From the Wall Street Journal:
The Justice Department is gearing up for an exacting look at any proposed mergers among the nation’s top health-insurance companies, amid questions inside and outside the department about whether industry consolidation could suppress competition
And from earlier this year in Idaho:
The 2012 merger of two health care providers in Idaho’s second-largest city, Nampa, was properly found to violate Section 7 of the Clayton Act, the U.S. Court of Appeals in San Francisco ruled today. A decision of the federal district court in Boise, ordering St. Luke’s Health System, Ltd.—the largest health care system in Idaho—to divest Saltzer Medical Group—the state’s largest independent, multi-specialty physician practice—was upheld
These are the next frontier of healthcare reform. We, as a nation, are committed to treating most healthcare in a quasi-market like manner. To do that so that we have effective and cost effecient care means actually treating the two major sides of the healthcare market (payers and providers) as markets that deserve significant competitive scrutiny. An activist Department of Justice and a Federal Trade Commission that has a default assumption that consolidation among major actors is anti-competitive unless clearly shown otherwise is a good thing.
Let’s remember what the basic market structure of payers and providers looks like in the United States.
Dominant insurers use their ability to steer hundreds of thousands patients to or from different providers as a stick to get rates that are based on Medicare with a small kicker. This works because a dominant insurer does not need to get every provider in a specialty or concentration into the network. They just need to get enough providers in network to satisfy state regulators. Providers who don’t take the low rates from the dominant insurer have a hard time making up at higher price points the revenue they lose in volume. Areas where there is a single dominant provider in either the entire market or a critical set of specialties will see the providers tell insurers “You either take my rate, or you can’t sell in this county as I’m the only provider in the region…….
Areas where there are a multitude of medium and small payers who can’t threaten the economic existence of a multitude of fragmented providers see effective competitive bidding. Providers can not name their price as insurers and other payers can walk across the street to another provider and sign a deal. Insurers can’t force prices down too much as each individual provider has half a dozen other options to make a living. And finally, areas where there is a single dominant provider and a single, dominant payer see very nasty fights over rents.
The worst case scenarios is the Provider highly concentrated with the payers fragmented as reimbursement rates are high and utilization is probably high. Concentrated payers with fragmented providers will see low reimbursement rates, and the potential for low premium rates as benevelent local non-profit insurers might keep rates low. Otherwise, the executives get lots of high quality blow and flexible hookers as the insurance company is bloated and inefficient. The ACA’s requirement on minimal Medical Loss Ratio of either 80% (individual and small group) or 85% (large group) has crimped the blow supply.
Situations where both the payers are highly concentrated and the providers are highly concentrated are probably the second best outcome. As long as there is no evidence of collusion, big payers fighting big providers keeps pricing reasonable although quite a bit of market surplus is consumed as both sides piss at each other.
Finally, the best case scenario is fragmented markets where there are efficient payers and efficient providers who are effectively price takers and not price makers. Here consumers get good prices on good care.
There are not too many regional health markets that can be categorized as Econ 101 utopias where everyone is a price taker. I don’t think the DOJ or FTC can create those types of markets even if they had the legal authority to do so. However, a suspcicious DOJ and reluctant FTC can aid in preventing Low-Low situations from going to High-Low or Low-High rent extraction situations. And more often prevent a Medium-Medium situation from going to a Medium-High situation.