FTC, Lungren OK PacifiCare-FHP Merger

The Federal Trade Commission and the California attorney general’s office have cleared PacifiCare Health Systems Inc.’s proposed $2.1-billion acquisition of rival managed care company FHP International Inc., officials said Wednesday.

The approval comes despite criticism from consumer groups that the merger of the two Orange County-based corporate giants would dominate the Medicare market across Southern California, leading to a decline in health care and a hike in prices.

PacifiCare, which said it expects to complete the deal early next month, still awaits approval by the state’s Department of Corporations, which regulates health maintenance organizations. The department’s commissioner, Keith Bishop, said Wednesday that he’ll hold hearings in Irvine and San Diego later this month before making his decision.

Consumer groups, incensed with the FTC’s approval, called on state regulators Wednesday to block the merger. Consumers Union, publisher of Consumer Reports, said that the combined company would hold a 66% share of the Medicare HMO market in Orange County, 70% in San Diego County and 47% in Los Angeles County.

The group predicted that decreased competition will hurt the elderly and the disabled.

“We are shocked that a federal agency dedicated to protecting consumers against monopoly would not intervene to break up this deal, based on the fact that it will create one of the largest monopolies in the country for any industry,” said Jamie Court, director of Consumers for Quality Care, a Los Angeles-based consumer advocacy group.

An FTC spokeswoman wouldn’t comment.

The two companies’ markets greatly overlap in California, the home state for both. However, sources said government investigators concluded that the merger wouldn’t unduly concentrate the Medicare HMO industry in California, because numerous major competitors of PacifiCare and FHP have entered that market in recent years.

A spokesman for California Atty. Gen. Dan Lungren said, “We have concluded our review and we feel there is a competitive market out there, and as a result, we are going to let the deal go forward.”

Hearings will be held in Irvine on Jan. 29 and in San Diego on Jan. 30. Locations have yet to be arranged.

“We will try to accommodate everybody who has an interest in being heard,” said Bishop, adding that he and department staff will attend.

Shareholders of both companies approved the merger proposal last month. Observers expect it will easily clear regulatory hurdles in other states.