CVS to Judge: Please Don’t Let Those 7 Witnesses Testify

https://www.healthleadersmedia.com/strategy/cvs-judge-please-dont-let-those-7-witnesses-testify

The pharmacy chain asked for a narrow hearing on its DOJ-approved purchase of Aetna, as seven witnesses prepare to testify against it.


KEY TAKEAWAYS

Both CVS and the DOJ argue the hearing should be narrowly tailored, with at least some witnesses excluded.

If allowed to proceed as proposed, the hearing could devolve into “a forum for airing competitors’ grievances,” CVS warned.

CVS Health asked the federal judge overseeing its acquisition of Aetna to prevent seven witnesses who lined up to testify against the megamerger from speaking at a hearing next month.

Although antitrust regulators with the U.S. Department of Justice greenlit the CVS-Aetna deal last fall, U.S. District Judge Richard Leon in Washington, D.C., made clear that his review should not be seen as a rubber stamp. Leon said he wanted to hear from witnesses before deciding whether to sign off on the DOJ-approved deal.

The seven witnesses put forward by three groups of amici curiae include health policy professors and economists from major universities, but CVS argued in a court filing Friday that Leon should decline altogether to hold a hearing with live witnesses. The planned testimony, as outlined in court filings, includes irrelevant arguments that could turn the hearing “into a forum for airing competitors’ grievances about the CVS-Aetna merger and about the healthcare industry more generally,” attorneys for CVS wrote.

The CVS filing argues that the three groups of amici—the AIDS Healthcare Foundation (AHF), the American Medical Association (AMA), and Consumer Action with the U.S. Public Interest Research Group (PIRG)—would be advancing their own competitive interests if the hearing were to proceed.

“Amici’s submissions demonstrate that such a hearing is unnecessary in light of the considerable record already before the Court,” attorneys for CVS wrote, “and Amici’s planned presentations, consisting almost exclusively of unreliable competitor testimony on issues that are not relevant to the Court’s Tunney Act determination, will add little, if anything, of value.”

In its own filing Monday, the DOJ argued that Leon should limit the testimony to only those items relevant to the scope of Tunney Act review. The DOJ asked the court to strike five of the seven witnesses entirely and limit of the scope of the testimony offered by the other two.

“These limitations will ensure that the hearing remains within the appropriate statutory and constitutional bounds, and will protect the Executive Branch’s constitutionally mandated control over its resource-allocation decisions in the enforcement of antitrust laws,” DOJ attorneys wrote.

 

 

 

NC hospital system tries another megamerger

https://www.axios.com/newsletters/axios-vitals-f500be38-f71e-4984-955b-efc69e20a435.html?utm_source=newsletter&utm_medium=email&utm_campaign=newsletter_axiosvitals&stream=top

Image result for hospital market lack of competition

Atrium Health struck out a year ago when it attempted to merge with in-state rival UNC Health Care, Bob reports. Now, the hospital system has inked a new deal to combine with Wake Forest Baptist Health, which is 90 minutes away from its headquarters.

Why it matters: Research overwhelmingly shows these kinds of regional hospital mergers lead to higher health care prices (and, consequently, premiums) because providers gain negotiating leverage and make it harder for health insurers to exclude them from networks.

Between the lines: The primary hook that Atrium and Wake Forest are selling is that they would build a new medical school in Charlotte. Because who could be against more doctors and research?

  • The organizations didn’t mention how, or if, they would try to keep costs and prices down.
  • The combined system would have almost $10 billion of revenue, which is roughly the size of Boston Scientific.

 

Walmart increasingly comparing physicians over cost: 5 things to know

https://www.beckershospitalreview.com/finance/walmart-increasingly-comparing-physicians-over-cost-5-things-to-know.html?origin=bhre&utm_source=bhre

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Retail giant Walmart is upping its efforts to hand-pick which physicians are most likely to reduce healthcare spending on employees, according to The Wall Street Journal.

Five things to know:

1. Large companies like Walmart are examining data from public records and their own health plans, and tapping consultants, to compare individual physician costs. 

2. The top physicians Walmart chooses sport the best results at the most competitive costs. The company excludes or shies away from others with poor performance metrics.

3. More than 5,000 Walmart health plan members have visited hand-selected physicians. The company’s health plan covers travel and medical costs to pair employees with these top physicians for procedures like surgery and cancer care. 

4. Lisa Woods, senior director of U.S. healthcare at Walmart, told WSJ that the results from choosing top physicians have made the strategy vital. While health plans have narrowed provider networks for their plans, the selection has largely focused on hospitals and physician groups rather than specific physicians.

5. The efforts are paying off for retailers: Walmart, Lowe’s and McKesson Corp. saved about $19.4 million in 2017 when their employees saw specific spine and joint surgeons picked by the employers, according to the Harvard Business Review.

 

 

 

WHAT’S TO KEEP AMAZON FROM COMPETING IN BRICK-AND-MORTAR HEALTHCARE? NOT MUCH

https://www.healthleadersmedia.com/strategy/whats-keep-amazon-competing-brick-and-mortar-healthcare-not-much

Amazon could join retail clinics already competing with hospitals and health systems to provide outpatient healthcare services.


KEY TAKEAWAYS

Amazon’s launch of new ‘urban grocery stores’ could serve as a possible beachhead for expansion into outpatient medical care services.

Amazon plans to offer goods besides food in the grocery stores, creating a potential entry point for it to get into brick-and-mortar retail healthcare.

Even in a digital age where more services are headed online, e-commerce retail giant Amazon could be poised, alongside retail healthcare clinics, to compete with hospitals and health systems on their brick-and-mortar playing fields.

And there’s little preventing Amazon from doing this, especially after news the company is looking to launch new “urban grocery stores,” which could serve as a possible beachhead for expansion into outpatient medical care services. Amazon would join retail providers Walgreens, CVS Health, and Walmart, which are competing already with hospitals and health systems to provide outpatient services in their communities.

This potential competition to hospital outpatient business comes as CVS is testing a “HealthHub” store concept in Houston following its acquisition of health insurer Aetna, and as Walgreens is dedicating armies of Microsoft scientists to a “store of the future.” Analysts expect these retail clinics to change the way U.S. healthcare is delivered, which includes efforts to give patients less need to use the hospital and its ancillary outpatient services.

And why not Amazon as well?

“Amazon’s basic approach has been to create a transactional platform that supports an ecosystem of interrelated products and services,” says Ken Kaufman, managing director and chair of consulting firm Kaufman Hall. “Adding brick-and-mortar stores to its online platform will support Amazon’s grocery business and its competition with Walmart but could be applied to other products and services, including healthcare, which is very much on Amazon’s radar.”

Amazon last year acquired the online pharmacy PillPack and formed a new venture recently named Haven with Berkshire Hathaway and JPMorgan Chase to examine ways to lessen the cost of care and improve health outcomes for the three corporate giants’ 1.2 million employees. Amazon’s announcements don’t directly impact hospitals and health systems, though analysts say Amazon, like Walmart, has a laboratory in its large workforce to test what works.

For now, Amazon “plans to launch urban grocery stores that could offer a spectrum of goods that include beauty products alongside food,” as The Wall Street Journal reported. Amazon declined HealthLeaders‘ request for comment on its plans.

But Kaufman sees this as a potential entry point for Amazon to get into brick-and-mortar retail healthcare, given its history to add on services over time from the successful platforms.

For example, Amazon in recent years has opened brick-and-mortar bookstores in New York, Chicago, and Washington, D.C. Earlier this month, Amazon said it is closing 87 of the pop-up kiosk variety stores in malls and Kohl’s stores, but it is maintaining Amazon Books and Amazon “4-star” stores that are largely stand-alone sites.

Amazon is looking at a grocery store model that includes leases with more flexibility than traditional commercial leases, as the Journal reported. That could allow Amazon to jump into healthcare services more quickly.

Though it’s unclear what kind of healthcare services and products Amazon could offer, Kaufman thinks that there’s not much keeping Amazon from exploring brick-and-mortar healthcare delivery in the future.

“It is always difficult to predict the long-term intentions behind Jeff Bezos’ short-term moves,” Kaufman said.

“The more comfortable Amazon gets with physical commerce, the easier it will be to pivot toward healthcare,” he added.

 

 

 

Segment 7 – Healthcare Power, Politics & Philosophy

Segment 7 – Healthcare Power, Politics & Philosophy

 

This segment reviews preconditions for having a focused discussion of healthcare reform necessitated by powerful vested interests, and it discusses how to overcome political polarization.

In the first six Segments, we have reviewed the relentless growth of healthcare spending. And how rising costs are literally built into the system as it is now. This review should give us some ideas on how to fix the system.

But before we talk about how to fix the healthcare system, we must first tackle some landmines that lurk beneath the surface. The landmines are power, politics and philosophy. They are the subject of the next 2 Segments.

In this Segment, we will discuss both preconditions necessary for a calm, focused discussion of healthcare reform as well as what I call “loaded” political words. Then in the following Segment we will look at traditional American values and principles that can be brought to bear on resolving the core philosophical dilemma that has kept us from fixing US healthcare all these years.

Let’s start with preconditions. The idea here is that healthcare now comprises 1/6 of the entire US economy. So, there are powerful interests, lots of money, and fierce political convictions that could derail any discussion before it even gets started.

So, I suggest setting preconditions to be agreed on beforehand. Only then can we calmly get into the meat of the discussion. Here are the preconditions.

Slide21

First, for purposes of discussion, let’s agree to keep dollar spending at the 2017 level – no winners, no losers, everything the same.

Second, let’s keep power the same. Keep the AMA, the hospital association, the VA, Health & Human Services, etc. No power struggles.

Third, strive to keep partisan politics out of the discussion. Make it a joint problem-solving project. Give credit where it’s due: to politicians or policy writers who contribute constructively. The motto is: “U.S. spells us.” Healthcare employs 1/6 of us and touches all of us.

Fourth, here’s where I will insert a viewpoint from my 40 years experience as a doctor: Human beings all get the same illnesses, all suffer, all are interconnected mind/body/spirits. I – like all doctors — have taken care of rich and poor, all races and nationalities, religious and non-religious, social outcasts and VIPs, saints and sinners. In a hospital bed or in the doctor’s office, we’re all the same. We should remember, “We’re all in this together”

Lastly, since healthcare is “too big to fail,” whatever is done should be done deliberately, slowly, with monitoring along the way and mid-course corrections when needed. If we accept these preconditions, we can have a Win-Win Discussion.

This kind of discussion should look at Facts, Goals, Values and lastly Methods, the actual Fix.

We have already discussed the Facts. The key facts are:

– the US health system has grown to 3.2 trillion dollars, representing 1/6 of the entire economy

– Cost growth is built into the system, has always outpaced inflation, and has resisted attempts to restrain the growth

– Healthcare spending is draining vitality from the economy, government and individual household budgets

Slide12

Here are the key Goals:

– We must stop excess healthcare growth beyond the natural increase expected from population increase, aging, and innovation.

– To do so will require fundamental reform of the system, not just tinkering with public finance and private insurance

– Since healthcare is “too big to fail”, a key goal is Avoid short-term disruption, again proceed slowly.

Slide13

The last things to discuss before we get to specific Methods – what I am calling the Fix of healthcare – are Politics and Values.

We all know that our country is polarized to an unhealthy extent. This has contributed to political paralysis – not getting anything done. I’m not a political scientist and cannot tackle the whole subject of healthcare politics.

But I do want to look at what I call “loaded words” that creep into our debates on healthcare. These words lock us into a closed, rigid mindset and can shut down discussion.

Let’s look at a few “loaded words” and suggest more neutral words to help keep the discussion open-minded.

Slide16

First is “socialized medicine.” This terminology stirs up the negative connotations of the so-called “Prussian menace” after World War I and “Red scare” after World War II. A more neutral term would be “publicly financed medicine.” The truth of the matter is that currently almost 50% of healthcare is already publicly financed through Medicare, Medicaid and other government programs. The issues behind the loaded words, which do need thoughtful discussion, are accountability; and also advantages and disadvantages of uniformity and nationwide scale, instead of the current fragmented system.

The next loaded terms are “free market” and “competition.” The connotations are freedom from government interference, freedom from politics, consumer freedom, and efficiency. The grain of truth behind the terms is that the law of supply and demand does drive down prices to a balance point in pure markets. The reality, however, is that healthcare is not a pure market, as we saw in Segment 5. Also, markets sometimes leave aside consumers who are poor or powerless, which includes many of the sick. A more neutral term is commercial market.

Next is “rationing.” The connotation is forcibly withholding something from an individual. A more neutral term is “limit-setting” or “prioritizing.” We will talk more about this in the next Segment, and about the need for patients’ to consent to limits on their health service or health insurance. The reality is that we already have de facto rationing by zip code, income level, government budgeting, and hospital technology policies. Prioritizing is not bad – it’s necessary.

Slide18

Another loaded word is “choice.” The connotation is that the government will interfere in choice of doctor or into the doctor-patient relationship itself. This was one of the scare tactics used by the insurance association in 1993 to bring down the President Clinton’s health reform plan. But the reality is that insurance network plans restrict patient choice of doctor more than government rules do. In addition, doctor inclusion in Medicaid – and other insurance plans, for that matter — is often a matter of the pay scales set by Medicaid or insurance companies, not the choices made by patients.

And the last loaded term I’ll mention is “big government.” The connotation goes back to President Reagan saying, “Government is not the solution to the problem; government is the problem.” We always hear about the Army’s 100-dollar toilet seats (in 1986 dollars) and the disastrous roll-out of the Obamacare website.

Slide19

And the truth is that government is big and can be just as flawed as any big institution. However, national government, unlike private companies, is legally transparent and accountable. Also, Government can fulfill some functions more effectively and efficiently than some private sector piecemeal approaches. Here are examples: FAA, FDA, FCC. Currently the military enjoys a high regard. Some examples of public-private partnerships are the moon shot, internet and healthcare research. Medicare has an enviable customer satisfaction rating of 77%.

The reality is that we are now a nation (and world) of big institutions – for-profit, non-profit, government, academic. All have institutional governance and administrative challenges, which are studied by the disciplines of public administration and business administration. Public administration and business administration tell us how best to run big institutions so as to fulfill their mission and to remain accountable and transparent. More neutral terms instead of “big government” are: public sector programs or taxpayer-funded program.

So we have some better neutral terminology to use for discussing healthcare to avoid inflammatory polemical words.

In the next Segment we will look at American values at stake in health care. We will also look at what philosophers say is a fair way to run US healthcare.

I’ll see you then.

 

 

Segment 2 – Brief History of U.S. Healthcare

Segment 2 – Brief History of U.S. Healthcare

Slide04

In Segment 2, I will answer the question, How Did We Get Here? I’ll give a whirlwind tour of the history of medical care in the U.S., and I’ll also look at the birth of health insurance.

Let’s start with looking at healthcare in the Colonial period. The most famous doctor at the time was Benjamin Rush. He – like most reputable professionals of the day – got his medical training in Europe, in his case Edinburgh, Scotland, the leading medical center of the time. Rush was a signer of the Declaration of Independence and served in the Revolutionary Army. He became the “father of American psychiatry” because of his interest in mental illness as a disease, not demon possession.

Rush and other orthodox practitioners in the early Republic –trained in the scientific European tradition– faced competition from a panoply of practitioners in an unlicensed, unregulated “free market.” They peddled nostrums like snake oil and procedures such as blood-letting. Doctors of all types trained like apprentices. The sick were cared for in their homes, with the poor going to almshouses and mentally ill to asylums. Port cities did have public pesthouses for quarantines.

By mid-19th century, orthodox doctors began trying to solidify their place in the market. They did this through training at medical schools, beginning with Harvard, Dartmouth, College of Philadelphia (which eventually became the University of Pennsylvania) and King’s College (which eventually became Columbia). But by 1850 there were now 42 medical schools that often were little more than diploma mills. The course consisted of only two semesters of 3 months each. The medical school needed only 4 faculty, 1 classroom, 1 dissection lab and a charter to grant degrees. These schools were highly profitable.

In 1847, the AMA (American Medical Association) was founded by the orthodox physicians.

Meanwhile, the era of scientific medicine was blossoming in Austria, Britain, Germany and France. Here are some milestones – anesthesia, microbiology study of invisible germs, antiseptic surgery technique and x-rays.

In America, by the turn of the century, doctors and the AMA sought to further shore up their legitimacy by reforming medical education. States began requiring more formal education as a condition for licensure. The Association of Medical Colleges was founded in 1876. In 1893, Dr. William Welch brought to Johns Hopkins University the German model of education based on 3 or 4 years of training in clinical sciences. Industrialist and philanthropist Andrew Carnegie hired Abraham Flexner in 1910 to draw up a blueprint for medical school reform. Flexner is widely credited with ushering in the era of modern medicine in this country.

In the early 20th century, doctors enjoyed prestige and independence. Courts rules against corporations practicing medicine, ensuring the pre-eminence of private practice. Doctors joined together in hospitals to take care of growing populations in big cities, and to exploit emerging surgical and diagnostic technologies.

This brings us to health insurance. Surgery (which made great advances during the Civil War and World War I) and hospitals were becoming expensive. So in 1929, Baylor College started the first pre-paid hospital insurance. Baylor’s 1,200 teachers each paid 50 cents per month to cover up to 21 days of hospitalization. Surgeons and hospitals quickly embraced this arrangement, and the Baylor plan became the Blue Cross plan in Minnesota in 1933 and Texas in 1934. By 1950, just 15 years later, Blue Cross covered 57% of the population.

Here’s how it happened. After World War I, the war-torn countries of Europe, like Germany, were in turmoil. Social insurance, including healthcare, helped reestablish some social stability there. But in this country, politicians opposed Teddy Roosevelt’s plan to set up national health insurance for factory workers, calling public insurance a “Prussian menace”. Labor unions saw public health insurance as an encroachment on their special role to ensure worker benefits. The AMA also opposed public health insurance as a potential “interference with the practice of medicine.

Then during World War II, wages were frozen, but companies were allowed to give health insurance benefits instead. This sewed the seeds of the employer-based health insurance system. In 1948 the Supreme Court decided that unions could use health benefits in collective bargaining agreements. Then in 1954 Congress made employer-paid health premiums non-taxable. By the mid-1960s employer-paid health insurance was nearly universal.

Let’s summarize the history of medicine from Rush to Medicare. In the Colonial period and early Republic there was intense competition among doctors of all stripes, those that tried to understand the scientific basis of disease and those who peddled remedies on a trial-and-error basis (referred to as “empirical”), relying mostly on their placebo effect. We still see vestiges of this early competition today in the rivalry between MDs, DOs, chiropractors and podiatrists. During the industrial period, little by little science-based orthodox physicians in the European tradition prevailed over their rivals introducing advances in surgery, diagnosis and infection control. They shored up their gains with institutions such as the AMA, hospitals, and eventually insurance.

In the next Segment, we will look at reform movements, starting with Medicare and Medicaid in the 1960s. We will also look at why later reforms failed and where that leaves us now.

I’ll see you then.

 

 

 

 

Healthcare Triage: Hospital Competition Can Impact Your Health

Healthcare Triage: Hospital Competition Can Impact Your Health

Image result for Healthcare Triage: Hospital Competition Can Impact Your Health

It turns out, hospital and health system consolidations can result in worse outcomes for patients. These mergers reduce competition, and it turns out that hospitals compete more often on quality than they do on prices. The result is that quality suffers in markets with less competition.

 

 

A review of health care costs: deck chairs and the Titanic, part 2

https://stateofreform.com/news/federal/2019/02/breaking-down-health-cares-cost-dilemma-part-ii/

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This article is Part II of a two-part series on the cost of health care and its component parts. Part I explores the recent growth of health care costs in the United States as well as the utilization inputs in the cost equation. Part II breaks down the pricing component of cost, determined by market leverage and the cost of delivering services. 


The Titanic

This brings us to the second category of costs: the Titanic. Or, to use our equation here of THC = U x P, the Titanic I’m talking about is the pricing component of cost.

In other words, health care leaders should do everything they can to make sure that utilization is the right care at the right time in the right setting. This makes a meaningful difference in the quality of our health care system.

But, if we focus on health care utilization alone, the health care system is still going to sink under the weight of costs. Our efforts will still be deck chairs on the Titanic.

To keep our ship afloat, we have to address the pricing input of our cost equation.

Like our cost equation above, pricing also has a simple equation of two inputs that determine price. According to a seminal study out of Massachusetts, which has been reaffirmed in additional studies (and by the experience of many network relations vice presidents across America’s health plans), this equation is straightforward.

Pricing is determined by a combination of market leverage (ML) and service delivery costs (SDC), where market leverage is 75 percent of the pricing structure and the cost of delivering the service is 25 percent.

This is true for either the plan or the provider, depending on where market leverage exists. This equation looks like this: P = ML(.75) + SDC(.25).

If we put this together, the math equation would look like this: THC = U x (ML(.75) + SDC(.25)).

Here’s how the study put it:

Price variations are correlated to market leverage as measured by the relative market position of the hospital or provider group compared with other hospitals or provider groups within a geographic region or within a group of academic medical centers. 

While addressing the utilization component of the cost-growth problem is essential, any successful reform initiative must take into account the significant role of unit price in driving costs. Bending the cost curve will require tackling the growth in price and the market dynamics that perpetuate price inflation and lead to irrational price disparities.

But here is what the numbers say: between 2004 and 2017, adjusting for age and sex factors, 68 percent of the growth in overall national health care expenditures came from increases in medical prices. Only 32 percent of growth came from utilization of services.

In other words, pricing is more than twice as important as utilization in the growth of health care costs – costs that are increasing more rapidly than ever.

 

 

Put graphically, while we have two inputs into total health care costs or expenditures, it’s incorrect to think of them as weighted equally, as demonstrated in image 1 above. It’s more accurate to think of these two pieces weighted as shown in image 2. And, if we are honest about the role of market leverage in health care pricing, market leverage alone is more than half of the overall problem in health care costs – more than all of the service delivery costs and utilization combined.

 

Keeping the Titanic afloat

Let’s restate the challenge we face here in our trans-Atlantic metaphor. Cost is the biggest problem in health care today. Those costs are made up by pricing and utilization, where pricing is more than twice as impactful in cost growth as utilization, and where market leverage is three times more impactful to pricing than are service delivery costs.

In order to keep our health care system afloat, we must address costs. And to address costs, we must address pricing.  And to address pricing, we must address market leverage.

If we move every deck chair around, but fail to address the cost consequences of market leverage, our ship will sink.

In our capitalist economy, we view consolidated market leverage as a market failure. It’s why we have antitrust statutes and an active regulatory regime to manage and push back against consolidation. Where the market failure is in the area of a public good, the American political system has often regulated those consolidated markets like public utilities or quasi-public entities.

Think of energy and Enron, of railroads and BNSF, of telephones and Ma Bell.

As health care nears 20 percent of the US economy, and where even urban states like California suffer from a “staggering” concentration of market leverage among health care providers, the lesson for health care policymakers and senior health care executives is this: If you want to get your hands around cost, you’re going to have to address market leverage to do that. Everything else is just deck chairs.

 

 

UPMC fires back at state AG, seeks to join BCBS antitrust lawsuit

https://www.healthcaredive.com/news/upmc-fires-back-at-state-ag-seeks-to-join-bcbs-antitrust-lawsuit/548993/

Image result for upmc building

University of Pittsburgh Medical Center filed a counter lawsuit on Thursday against the Pennsylvania attorney general, who is seeking to force the healthcare giant into contracting with rival Highmark. The system is also seeking to insert itself in a broader lawsuit over the ways Blues operate.

The flurry of filings taps into big questions over payer competition and underscores tensions seen throughout the country between insurance companies and providers as they negotiate contracts, particularly in highly concentrated markets. States have stepped up their enforcement of consumer protections against rising healthcare costs — but UPMC is saying its regulators have greatly overstepped their bounds. 

Earlier this month, Shapiro alleged Pittsburgh’s dominant medical provider wasn’t living up to its charitable mission as a nonprofit, accusing the health system of “forsaking its charitable obligations” in exchange for “corporate greed.”

The legal duel stems from a contract dispute between UPMC and its rival Highmark. Until June 30, the two have a legal agreement protecting consumer access to the other’s network through a consent decree. UPMC refuses to modify the decree and contract with Highmark, which risks in-network access to UPMC hospitals for Highmark members.

In response to the attorney general’s initial complaint, UPMC alleges that Shapiro’s attempt to renew and modify an expiring agreement between the Pittsburgh health system and Highmark is “unprecedented and unwarranted.”  The modification would, among other things, remove the majority of UPMC’s board of directors and force the integrated system to contract with any payer. 

The state AG responded on Friday, accusing UPMC of ignoring its mission and noting it would not be intimated by the healthcare behemoth.

“With their filings today, UPMC has shown they intend to spend countless hours and untold resources on a legal battle instead of focusing on their stated mission as a non-profit charity — promoting the public interest and providing patient access to affordable health care,” said Attorney General’s Office spokesman Joe Grace.

In its notice to the AG, UPMC lays out five examples it calls frivolous enough to get Shapiro’s motion dismissed — including previous testimony delivered by Deputy Attorney General Jim Donahue in 2014, when he told state representatives there is “no statutory basis” to make the two companies contract with each other without setting a dangerous economic precedent.

“If we force the resolution in this case, we really could not avoid trying to force a similar resolution in all those other situations, and that is simply and unworkable method of dealing with these problems,” Donahue said at the time. “We’d be putting our finger on the scale, so to speak … and we’re not sure what those effects would be.”

One effect is a class action lawsuit, which UPMC filed separately Thursday. It alleges Shapiro has violated at least four federal laws: Medicare Advantage statutes protecting competition, the Affordable Care Act’s nonprofit payer regulations and the Sherman Act and the Employee Retirement Income Security Act of 1974.

“Purporting to act in his official capacity, General Shapiro has illegally taken over nonprofit healthcare in the Commonwealth of Pennsylvania,” UPMC’s class action states. “Without rulemaking, legislation or public comment, General Shapiro has announced new ‘principles’ that radically (and often in direct contravention of existing federal and state law) change how nonprofit health insurers and providers operate, now rendering the Attorney General the arbiter of how nonprofit health organizations should envision and achieve their mission.”

UPMC says Blues system bad for business

Separate from its battle with the state attorney general, UPMC is attempting to jump in the middle of a legal antitrust battle over how Blue Cross Blue Shield plans operate. UPMC is seeking both a preliminary injunction and a motion to intervene in the years-long federal case in Alabama.

UPMC is asking the Alabama court to stop the Blues plans from enforcing their own market allocation agreements that prevent UPMC from contracting with other Blues plans, according to the filing. UPMC says a significant chunk of its patients have a Blue Cross Blue Shield plan from a different provider other than Highmark.

Joe Whatley, co-lead counsel for provider plaintiffs in the Alabama case, told Healthcare Dive UPMC “presents a good example of how the Blues are abusing their illegal agreement for their benefit and to harm healthcare providers throughout the country.”

UPMC argues that it would contract with other Blue Cross Blue Shield plans, separate from Highmark, but cannot due to the way Blues operate — or limit how they compete with one another. BCBS plans tend to stake out their own geographic areas and avoid competition with one another, a practice the Alabama court has already found is in violation of antitrust laws. A BCBS appeal to the Alabama judge’s opinion was already struck down by the 11th U.S. Circuit Court of Appeals late last year.

UPMC is asking the Alabama court for an injunction, or to step in and stop the Blues plans from enforcing or complying with their own market allocation agreements that are preventing UPMC from contracting with other Blues plans, according to the filing. And because the hometown plan, Highmark, does not have a contract with UPMC after June 30, it means that other Blues plan members that have enjoyed in-network access to UPMC will soon lose access after the consent decree expires.

About 24% of UPMC’s hospital patients have a Blue Cross Blue Shield plan other than Highmark.

UPMC contends that it has tried to contract with other Blues but was turned down. “The average non-Highmark Blues patient does not know that UPMC has offered contracts to each of these plans and been turned down because the Blues’ illegal market allocation prevents them entering into such an agreement with UPMC,” according to the filing.

Without an injunction, UPMC alleges it will suffer irreparable harm to its reputation and will lose a significant number of patients who have a non-Highmark Blues plans.

The Pennsylvania attorney general’s office has not responded to Healthcare Dive’s request for comment and UPMC declined to discuss the case further.

 

 

 

 

Market Concentration and Potential Competition in Medicare Advantage

https://www.commonwealthfund.org/publications/issue-briefs/2019/feb/market-concentration-and-potential-competition-medicare

Market concentration and competition

ABSTRACT

  • Issue: Medicare Advantage (MA), the private option to traditional Medicare, now serves roughly 37 percent of beneficiaries. Congress intended MA plans to achieve efficiencies in the provision of health care that lead to savings for Medicare through managed competition among private health plans.
  • Goal: Two elements are needed for savings to accrue: a sound payment policy and effective competition among the private plans. This brief examines the latter.
  • Methods: We use data from 2009–17 to describe market structure in MA, including the insurers offering plans and enrollment in each U.S. county. We measure both actual and potential competitors for each county for each year.
  • Key Findings and Conclusions: MA markets are highly concentrated and have become more concentrated since 2009. From 2009–17, 70 percent or more of enrollees were in highly concentrated markets, dominated by two or three insurers. Since the payment system used to reimburse insurers selling in the MA market relies on competition to spur efficiency and premiums that more closely reflect insurers’ actual costs, these developments suggest that taxpayers and beneficiaries will overpay. We also find an average of six potential entrants into MA markets, which points to a source of competition that may be activated in MA. To tap into potential competition, further research is needed to understand the factors affecting entry into MA markets.

Introduction

Medicare Advantage (MA), the private option to traditional Medicare (TM), now serves roughly 37 percent of beneficiaries through health care plans. Federal subsidy of the premiums of MA plans is intended to create a “level playing field,” so that the government pays MA plans based on what beneficiaries would typically cost in TM. This approach is based on Alain Enthoven’s concept of “managed competition,” wherein private plans that provide better benefits and higher-quality care at a lower price than TM would attract beneficiaries. Two elements are needed for this approach to work: a sound payment policy and effective competition among the private plans. This issue brief examines the latter.

Recent data show that many MA markets are served by just one or a small number of insurers.1 In 2012, 97 percent of county markets in the MA program were designated as highly concentrated according to the definitions used by the Federal Trade Commission (FTC) and the U.S. Department of Justice (DOJ), with a Hirschman-Herfindahl Index (HHI) of greater than 2,500.2 In 2016, the Medicare Payment Advisory Commission observed that local markets for MA plans were becoming increasingly concentrated.3 Recently, courts have blocked mergers that would further erode competition within the MA market.4

This issue brief updates information about the market structure in the MA program. We report on traditional measures of market structure, such as concentration ratios and the HHIs, and a simple count of the number of insurers offering plans in a market. We also include the “two-firm concentration ratio,” or the share of enrollment accounted for by the top two firms. We also offer new perspectives on competition in MA. First, we comment on competition and choice from the standpoint of a beneficiary by examining the number of plans available. Second, we introduce the idea of “potential competition” in an MA market. Potential competition, like actual competition, can constrain market power. Third, we consider the role of TM in constraining the market power of MA insurers.

Actual and Potential Competition

News stories about consumers’ choices among Medicare Advantage plans often begin with a statement such as “On average, seniors will have a choice of 21 plans, although at least 40 plans will be accessible in some counties and large metropolitan areas of the country.”5 But such accounts give a misleading indication of competition in the MA program, because many insurers offer multiple health plan products in the same market. In this issue brief, we measure the number of MA plans but also focus on the number of different insurers in the market to assess competition at the insurer level.

An insurer needs to be wary of potential as well as actual competitors. Insurers that set premiums high may enable competitors to gain footholds in a market. A market is said to be “contestable” if it is relatively easy for a potential entrant to contest for market share.6Barriers to entry, the magnitude of one-time entry costs, and the availability of comparably efficient technology all influence contestability of a market. Here, we identify “potential competitors,” or insurers that are in a position to contest a county-defined market and therefore pose a competitive threat to incumbents. Insurers licensed to operate MA plans in a state have already crossed some local regulatory barriers and contract with some local providers. We therefore measure potential competition by the number of health insurers participating in some MA markets within the state but not in a particular county.

Data and Measurement

We use data from 2009–17 to describe market structure in MA, including the insurers offering plans in each county and the level of enrollment by county and plan. From these data we measure both actual and potential competitors for each county for each year. Actual competitors are those insurers that participate in MA in a specific county; potential competitors are the insurers participating in MA in a state but not in the county of interest. These data also allow us to compute concentration ratios and the HHI for each county and in each year. In some analyses we categorize the counties according to the HHI corresponding to the FTC/DOJ classifications of concentration: 1) not concentrated, HHI <1,501; 2) moderately concentrated, HHI=1,501–2,500; and 3) highly concentrated, HHI >2,500.

Results

As shown in Exhibit 1, in 2017 Medicare beneficiaries could choose from a relatively large number of private plans (roughly seven) by the standards of the private insurance market. The number of insurers declined from 2009 to 2011 then remained steady through 2017, averaging 2.5 in 2017. For comparison, in 2017, the average metropolitan area had two insurers competing in the health insurance marketplaces created by the Affordable Care Act.

Insurer concentration increased from 2009 to 2011 (the number of insurers selling MA plans fell from 4.5 to 2.9) then remained at about the same, high level of concentration. The two-firm concentration ratio was already high in 2009 (81%); it rose to 91 percent by 2011 and stayed there through 2017. The average county-level HHI was 4,914 in 2009, rising to 6,360 in 2013, and declining slightly to 6,285 in 2017. To put this in perspective, a market with two equal-size health plans would have an HHI of 5,000. The average MA market is therefore even more concentrated than that. Notably, the number of potential competitors also fell over the same period. Nevertheless there are now more potential than actual competitors in each county.

Exhibit 2 shows that 70 percent or more of MA enrollees were in highly concentrated markets (HHI>2,500). Few MA enrollees were able to choose a plan in a market not dominated by two or three insurers.

Virtually all Medicare enrollees face MA markets that are moderately to highly concentrated. Exhibit 3 shows the distribution of all Medicare enrollees (in MA and TM) by the levels of MA concentration. We stratify markets (i.e., counties) into quartiles according to the size of the total population of Medicare beneficiaries. The table reports mean population and mean HHI for each quartile of the total Medicare population. Among sparsely populated markets, which are largely rural, the mean HHI is 6,684 — indicating that they are highly concentrated. This is in part because of the difficulty that managed care plans, like HMOs and PPOs, have in establishing provider networks in rural areas where providers are scarce and provider markets are highly concentrated. In highly populated markets, the average HHI shows that they too are highly concentrated HHI = 3,774), but the index value is considerably lower than in sparsely populated markets.

Exhibit 4 shows the average numbers of potential entrants in counties grouped by the three HHI ranges. In recent years, there has been little difference in the number of potential competitors in areas with high or low concentration, implying that potential competitors are no more attracted to highly concentrated markets and may not discipline competition any more strongly in areas with few actual competitors. This was not true in earlier years, during which the number of potential competitors was higher in areas with less current competition. The number of potential competitors in moderately concentrated counties has remained steady over the nine-year period.

While Medicare beneficiaries have a choice between TM and MA, in assessing the competitive forces on MA plans we assume that the actual or potential competition from other MA plans matters most. The market position of an MA insurer in relation to TM received examination in connection with two recently proposed mergers, between Aetna and Humana and between Anthem and Cigna. The U.S. Department of Justice challenged these mergers on antitrust grounds, arguing that the proposed consolidations would threaten effective competition in MA. In the Aetna-Humana case, Judge Bates observed: “The weight of the evidence presented at trial indicates ‘industry [and] public recognition’ of a distinct market for Medicare Advantage. Competition within that market, between Medicare Advantage plans, is far more intense than competition with products outside of it.”7 While the role of traditional Medicare in affecting competition in the MA market deserves further analysis, competition among MA plans is where most of market discipline is likely to arise. While the presence of TM likely affects the conduct of MA plans, existing evidence suggests that the primary drivers of consumer choices are differences in the premiums, quality of care, and benefits among MA plans.8

Implications of MA Market Concentration

Even though 37 percent of all Medicare beneficiaries are enrolled in private plans, when compared with employer-based health insurance Medicare’s transition to managed care has been slow. Traditional Medicare is the last major bastion of open-network, fee-for-service health insurance, although the fee-for-service component is beginning to change with the spread of accountable care organizations. Competition or lack thereof of in a market plays a role in accelerating or attenuating this shift. Consumer choices tend to be driven by the better value (premiums and quality) that can turn more favorable with increased competition.

Several forces may have driven greater concentration in MA markets since 2009. First, consolidation in the health insurance industry generally may have affected the MA market structure.9 Concentration in provider markets also has been increasing, which has made price negotiations for health care services more difficult for insurers, especially smaller ones.10 Medicare policy changes over these years may have inadvertently limited the supply and market entry of MA insurers. When Medicare rules were changed to require all MA plans to create networks of providers, the effect of provider concentration was heightened and some health insurers were less willing to remain in and/or enter MA markets. This effect may have been especially significant in rural areas.11 At the same time, there appears to be a substantial number of potential MA insurer entrants in most moderate to highly concentrated markets, yet there appears to have been little clear impact on market outcomes in terms of premiums and quality.

Together, the confluence of these forces continues to push MA markets in the direction of greater concentration. Since the payment system used to reimburse insurers selling in the MA market relies on competition to drive premiums toward insurers’ actual costs, these developments suggest that taxpayers and beneficiaries will overpay for MA products, compared with what they might have paid in markets with more robust competition.

Need for Further Analysis

A competitive market is intended to deliver good products to consumers at low prices. Ultimately, the effect of Medicare Advantage market power on prices or quality of care needs to be assessed empirically. There is some, but limited, evidence on the exercise of MA market power.12 Further research is needed to understand how potential competitors affect the actions of existing competitors. It also will be important to understand the barriers to market entry for potential competitors, especially those that might be lowered to spur greater competition.