you jump the gun earlier than you may have wanted to?
SCHULTZ: Actually, the original announcement occurred because there was a leak, so it actually occurred a little bit earlier than Jim and I would have announced.
ROOSEVELT: But that didn't change what was happening behind the scenes. We would have been going through the same data-gathering process. But typically, if you had your druthers, you wouldn't announce you were doing that until you were a little farther down the road, as we are now.
When the two of you announced that you thought you would merge, you talked about how you would be stronger together than alone. Now you remain alone, and I wonder: do you feel that, as stand-alones, you're truly sustainable in this health care market?
SCHULTZ: We entered this process as two very strong companies and we continue to be two very strong companies. And, in fact, just speaking on behalf of Harvard Pilgrim Health Care, we're coming off one of our strongest years ever. So we're very positive and optimistic that we'll continue to bring the value and innovations to the market.
ROOSEVELT: Speaking for Tufts Health Plan, I would point out that we also are coming off a very strong year and we are going forward very actively with our discussion with Cambridge Health Alliance to add 170,000 Medicaid members to Tufts Health Plan.
Jim, you know, of course, that this is a time of great change for the health care industry. So, at a larger level, does the fact that this merger couldn't work mean that it's going to be very difficult for the state to bring about real, meaningful change in the health care system? Do you think this failed merger is a sign of that?
ROOSEVELT: No. I think potential legislation to give more clout to health insurers in negotiating with hospitals — and, moreover, to focus hospitals on being paid for keeping our members well rather than paid just for doing more instead of doing better — actually is a very positive step. And I don't think that it's going to matter whether we do this separately or together.
So what happens next? If the two of you weren't able to pull this off, what now is the future for the health insurance landscape in Massachusetts?
SCHULTZ: We have to change the incentives and the structure of how health care is delivered and financed.
ROOSEVELT: We have now a track method in Massachusetts of not only having the best hospitals, but also the best health plans and of having more people covered by health coverage than anywhere else in country. We are probably the place that now has the best potential in the country for moving to a system that is more convenient, has better outcomes, and controls costs in a much more effective way.
This program aired on March 4, 2011.
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