U.S. v. health care merger mania
The Biden administration has stepped up enforcement of health care mergers. Is that really the best way to prevent predatory pricing?
This week’s big news in health care is that the Department of Justice is investigating UnitedHealth Group for possible collusion between its UnitedHealthcare insurance arm, which is the nation’s largest with 50 million covered lives, with its wholly-owned Optum unit, which now employs 90,000 physicians, or about one in every ten American doctors. That number has doubled in the last five years.
News reports say investigators are probing whether the company’s physician practice acquisition binge is harming rival physician practices and consumers. Neither UnitedHealth or the DOJ has commented on the investigation, although, as the Wall Street Journal pointed out in its story, “UnitedHealth executives have said Optum and UnitedHealthcare don’t favor one another, and routinely work with competitors.”
I fail to see how that is a defense. Of course physician practices competing with Optum routinely work with UnitedHealthcare. They have to. When a company has 15% of the national market and is the dominant insurer in over 40 percent of the nation’s metropolitan areas, what choice do they have? If you’re not in-network with UnitedHealthcare, you’re out of business.
If this is the nature of the investigation, DOJ will have to prove that Optum’s newly acquired physician practices engaged in predatory pricing behavior to drive out their rivals. Or, they may charge the company purchased so many local practices that there no longer is any competition. Under either scenario, the Optum-owned physician practices could then raise their prices to UnitedHealthcare, which in turn would charge its customers (employers and individuals) higher rates to recoup their “losses.”
It is interesting that the story about the investigation was broken by the Examiner News, a local newspaper in Mount Kisco, N.Y., which is about an hour north of New York City. Nearly a decade ago, I interviewed Dr. Hal Teitelbaum, the CEO of Crystal Run Healthcare, the largest multi-specialty physician practice in the lower Hudson Valley with over 400 providers.
He was a major proponent of large practices taking on full risk for their patients through accountable care organizations. He wanted to compete directly with health insurers or partner with them by taking on full or substantial control of the individual patient premium.
After partnering with Montefiore Medical Center in the Bronx, things went south. A year ago, Optum purchased Crystal Run. It also purchased three other large physician practices in the region in the past few years.
Earlier this month, the Examiner News reported the company will dismiss about 119 employees at its wholly-owned subsidiaries. It also reported much of the back office operations have been outsourced to India, and that physicians are under pressure to double the number of patients they see each day.
“So instead of giving each patient 20 minutes, you give patients 10 minutes,” one source told the paper. “Instead of seeing 25 patients in a day, they want you to see 50 patients in a day.”
This isn’t the DOJ’s only ongoing investigation at UnitedHealth. The company’s $3.3 billion proposed acquisition of Amedisys, a hospice and home health provider, has also been under scrutiny since its announcement last summer.
States, which regulate insurers, rarely have the resources to investigate bad behavior by big health care companies, especially if it involves reviewing the internal bookkeeping of a corporation that racked up $372 billion in revenue in 2023. Massachusetts is one of the few states that regularly brings cases, having gone after UnitedHealthcare for selling unnecessary Medicare supplemental plans and its OptumRx unit selling overpriced drugs to the state’s workers compensation system.
Antitrust or price controls?
I have serious doubts about the power of antitrust action to halt the rise of the vertically-integrated mega-corporation in health care. CVS, another example, now owns not just its pharmacy chain but Aetna, an insurer, and Caremark, a pharmacy benefit manager. It has opened clinics in its stores and a year ago purchased Oak Street Health, a growing chain of primary care providers serving low- and moderate-income communities.
Hospitals, the major cost center for insurers, continue to merge as one strategy of dealing with growing insurer concentration. Though the Biden administration’s DOJ and Federal Trade Commission published new guidelines for going after hospital mergers in 2021 and won a few victories, it has done little to stop horizontal integration, which is the dominant trend in the industry. It did not challenge the merger of Chicago-based Advocate Aurora Health and Charlotte-based Atrium Health in 2022 because there was little overlap between the two systems’ service territories.
Even where there is overlap, there’s little evidence that these mega-corporations actively compete against one another. Every sector in health care — whether it is insurance companies, hospitals, large physician practices or pharmacy chains — is consolidating rapidly. They use their dominant positions in local markets to drain excess profits from the paying public.
One could try to bust them up. But, in my view, the better approach would be to directly regulate their prices and set rules for how they deliver their services. The consolidation horse has left the health care barn. Regulation is the best way to control an oligopolistic industry.
Great commentary, Merrill, as usual. You did not mention the parallel impact of risk adjustment coding on the Med Advantage and ACA payment rates, which further complicates the picture. In the end, I believe in a balanced scorecard approach: comparative costs-of-care, health outcomes, and HEDIS scores on an apples-to-apples basis. Patient satisfaction deserves a mention, as well. Now we also have emerging measures for health equity performance, which should be part of the equation. My other concern is that primary care physicians get paid fairly without pumping up the relative pay of specialists and super-specialists.