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Life Health > Health Insurance

Hospital group: "Remedies" for insurer deal market effects are quackery

By Allison Bell

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Hospitals say the only practical way to keep big health insurer deals from hurting the U.S. health care system is to block the deals.

Health insurers say they’re making the deals to cope with the effects of the hospital companies’ huge wave of deals.

See also: Insurers take on the hospitals

The American Hospital Association (AHA) is presenting the hospitals’ case in a letter sent to William Baer, the assistant attorney general in charge of the U.S. Justice Department antitrust division.

Melinda Reid Hatton, a senior vice president at the AHA, writes in the letter that the proposed acquisition of Cigna Corp. (NYSE:CI) by Anthem Inc. (NYSE:ANTM) and the acquisition of Humana Inc. (NYSE:HUM) by Aetna Inc. (NYSE:AET) are fundamentally different from the hospital deals made in the past.

“These transactions will combine four of the five national health insurance companies, with effectively no possibility that existing firms could replicate their size and scope,” Hatton says. 

In the letter, Hatton talks about both the Anthem-Cigna deal and the Aetna-Humana deal, but she says the current letter and accompanying AHA analysis, focus mainly on the Anthem-Cigna deal. A separate Aetna-Humana letter will come later, she says.

For more about why the AHA says the Anthem-Cigna deal would be so harmful, and what America’s Health Insurance Plans (AHIP) says about hospital and health insurer consolidation, read on.

High stone wall

1. The AHA says branding is one huge obstacle to entering a health insurance market.

In an analysis accompanying Hatton’s letter to the Justice Department, the AHA contends that employers and individuals that switch health plans often face substantial transition costs.

Because of those costs, “employers and individuals are often very reluctant to switch to a company that lacks an established brand in the relevant geographic market,” the AHA says. “Even companies with strong positions in other regions can flounder in markets in which they lack a strong track record of providing high-quality services.”

See also: Surviving PPACA CO-OPs may have 475,000 enrollees

Big dog, small dog

2. The AHA says ensuring that the acquirer of divested health plan operations will have a competitive provider network is difficult.

In the past, one carrier bought divested operations from two combining insurers to resolve antitrust concerns. Regulators themselves had to impose a formal provision requiring the divesting companies to provide the acquirer with a cost-competitive provider network, the AHA says.

See also: On the Third Hand: Hospitals

Sumo wrestler

3. The AHA says finding a buyer big enough to do something useful with the assets divested by huge health insurers would be, at best, challenging.

An analysis of the proposed Anthem-Cigna deal suggests that there is no viable divested asset buyer for about 2 million of the currently covered lives to be divested, or about 55 percent of the lives to be divested, the AHA says. The AHA says those people to be divested live in 368 metropolitan areas and rural counties.

See also: Do carriers promote monopolies?

Mirror

4. AHIP says: If hospitals want to see an example of health care consolidation run amok, they should look in a mirror.

Alicia Caramenico of AHIP sent out a commentary on the hospitals’ attacks on health plan mergers.

She notes that the Patient Protection and Affordable Care Act (PPACA) medical loss ratio provision already imposes a direct cap on health insurers’ profit margins, and that competition and buyer pressure already holds increases in health insurance premiums close to increases in the underlying health care costs.

She also included data suggesting that rapid hospital consolidation has driven up health care prices in recent years. 

Hospitals made 95 deals in 2014 alone, and hospital markets have become about 33 percent more concentrated over the past 15 years, AHIP says.

The average number of hospitals in a market has fallen to four, from six, over that period, AHIP says.

Other studies have found that, when hospitals acquire physician practices, prices often go up 20 percent or more, AHIP says.

See also: New York Times notices hospital mergers

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