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Health Care Industry Consolidation: Focus Needed on Consumer Protection and Balanced Antitrust Enforcement

Testimony before House Committee on Ways and Means, Subcommittee on Health

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SOURCE: Center for American Progress

CAP Senior Fellow David Balto testifies before the House Committee on Ways and Means, Subcommittee on Health: Read this testimony (CAP Action)

Chairman Herger, Ranking Member Stark, and other members of the committee, I appreciate the opportunity to come before you today and testify about health care industry consolidation—a subject of significant concern. As a former antitrust enforcement official who has litigated a number of cases challenging anticompetitive conduct and proposed mergers in the health care industry as well as a private practice attorney who has represented insurance companies, hospitals, pharmacies, and other health care providers in merger investigations, I have learned firsthand of the harm of excessive concentration in health care markets. Highly concentrated health care markets, especially health insurance markets, can result in escalating health care costs for the average consumer, a higher number of uninsured Americans, an epidemic of deceptive and fraudulent conduct, and supracompetitive profits. My time at the antitrust enforcement agencies has also showed me that we need to draw a clear distinction between problematic consolidations on the one hand, and the efficient integration of our health system on the other. For antitrust enforcement to serve as a tool for and not an obstacle to improving our health care system, we must understand this distinction and realign enforcement priorities to focus on the forms of market consolidation that pose harm to the ultimate consumers.

Three realities that both policy makers and antitrust enforcers need to embrace include:

  • Health insurance markets are broken—more than 90 percent of all metropolitan health insurance markets are highly concentrated. The health care debate and countless congressional hearings have documented how this extreme concentration results in higher prices, millions of uninsured consumers, and a pattern of egregious conduct by health insurers. Greater focus needs to be directed towards consolidation in health insurance markets.
  • Aggregation is distinct from integration—if there is a competitive problem in health care markets, it is due to aggregations of market power, such as in health insurance, and not because of integration among physicians. Rather than the problem, integration is an important solution for improving quality and cost in the fee-for-service health care system. So as not to thwart the much-needed reform of our health care system, antitrust resources should be directed toward concerns of market power by health insurers, hospitals, and specialized physician groups. A lesson to be learned from the Affordable Care Act is that facilitating integration can be used as an effective mechanism to combat the excessive costs and poor health care outcomes often resulting from the lack of coordination among health care providers.
  • Health care markets are distinct and enforcers need to appropriately adapt the antitrust models used to evaluate them. The price-centric antitrust framework is rather inapt in health care markets, where price is often an insufficient mechanism for fully understanding the impact of a given market structure or business practice. Moreover, the prevailing perception that insurers are the central customer in health care markets creates a framework for evaluating the health care system that ignores the ultimate impact on consumers. Antitrust enforcers need to amend their approach to health care markets to focus on the impact on the ultimate consumer and not just the payment intermediary.

These realities directly undermine the underpinnings of the current antitrust paradigm in health care. That paradigm assumes that health care intermediaries, such as health insurers or pharmacy benefit managers, also known as PBMs, are an appropriate proxy for the consumer in health care markets. The paradigm assumes that consumers will be better off if health insurers can use their power to drive down reimbursement rates relentlessly. It suggests that it is necessary to harbor deep suspicion over collaboration by doctors. Antitrust agencies appear to prefer a system of autonomous providers, who are fundamentally powerless to deal with insurance companies.  

Let’s just deal with one of these notions: the belief that the market will perform better with powerful insurers and autonomous and unintegrated providers, especially doctors. If your main concern is the bottom line for health insurers, this notion may theoretically sound appealing. But this paradigm presents two significant problems for health care and consumers. First, doctors acting autonomously are unable to effectively coordinate care—the “silo” problem that leads to more costly and less efficient care and delivers poorer health outcomes. The health care debate clearly demonstrated that a lack of integration led to more costly and lower-quality care. Second, autonomous providers are too weak to bargain with insurance companies, leading to increasingly reduced reimbursement and assembly line health care. Insurance companies may benefit from lower reimbursement, but consumers suffer through more expensive and lower quality care.

CAP Senior Fellow David Balto testifies before the House Committee on Ways and Means, Subcommittee on Health: Read this testimony (CAP Action)

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