When Markets Consolidate

Submitted by hci3-usr on Saturday, July 23, 2016 - 06:46

Newtown, CT – July 23, 2016

The gloves are off and no one knows who will be left standing – After having taken a muscular approach to blocking provider mergers, the U.S. Department of Justice is doing the same for the larger payers in the country. When one considers the impact on the various marketplace exchanges of a large health plan such as United HealthCare deciding to leave, one can only imagine the effect if a combined Anthem-CIGNA or Aetna-Humana were to do the same. The more the market consolidates, the less options consumers have, and the more bargaining power the plans have to negotiate ever-higher premiums. The effect of provider market consolidation on health care prices is very clear, and the reason why the Department of Justice has acted to block recent provider mergers, despite losing preliminary injunctions to block them. While it’s obvious to the layperson that market consolidation simply leads to fewer choices and lower market efficiencies, it is surprising to hear so many arguments in support of these mergers.

What this means to you – Employers have seen their third party administration options dwindle steadily during the past decade, and the announced mergers would dwindle them further. A chief concern for all is the ability to use competition between payers to push for innovative payment and benefit design solutions. And when the market options shrink to three, a clear form of oligopoly, a level of tacit non-competition can easily be instituted. For example, today, many employers are seeking to engage providers in direct contracting around alternative payment models. This should strike everyone as quite puzzling. After all, aren’t the health plans in the midst of pushing value-based payment arrangements? The reality is that the majority of arrangements between payers and providers are upside only. The innovation is tepid at best, focusing almost exclusively on some form of global cost target setting at the health system or PCP level. Virtually nothing is being done at the specialty level where 50% or more of costs of care are being spent. So here’s the point. If none of the “big three” engaged in more than the fig leaf alternative payment models they’re currently deploying, what choice would employers be left with, in particular the national ones? This same wielding of market power is what the DOJ is trying to avoid in blocking provider mergers. Consolidated providers want to simply grab as much of the total cost of care as they can, and don’t really engage in driving market efficiencies by creating competition between the providers of the system, let alone outside the system. All this leads to far fewer efficiencies and gains in quality than we otherwise would have. And while in response to this stifling lack of competition we’re seeing the emergence of disruptive innovators, these disruptions aren’t enough on their own. Consolidated markets only work for those who are on the receiving end of the dollars, not those who spend it. Consumers lose when markets consolidate, and that may be why in national politics as in the DOJ’s actions, the gloves are off. At some point, enough is enough.

Sincerely

Francois Sig

 

Francois de Brantes
Executive Director

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