Tufts Health Plan, Harvard Pilgrim Health Care are combining
Tufts Health Plan and Harvard Pilgrim Health Care shook up the state’s medical industry Wednesday, saying that they plan to merge to create an insurer serving 2.4 million people across New England.
The deal could give the companies more leverage with powerful hospital systems, and allow them to more aggressively take on Blue Cross Blue Shield of Massachusetts, the state’s largest health insurer. Consumer advocates worried that the combined company could raise costs.
Consolidation is reshaping the health care industry in Massachusetts and the country. Two of the state’s largest hospital networks, Beth Israel Deaconess Medical Center and Lahey Health, combined earlier this year. And the national health insurer Aetna agreed to be acquired by the pharmacy giant CVS Health.
Tufts and Harvard Pilgrim, both nonprofits, tried to merge in the past, including in 2011, but those talks eventually collapsed.
The combined company — which has yet to be named — would span five states and offer private coverage as well as Medicare and Medicaid plans.
Tom Croswell, chief executive of Tufts, said in a statement that together the companies plan to tackle four major hurdles for consumers of health care: affordability, access, quality, and the fragmentation of the health care industry.
The companies declined to comment beyond the joint statement. Croswell is slated to become chief executive of the combined company, while Michael Carson would be president. Carson is currently the CEO of Harvard Pilgrim.
Last year, Harvard Pilgrim considered a controversial deal with Partners HealthCare, the state’s largest health care provider. Those talks ended when the companies acknowledged that a tie-up would be extremely complicated and would face a tough review from regulators.
But after talks with Partners fell apart, Harvard Pilgrim’s discussions with Tufts heated up. The two insurers negotiated quietly for several months before Wednesday’s announcement.
The deal needs approval from state and federal regulators, including the Massachusetts Division of Insurance and Attorney General Maura Healey’s office.
A spokesman for Governor Charlie Baker, Brendan Moss, said the administration “believes that any merger of health care companies needs to result in greater transparency, lower prices, and better outcomes for patients.”
Baker is a former chief executive of Harvard Pilgrim Health Care.
The attorney general’s office reviews mergers under antitrust and nonprofit laws, and assesses their impact on consumers.
Meggie Quackenbush, a spokeswoman for Healey, issued a noncommittal statement Wednesday, saying, “Our office has been in touch with both parties and will review the proposed transaction as more information becomes available.”
The deal is likely to be closely scrutinized, not just by state officials but by those who work in and follow the health care industry.
Amy Rosenthal, executive director of Health Care For All, said the consumer advocacy group is concerned about any consolidation that could increase costs for families and individuals.
“We will closely monitor this proposed merger to better understand whether the anticipated efficiencies will actually translate to lower costs for consumers, broader networks, and an increase in community investments,” she said in a statement.
A deal between Tufts and Harvard Pilgrim would result in a local insurance market that resembles the hospital market. The insurance industry would shrink from three large companies to two. Similarly, the merger of Beth Israel and Lahey created a second large hospital network, similar in size to Partners.
Matthew R. Fisher, a health care lawyer at the firm Mirick O’Connell, said the Tufts-Harvard Pilgrim announcement may be a reaction to the hospital deal that created Beth Israel Lahey Health.
“You’ve got two dominant provider organizations, and now you’ll have two dominant insurers to be a counterweight to them,” he said.
Harvard Pilgrim and Tufts each have about 1.2 million members. Both do business in Massachusetts, New Hampshire, and Connecticut. Tufts also operates in Rhode Island, while Harvard Pilgrim has ventured into Maine.
Watertown-based Tufts is the larger employer, with 2,800 employees, compared with about 1,800 at Harvard Pilgrim, which is based in Wellesley.
After merging, Tufts and Harvard Pilgrim each would have an equal number of seats on the board of the combined company. Joyce Murphy, chairwoman of Harvard Pilgrim’s board, will hold the same position at the new company.
Jon Kingsdale, a professor at the Boston University School of Public Health who formerly worked at Tufts, said the merger could be good for consumers if it allows the insurers to hold down hospital and drug costs.
“From a consumer’s point of view, I’m not sure there’s any loss in having two major players versus three major players,” he said. “It probably does strengthen their ability to negotiate slightly better deals with providers and [pharmacy benefit managers].”
Jon Hurst, president of the Retailers Association of Massachusetts, said small businesses prefer this combination to the Harvard Pilgrim-Partners merger that was previously discussed.
“I would rather see two insurers join together to increase their power to fight the big [health care] providers than a provider acquiring an insurer,” Hurst said. “I think this is good, two good companies making one bigger, stronger company with a lot more clout to bargain against the big, powerful hospital chains.”
Blue Cross, with 2.8 million members, would remain Massachusetts’ largest nonprofit health insurer even if Tufts and Harvard Pilgrim merge.
“The key question to be addressed in the upcoming regulatory review is whether the transaction would benefit consumers,” Blue Cross spokeswoman Amy McHugh said of the merger. “Would it improve the affordability of health care and ensure that consumers continue to have choices and access to high-quality health plans?”
Hospitals did not immediately object to the proposed deal.
“We look forward to learning more about how this proposed partnership has the potential to offer new innovative coverage models and help reduce premiums in Massachusetts,” Partners spokesman Rich Copp said. Partners is the parent company of Brigham and Women’s, Massachusetts General, and several other hospitals.
Beth Israel Lahey Health declined to comment.
Steve Walsh, president of the Massachusetts Health & Hospital Association, said the trade group also looks forward to learning more about the deal.
“We anticipate that state regulators will be reviewing the planned affiliation closely to determine whether it will ensure improved health insurance coverage, access, and affordability for Massachusetts patients,” he said.