Payer Industry Consolidation Threatens Independent Providers, Premiums
AMA found that rising payer industry consolidation could strip independent providers of their ability to negotiate sufficient reimbursements and could raise premiums.
Source: Thinkstock
- Seventy-five percent of the payer industry is made up of highly concentrated markets, a number that has been rising since 2014, an American Medical Association (AMA) study found. And in turn, public anxiety regarding this trend rose as the market continued to concentrate.
To put it another way, AMA President Patrice A. Harris, MD, MA said, three out of every four Americans has access to only a small number of healthcare payers. In half of the nation’s urban centers, one healthcare payer dominated half of the payer market. The result is lower quality insurance, she argued.
“While health insurers grow corporate profits, networks are too narrow, premiums are too high, and benefits are too watered down,” Harris said in a statement.
The study confirmed that market power increasingly drives the commercial health insurance industry.
The share of markets that are highly concentrated rose four percentage points in the four years between 2014 and 2018, and concentration was already considered high in 2014.
READ MORE: CVS Health-Aetna Merger Sealed, WellCare Takes Aetna’s Part D PDP
Of the markets that already experienced high concentration in 2014, 54 percent saw an increase in concentration by 2018. Among markets that were not highly concentrated in 2014, 27 percent crossed the high concentration threshold of 2,500 Herfindahl-Hirschman Indices (HHI) by 2018.
The study focused on location as well, specifically how metropolitan statistical areas (MSAs) fared under all of this consolidation. The researchers found that 75 percent of MSAs passed the 2,500 HHI federal threshold, with an average of 3504 HHI.
The study stated that mergers were a significant reason for the high consolidation rate.
These results are concerning, AMA stated, raising questions about competitive markets and what constitutes too much market power.
“Are health insurance markets competitive, or do health insurers exercise market power? Are proposed mergers between insurers likely to maintain, enhance, or create such power?” the study asked. “These are important questions of public policy because the use of market power harms society in both output and input markets.”
READ MORE: FTC Approves UHG-DaVita Merger Settlement in Nevada
The impacts of consolidation are worsening with time, AMA explained, citing its own research and data from other stakeholders. Certain actions indicate that a payer could be in jeopardy of antitrust violations. Exercising monopsony power, for example, is something the Department of Justice (DOJ) should watch for, AMA argued.
Once consolidation occurs, healthcare payers can exercise their market power in more than one way including monopsony power. With monopsony power, payers keep internal (or “input”) costs low. Because they hold most of the market, payers can negotiate uncompetitive, low prices with the providers in their networks.
This practice particularly harms small practices. Antitrust laws prevent providers who are autonomous from banding together to confront companies on their prices and as individuals they stand little chance of negotiating a fair price with a payer that is determined to give low reimbursements.
High market entrance barriers for new payers can also signal an environment amenable to monopolization.
When payers have to cross high barriers to entry, they are able to exercise market power. When a state’s policies are challenging or provider networks are expensive to establish, for example, these factors can allow large, consolidated healthcare payers to keep premiums high for a protracted length of time.
READ MORE: Tufts Health Plan and Harvard Pilgrim Announce Merger
“Conceptually, mergers and acquisitions can have beneficial and harmful effects on consumers,” the report noted. “However, only the latter has been observed. It appears that consolidation has resulted in the possession and exercise of health insurer monopoly power—the ability to raise and maintain premiums above competitive levels—instead of the passing of any benefits obtained through to consumers.”
Healthcare mergers and acquisitions have come under scrutiny lately, especially those that occur among payers. In 2015, the merger activity came to a climax when four of the largest health plans in the US sought to pair up: Anthem with Cigna and Aetna with Humana, AMA reminded.
When the Federal Trade Commission (FTC) approved the UnitedHealth Group (UHG)-DaVita merger in August 2019, the commission noted that the reduction of competition for Medicare Advantage (MA) enrollees and UHG’s ability to adjust prices to against the remaining MA competition were the principal reasons that they originally denied the merger.
However, with UHG divesting itself of Healthcare Partners Nevada Assets and agreeing not to acquire any Las Vegas healthcare providers for the next decade, the FTC’s concerns were assuaged.
The UHG-DaVita merger is not as significant as an Anthem-Cigna or Aetna-Humana merger would have been but its success signals to other payers what type of mergers are legally permissible.
