AMA urges DOJ to block mergers

Tuesday, March 01, 2016 12:12 PM

AMA Antitrust Attorney Henry Allen explains dangers to physicians and patients of allowing health plan mergers

by CMS staff report

Colorado Medicine sat down with Henry Allen Jr., an attorney within the Advocacy Group of the American Medical Association, to talk about the proposed health insurance industry mergers. With the AMA he specifically works on antitrust issues in health care and medical insurance markets and has testified before the United States Senate Judiciary Committee.

Allen is an adjunct professor at Northwestern University School of Law where he teaches antitrust and health care. He has also been an adjunct professor at the Kellogg School of Management of Northwestern University and at Cornell University, where for two decades he taught health law in the Sloan Institute of Health Services Administration.

Colorado Medicine (CM): The AMA has urged the U.S. Department of Justice (DOJ) and numerous state regulators to block the mergers between Aetna and Humana, and Anthem and Cigna. Why is this?

Henry Allen (HA): Commercial health insurance markets in Colorado and across the nation are already highly concentrated; only a few health insurers with large market-shares compete with one another. The situation isn’t any better with respect to Medicare Advantage. The proposed mergers would reduce competition even further, to the great detriment of both patients and physicians.

CM: Some supporters of the mergers claim that the mergers would create economies of scale and other efficiencies, which the insurers could then pass on to consumers in the form of lower premiums. Do you think that’s true?

HA: No. Insurers have a dismal track record of passing any savings from an acquisition on to consumers. A growing body of research suggests that greater health insurer consolidation leads to higher insurance premiums. Also, studies show that where there are more insurers in the marketplace, insurance premiums are lower.

CM: Some merger advocates argue that the mergers are needed because the insurers need more bargaining power to respond to hospital consolidation by forcing hospital prices down to the benefit of consumers. Do you think that argument has any legitimacy?

HA: I don’t. There simply is no economic evidence that the formation of even bigger health insurers to counter hospital or health system monopolies benefits consumers. Negotiations between dominant health insurers and hospital systems have been likened to a battle between proverbial sumo wrestlers, where the match often ends in a handshake and consumers get crushed. The better answer to hospital consolidation is to recognize that integrated care does not necessarily require hospital-led consolidation and that by encouraging entry into hospital markets, such as by physician led-organizations, hospital markets can be made competitive.

CM: The AMA’s letter to the DOJ indicates that the mergers would enable the health insurers to exercise “monopsony” power. What is monopsony power and what effect does a health insurer’s exercise of monopsony power have on physicians and patients?

HA: A health insurer has monopsony power when it can force physicians to accept payments that are below competitive levels. This hurts patients and physicians in a number of ways. First, physicians are not able to invest in new equipment, technology and other practice infrastructure that could improve the access to and quality of patient care. Second, physicians may retire early, leave Colorado in favor of markets with higher reimbursement levels, or be forced to spend less time with patients to meet practice expenses. Third, the mergers may also cause even tighter provider networks, reducing patient access to physicians and effectively curtailing the quantity and quality of their services.

CM: Are these potential harms to the physician marketplace now under investigation?

HA: The U.S. Department of Justice and many state attorneys general and departments of insurance are investigating the potential competitive effects of the proposed mega-mergers. A central focus of the DOJ investigation appears to be whether the mergers will create harm to the physician marketplace.

CM: What is the likelihood that the DOJ will challenge these mergers on monopsony grounds?

HA: In the past, the DOJ has successfully challenged several health insurer mergers (half of all cases it has brought against health insurer mergers) based on DOJ claims that the mergers would enhance health insurer buyer or monopsony power in the purchase of physician services. In addition, at least one state health insurance department has also effectively blocked a health insurer merger based in part on monopsony concerns in physician markets.

CM: The Colorado Medical Society recently commissioned a member survey concerning the mergers. What do you see as the benefit of this survey?

HA: The DOJ has asked both the CMS and the AMA for information. So the survey was designed to determine the effects of the mergers on the physician marketplace. We also wanted to identify any health insurer contracting practices that are ultimately harmful to patients – for instance, all products clauses.

CM: As an antitrust attorney, what do you think about the survey responses in Colorado?

HA: I was extremely impressed with the survey’s comprehensiveness and with the results. The response rate was fantastic! And the survey confirmed not only that physicians believe that the mergers will raise premiums, but also that the mergers would result in monopsony injury to physician practices and ultimately to their patients.

CM: What kinds of monopsony injury did the survey show?

HA: The survey confirmed that physicians expect that the merged health insurers would likely lower reimbursements for providers to the extent that physicians will have to:

• reduce investments in practice infrastructure;
• spend less time with patients in order to meet practice expenses;
• reduce staff or staff salaries; or
• move to another locale with competitive reimbursement; or retire from active practice.

We believe that this information should assist the DOJ in reaching a decision to block the mergers.