Beyond the legal challenges, a major new hurdle is emerging for the health care reform law. Recent studies show that the major players in the health care marketplace – insurers, hospitals and physician practices – are consolidating, which increases the likelihood they will collude on prices charged to employers and to consumers and defeat cost control measures in the law.
Government officials are already grappling with the issue as they move to implement one of the signature cost control elements of reform – the formation of Accountable Care Organizations (ACOs). Conceived as a delivery system alternative to health maintenance organizations, ACOs are supposed to achieve greater coordination of care by linking together physician practices and hospitals, and will be financially rewarded if they improve quality while lowering costs.
The rules for ACOs, which are being written now, won’t go into effect until next year and will only apply to the Medicare market. While the Centers for Medicare and Medicaid Services (CMS) is likely to endorse several different payment models, the law calls for sharing savings when the Medicare payments for beneficiaries covered by the ACO fall below recent regional trends.
Top officials at the Centers for Medicare and Medicaid Services are already worried some of the new entities will become a vehicle for recouping Medicare losses. Raising rates in the private market would ultimately undermine any short-term savings achieved by Medicare, since increases in a region’s top line health care tab would eventually force Medicare to raise its own rates.
“There will be parties out there who want to repackage what they do and call it an ACO,” CMS administrator Donald Berwick told a forum at the Brookings Institution earlier this week. “We have to maintain the integrity of markets and not let concentrated entities emerge.”
That’s exactly what happened in California over the last decade after hospitals merged and physicians joined large independent practices to counter the price-dictating bargaining power of insurance industry HMOs. The number of hospital beds shrank, hospital prices doubled and overall health care costs rose 10.6 percent between 1999 and 2005, which was even higher than the unacceptably high national health care inflation, according to a recent study of the California market.
A national study conducted for the Robert Wood Johnson Foundation found that after the merger wave between 1990 and 2003, 90 percent of large metropolitan area hospitals wielded excessive market power as defined by the Federal Trade Commission. The study suggested the mergers raised prices by anywhere from 5 to 40 percent (depending on how close the merged facilities were to each other) and probably led to lower quality.
The fear now is that “ACOs could make an existing problem marginally worse,” said Robert Berenson, a senior fellow at the Urban Institute, who conducted the California survey. “The issue is market power.”
It isn’t just mergers and consolidation that give provider groups greater market power. Sometimes insurers need to include prestigious institutions within their networks – like Cedars Sinai Hospital in Los Angeles, which caters to Hollywood stars and is the focal point for their high-profile charitable endeavors. No insurer can afford not to have Cedars Sinai in its network, even though it charges the highest fees in the state and has Medicare utilization rates more than twice the national average, according to the Dartmouth Atlas of Health.
Some large hospital chains use their dominant status in a few of their markets to drive up rates everywhere in the chain. Sutter Health, for instance, which has more than two dozen medical centers and hospitals in separate northern California cities, requires insurers to sign “all or none” contracts, according to Berenson.
Blue Shield of California, the dominant insurer in the state, wanted CMS to set the ground rules for ACOs. “In order to qualify for safe harbor treatment under antitrust laws,” Paul Markovich, chief operating officer of Blue Shield, wrote, the agency must insist that “an ACO . . . that is part of a multi-provider network or system . . . will not require payers to negotiate with the network or system on an all-or-nothing basis that would require the payer to include network or system facilities or physicians that are not part of the ACO.”
Meanwhile, the insurance industry continues to come under fire from consumer groups and the medical profession for its monopolistic practices. While the insurance exchanges, which were ruled unconstitutional by a Florida federal court earlier this week, were designed to address the lack of competition in the individual and small group market, they will have minimal impact on large groups which deal mainly with major insurers like UnitedHealth, Wellpoint, Cigna and Aetna.
The American Medical Association’s bi-annual survey of the nation’s health insurance marketplace, released Tuesday, found 60 percent of the nation’s metro areas where two insurers had a combined share of 70 percent or more of the market. That’s up from 53 percent two years ago.
“High concentration levels in health insurance markets are largely the result of consolidation, which likely has led to the exercise of market power and, in turn, harm to consumers and providers of care,” the report said. “Past and future consolidation of health insurers should raise serious antitrust concerns.”
America’s Health Insurance Plans, the industry trade group, commissioned a study the last time the AMA issued its report that faulted its methods. “Research examining competition in health care markets increasingly points to provider consolidation as a significant factor contributing to rising health care costs,” said Robert Zirkelbach, a spokesman for America’s Health Insurance Plans, the industry trade group.
Most experts who study the dysfunctional health care marketplace say both sides are correct when it comes to accusations about excessive market power. “I would say both provider and insurer concentration are problematic to high quality, efficient and sustainable health care system,” said Len Nichols, director of the Center for Health Policy Research and Ethics at George Mason University. “In different markets, insurers, hospitals or physician groups wield disproportionate market power. Where one has it, the others and consumers suffer.”
The net effect of these dueling monopolies, he said, is that where providers can easily demand higher prices, insurers, because they face minimal competition, simply pass those costs along. The tab for both is paid by employers, families and government agencies.
The Federal Trade Commission, which didn’t file any cases against hospital mergers between 1999 and 2007 and has only filed three since, promises to step up its monitoring of the health care sector. But it generally looks favorably on the emergence of ACOs, at least as conceived under the reform law. “We need to make sure that they drive down health care costs,” FTC chairman Jon Leibowitz said recently, “but vertical integration can sometimes be good.”
“We’ll have a better chance of holding down costs through rate regulation than by using antitrust,” argued Berenson of the Urban Institute. “Where there is a dominant insurer or two, there is no competitive pressure to take on provider market power. It is easier to get along.”
This piece originally appeared in The Fiscal Times.
Merrill Goozner has been writing about economics and health care for many years. The former chief economics correspondent for the Chicago Tribune, Merrill has written for a long list of publications including the New York Times, The American Prospect and The Washington Post. His most recent
book, "The $800 Million Dollar Pill – The Truth Behind the Cost of New Drugs " (University of California
Press, 2004) has won acclaim from critics for its treatment of the issues facing the health care system
and the pharmaceutical industry in particular. You can read more pieces by Merrill at GoozNews.
I am piling on becuase your comments where just that stupid;
“how powerless state insurance depts are to control such monopoly ”
becuase insurers have an exemption that;
“placed responsibility for insurance regulation with the states”
some people shouldn’t be allowed to vote
Another great example of clueless liberals that can rant for hours about something but can’t take 5 minutes to educate themselves enough to actually know what they are talking about. First page of a yahoo search;
” the limited insurance antitrust exemption contained in the 1945 McCarran Ferguson Act, which placed responsibility for insurance regulation with the states and has permitted insurers to engage in certain joint data collection, price trending and form and policy development activities.”
OMG they can share data on state form filings and claims history, that has to be stopped why it….what exactly does that do to members?
By sharing data small carriers have the ability to enter new markets, well that doesn’t sound bad
By conspiring on forms they can reduce their compliance cost and again easier for small carriers to enter a new state.
Carriers can more accuratly predict trend which stabalizes rates is usually considered a good thing.
So please Doc what about this evil exemption actually drives up cost and drives down competition?
“to grasp what a favorable position your industry has been in for many years.”
My industry is actually counter the insurance companies you speak of. When I do well they do bad, when they do well its usually taking business from me.
I am pro truth and anti sound bite though, and that is where we have our rub.
Your last post is full of facts which are great, the problem is the leap and assumptions you make after reading those facts is terribly wrong.
You have still failed to show how the anti trust exemption benefited and allowed this to happen. I can disprove your argument using Vegas as an example. United health as 70% market share. You claim this was from their anti trust exemption. I know for a fact being their at the time that the state and federal government approved both of those deals and made them divest some assets. In that case there was no anti-trust exemption your just wrong.
If United or Anthem could go around the country buying competitors out at will with no government say so then that would be an anti trust exemption, that does not exist. It never has.
You seem to not get the limited exemption referenced in your link. It specifically exempts them from some detailed operational aspects of their business and in no way gives them the benefits you say it does.
No, I did not make this stuff up. I know it’s hard for such a pro-insurance company guy, such as yourself, to grasp what a favorable position your industry has been in for many years.
See items below.
An oligopsony is a market in which there are only a few large buyers for a product or service. This allows the buyers to exert a great deal of control over the sellers and can effectively drive down prices.
The McCarran–Ferguson Act, 15 U.S.C. §§ 1011-1015, is a United States federal law that exempts the business of insurance from most federal regulation, including federal anti-trust laws to a limited extent. The McCarran–Ferguson Act was passed by Congress in 1945 after the Supreme Court ruled in United States v. South-Eastern Underwriters Association that the federal government could regulate insurance companies under the authority of the Commerce Clause in the U.S. Constitution.
Study finds lack of competition among health insurers
February 1, 2011, 10:51 pm
By Cindy Hadish/SourceMedia Group News
The American Medical Association sent the following today about a new study on competition among health insurers.
The AMA’s study, the 2010 edition of Competition in Health Insurance: A Comprehensive Study of U.S. Markets, examined 2008 enrollment in health maintenance organizations (HMOs) and preferred provider organizations (PPOs) from 359 metropolitan statistical areas located in 46 states. An overview of the study’s findings for the combined HMO/PPO product market showed:
In 60 percent of the metropolitan statistical areas, the two largest insurers had a combined market share of 70 percent or greater.
In 48 percent of the metropolitan statistical areas, at least one insurer had a market share of 50 percent or greater.
In 18 percent of the metropolitan statistical areas, at least one insurer had a market share of 70 percent or greater.
In 24 states, the two largest insurers had a combined market share of 70 percent or more.
thanks for the sharing i agree with all of this
really useful article 🙂
“shows how much health insurers benefit from being exempt from federal antitrust laws and how powerless state insurance depts are to control such monopoly”
Did you make this up yourself or just repeating blabber you read somewhere else?
How has exemption from antitrust laws benefited insurers to achieve 70% market pentration? Can you cite even one example of this?
“The United States Department of Justice (the “Department”) and the Nevada Attorney General settled allegations on February 25, 2008 that UnitedHealth Group’s (“United”) acquisition of Sierra Health Services (“Sierra”) would harm competition in the sale of Medicare Advantage (“MA”) plans in the Las Vegas area. The acquisition closed later that same day.”
Wait I thought they were exempt, if they were exempt why did they have to settle with both the state and feds? Doesn’t sound like much of an exemption.
off the top of my head I can think of a dozen examples proving there is no exemption from anti trust.
It will be a long time before ACOs evolve to to a point where two ACOs have a combined market share of 70 percent or more in 60 percent of the MSAs in the country.
The fact that in 60 percent of the nation’s metro areas where two insurers have a combined share of 70 percent or more of the market shows how much health insurers benefit from being exempt from federal antitrust laws and how powerless state insurance depts are to control such monopoly (really oligopsony) power. For large health insurers to complain about potential market leverage of providers rings hollow under such circumstances. Well-run ACOs could start to put insurers out of business by going directly to large self-funded employers.
The FTC still makes it very hard for groups of physicians to integrate and negotiate with payers with any degree of confidence. Insurers will continue to disaggregate providers and dictate payment terms until forced to bargain. Let’s hope the FTC can issue some clear advisory opinions to permit this to happen very soon.
I agree with your comments, John. The stats, observations, etc. in Merrill’s article show how quickly providers are teaming together, and insurers are gaining marketshare. That can be a potentially daunting reality to employers, small businesses, and families, if the cards are not played right.
Thanks for this perspective. I wonder if Medicare folks have noticed that they are/have been paying huge insurance conglomorates incredibly high prices for MA coverage for several years. Few if any of those plans can show statistically better health for their members than straight Medicare. Now if an ACO comes in, CMS wants to get the services for less than Medicare currently pays, with higher quality standards and give a little back if they save some money next year. I don’t know if we will be able to handle the long lines for that opportunity!
I agree with you up to some extend.I have face similar problem so i get injury claim advice and it helps me alot.
Thanks for sharing
A very good article. However, concentration of power is a necessary consequence of over-regulation. I expect Obamacare to be defeated both judicially and legislatively. However, if it is not, we will see accelerated concentration amongst providers, which will lead to less capacity and higher prices.
Insurers, which will be public utilities, will cry foul and seek government approval to reduce the level of care they reimburse. Private health care will look more and more like Medicaid: Your access to medical care will be rationed.
The foundation to good health, besides nutrution and sleep is managing your stress levels. Thank you for you great post. ( ** Mona McClelland http://www.MeetMonaMcClelland.com Abundant Life Guide & Health Coaching Specialist)