{"id":7132,"date":"2023-03-08T09:58:44","date_gmt":"2023-03-08T14:58:44","guid":{"rendered":"http:\/\/chirblog.org\/?p=7132"},"modified":"2023-04-10T09:39:25","modified_gmt":"2023-04-10T13:39:25","slug":"can-employer-sponsored-insurance-saved-review-policy-options-limiting-provider-consolidation-anti-competitive-behavior","status":"publish","type":"post","link":"https:\/\/chirblog.org\/can-employer-sponsored-insurance-saved-review-policy-options-limiting-provider-consolidation-anti-competitive-behavior\/","title":{"rendered":"Can Employer-Sponsored Insurance Be Saved? A Review of Policy Options: Limiting Provider Consolidation and Anti-Competitive Behavior"},"content":{"rendered":"

By Maanasa Kona and Sabrina Corlette<\/em><\/p>\n

Employer-sponsored insurance (ESI) provides critical coverage for 160 million Americans. However, the generosity of many of these plans is in decline, leaving many workers and their families with high out-of-pocket costs, relative to their income. Employers acting alone will not be able to reverse this decline. Policy change is needed, but assessing what policies will work is challenging. In this series for CHIRblog, we assess proposed policy options designed to improve the affordability of ESI, the state of the evidence supporting or refuting the proposed policy change, and opportunities for adoption. In the <\/em>first<\/em><\/a> of the series, we reviewed the primary drivers of the erosion occurring in ESI and identified three recognized policy options to improve affordability: regulating prices, reducing anti-competitive behavior, and improving price transparency. The <\/em>second<\/em><\/a> in our series assessed the evidence for direct and indirect regulation of provider prices and options for policymakers. This post, the third our series, explores policy options to limit provider consolidation and anti-competitive behavior.<\/em><\/p>\n

As we discussed in the first part<\/a> of this series, high and rising prices of health care are a driving factor in the declining offer rates among employers and the increases in enrollee cost-sharing in ESI plans. A significant contributor to these rising prices is consolidation in health care provider markets, which hands large health systems outsized leverage when negotiating prices with insurers or third-party administrators working on behalf of employers. As this negotiating power increases, the prices these health systems set become more and more decoupled<\/a> from the actual costs of providing services.<\/p>\n

The Extent of the Consolidation Problem and its Documented Effects on Prices<\/strong><\/p>\n

For years, the health care market has been experiencing significant consolidation, and the COVID-19 pandemic has only accelerated<\/a> this trend. Between 1998 and 2021, there were more than 1800 hospital mergers<\/a> reducing the number of hospitals in the country from 8000 to 6000. One study<\/a> found that prices at monopoly hospitals tend to be 12 percent higher than at hospitals that have 4 or more competitors; hospitals that have recently merged with another hospital within a five-mile radius have raised their prices by about six percent. Another study<\/a> found that hospitals that are part of a health system charge a stunning 31 percent more for services than hospitals that are not part of a larger system.<\/p>\n

Beyond hospital mergers, health system acquisition of physician practices is also on the rise and a cause for concern. According to American Medical Association data, the percentage of physicians employed in practices at least partly owned by a hospital increased from 16 percent in 2008<\/a> to about 40 percent in 2020<\/a>. A systematic review<\/a> of 15 studies on the effects of such vertical integration found that these kinds of acquisitions can significantly increase health care prices. One of these studies finds that the patients of a vertically integrated physician pay about six percent more<\/a> than patients of independent physicians while experiencing no improvement in the quality of their care. In fact, one study even found an increase in post-procedure complications<\/a> for patients who are treated by vertically integrated physicians. Beyond causing increases in unit prices, vertically integrated physicians can also inflate overall health care costs by referring their patients to pricier hospital-based imaging<\/a> and outpatient departments<\/a> instead of more affordable freestanding imaging facilities and ambulatory surgical centers. Additionally, physician groups that have been acquired by hospitals and health systems often start adding on<\/a> outpatient facility fees on top of their professional service fee.<\/p>\n

Policy Strategies to Curb Provider Consolidation<\/strong><\/p>\n

What is the Federal Government Doing About Provider Consolidation?<\/em><\/p>\n

The Federal Trade Commission (FTC) and U.S. Department of Justice share the responsibility for enforcing antitrust laws at the federal level. The FTC in particular has recently expressed increased interest in ramping up oversight over health care providers. In 2020, the FTC ordered<\/a> six insurance companies to submit data that will help the FTC study the impact of hospital and physician group mergers on prices and health outcomes. In 2022, following President Biden\u2019s executive order<\/a> supporting the enforcement of antitrust laws to prevent consolidation and anticompetitive behavior in health care markets, the FTC successfully blocked<\/a> four hospital mergers.<\/p>\n

Despite these increased efforts, significant gaps remain in FTC\u2019s oversight over hospital mergers. Generally speaking, the FTC has attempted to block only about one percent of mergers<\/a> in the health care market. Aside from resource constraints, there are a few reasons that the FTC\u2019s oversight is so limited. First, FTC is only notified about hospital mergers that have a value of $101 million or higher. Ninety percent of private equity<\/a> takeovers or investments fall below this threshold. Second, FTC is prohibited<\/a> from enforcing antitrust laws against any non-profit hospitals, which make up about 45 percent of the hospitals in the country. Third, FTC\u2019s current guidelines<\/a> only focus on mergers within one geographic region, excluding cross-market mergers, which made up more than half<\/a> the mergers in the last 10 years. Early in 2022, the FTC and  the Department of Justice launched a joint public inquiry<\/a> to update its general merger guidelines (not specific to hospital mergers), and it remains to be seen whether they will update the hospital merger guidelines to include cross-market deals.<\/p>\n

Fourth, the FTC has limited ability to act in states that have \u201cCertificate of Public Advantage\u201d or COPA laws<\/a> that effectively immunize hospital mergers from federal antitrust laws and replace them with (often cursory) state oversight. Studies of past COPAs<\/a> have found that they have resulted in increases of commercial inpatient prices and declines in quality of care. There is also emerging evidence that Clinically Integrated Network or CINs, where a group of health care providers contract with one another to reach certain quality and cost goals without officially merging, can result in the same price increases as mergers but fly \u201cunder-the-radar<\/a>\u201d in terms of triggering antitrust oversight.<\/p>\n

What Can States Do About Provider Consolidation?<\/em><\/p>\n

States could follow the FTC\u2019s lead and increase their own oversight of provider consolidation. A recent study<\/a> found that states with stronger antitrust laws were more likely to scrutinize hospital mergers. The study identifies eight states with strong laws including Oregon, which recently enacted legislation to establish<\/a> \u201cthe most comprehensive health care merger review processes in the country.\u201d Oregon\u2019s merger review authority allows it to scrutinize proposed deals that would otherwise fall below the FTC\u2019s $101 million threshold. However, the study noted that having strong antitrust laws, while necessary, is ultimately insufficient, given that even in states with strong laws, most challenged mergers eventually succeeded.<\/p>\n

Nineteen states<\/a> currently have COPA laws in place, while five states<\/a> have repealed their COPA laws. The remaining nineteen states could repeal their COPA laws and allow federal antitrust enforcement to oversee a higher proportion of mergers than they currently do. Short of repealing COPA laws, state regulators in charge of processing COPA applications could scrutinize applicants more strictly. Recently in New York, a COPA application fell through<\/a> seemingly because the merged entity would have had a combined share of nearly two-thirds of the commercially insured inpatient services in one county.<\/p>\n

States also potentially have the authority to review provider mergers<\/a> through their community benefit requirements for nonprofit hospitals and certificate of need (CON) laws, which require hospitals to obtain state approval before establishing or expanding their services. However, leveraging CON laws can be a double-edged sword because these laws have also been criticized at times for stifling completion by serving as a barrier to market entry.<\/p>\n

Policy Strategies to Promote Competition<\/strong><\/p>\n

Anticompetitive contract clauses<\/em><\/p>\n

While increasing scrutiny over mergers and acquisitions is important, experts at a Bipartisan Policy Center panel<\/a> on taming health care prices noted that it might be too late for some markets that have already undergone significant consolidation. In these markets, it is important to restrict hospitals that have already amassed significant negotiating leverage from using that leverage to push for anti-competitive contractual language. Experts<\/a> have identified six different types of contract clauses that have the potential to increase health care prices, five of which favor providers:<\/p>\n