By Maanasa Kona and Sabrina Corlette
Employer-sponsored insurance coverage (ESI) gives essential protection for 160 million Americans. However, the generosity of many of those plans is in decline, leaving many employees and their households with excessive out-of-pocket prices, relative to their earnings. Employers performing alone won’t be able to reverse this decline. Policy change is required, however assessing what insurance policies will work is difficult. In this sequence for CHIRblog, we assess proposed coverage choices designed to enhance the affordability of ESI, the state of the proof supporting or refuting the proposed coverage change, and alternatives for adoption. In the first of the sequence, we reviewed the first drivers of the erosion occurring in ESI and recognized three acknowledged coverage choices to enhance affordability: regulating costs, lowering anti-competitive conduct, and bettering value transparency. The second in our sequence assessed the proof for direct and oblique regulation of supplier costs and choices for policymakers. This put up, the third our sequence, explores coverage choices to restrict supplier consolidation and anti-competitive conduct.
As we mentioned within the first half of this sequence, excessive and rising costs of well being care are a driving issue within the declining supply charges amongst employers and the will increase in enrollee cost-sharing in ESI plans. A major contributor to those rising costs is consolidation in well being care supplier markets, which fingers massive well being programs outsized leverage when negotiating costs with insurers or third-party directors engaged on behalf of employers. As this negotiating energy will increase, the costs these well being programs set develop into an increasing number of decoupled from the precise prices of offering companies.
The Extent of the Consolidation Problem and its Documented Effects on Prices
For years, the well being care market has been experiencing vital consolidation, and the COVID-19 pandemic has solely accelerated this development. Between 1998 and 2021, there have been greater than 1800 hospital mergers lowering the variety of hospitals within the nation from 8000 to 6000. One research discovered that costs at monopoly hospitals are typically 12 p.c larger than at hospitals which have 4 or extra rivals; hospitals which have just lately merged with one other hospital inside a five-mile radius have raised their costs by about six p.c. Another research discovered that hospitals which are a part of a well being system cost a shocking 31 p.c extra for companies than hospitals that aren’t half of a bigger system.
Beyond hospital mergers, well being system acquisition of doctor practices can be on the rise and a trigger for concern. According to American Medical Association information, the share of physicians employed in practices a minimum of partly owned by a hospital elevated from 16 p.c in 2008 to about 40 p.c in 2020. A systematic evaluation of 15 research on the results of such vertical integration discovered that these sorts of acquisitions can considerably enhance well being care costs. One of those research finds that the sufferers of a vertically built-in doctor pay about six p.c extra than sufferers of unbiased physicians whereas experiencing no enchancment within the high quality of their care. In truth, one research even discovered an enhance in post-procedure problems for sufferers who’re handled by vertically built-in physicians. Beyond inflicting will increase in unit costs, vertically built-in physicians also can inflate total well being care prices by referring their sufferers to pricier hospital-based imaging and outpatient departments as a substitute of extra reasonably priced freestanding imaging services and ambulatory surgical facilities. Additionally, doctor teams which were acquired by hospitals and well being programs typically begin including on outpatient facility charges on high of their skilled service charge.
Policy Strategies to Curb Provider Consolidation
What is the Federal Government Doing About Provider Consolidation?
The Federal Trade Commission (FTC) and U.S. Department of Justice share the duty for implementing antitrust legal guidelines on the federal degree. The FTC specifically has just lately expressed elevated curiosity in ramping up oversight over well being care suppliers. In 2020, the FTC ordered six insurance coverage corporations to submit information that can assist the FTC research the influence of hospital and doctor group mergers on costs and well being outcomes. In 2022, following President Biden’s govt order supporting the enforcement of antitrust legal guidelines to stop consolidation and anticompetitive conduct in well being care markets, the FTC successfully blocked 4 hospital mergers.
Despite these elevated efforts, vital gaps stay in FTC’s oversight over hospital mergers. Generally talking, the FTC has tried to dam solely about one p.c of mergers within the well being care market. Aside from useful resource constraints, there are a couple of causes that the FTC’s oversight is so restricted. First, FTC is simply notified about hospital mergers which have a price of $101 million or larger. Ninety p.c of personal fairness takeovers or investments fall under this threshold. Second, FTC is prohibited from implementing antitrust legal guidelines in opposition to any non-profit hospitals, which make up about 45 p.c of the hospitals within the nation. Third, FTC’s present tips solely deal with mergers inside one geographic area, excluding cross-market mergers, which made up greater than half the mergers within the final 10 years. Early in 2022, the FTC and the Department of Justice launched a joint public inquiry to replace its basic merger tips (not particular to hospital mergers), and it stays to be seen whether or not they’ll replace the hospital merger tips to incorporate cross-market offers.
Fourth, the FTC has restricted skill to behave in states which have “Certificate of Public Advantage” or COPA legal guidelines that successfully immunize hospital mergers from federal antitrust legal guidelines and substitute them with (typically cursory) state oversight. Studies of previous COPAs have discovered that they’ve resulted in will increase of business inpatient costs and declines in high quality of care. There can be rising proof that Clinically Integrated Network or CINs, the place a gaggle of well being care suppliers contract with each other to succeed in sure high quality and price targets with out formally merging, may end up in the identical value will increase as mergers however fly “under-the-radar” when it comes to triggering antitrust oversight.
What Can States Do About Provider Consolidation?
States may observe the FTC’s lead and enhance their very own oversight of supplier consolidation. A latest research discovered that states with stronger antitrust legal guidelines had been extra prone to scrutinize hospital mergers. The research identifies eight states with robust legal guidelines together with Oregon, which just lately enacted laws to set up “the most comprehensive health care merger review processes in the country.” Oregon’s merger evaluation authority permits it to scrutinize proposed offers that might in any other case fall under the FTC’s $101 million threshold. However, the research famous that having robust antitrust legal guidelines, whereas vital, is finally inadequate, on condition that even in states with robust legal guidelines, most challenged mergers finally succeeded.
Nineteen states at the moment have COPA legal guidelines in place, whereas 5 states have repealed their COPA legal guidelines. The remaining nineteen states may repeal their COPA legal guidelines and permit federal antitrust enforcement to supervise the next proportion of mergers than they at the moment do. Short of repealing COPA legal guidelines, state regulators accountable for processing COPA purposes may scrutinize candidates extra strictly. Recently in New York, a COPA utility fell by way of seemingly as a result of the merged entity would have had a mixed share of practically two-thirds of the commercially insured inpatient companies in a single county.
States additionally probably have the authority to evaluation supplier mergers by way of their neighborhood profit necessities for nonprofit hospitals and certificates of want (CON) legal guidelines, which require hospitals to acquire state approval earlier than establishing or increasing their companies. However, leveraging CON legal guidelines is usually a double-edged sword as a result of these legal guidelines have additionally been criticized at occasions for stifling completion by serving as a barrier to market entry.
Policy Strategies to Promote Competition
Anticompetitive contract clauses
While rising scrutiny over mergers and acquisitions is essential, consultants at a Bipartisan Policy Center panel on taming well being care costs famous that it may be too late for some markets which have already undergone vital consolidation. In these markets, it is very important prohibit hospitals which have already amassed vital negotiating leverage from utilizing that leverage to push for anti-competitive contractual language. Experts have recognized six several types of contract clauses which have the potential to extend well being care costs, 5 of which favor suppliers:
- Gag clauses prohibit insurers or employers contracting with a supplier from releasing provider-specific value or high quality data. Congress enacted the Consolidated Appropriations Act in 2020 banning gag clauses throughout all states.
- Non-compete clauses block doctor workers from competing with their employer for a sure period of time inside a sure geographic space.
- All-or-nothing clauses require insurers to contract with all services inside a well being system in the event that they wish to embrace anybody facility within the system.
- Anti-tiering/steering clauses require insurers to position any facility or doctor related to the well being system in essentially the most most well-liked or lowest cost-sharing tier and prohibits insurers from implementing value-based insurance coverage design to steer sufferers away from these suppliers.
- Exclusive contracting clauses prohibit insurers from contracting with any competing suppliers.
While the majority of states have some restrictions on non-compete clauses, only a few states at the moment have legal guidelines in place to limit all-or nothing, anti-tiering/steering, or unique contracting clauses. However, insurers, employer teams and state attorneys basic have had some success difficult these anticompetitive clauses in courtroom. For instance, a belief offering worker advantages to unions, a gaggle of self-funded employers and the California AG efficiently reached a settlement requiring the big well being care system Sutter Health to stop the usage of all-or-nothing contract clauses and anticompetitive bundling of companies.
Insurers and third-party directors performing on behalf of employers can use a state’s robust stance in opposition to anti-competitive language as leverage throughout negotiations with massive well being programs to drive down costs. However, there may be some proof that dominant well being programs would possibly have the ability to skirt such bans by both solely extracting the settlement orally or, by say, requiring solely a minimal distinction in cost-sharing to get round any anti-tiering clause prohibitions. Experts discover that states may be higher off combining restrictions in opposition to anti-competitive contract clauses with enhanced supplier charge evaluation processes that give the state the flexibility to evaluation insurer-provider contracts to make sure they aren’t anticompetitive. For instance, Rhode Island provides its insurance coverage commissioner the authority to evaluation insurer-provider contracts and reject people who lead to unreasonable value will increase.
Certificate of Need (CON) Laws
About half the states at the moment have CON legal guidelines in place, which require hospitals to accumulate the state’s approval earlier than beginning or increasing a brand new service. There is a few disagreement amongst consultants on whether or not these insurance policies promote or inhibit competitors. Critics of CON legal guidelines blame them for creating limitations to market entry for brand spanking new contributors, however there are conflicting research on the matter. Some present that CON legal guidelines have diminished the variety of obtainable suppliers, and different present that they’ve enhanced competitors by “limiting excessive expansion by incumbents.” States with CON legal guidelines and excessive ranges of market consolidation may probably repurpose them to curb anticompetitive conduct by robust incumbents and to watch merger exercise whereas limiting their influence on new market entrants.
Looking Forward
In a evaluation of the three most important coverage choices to curb well being care prices—value regulation, selling competitors, and bettering value transparency—the Congressional Budget Office ranked efforts to ban consolidation and enhance competitors as having a extra modest influence than value regulation. They venture that insurance policies selling competitors are prone to have a “small impact” on well being care costs—about one to 3 p.c within the first 10 years with the potential for extra financial savings after 10 years, as a result of it might take time for these efforts to point out outcomes. It is difficult to place the toothpaste again within the tube in terms of market consolidation within the well being care sector. As talked about above, numerous markets are already closely consolidated, and value regulation stays essentially the most promising path to curbing well being care costs. However, for some markets, it’s not too late to beef up the evaluation of mergers, and in all markets, regulators can proceed to be vigilant about anticompetitive contracting whereas discovering methods to maintain the door open to new entrants. Preventing consolidation and bettering competitors stay essential instruments within the toolkit for policymakers seeking to curb rising well being care prices.