By Cornelia Hall, Master of Public Policy Candidate, Harvard Kennedy School, Class of 2017
Consolidation in the health care sector, particularly among providers and private insurers, has been rising since the Affordable Care Act passed in 2010. Major movement is currently underway among the “Big Five” private insurance companies: Humana, Cigna, UnitedHealthcare, Aetna, and Anthem. Two proposed “horizontal” mergers, currently under review by the Department of Justice Antitrust Division, would reduce these “Big Five” to the “Big Three.” In this context, NHPC panelists discussed private sector consolidation’s potential impact on the cost, quality, and coverage of health care. Several panelists expressed concern about the effects of consolidation on patients and the costs of services. They also indicated, however, that the health care system’s ongoing transition to more coordinated care could help to offset potentially negative consequences of consolidation.
As the Justice Department analyzes the proposed mergers, industry analysts on the NHPC panel suggested that insurer consolidation could negatively affect patient experiences in the health care system. Sarah Lueck of the Center on Budget and Policy Priorities noted that the Affordable Care Act was designed to improve market competition, but the proposed insurance mergers could increase enrollees’ premiums and harm transparency for consumers. She pointed out that this competition among providers also drives quality of care, which could suffer under consolidation.
Samuel Nussbaum, Chief Medical Officer and Executive Vice President for Clinical Health Policy at Anthem, defended consolidation by noting that insurers are bound by extensive regulation. He cited the Medical Loss Ratio (MLR), which was a consumer protection provision of the Affordable Care Act that constrains how payers spend patient premiums, including at least 80-85% on medical care. Yet Georgia State University College of Law professor Erin Fuse Brown echoed Ms. Lueck by pointing out that, while the MLR may constrain spending of premiums, it does not drive quality.
The panelists also touched on an increasingly common type of health care consolidation: “vertical integration,” which often takes the form of a hospital acquisition of a physician group or practice. Although many providers are moving to this type of relationship, the panelists said, antitrust regulators tend not to pursue them. Ms. Fuse Brown noted that the lack of action and data on vertical integration is likely attributable to the fact that there are enough horizontal mergers — between organizations of the same type — to keep the Department of Justice busy.
Regarding both horizontal and vertical integration, Dr. Nussbaum called it “incontrovertible” that prices rise when providers consolidate, whereas the financial effects of insurer consolidation are inconclusive. He provided an example by claiming that two-thirds of cardiologists work for hospitals, corresponding with a 15-20% price increase in related care for patients. Ms. Fuse Brown also suggested that, when hospitals own physician group practices, hospital prices and spending tend to rise.
In this context, several panelists expressed support for the idea that certain expected benefits of provider consolidation – such as unified standards and improved efficiency – can be achieved through care integration rather than ownership changes. For example, Robert Nesse, Senior Director of Policy and Payment Reform at the Mayo Clinic, highlighted three overarching goals for health care systems: (1) a network of providers with an aligned purpose and coordinated care; (2) access to timely, actionable data; and (3) alignment of payment systems. He explained that, while provider consolidation attempts to achieve these goals, affiliation and partnership among providers could do so without the negative effects of consolidation. This overall approach, Dr. Nesse added, relies on providers sharing an aligned purpose. Dr. Nussbaum highlighted similar initiatives with the same goal: Kaiser Permanente and the University of Texas’s plans to start their own innovative medical schools, focused on integration of patient care.
Ultimately, all of the panelists expressed confidence in the potential of alternative payment models to achieve cost savings in the current context of consolidation. For example, Dr. Nesse expressed hope that episode-based payment could incentivize aligned providers to lower health care costs. It will be interesting to observe how payers and providers continue to adjust to the Affordable Care Act and the transformation of health care incentives, and to follow the management of the accompanying consolidation.