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Mergers and the Public Interest: Saving the Savings for the Poorest Customers

Fortnightly Magazine - June 15 2000

prices and charges, (2) a freeze on prices to managed care plans to pre-merger levels, and (3) a commitment to the medically underserved and needy. In particular, the merged hospitals agreed to provide a minimum of $6 million each fiscal year to assist the underserved and general community, to be distributed through 30 programs addressing locally identified needs. The federal court required the merging hospitals to enter into a consent decree to ensure that they complied with the commitment to pass along benefits to consumers.

In a similar case, the merger of two corporate parents of three hospitals in central Pennsylvania recently was allowed by the Pennsylvania attorney general's office on the condition that the merged entity pass on at least 80 percent of net savings to consumers through reduced prices (or limited price increases for existing services), and low-cost or no-cost health care programs for the indigent. In another case involving adverse effects of a merger for particular customers, Massachusetts settled its objections to the merger of two of that state's largest HMOs after those HMOs agreed, among other things, to freeze group rates for one year, double enrollment in the Medicare risk program, and spend $4 million on services placed at risk by the merger. Services determined to be at risk included health care for the homeless, violence prevention, and AIDS prevention.

So, too, has this type of programmatic response been adopted by utility regulators as a condition of proposed telecom mergers. In California, for example, the SBC-Pacific Bell merger was conditioned on implementation of a Community Partnership Commitment, under which PacBell promised to fund more than $80 million in education and community technology projects during the next 10 years. Similarly, in Ohio, an agreement approving the proposed SBC-Ameritech merger was conditioned on Ameritech's funding more than $12 million for consumer education, technology diffusion, and community computer centers.

As with PSCO's settlement in its NSP merger proceeding, these telecommunication merger agreements responded to specific adverse impacts that would have been caused or substantially exacerbated by the proposed mergers. The mergers were proposed to facilitate the development and distribution of high-tech telecommunications, but information presented in the merger proceedings demonstrated the widening technology gap for low-income consumers. As a result, the benefits of the merger were found to be largely denied to low-income consumers. The Community Partnership Agreement, as well as the Ameritech-Ohio programmatic commitments, were mechanisms for assuring that the beneficial effects of each merger were passed on to low-income consumers.

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