Creating Effective Health Care Markets

https://www.commonwealthfund.org/blog/2018/creating-effective-health-care-markets?omnicid=EALERT1469225&mid=henrykotula@yahoo.com

Building a health care market

Disagreement about the role of markets lies at the root of many of our fiercest health care controversies. One side believes that unleashing market forces will rescue our health care system. From this viewpoint, government involvement is inherently destructive, except in rare circumstances. Many opponents of the Affordable Care Act share this opinion.

The other side believes that health care markets are deeply flawed and that government must play a major role in achieving a higher-performing health system. These people point out that markets make no claim to ensuring equity in the use of health care resources, only improved efficiency. Supporters of the ACA tend to hold this view.

Given this fundamental divide, it’s worth considering the conditions underlying the effective functioning of market economies, whether those conditions currently prevail in health care and, if not, what changes would be required to establish them.

Students learn in Economics 101 that several assumptions must hold for free markets to achieve their potential:

  • First, consumers and suppliers of goods and services have perfect — or at least sufficient — information. They know or can find out the price and quality of available products.
  • Second, consumers and producers are rational. They make reasoned decisions about what to purchase and supply. These decisions maximize their welfare as consumers and their profits as businesses.
  • Third, it is easy for producers to enter markets, thus assuring that monopolies don’t form, and that increased competition occurs where prices are excessive, reducing prices to efficient levels.
  • Fourth, in any market, there are large numbers of firms selling a homogeneous product.
  • Fifth, individual firms cannot affect market prices.

Practically speaking, these conditions rarely exist in pure form anywhere in our economy. In the case of health care, there are a variety of different types of markets. For example, employers purchase insurance, large hospital systems purchase medical supplies, and individuals purchase insurance plans. These markets may embody these conditions to varying degrees, but the most basic health care markets, in which consumers or patients directly buy health care services, depart from this ideal dramatically, as the following examples illustrate.

To begin with, health care consumers not only lack perfect information, but often any information at all.   At present, prices in the U.S. health care market are virtually unknowable. Quality data are scant, imperfect, and often confound even experts.  Further, medicine is a complex science-based service: even highly trained health professionals struggle to stay current. As a result of social media and the internet, consumers are better informed than ever before, but most depend on advice from health professionals to make informed health care purchases. This kind of imperfect information may help explain why consumers in high-deductible health plans are equally likely to reduce their use of high-value or low-value health care services. They are just as likely to forgo their blood pressure treatments as unnecessary back surgery.

Health care consumers also face unusual challenges to making rational decisions. In medicine there is a saying that any doctor who treats herself has a fool for a patient. Even the most informed individual can have difficulty acting rationally when confronting the emotional turmoil that accompanies their own illness or that of a loved one. Beyond this, there are clear situations where patients’ cognitive abilities are compromised, for example, in cases of stroke, dementia, intoxication, loss of consciousness, delirium, or mental illness.

Competent patients have the inherent right to make their own medical decisions, and many do so wisely and well. But market advocates also must recognize the special obstacles to rational decision-making that face health care consumers.

Consolidation among insurers and health care organizations has radically reduced the number of providers selling health care and health insurance in many U.S. health care markets. Recent work shows that providers in 90 percent of U.S. markets are highly or “super” concentrated.

This consolidation and resulting lack of competition has enabled individual providers to charge excessive prices in many markets. Similarly, government-granted patents create monopolies that enable drug manufacturers to set astounding prices for new drugs and raise them almost at will.

These and other departures from the conditions necessary for effective market functioning suggest the dangers of uncritical reliance on free markets to improve our health care system. At a minimum, advocates of market solutions would be wise to consider three interventions that could increase the probability that markets will function as desired.

  1. Develop better information on prices and quality. Consumers need information to make informed decisions. Publishing raw data on the prices of care — often referred to as price transparency — is insufficient because it rarely reflects the actual cost consumers face during an episode of care. The price of a chest x-ray that diagnoses pneumonia, for instance, is a poor indicator of the costs of a subsequent hospitalization, not to mention the downstream costs for any previously undetected lung disease. To make health care markets work, advocates must develop approaches to price transparency and quality measurement that are meaningful and understandable to consumers.
  2. Foster markets for health services that pose the smallest challenges to rational decision-making. Certain health services — often referred to as “shoppable” — involve tests or treatments that are either elective, relatively simple to understand, or nonurgent, which allows patients time to learn and think about them. Examples include screening tests for generally healthy individuals (e.g., colonoscopies, mammograms), elective surgeries (e.g., hip and knee replacement), or necessary but nonemergent care (e.g.,whether to add insulin to a diabetic regimen). Fostering competitive forces in these areas could improve the functioning of the health care market overall. But reformers should be aware that these services are likely to account for a minority of health care activities and, frequently, are not the most expensive ones.
  3. Promote competition. Unless government finds ways to restore competition among providers where it no longer exists, markets can’t succeed. This is true both for health care services generally and pharmaceuticals in particular.

Given our desperate need for health care reform, the appeal of market solutions is understandable. But it is naïve to assume that they will work in health care just like they do in other sectors. It is time for a frank, open, and nonideological discussion of the problems markets can address in health care and how we can create conditions that will enable markets to function as intended.

 

 

ACA Marketplace Premiums Grew More Rapidly In Areas With Monopoly Insurers Than In Areas With More Competition

https://www.healthaffairs.org/doi/abs/10.1377/hlthaff.2018.0054?utm_term=Jessica+Van+Parys+of+Hunter+College%2C+City+University+of+New+York&utm_campaign=Health+Affairs%5Cu2019+August+issue%3A++Medicaid%2C+Markets+%2526+More&utm_content=email&utm_source=Act-On+Software&utm_medium=email&cm_mmc=Act-On+Software-_-email-_-Health+Affairs%5Cu2019+August+issue%3A++Medicaid%2C+Markets+%2526+More-_-Jessica+Van+Parys+of+Hunter+College%2C+City+University+of+New+York

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 It pays to have an insurance monopoly
Also from Health Affairs: The level of competition among insurance companies has affected Affordable Care Act premiums more than any other factor.

By the numbers: Premiums are 50% higher this year in areas with just one insurer than in areas with two insurers.

  • “The presence of a monopolist insurer was the strongest, and most precise, predictor of 2018 premiums,” the study says.
  • Other factors commonly associated with higher premiums — like hospital concentration and the health of the people who live there — showed significantly smaller effects.

How it works: Jessica Van Parys, the Hunter College economics professor who conducted the study, suggests that insurers underpriced their ACA offerings in the first few years to capture market share, then raised their prices over the years.

  • Costs and regulatory uncertainty largely kept new competitors from entering those monopolized markets.

 

California insurance commissioner urges Department of Justice to block CVS Health, Aetna merger

https://www.healthcarefinancenews.com/news/california-insurance-commissioner-urges-department-justice-block-cvs-health-aetna-merger?mkt_tok=eyJpIjoiWXpNMVltTm1OVGswTlRGbSIsInQiOiJjXC82T2s4Yms2K2RuSXhJYlpoMTd4OFRWSkVnd0pXXC9PN1wvaVBKT1dEdFI2OStpcVhWVkVzaUlPOU9maklhZG5lYlFSOGNSQ2dvTmtSTm1reE56U0JsbFEzdzJ6dmpOXC95V3RySUtmbExTbmhtUENrRDZ6REw4VisybWhwSExMVVwvIn0%3D

The merger would increase market concentration in the PBM space and put other insurers at a competitive disadvantage, Dave Jones says.

The proposed $69 billion merger between CVS Health and Aetna hit a snag on Wednesday when the California insurance commissioner urged the Department of Justice to block the deal.

California Insurance Commissioner Dave Jones said the proposed merger would have significant anti-competitive impacts on consumers and health insurance markets and would also pose a concern in the Medicare Part D market.

Nationally, Aetna has a 9 percent market share among Part D plans while CVS Health has a 24 percent market share, with even greater overlap in some geographic markets. Economic evidence suggests that increasing the market concentration and reducing competition for Part D plans will likely result in higher premiums, Jones said.

California is the largest insurance market in the U.S., according to Jones. Insurers collect $310 billion annually in premiums from individuals and businesses in the state.

“Mergers which decrease competition are not in the interest of Californians,” Jones said in the August 1 letter to Attorney General Jeff Sessions and Assistant Attorney General Makan Delrahim.

In 2016, Jones also vetoed the proposed Anthem/Cigna and Aetna/ Humana mergers that were both blocked by federal regulators.

Jones did approve of Centene’s plan to acquire Health Net, a deal that also received federal approval.

Those mergers would have combined competitors in the same industry, while CVS has dominant market power as a supplier.

Post merger, CVS would have less incentive to keep down the cost of prescription drugs for insurers competing with Aetna, Jones said. Insurers would have difficulty using CVS’s pharmacy benefit manager, CVS-Caremark.

CVS currently provides PBM services to 94 million plan beneficiaries nationally, of which 22 million are Aetna subscribers.

The merger would increase market concentration in the PBM market, eliminate Aetna as a potential entrant in that market and put other insurers at a competitive disadvantage, he said.

Many of the largest PBM competitors are also owned by health insurers, such as OptumRx, which is part of UnitedHealthcare, and Cigna, which has initiated a merger with Express Scripts.

“The PBM market’s lack of competition and the merger of CVS-Aetna is likely to put other insurers that do not own a PBM at a disadvantage,” Jones said.

The merger would not benefit consumers and it would also harm independent pharmacies, he said.

The California Department of Insurance does not have direct approval authority over the proposed acquisition because the transaction does not involve a California insurance company. It does involve Aetna subsidiary, Aetna Life Insurance Company, which is licensed by the state.

The proposed merger was announced in December. The deal has been going through the regulatory process.

 

 

Are Limited Networks What We Hope And Think They Are?

https://www.healthaffairs.org/do/10.1377/hblog20180208.408967/full/

 

 

There has long been an imperative to find ways to reduce health care spending, but the advent of public exchanges pressured the industry to find ways to offer health insurance at a more affordable premium. Health plans hoping to participate in public exchanges responded by creating insurance offerings that gave patient members access to a smaller pool of providers—limited or narrow networks. These smaller networks give payers leverage in negotiations and may eliminate more expensive providers. They have also caught the attention of employers and other health care purchasers and are growing in prevalence in the commercial market.

But what exactly are limited or narrow networks, and are they what we want them to be? We set out to understand how health plans form limited networks, postulating that the criteria to select providers for participation in limited networks across health plans would be fairly consistent. We thought we might be able to conclude, for example, that a limited network is one in which health plans exclude providers whose prices are one standard deviation above the mean or that don’t meet minimum quality thresholds.

In addition, we wanted to learn how health plans determine who among certain provider types is eligible to participate (primary care physicians, specialists, hospitals). Is there a consistent process for selecting providers? Does the health plan, for example, generally start by selecting primary care physicians and then assess the hospitals with which those physicians are affiliated?

An Elusive Concept

Catalyst for Payment Reform (CPR) reached out to a dozen health plans, diverse in size and geography, to learn more about how they form narrow networks. We began by querying them about their use of cost and quality thresholds to select providers for their limited network products.

Across health plans, CPR found no consistent formula for selecting providers by type, below a certain price point, or above a specific level of quality. We learned that health plans primarily consider which hospital or provider group will agree to a certain price (based on a premium analysis), whether excluding others is feasible given each provider’s market power or “must have” status, and whether exclusions create access issues. It is notable that among the health plans we spoke to, none used provider quality as the primary selection criterion. Health plans may consider quality while developing a limited network, but it is secondary to other criteria.

Local market characteristics significantly influence how payers define a network. The design of a limited network depends on the number of providers available as well as the level of competition among them. If a health plan develops a limited network with few providers, consumers may have to travel significant distances to receive care. When there are more provider options, competition helps health plans find a provider group willing to offer a better price. The selected provider group assumes it will make up the potential lost revenue with an increase in patient volume. Therefore, health plans perceive the presence of competition among providers as critical to the development of a limited network product. In circumstances in which health plans have greater market power, they may also consider whether providers are willing to take on some financial risk—now or in the future.

CPR’s search also revealed wide variation in the types of providers health plans focus on when they begin narrowing their networks. While most start with the hospital and then select affiliated primary care physicians and specialists, others start with the primary care physicians and look at affiliated hospitals. Some health plans include all primary care physicians in the limited network and then tier the hospitals and specialists based on cost and sometimes quality criteria. The only consistency we found was that there is no consistency! The only commonality among the narrow networks we examined was that they all contained fewer providers than a given health plan’s broadest network.

A Strategy That Is Here To Stay?

Employer and other health care purchasers’ awareness about the variation in quality and payment amounts has steadily grown, as has their need for savings. Purchasers also recognize that threatening to exclude providers from a pool of patients will strengthen their negotiating position as well as that of other payers. The latest survey data suggest that narrow networks are becoming more prevalent—a trend that is likely to continue.

According to the Henry J. Kaiser Family Foundation’s 2017 Employer Health Benefits Survey, 12 percent of benefit-offering firms with 50–999 workers, 23 percent of firms with 1,000–4,999 workers, and 31 percent of firms with 5,000 or more workers offer a high-performance or tiered network. In addition, 6 percent of firms offering benefits said that they or their insurer eliminated a health system from a network to reduce the plan’s cost during the past year.

Furthermore, the 2017 Willis Towers Watson Best Practices in Health Care Employer Survey found that more than half of employers with more than 1,000 employees said that they might add high-performance networks by 2019.

Are Providers Likely To Participate In Them If Selected?

In markets where providers lack competition, they may easily push back on the formation of narrow networks. But in markets where there is competition, providers will likely want to be included instead of risk a loss of patient volume. For providers entering into new delivery models and accepting new forms of payment, they may see narrow networks positively, giving them a greater ability to manage and coordinate patient care as there is less “leakage” of patients to a broad pool of providers. In turn, participating providers may be more willing to take on financial risk for their patients if they know it is easier to control where they seek care, minimizing exposure to particularly high-priced providers.

Are Consumers Likely To Select Them?

The experience with the public exchanges suggest that consumers are willing to make the tradeoff of choice for affordability. By seeking care from a defined group of providers, consumers pay lower out-of-pocket costs and have a straightforward benefit design that clearly distinguishes between in- and out-of-network providers and accompanying cost sharing. Consumers may save further by receiving care from high-value providers who are more likely to provide effective and efficient care the first time.

Some of the employers in CPR’s membership that offer limited or narrow networks, such as an accountable care organization product, find they are meeting or exceeding their enrollment expectations—an indicator that certain consumers will choose price over choice.

Americans are willing to make tradeoffs for now, but they may become skeptical if there isn’t an explicit effort to ensure quality and the perception grows that narrow networks are only about cutting costs. With more experience, Americans may find that physicians with targeted expertise (for example, subspecialists in oncology) or individual members of a care team (for example, anesthesiologists) may not be included in the narrow network, preventing access or resulting in surprise bills for consumers.

Conclusion

Through their use of limited networks, payers may be indicating to health care providers that affordable care will be rewarded with more patients (quality of care could also be a criterion). In markets where providers perceive a higher volume of patients as favorable, the introduction and presence of these networks can send a strong economic signal to providers to improve efficiency and lower prices. It may be too early to identify patterns in how health plans design limited networks; perhaps a standard formula will never materialize. As CPR learned, viable approaches depend on market-specific nuances.