The Patient Protection and Affordable Care Act (ACA) of March 2010 spurred many changes in the U.S. health care marketplace. The regulation intended to encourage optimization of care, increased access, and reduced costs. Interestingly, the private market has had its own economic response to increased regulation – mergers and acquisitions.
Evidently, the shifts in the health care market are encouraging providers to consolidate their infrastructures. The New England Journal of Medicine in 2014 explains that, “105 deals were reported in 2012 alone, up from 50 to 60 annually in the pre-ACA, pre-recession years of 2005–2007. This activity could have lasting repercussions for consumers; the last hospital-merger wave (in the 1990s) led to substantial price increases with little or no countervailing benefit.” Initially, these mergers appear to provide the best structure for reducing costs and increasing the continuity of care in hospitals. However, these mergers can directly limit competition. In most markets, limited competition reveals a consistent result – increased price structures.
Competition in the marketplace is the only way to ensure equilibrium price models and the rights of consumers. In 2012, “hospital consolidation generally results in higher prices. This is true against geographic markets and different data sources. When hospitals merge in already concentrated markets, the price increase can be dramatic, often exceeding 20 percent.” The increases in health care costs are not as drastic in this situation but are prone to rising each year. Hospital conglomerates are attempting to assume more bargaining power throughout the country in order to impact insurance reimbursement rates.
Moreover, a 2014 report uncovered, “while previous studies have shown that merging hospitals can increase their reimbursement prices by reducing competition over patients, our results suggest that mergers increase hospital market power even when they do not reduce hospital competition within a patient market.” With the assumption of market power, large health providers are able to increase reimbursement rates regardless of geographic limitations. These market adjustments are intriguing because other stakeholders in health care will respond to the growing hospital models. The report also found, ”that hospitals that join out-of-market systems experience an increase of around 14 to 18 percent in their reimbursement price.” In fact, hospitals are able to treat more patients with multiple locations, which should reduce cost, but many take advantage of limited competition. The standards of care in the U.S. do not mandate specific price structures for procedures but allow for negotiations between providers and third party payers. Consumers in the U.S. insurance system are often not aware of the pricing or reimbursement structure and do not seek out the cheapest provider option.
After 9 mergers in Illinois this past year, “the insurance industry sees this as a broader front in the battle over how hospitals are paid. Increasingly, insurers and the government under the health law are moving away from traditional fee-for-service payments to value-based care that emphasizes more money to primary care and outpatient providers to improve health outcomes. At the same time, hospitals are penalized for re-admissions and mistakes.” Hospitals are merging because of their lack of bargaining power and inability to effectively negotiate reimbursement with large insurers. Moreover, hospitals that experience penalties need to limit liability. Hospitals merge to increase their market share in order to survive evolving regulation. Major insurance providers are merging and acquiring other insurers in an attempt to counterbalance the increase of hospital systems market power.
Recently, “The nation’s biggest health insurers, which are pursuing a series of potential megamergers, have market overlaps that could damp competition in sectors such as private Medicare plans, an analysis of state and federal data by The Wall Street Journal has found.” The market reactions to the ACA are concerning. Could the want to increase access of care and reduce costs actually promote consolidation of providers and insurers? Will these mergers allow for fewer companies to offer services in health care? The image below explains the ongoing dilemma for potential deals between the five biggest insurers in the United States.
Today, “Health insurer Anthem Inc. pressed ahead with its pursuit of a $54-billion merger with Cigna Corp. despite a spurned bid and increasing concerns about industry consolidation.” These mergers will have a large impact on the market. Many have concerns whether the Federal Trade Commission should become involved as anti-trust concerns begin to surface. The American Academy of Family Physicians (AAFP) warned the FTC about consequences of insurance mergers. AAFP Board Chair, Reid Blackwelder M.D, wrote the FTC because of concerns that, “The insurance market is already dominated by a handful of powerful companies, which the AAFP says threatens the ability of patients and physicians to make free choices.” The data asserts that in 17 states one insurance company controls at least fifty percent of the market. Furthermore, two insurers maintain at least fifty percent of the market in 45 states. These companies attempt to sway public opinion about the positive impacts of mergers and streamlined infrastructures. This past Monday, June 21, 2015, Anthem saw their stock price increase $5.98 or roughly 4 percent and Cigna went up $7.34 or 5 percent. These responses in the market are encouraging further consolidation of power although it may not benefit health consumers because of limited competition and data that reveals inevitable price increases.
It is clear, hospitals and insurers attempt to clarify the increased efficiencies or detailed benefits to consumers. Yet, most mergers and corresponding data reveal the opposite effect from a rise in consolidation. AAFP asserts, “According to a list of proposed insurance rates that CMS recently posted, after two years of relatively stable premiums, rates are slated to increase in 2016 by double-digit percentages for individual policyholders in almost every state.” These decisions are intriguing to observe, as the ongoing Supreme Court case, King v. Burwell, should determine whether federal health subsidies are legal. Many individuals could be losing health insurance coverage purely because it is too expensive. The FTC could soon impact whether any of these decisions break anti-trust law. Unfortunately, it is apparent regardless of regulatory attempts and consumer input – prices are rising in health care.