Health Care Merger Efforts Fail

Harvard Pilgrim Health Care and Tufts Health Plan, which announced in January that they were exploring a merger, have jointly decided to end merger talks and remain independent companies.

The two insurance providers, respectively the second- and third-largest in Massachusetts, announced the decision to end merger talks in a joint press release Friday. The release cited the logistical problems of integrating two large and complex organizations, stating that the “savings and efficiencies” the two companies wished to bring about through merging would be more difficult and time-consuming to achieve than originally thought.

“We made the thoughtful determination that while we are in the same business, our operations are very different and, in many important aspects, not fully compatible without significant changes to existing processes and applications,” said James Roosevelt, Jr. ’68, president and CEO of Tufts Health Plan, in the press release.

Harvard School of Public Health lecturer Nancy C. Turnbull, a former first deputy commissioner at the Massachusetts Division of Insurance, said that the lack of a “compelling factor” for the merger, such as financial risk, may have doomed merger talks. She said that this fact, combined with the complexities of each organization and their relationships with different national insurance providers, might have caused extra complications.

Turnbull also added that the companies may not have had enough time to work out preliminaries before the original announcement of the merger possibility was made.

“It seemed, when it was announced, that the news got out prematurely,” she said.

The failure of the merger, however, may be good for clients because it retains three strong, independent competitors which can keep market prices low, Turnbull said.

Blue Cross Blue Shield is the largest health care provider in the state, with more clients than Harvard Pilgrim and Tufts combined. A joint Harvard Pilgrim-Tufts plan would have been able to compete more effectively with Blue Cross, one potential reason for the original merger consideration. All three firms are not-for-profit.

Harvard Pilgrim Health Care and Tufts Health Plan were rated first and second in the nation, respectively, in customer service and quality by the National Committee for Quality Assurance in 2010.

Harvard Pilgrim Health Care maintains the Harvard Pilgrim Health Care Institute at Harvard Medical School.

—Staff writer Benjamin M. Scuderi can be reached at bscuderi@college.harvard.edu.