AHIP wants more oversight over consolidation of hospitals and physicians

By | June 15, 2019

A major cause of rising healthcare costs is vertical consolidation among providers, the America’s Health Insurance Plans told a Senate Judiciary Subcommittee by statement.

When more and more of a region’s doctors and medical experts work for the same hospital or health system, the price for services provided by the acquired physicians increase by an average of 14.1 percent, AHIP said, citing a study  published by the Journal of Health Economics.

The subcommittee’s hearing “Competitive Implications of Vertical Consolidation in the Healthcare Industry,” included four witnesses, who differed in opinion on whether the mergers lessened competition, increased efficiencies, or both.

“To summarize, empirical research finds that evidence of harm from vertical mergers is rare but not absent,” said Cory S. Capps, PhD, partner, Bates White Economic Consulting. “Economic theory identifies a potential for harm in some circumstances but also the potential for countervailing incentives to reduce prices.”

Mergers are reshaping how patients receive and pay for healthcare, said Senator Mike Lee, chairman of the Antitrust, Competition Policy and Consumer Rights Subcommittee. They are perhaps eliminating inefficiencies but can easily enable market power to be used in an anticompetitive manner, he said.

The subcommittee left the record open for comment through June 21.

IMPACT

The consolidation of physician services with health systems is a merger that is currently not being addressed by government regulators such as the Department of Justice, according to hearing testimony.

“Foregoing challenges to acquisitions of physician practices by dominant hospitals and to consolidations of PBMs, health insurers, and pharmacies has given an ‘all clear’ signal on healthcare vertical mergers,” said Thomas L. Greaney, Visiting Professor of Law, UC Hastings College of Law, Chester A. Myers Professor Emeritus, Saint Louis University School of Law.

The merger of CVS Health and Aetna came under the microscope, as the Department of Justice agreement allowing the deal is currently undergoing court review.

TESTIMONY AGAINST

Greaney warned, “At the end of the day, illustrating the appreciable danger of this (CVSAetna) merger, we will see three firms: CVS/Aetna; United/Optum and Cigna/Express Scripts controlling the great majority of the nation’s medical and pharmaceutical spend.”

Court testimony last week raised the concern about the increasing bargaining leverage CVS/Aetna may be able to exercise, cutting off rival insurers’ or PDP plans’ costs, he said. There will be significant ‘customer foreclosure’ in local markets, as rivals lose access to Aetna beneficiaries.

” … There will be enhanced incentives for the three dominant, vertically consolidated PBM/insurance entities to act in lock-step fashion on price and administrative arrangements,” Greaney said. “Too often, we see situations where consolidated firms — the PBMs, the distributors, and the drug stores — team up with payors. They use their individual market power to effectively split some of the monopoly rents with large manufacturers and other intermediaries rather than passing on the savings garnered from competition to patients and employers.”

Dr. Fiona M. Scott Morton, Theodore Nierenberg Professor of Economics
Yale School of Management, said “Enforcers should evaluate the full range of potential competitive harms when investigating vertical mergers. These harms can lead to higher prices, as well as quality reductions and reduced innovation.”
 
COUNTER TESTIMONY

The 2018 mergers of CVS Health-Aetna and of Cigna-Express Scripts focused attention on this more-expansive vertical integration, but this type of market is nothing new, said Craig L. Garthwaite, PhD, associate professor of Strategy, Herman Smith Research Professor in Hospital and Health Services Management, director of the Program on Healthcare at Kellogg School of Management, Northwestern University.

For instance, United Health Group, which currently sits at number six on the Fortune 500 Companies list, includes a health insurer (United Healthcare), a pharmacy benefit manager (OptumRx), a specialty pharmacy chain (BriovaRx), consulting and data analytics firms (Optum), and over 30,000 employed or contracted physicians and other medical providers (OptumCare).

If the firm’s attempted acquisition of DaVita medical group is approved, this number will increase to nearly 50,000, Garthwaite said.

“If the CVS Health-Aetna merger is ultimately approved, the combined firm will have a set of assets that rivals UHG (in scope if not size), including a retail pharmacy footprint that is unique among other national players,” Garthwaite said. “Similarly, Humana has assembled assets at multiple points of the vertical chain (including its acquisition of Kindred), which gives it a large presence in both the Medicare Advantage and hospice spaces.”

AHIP RECOMMENDATIONS

Among other requests, AHIP recommends requiring the Centers for Medicare and Medicaid Services, jointly with the Federal Trade Commission and the DOJ, to engage in a review of its payment and other policies to determine which are likely to unintentionally lead to provider consolidation. And to require CMS to use the results to modify its payment and other policies to reduce the risk of unanticipated provider consolidation.

AHIP wants federal health programs and the individual marketplace to allow for innovations in care delivery (e.g., telehealth) in establishing adequate networks to reduce the market power of monopolies.

Twitter: @SusanJMorse
Email the writer: susan.morse@himssmedia.com

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