Executive office update: Health insurance industry mergers

Sunday, November 01, 2015 11:05 AM

by Alfred Gilchrist, CEO Colorado Medical Society

The state and federal agencies with antitrust enforcement authority have begun the methodical and mind-numbingly complex task of determining whether the two proposed mega mergers (Aetna Inc. and Humana Inc., and Anthem Inc. and CIGNA Corporation) are sufficiently anticompetitive to limit or block those deals. Local market calculations by state and federal regulators will determine whether the elimination of two competitors consolidates enough market power to influence prices generally, and more specific to medicine’s concerns, gain monopsony power.

A monopsony is a market similar to a monopoly except that a large buyer (in this case a health insurance company) not seller (physicians in our case; or fragmented suppliers in economic speak) controls a large proportion of the market and drives prices down. Also sometimes called a buyer’s monopoly, a point of regulatory scrutiny is whether lower prices resulting from these mergers will be passed through to consumers in the form of lower premiums or out-of-pocket costs without offsetting harm (the reduction of the quantity or quality of services below the level that is socially optimal).

In an October letter to William J. Baer, assistant attorney general, Antitrust Division, U.S. Department of Justice, we joined the American Medical Association in asking for “close scrutiny” of both mergers. The Anthem-Cigna merger would be presumed likely to enhance market power in the commercial combined (HMO+PPO+POS) markets in the state of Colorado as well as in metropolitan statistical area (MSA) level markets including Grand Junction, Fort Collins-Loveland, Greeley, Pueblo, Colorado Springs, Boulder and Denver-Aurora. The Aetna-Humana merger is presumed likely to enhance market power or potentially raise significant competitive concerns that often warrant scrutiny, for example, in MSAs including Colorado Springs, Grand Junction, Greeley, Boulder, Pueblo and Fort Collins-Loveland.

In a contested 2008 health insurance industry acquisition, analysts conducted physician surveys to assess how local physicians would respond to increased market power of a dominant insurer. A sample of the printable answers included the following.

• Go to another state.
• Close my practice.
• Leave town.
• Would irreparably hurt my practice, don’t know what to do.
• Make do with remaining plans.
• Be an out-of-network provider.
• See a lot less patients (if they bailed on the contract).
• Lay off staff and reduce the number of physicians on staff.

In Congressional testimony on the proposed mergers, the health insurance company CEOs argued that the consolidations will achieve greater efficiencies, improve the value of those services and lead to greater innovation, as well as provide a competitive pressure on health systems that they suggest have monopolistic powers to artificially keep prices higher than what a competitive market would sustain. These and other arguments for the mergers are plausible and will be carefully scrutinized by regulators, state and federal, with our full cooperation and assistance.

Do CMS members care one way or the other about these mergers? Should CMS stand down or further step up? Our conversations with the DOJ, our insurance commissioner and other public officials are underway and will continue in what is likely to be a protracted process lasting well into next year. Taking the next step requires additional, thoughtful evaluation on our part. We will invite Anthem and Aetna to make their case directly to our members on their rationale and business model should their petitions prevail. We will focus group and survey our members, and share those results and related inquiries with state and federal regulators, and the proponents. We will gain insights from the activities among the 15 or so state medical societies facing similar or higher levels of consolidation as well as AMA’s continuing response. We will gather further perspective from consumer groups, business and unions.

These mergers are far from being resolved. Be on the watch for and participate in our outreach. Let us know what you think. This is not our first antitrust rodeo and member input will guide our advocacy.