California Regulators Approve UnitedHealth’s $8.1B Acquisition of PacifiCare

California insurance regulators on Monday approved the proposed acquisition of PacifiCare Health Systems by UnitedHealth Group, the Los Angeles Times reports (Lifsher, Los Angeles Times, 12/20). Under an agreement announced on July 6, UnitedHealth would acquire PacifiCare for $9.2 billion in cash, stock and assumed debt. The agreement also would include $230 million in accelerated stock options and payments to PacifiCare executives and an additional $85 million in signing bonuses to executives who remain employed with the company after the acquisition. PacifiCare shareholders approved the agreement in November (Kaiser Daily Health Policy Report, 11/18). The combined company would have about 26 million members nationwide (Osterman, Sacramento Bee, 12/20). According to the Times, approval of the agreement by the California Department of Insurance and the California Department of Managed Health Care "moves the companies a step closer to completing" the acquisition. As a condition of the approval, UnitedHealth will have to provide $50 million in charitable contributions, as well as $200 million in investments, to improve services for low-income California residents with limited access to health care (Los Angeles Times, 12/20). State insurance regulators in Arizona, Indiana, Nevada, Oklahoma, Wisconsin and Oregon also have approved the agreement, which still requires approval by regulators in Colorado, Texas and Washington state, as well as the Department of Justice. According to the AP/San Diego Union-Tribune, approval of the agreement by California Insurance Commissioner John Garamendi (D) "was considered vital because for months he single handedly held up the largest health care industry merger" -- the $16.4 billion acquisition of WellPoint Health Networks by Anthem (Jablon, AP/San Diego Union-Tribune, 12/20).

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PacifiCare spokesperson Tyler Mason said that the agreement will lead to "enhanced technology and greater physician and hospital choice while maintaining local accountability." Garamendi said that the agreement "provides meaningful and substantial benefits to California consumers" (Los Angeles Times, 12/20). He added that the amount of charitable contributions and investments UnitedHealth will have to provide are about equal to the amount of executive compensation included in the agreement. In addition, he said that the agreement will require UnitedHealth, which has "a very bad reputation across the nation" for physician reimbursements, to make "prompt and appropriate" payments. However, the California Medical Association and other consumer groups oppose the agreement, which they maintain will not benefit consumers (AP/San Diego Union-Tribune, 12/20). CMA CEO Jack Lewin said that "we remain concerned that the culture of underspending on medical care ... will become standard at PacifiCare" (Los Angeles Times, 12/20).