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/

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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.

 

 

 

 

Coping with Serious Illness in America

http://features.commonwealthfund.org/coping-with-serious-illness-in-america

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Relying on Family and Friends

The luckiest among us have family and friends to lean on when times get tough. For those who develop a serious illness — an often painful and tumultuous experience — family and friends offer crucial emotional support and help with day-to-day activities. A recent survey of the sickest adults in America, conducted by the Harvard T. H. Chan School of Public Health, the New York Times, and the Commonwealth Fund, found that seriously ill adults also rely on their family and friends to organize their health care, helping them navigate an often complex, confusing, and inefficient system.

Focus groups and in-depth interviews conducted by the Commonwealth Fund since 2016 revealed that while taking care of a seriously ill family member or friend can bring meaning and satisfaction to caregivers, it also can become a complex and serious responsibility that burdens them.

Below we describe the many functions caregivers — defined as family and friends who provide care to the seriously ill — serve, as well as the financial, physical, and emotional challenges they face. We offer policy solutions, such as financial protections, employment flexibility, and training to prepare an “invisible workforce” for this deeply meaningful but sometimes overwhelming role.

Any one of us could find ourselves in the role of caregiver if we haven’t already. And our country and economy are likely to benefit when we help ensure caregivers are able to maintain their mental and physical health and stay in the workforce.

Learn more about the Health Care in America: The Experience of People with Serious Illness survey, including methodology and additional findings.

Many Caregivers Say They “Do Everything” for a Family Member or Friend with Serious Illness

Approximately 40 million Americans provide 37 billion hours of care and help each year to family members and friends. Most of the people with serious illness we surveyed (86%) reported that in recent years family and friends helped them deal with their medical or health condition at home.

Illness can make the simple activities of daily living, like cooking, cleaning, and bathing, nearly impossible, especially without assistance. Caregivers reported that helping with these routine tasks can become a huge commitment, and that the demand for care can escalate unexpectedly. “It started out as doing his laundry, getting groceries, but [my uncle’s] problems continued to get worse,” one caregiver explained. “There was really no other family in the area and now basically I do everything for him. I take him to his appointments. I cook his meals. When I leave him it almost feels like I’m leaving a child alone. It’s very scary.”

Even when a nurse or aide provides in-home help to the sick family member or friend, caregivers still need to organize the logistics of care, from scheduling doctors’ visits to taking time off work to provide transportation to the appointments and participate in the visits. Among people with serious illness we surveyed, more than half (55%) reported bringing a family member or friend to every medical appointment they had in recent years.

Our survey respondents also reported that they often relied on their family or friends who were health professionals (34%) for health care advice. These caregivers take on a number of important responsibilities for family members and friends with serious illness, such as helping to find qualified doctors, talking directly to the supervising clinician, and arranging appointments.

The Benefits and Tolls of Caregiving

People who care for a seriously ill family member or friend can benefit psychologically, emotionally, and socially from the experience. Previous studies have found caregiving increases self-confidence, makes caregivers feel closer to their ill family member or friend, and gives them the peace of mind that their family member or friend is well cared for. A daughter who cared for her mother with cancer described the fulfillment it brought her: “It meant a lot that I was able to be there for the person that was always there for me — who raised me and sacrificed for me.”

Despite the fulfillment caregiving can bring, it also can be incredibly burdensome and disruptive. The seriously ill adults we surveyed worry about the challenges their caregivers face. One seriously ill adult we spoke with said the following about her children: “Not only for my sake, but for the sake of my kids and my grandkids, I hope they are able to enjoy their later years and not worry about having to take care of me. I know they’d be glad to do it, but it has an impact on their lives, both short and long term.”

One-third (36%) of the seriously ill we surveyed reported that caregiving created problems for their family member or friend. These include emotional, physical, and financial strains.

Emotional strain

About one in three (31%) seriously ill adults in our survey reported their caregivers experienced emotional stress from caring for them. This is consistent with other studies that find caregivers experience significantly more stress than noncaregivers and have mental health issues like depression at twice the national rate. Caregivers who lack support from friends and family themselves are particularly affected by mental health issues and emotional strain.

Physical health issues

A quarter (25%) of the seriously ill adults we surveyed reported that their family or friend caregiver experienced physical strain from having to bathe, dress, and even lift them, to name a few issues. Other studies have shown just how powerful the physical toll of caregiving can be. Caregivers, compared to noncaregivers, are twice as likely to report chronic conditions like heart disease or diabetes, are more likely to view their health as fair or poor, and are even more likely to die. These physical consequences seem to be in part because of caregivers having limited time and resources to spend on their own health. They also may engage in unhealthy behaviors like drinking, eating poorly, and postponing their own doctors’ visits.

Financial problems

Nearly one in four (23%) seriously ill adults reported their caregiver experienced financial problems because of caregiving. Moreover, more than half (57%) of the seriously ill adults we surveyed said the costs of their medical care were a direct burden to their family. As seriously ill adults themselves face financial strain because of their condition, family members and friends may be left to pick up unpaid medical bills. Beyond paying directly for medical care, a study by AARP found that family caregivers spend on average close to $7,000 a year taking care of their family member, or about 20 percent of their annual income.

Employment disruption

Compounding the financial burden, caregiving can get in the way of work; 15 percent of the seriously ill we surveyed said their caregivers lost or had to change jobs because of their caregiving responsibilities.recent study found that nearly half of working caregivers said caregiving interfered with their job, and another 40 percent of those who were not working at the time of the study had quit their jobs or retired early because of caregiving. As one caregiver from our focus groups said, “My mother with Alzheimer’s lives with me. I manage all her affairs. I pretty much shut my life down to stop working and take care of her.” This need to drop out of the workforce is particularly concerning because the primary protection for working caregivers, the federal Family and Medical Leave Act (FMLA), offers only three months of unpaid leave. Moreover, it means the U.S. has fewer productive workers than it would if services were in place to support caregivers.

Support for “The Invisible Workforce”

There are several ways in which we as a nation could support this “invisible workforce” of caregivers — a group unseen, yet critical to the provision of care.

  • Education, training, and mental health support.Education and training on effective caregiving could help to improve both caregiver and patient outcomes. A recent study found that reviewing how to take care of their family member or friend before discharge from an inpatient hospital stay lowered the cost of postdischarge care and reduced readmissions. In addition, mental health support from behavioral health providers and others could offset the emotional and physical challenges caregivers experience. For example, a managed care plan in New Jersey, Amerigroup, hosts caregiver events where they provide educational workshops on illnesses and offer relaxation exercises to help caregivers cope.
  • Redesign health care for the seriously ill to make it less burdensome for patients and caregivers. Expanding the availability and affordability of respite care — which gives caregivers a temporary break — along with home care services, transportation, and care coordinators, would mean less responsibility for family and friends. AmeriHealth Caritas, for example, covers additional respite care beyond the state minimum to improve quality of life for enrollees and tackle caregiver burnout.
  • Financial support. Policies requiring paid leave for those working and taking care of sick family could protect them from some financial consequences and help keep them in the workforce longer term. In addition, federal and state policymakers could offer tax benefits, provide direct compensation, or allow family and friend caregivers to claim Social Security benefits for the time they spend caring for the seriously ill to offset financial costs. Lastly, payers can directly compensate caregivers for their time. For example, Medicaid long-term-care plans offer payment to caregivers for direct care, but the specific benefits and criteria vary from state to state. Paying informal caregivers could even save the health care system money long term by preventing more costly care later on.

Caregiving in America is not easy for the friends and family who provide this undervalued, unpaid, and even unrecognized service for both the person with serious illness and our society. To keep family and friend caregivers healthy and in the workforce, health systems, payers, and policymakers could expand training, increase insurance coverage for home-based services, and implement policies to financially protect caregivers.

 

 

Analysis Shows One-in-Five U.S. Rural Hospitals at High Risk of Closing Unless Financial Situation Improves

https://www.navigant.com/news/corporate-news/2019/rural-hospitals-analysis

https://www.beckershospitalreview.com/finance/1-in-5-rural-hospitals-at-high-risk-of-closing-analysis-finds.html?origin=cioe&utm_source=cioe

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Twenty-one percent of U.S. rural hospitals are at high risk of closing unless their finances improve, according to an analysis from management consultancy firm Navigant.

The study also found 64 percent, or 277, of high financial risk rural hospitals are considered essential to their communities.

The analysis — which examined the financial viability (operating margin, days cash on hand and debt-to-capitalization ratio) and community essentiality of more than 2,000 of the nation’s rural hospitals — suggests 21 percent or 430 rural hospitals in 43 states are at high risk of closing. These hospitals represent 21,547 staffed beds, 707,000 annual discharges, 150,000 employees and $21.2 billion total patient revenue, according to Navigant.

Of the 43 states, 34 have five or more rural hospitals at risk. 

Navigant cited payer mix degradation; declining inpatient care driving excess capacity; and inability to leverage innovation as factors putting the hospitals at risk. Medicare payment reductions, the age of many rural facilities and a lack of capital to invest in updated, innovative technology were specifically cited.

“While the potential for a rural hospital crisis has been known for years, this predictive data sheds light on just how dire the situation could become,” the study authors concluded. “Now, by being able to accurately assess the economic health of all rural hospitals in America, there is no choice but to pay attention. Local, state and federal political leaders, as well as hospital administrators, must act to protect the well-being of rural hospitals nationwide and the communities they serve.”

Read more about the analysis here

 

Asking the wrong question about physician consolidation

https://journals.sagepub.com/doi/10.1177/1077558719828938?utm_source=The+Weekly+Gist&utm_campaign=41103e2ef1-EMAIL_CAMPAIGN_2019_02_14_09_16&utm_medium=email&utm_term=0_edba0bcee7-41103e2ef1-41271793&

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A paper out this week from Rice University healthcare economist Vivian Ho is the latest analysis to posit that vertical integration of doctors and hospitals does little to improve care quality. Researchers evaluated 29 primarily hospital-focused quality and patient satisfaction measures and found that higher levels of vertical integration were associated with improved performance on just a small number of metrics—and increased market concentration was associated with lower scores on all patient satisfaction measures.

Before concluding that vertical integration generates little improvement in quality, it’s worth looking a little deeper at the methodology of this study, as well as the larger drivers of hospital-physician integration. Researchers used a blunt measure of vertical integration, combining health systems’ self-reported physician alignment model with a standard index of hospital market concentration (on the theory that lower hospital-to-hospital competition indicates greater vertical integration). The performance measures examined are hospital-focused, ignoring outpatient care quality, as well as the nuance of whether the “integrated” physicians in any market are responsible for the outcomes measured (employing primary care doctors and orthopedic surgeons would have little impact on measures of hospital treatment of heart attacks).

In a press release, the author notes: “If patient welfare doesn’t improve after integration, there may be other reasons why physicians and hospitals are forming closer relationships—perhaps to raise profits.” That’s right: there are many motives for vertical integration. Surely profitability has been a driver, as well as the rising complexity and deteriorating economics of running an independent practice. In the real world, physician alignment strategies are rarely driven by the primary goal of improved quality. However, many health systems have begun to recognize that closer financial alignment is a necessary (but far from sufficient) requirement to enable real progress on quality improvement. Regardless of alignment approach, though, quality improvement results from the hard work of care process redesign and cultural change, not as the inevitable result of vertical integration. Success stories are still too few and far between, but we believe there is value in leveraging vertical integration to make this work easier. Condemning vertical integration seems a harsh verdict; a more appropriate criticism would be that much of the heavy lifting of care redesign is yet to begin.

 

 

Here come the Millennials!

We spend an awful lot of time in healthcare talking about the Baby Boomers. No surprise, America has spent decades—six-and-a-half of them, to be exact—contending with the impact of this historically large generation on nearly every aspect of our national life. From politics to economics to culture, the Baby Boom reshaped almost every facet of our society, and healthcare has been no exception. The fact that over 10,000 Boomers join the Medicare ranks every day means they’ll have a transformative effect on how healthcare is delivered and paid for—up to and including the sustainability of the Medicare program itself. So it may come as a shock to Boomers to learn that, starting in 2019, it’s no longer All About Them. This year America passes a new milestone: Baby Boomers are now outnumbered by Millennials. As the chart below shows, Boomers (whose average age is now 63), will be surpassed this year by America’s new Largest Generation. Born between 1981 and 1996, the Millennials are now 30 years old on average, and there are 72.5M of them, compared to 72.0M Boomers—a gap that will continue to widen. (Thanks to immigration, we have another 14 years until we hit “peak” Millennial, according to Census Bureau projections.)

This demographic achievement alone ought to earn Millennials a participation trophy—obviously, not their first. (Forgive the sarcasm…we’re Gen X-ers, it’s what we do.) But this changing demographic landscape brings big implications for healthcare. Boomers are just entering their peak “senior care” consumption years now, and we’ll have a quarter-century or more of very expensive care to fund for a generation that is by all indications more riven with chronic disease but more likely to live into very old age than previous cohorts. That creates the imperative for population health approaches that allow care for seniors to be delivered in lower-acuity settings. At the same time, however, Millennials are really just entering the healthcare system. For the next several years, most of their care needs will be driven by having babies and caring for growing families. But just as the last of the Boomers get their Medicare cards in 2029, the Millennials will begin to enter their “upkeep” years—demanding a variety of diagnostics, surgeries, and procedures to keep them thriving. Who will pay for all of that specialty care, and where will it be delivered? Today’s health system planners would do well to begin to look ahead to future capacity needs, and economic models.

The Millennials bring dramatically different service expectations as well. This is a generation raised in the era of Amazon. One-click purchases, same-day delivery, frictionless transactions, personalized offerings, low institutional loyalty—all of that will shape the way this generation thinks about consuming healthcare, with huge implications for providers. This is a high-information generation, whose adult years have seen a pervasive shift from physical to digital commerce, and they’ll expect healthcare to follow that trend. Ask today’s pediatric providers how different the Millennials are as parent-consumers—you’ll quickly get the picture. Even as physicians, hospitals and others scramble to retool care delivery to more efficiently manage the swelling ranks of seniors, they’ll need to keep a close eye on the preferences of Millennials, upon whom their future fortunes will rely, and who won’t tolerate the hurry-up-and-wait ethos that still pervades American medicine.

(Spoiler alert: waiting in the wings is Gen Z, digital natives born in 1997 and after. Guess what? There’s even more of them!)

 

Testing a new role for ambulance services

https://www.cms.gov/newsroom/fact-sheets/emergency-triage-treat-and-transport-et3-model?utm_source=The+Weekly+Gist&utm_campaign=41103e2ef1-EMAIL_CAMPAIGN_2019_02_14_09_16&utm_medium=email&utm_term=0_edba0bcee7-41103e2ef1-41271793

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On Thursday, the Center for Medicare & Medicaid Innovation (CMMI) announced the launch of a new payment pilot that would pay ambulance providers to deliver an expanded range of care services, and to transport patients to alternative care settings. Expected to launch next year, the Emergency Triage, Treat and Transport Model (ET3) is a five-year, voluntary payment model that would reimburse care such as onsite and telemedicine-enabled assessment, transport to an alternative care site, or treatment in place in response to a 911 call. The model will require ambulance providers and local governments responsible for 911 dispatch to cooperate on triage and care delivery and will provide funds to assist in integrating services. The agency also plans to invite state Medicaid programs and private insurers to collaborate in model adoption.
We’ve long been impressed by programs that use “community paramedics” to provide in-home assessment of homebound patients with complex care needs. As one participant told us, paramedics are ideally suited to assess a home situation; they have “seen everything” so nothing fazes them, and patients who frequently call 911 are comfortable with letting a paramedic in their home and are often willing to engage with them on broader care issues. Yet few of these programs have enjoyed sufficient funding to scale services. At first blush, the ET3 program could be one of the most innovative payment models CMMI has yet proposed, with the potential not only to eliminate thousands of unnecessary ED visits and provide more appropriate care in a lower-cost setting, but also to link at-risk patients with ongoing care management and social resources.

 

 

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.