Pandemic will accelerate anticompetitive consolidation in health care, Commonwealth Fund executives say
According to experts, "The financial impact of the pandemic has weakened some providers, which will undoubtedly fuel another merger-and-acquisition wave."
Financial difficulties caused by the pandemic will fuel further consolidation in the U.S. health-care industry, two Commonwealth Fund executives believe.
“Waves of mergers and acquisitions among the players in U.S. health care have already led to higher prices, and there is little evidence that they have resulted in efficiencies, reduced costs and better care coordination,” Lovisa Gustafsson and Dr. David Blumenthal wrote in an opinion piece in “Harvard Business Review.” “The financial impact of the pandemic has weakened some providers, which will undoubtedly fuel another merger-and-acquisition wave when the pandemic subsides. Therefore, it is crucial for Congress and regulators to take steps to understand the impact of the consolidation and take actions that prevent combinations that will adversely affect the cost and quality of care.”
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Concentration in the U.S. health-care sector has been on the rise over the past two decades. Starting with horizontal consolidation, it has spread to vertical mergers and acquisitions and megamergers of national players at multiple levels of the supply chain. There is ample opportunity for merged entities to engage in anticompetitive actions that disadvantage other market players, decrease options for consumers and drive health care spending higher, they wrote, citing these examples:
- A health plan can manipulate its medical loss ratio, which is meant to cap profits, by simply shifting statutorily prohibited profits to a different business unit within the same company.
- Dominant providers can offer lower rates preferentially to their parent insurer, thereby disadvantaging rival insurance plans and ultimately making it more difficult for other plans to compete on the basis of the premiums they charge and driving them out of the market.
- Insurers can adopt practices that maximize their pharmacy benefit manager revenue while driving up costs for patients, employers and the government.
- Dominant “must-have” providers can extend anticompetitive contract terms to acquired physician practices, an issue at the center of the recent California v. Sutter Health System settlement.
Gustafsson and Blumenthal suggest several actions that Congress and the Federal Trade Commission can take to further evaluate and mitigate the adverse effects of consolidation in the health-care market:
- Evaluate the impact of “payviders” — integrated payer and provider groups — on quality, equity, access and cost of care.
- Evaluate the effect of mergers and acquisitions among PBMs, retail pharmacy chains, pharmacy services administrative organizations and insurers on drug purchasing, distribution and pricing.
- Prohibit or restrict use of anticompetitive contract provisions, including anti-tiering and anti-steering provisions, nondisclosure agreements and all-or-nothing provisions.
- Require all health-care entities to report merger-and-acquisition activities, regardless of value, to state attorneys general.
- Expand the FTC’s ability to enforce antitrust laws against non-competitive behavior in the health-care industry — for example, by authorizing investigations into, and actions against, smaller mergers and anticompetitive behaviors by not-for-profit firms.
“We know with near certainty that big systems and insurers will be going on a shopping spree for struggling providers after the pandemic subsides,” they concluded. “By taking action now, Congress and regulators can help prevent market distortions that could adversely affect the cost and quality of care.”
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