Tag Archives: Market Concentration

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

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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.

 

 

 

 

Market Concentration and Potential Competition in Medicare Advantage

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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.

 

 

Why DOJ must block the Cigna-Express Scripts merger

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Why DOJ must block the Cigna-Express Scripts merger

Why DOJ must block the Cigna-Express Scripts merger

If one message is becoming clear, it’s that increased concentration is harming consumers and leading to less competition, decreased choice and higher cost. The need for corporations to compete is dampened when markets are dominated by a small number of firms. Worse, when consumers don’t have the ability to discipline markets there is a lack of transparency or accountability.

Nowhere is that more true than in the market for Pharmacy Benefit Managers (PBMs) — the unregulated entities that control the reimbursement of drugs. These little known, unregulated middlemen are able to ramp up the cost of drugs by demanding rebates and other payments from drug manufacturers, and because of a lack of transparency and choice they are able to pocket much of these rebates, escalating the cost of drugs.

The Council of Economic Advisors, after a comprehensive review of rising drug costs, identified the lack of PBM competition as a major culprit. It found that only three PBMs controlled more than 85 percent of the market, “which allows them to exercise undue market power against manufacturers and against the health plans and beneficiaries they are supposed to be representing, thus generating outsized profits for themselves.”

The effect of market power on rebates and other payments to PBMs is clear. As one study found pharmaceutical manufacturer rebates skyrocketed 108 percent from 2011 to 2016 — rising from $66 billion to $127 billion in those five years.

Do skyrocketing rebates benefit consumers? Not much. As Health and Human Services Secretary Alex Azar has observed, “this thicket of negotiated discounts makes it impossible to recognize and reward value, and too often generates profits for middlemen rather than savings for patients.” Consumers pay more because their copays are based on list prices that are inflated by the rebates and other payments secured by the PBMs.

You do not need a Ph.D. in economics to figure out that the market is not competitive and that consumers are paying more than they otherwise would. FDA Commissioner Scott Gottlieb observed, “Kabuki drug-pricing constructs — constructs that obscure profit taking across the supply chain that drives up costs; that expose consumers to high out of pocket spending; and that actively discourage competition.”

Gottlieb identifies the lack of PBM competition and transparency as the real culprit. “The consolidation and market concentration make the rebating and contracting schemes all that more pernicious. And the very complexity and opacity of these schemes help to conceal their corrosion on our system — and their impact on patients.”

Now the two largest PBMs seek to merge with two insurance giants — CVS Caremark’s proposed acquisition of Aetna and Cigna’s proposed acquisition of Express Scripts. I have already observed how the CVS deal will harm competition and consumers. Adding another deal is like fighting a fire with gasoline.

These mergers rightly face tough scrutiny before the Antitrust Division of the Department of Justice. As the American Antitrust Institute’s recent comprehensive white paper documents in detail, these mergers significantly threaten competition in health insurance, pharmacy and PBM markets and must be blocked.

And as Rep. Rick Crawford’s (R-Ariz.) recent letter to Attorney General Jeff Sessions opposing the CVS/Aetna merger nicely emphasizes, such “vertical integration does not encourage competition or lower prices, but rather, could limit the choices and access for patients, driving out competitors while driving up prices and reimbursements for themselves.”

The reasons are straightforward and compelling. Many insurance companies want the service of an independent PBM — one not aligned with a rival insurance company. PBM services and the ability to control pharmaceutical costs are a crucial input for any insurance company, especially since the costs of drugs is an increasing part of the costs that need to be controlled.

Such reforms would include meaningful transparency and disclosure of rebates to payers, eliminating pharmacy gag clauses that prevent pharmacists from disclosing lower priced drugs, preventing PBMs from egregious reimbursement practices that force pharmacists to dispense below cost, and proper disclosure of pricing to pharmacists. As a basic first step both Express Scripts and Cigna must commit to pass through rebates to lower consumer costs as UnitedHealthcare has done.

But even these commitments are probably not enough. History tells a dismal story — past mergers have harmed consumers through less choice and higher costs as PBM profits have soared. No promises of good conduct can overcome the excessive concentration in the PBM market. The CEA recommended, “policies to decrease concentration in the PBM market … can increase competition and further reduce the price of drugs.” DOJ can begin this process by preventing the market from getting worse and simply blocking these mergers.

 

 

1 in 3 People in Medicare is Now in Medicare Advantage, With Enrollment Still Concentrated Among a Handful of Insurers

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Medicare Advantage 2017 Spotlight: Enrollment Market Update

Medicare Advantage plans have played an increasingly larger role in the Medicare program as the share of Medicare beneficiaries enrolled in Medicare Advantage has steadily climbed over the past decade.  The trend in enrollment growth is continuing in 2017, and has occurred despite reductions in payments to plans enacted by the Affordable Care Act of 2010 (ACA).  This Data Spotlight reviews national and state-level Medicare Advantage enrollment trends as of March 2017 and examines variations in enrollment by plan type and firm. It analyzes the most recent data on premiums, out-of-pocket limits, and quality ratings.  Key findings include:

  • Enrollment Growth. Since the ACA was passed in 2010, Medicare Advantage enrollment has grown 71 percent. As of 2017, one in three people with Medicare (33% or 19.0 million beneficiaries) is enrolled in a Medicare Advantage plan (Figure 1).

 

  • Market Concentration. UnitedHealthcare and Humana together account for 41 percent of enrollment in 2017; enrollment continues to be highly concentrated among a handful of firms, both nationally and in local markets. In 17 states, one company has more than half of all Medicare Advantage enrollment – an indicator that these markets may not be very competitive.

 

  • Medicare Advantage Penetration. At least 40 percent of Medicare beneficiaries are enrolled in Medicare private plans in six states: CA, FL, HI, MN, OR, and PA. In contrast, fewer than 20 percent of Medicare beneficiaries are enrolled in Medicare Advantage plans in 13 states, plus the District of Columbia.

 

  • Premiums and Cost-Sharing. While average Medicare Advantage premiums paid by MA-PD enrollees have been relatively stable for the past several years ($36 per month in 2017), enrollees may be liable for more of Medicare’s costs, with average out-of-pocket limits increasing 21 percent and average Part D drug deductibles increasing more than 9-fold since 2011; however, there was little change in out-of-pocket limits and Part D drug deductibles from 2016 to 2017.

Medicare Advantage enrollment is projected to continue to grow over the next decade, rising to 41 percent of all Medicare beneficiaries by 2027.1  As private plans take on an even larger presence in the Medicare program, it will be important to understand the implications for beneficiaries covered under Medicare Advantage plans and traditional Medicare, as well as for plans, health care providers and program spending.