Political Concerns Trouble Sierra Health/Unitedhealth Group Deal

Sierra Health Services Inc. (SIE) - Unitedhealth Group, Inc. (UNH) is now beginning to show signs of serious problems as political concerns from the federal level have become part of the DOJ review process. Last week, New York Congresswoman Nydia Velazquez -- the chair of the panel that heard argument on this deal in late-October -- formally wrote to the DOJ claiming that approval of this merger will set "a dangerous precedent will be set for evaluating future health insurance mergers across the nation."

Apparently, the AMA's efforts have succeeded in at least obtaining federal sponsorship for its opposition to the deal, and raise the "slippery slope" concept to a legitimate issue with respect to the pending HSR review. This development was not seen as very likely a few months ago when the AMA's protests were essentially limited to Nevada, which, of course, approved the merger though the state's insurance department. Clearly, the AMA's lobbying abilities are much stronger in the District of Columbia, than they are in Nevada.

Ironically, Ms. Velazquez' concerns seem to actually confirm that fact that the combination will literally not significantly change the current healthcare landscape in Nevada, as she points out that UNH's market shares in the relevant markets are less than 15%. This has been the bottom line of the transaction from the outset: UNH's presence in Nevada is small, while SIE's is larger. That is the entire rational for the merger, and the merger simply will not altar the current markets much after the merger, as SIE already has a dominate position in some localities.

Nevertheless, it must be acknowledged that the political opposition exists and must be considered a step backwards in the DOJ review process. However, this publication continues to believe that the Nevada DOI conditional approval will ultimately serve as the deciding factor in the DOJ review, and the federal regulatory will also issue a conditional approval for the merger. The timing of the approval and deal close are now obviously subject to further delays due to the current political involvement.

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