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Do carriers promote monopolies?

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The U.S. health care finance system may be such a mess partly because health insurers have incentives to support provider monopolies.

Barak Richman testified on Capitol Hill Thursday that U.S. antitrust regulators have let hospitals — including nonprofit hospitals — use mergers, acquisitions and regulatory moats to buy and crush competitors and jack up prices.

Health insurers have been making the situation worse, by treating the big hospitals too gently and letting them charge far higher prices than even normal, “textbook monopolies” would be expected to charge, Richman said.

“Insurers all-too-often become co-conspirators with provider monopolists, agreeing to exclusive agreements that protect both themselves and monopolists but unforgivingly gouge consumers,” Richman said.

In some cases, insurers have been weak purchasers because they know consumers want “the very best,” but, in some cases, they are taking advantage of consumers’ lack of awareness of how much lower the cost of health care could be, Richman said.

Richman, a Duke University economist, talked about the state of competition in the health care market at a House Judiciary subcommittee hearing on the effects of the Patient Protection and Affordable Care Act (PPACA) on health care competition.

PPACA could help improve health care competition by giving consumers more information about what health care really costs and giving insurers a chance to come up with creative new products, Richman said.

But, by adding red tape, PPACA also could strangle any efforts to reconfigure the system, Richman said.

Other witnesses defended both providers and carriers.

Sharis Pozen, a witness who spoke for the American Hospital Association, said hospitals’ price growth has been at a historic low and is clearly not the main driver of increases in health insurance premiums.

From 2010 to 2011, growth in health premiums was more than double the rate of increase in the underlying health costs, including the cost of hospital services, Pozen said.

Typical hospital acquisitions involve struggling hospitals in highly competitive markets, Pozen added.

Joseph Miller, who spoke for America’s Health Insurance Plans (AHIP), said insurers strongly support efforts to promote a more competitive market, in part by ensuring that consumers get detailed information about the cost and quality of care.

In some cases, Miller said, hospital systems have been acquiring physician groups, or physician groups have been combining with other physician groups, in ways that could reduce competition and hurt consumers.

Richman said authorities could help make health care markets more competitive by requiring big providers to unbundle bundled packages of services, to give smaller providers a chance to compete to offer some of the services.

Regulators also should challenge anticompetitive terms in insurer-provider contracts, such as “most-favored nation” clauses in which a provider promises to give an insurer the same discount that the provider gives to any competing health plan.

Those clauses can push up prices by keeping competitors from bargaining for lower rates, Richman said.

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