Wanted: More health care competition
The consolidation of market share in health-related industries has happened largely under the radar.
Although the benefits world has been focused on consolidation among carriers, providers and pharmacy groups, other areas of health care are also seeing market domination by a handful of players. The consolidation of market share in industries such as medical device manufacturers, medical supplies and health care services are surely significant factors in rising health care costs for employer-sponsored health plans, yet much of it has happened under the radar.
In a recent report, “America’s Concentration Crisis,” the Open Markets Institute outlines many areas of health care that are now dominated by just a few companies. “Growing monopoly power in the health care sector contributes significantly to the high prices, poor quality, and lack of access that millions of Americans experience when interacting with the health care system,” the report says. The report adds that for both consumers and employers, some large companies may produce numerous brands and products lines, but control of the markets remain in the hands of just a few players.
Related: Health system consolidation: Can employer groups, brokers survive it?
“Monopolistic corporations often present themselves as champions of consumer choice,” the Open Markets report says, “but while it may appear as though there are endless brands to choose from online and on the shelf, most are owned by a few large parent companies, the array of labels a mere façade creating the illusion of abundant options.”
Drugs, devices, services
A wide range of industries were analyzed by the report, from ambulance manufacturing to medical waste disposal services, but probably the best place to start is the industry where consolidation and lack of competition is most well known—the pharmacy sector.
The report found that 61 percent of the $271 billion retail pharmacy market is controlled by just two companies, Walgreens (32 percent) and CVS (29 percent). Rite Aid is the only other major player, accounting for 6 percent of the market. Other companies combine to make up the remaining 33 percent. In the area of pharmacy benefit management, a $453 billion industry, four firms control 75 percent of the market. CVS (30 percent), Express Scripts (23 percent), UnitedHealth (15 percent), and Humana (7 percent) are the main players, with other companies accounting for 25 percent of the market.
Familiar names also dominate the medical devices field, which is a $39.2 billion industry. Medtronic controls 41 percent of the overall medical device market, General Electric 19 percent, Abbott 10 percent, and Danaher 7 percent. Other companies split the remaining 23 percent of market share.
Medtronic also dominates the $1.8 billion pacemaker manufacturing market, with 52 percent of market share. Abbott comes in at 23 percent and Boston Scientific is at 14 percent; other companies account for 11 percent of the market. As the report notes, this means 89 percent of the market is split between three companies.
Market dominance also exists in smaller, more specialized industries, the report shows. In the $3.8 billion market for syringes and injection needle manufacturing, one company, Becton, Dickson and Company, controls 64 percent of the market. Medtronic controls another 5 percent, and other firms control the remaining 34 percent.
Services, whether involving direct medical care or things like patient financing, can also be consolidated among just a few players. For example, in the $24.4 billion dialysis center market, two companies control 92 percent of the market. Fresenius is at 49 percent, DaVita accounts for 43 percent, and other companies make up 8 percent of the market.
A growing sense of concern
According to Barry Lynn, executive director of the Open Markets Institute, his group sees corporate consolidation as a major shift in the nation’s economy. “All of these problems that we’ve been witnessing—inequality, lower wages, less mobility—wherever you look in our economy, you see these problems,” he says. “They’re all connected by the fact we changed how we do competition policy.”
Lynn says a gradual shift to concentrate market share into the hands of fewer and fewer players was not something the public was focused on in past years, but that has changed.
“This issue has exploded, largely because of what’s happening with Google, Facebook and Amazon,” he says. “A lot of new polling shows concern about concentrated corporate power skyrocketing across the board.”
When it comes to health care industries, Lynn starts with the consolidation of hospitals and clinics as an example. “If your insurance costs are continuing to grow, what’s behind that? You’ve got hospital corporations that have monopolized regions all across the country—Pittsburgh, Baltimore, Cleveland—where one corporation captures de facto control of the market,” he says. “Wherever you see that kind of consolidation, the price of hospital beds and health care skyrockets.”
Lynn notes that lack of competition can affect many parts of the industry, including supply, pricing, and labor. “It’s bad for doctors and nurses,” he says. “They have fewer places to go—if they don’t like their boss, it’s just harder to find another place to work.”
The new study documents the monopolistic approach in several industries. “The entire medical device industry is a bunch of extremely concentrated marketplaces,” Lynn says. “You end up with duopoly markets where people trade off control of different therapies. The prices are way higher than they should be because of consolidation of manufacturing and production—and the hospitals pass those prices on.”
An example of this may be found in the report’s analysis of the X-ray machine and PET scanner manufacturing markets. For the $10.2 billion X-ray machine manufacturing market, General Electric controls 24 percent of the market, Siemens has 13 percent, and Philips has 12 percent of the market. Other companies are credited with 47 percent of the market.
For the PET scanner market, the players are shuffled: Siemens is the largest player at 36 percent of the market, GE has 25 percent, and Philips Healthcare has 21 percent, leaving 18 percent of the market to other companies.
What can purchasers do?
When it comes to preventing monopolistic behaviors by corporations in the health care sphere, Lynn and others say federal and state agencies have been asleep at the switch. A 2017 study in Health Affairs found that health systems were gobbling up physician practices, but that the practices in question seemed to be small, so the acquisitions did not draw attention from federal regulators. It’s not hard to see how a large hospital system surrounded by smaller clinics could quickly become the dominant player in the region.
“Most of the increases in physician practice size and market concentration resulted from numerous small transactions, rather than a few large transactions,” the Health Affairs report said. “Furthermore, most acquisitions were below the dollar thresholds that would have required the parties to report the transaction to antitrust authorities. Under present mechanisms, federal authorities have only limited ability to counteract consolidation in most U.S. physician markets.”
Lynn says stakeholders should lobby for stricter enforcement of antitrust laws. He suggests it might be easier to start at the state level, but adds that if employer-based insurance plans can show harm, regulators will have to take their cases seriously.
Without public pressure, many corporations may continue to evade regulatory scrutiny. Lynn says federal regulators have approved merger deals that are clearly monopolistic, and that there simply hasn’t been the political will to reign in corporations.
“This stuff could be fixed by the DOJ and the FTC tomorrow,” he says. “There is an ample amount of power in federal and state governments to address this, it’s just not being used.” The result, he adds, is concentrated markets that promise to bring efficiency but have more self-interest in raising prices. The higher costs are a burden to small and large businesses alike.
“This affects everyone; it affects Walmart the same way it affects Joe’s Plumbing,” Lynn says. “These health care companies used to compete; they should be competing now.”
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