[House Hearing, 113 Congress]
[From the U.S. Government Publishing Office]
PATIENT PROTECTION AND AFFORDABLE CARE
ACT, CONSOLIDATION, AND THE CONSEQUENT
IMPACT ON COMPETITION IN HEALTHCARE
=======================================================================
HEARING
BEFORE THE
SUBCOMMITTEE ON
REGULATORY REFORM,
COMMERCIAL AND ANTITRUST LAW
OF THE
COMMITTEE ON THE JUDICIARY
HOUSE OF REPRESENTATIVES
ONE HUNDRED THIRTEENTH CONGRESS
FIRST SESSION
__________
SEPTEMBER 19, 2013
__________
Serial No. 113-51
__________
Printed for the use of the Committee on the Judiciary
Available via the World Wide Web: http://judiciary.house.gov
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COMMITTEE ON THE JUDICIARY
BOB GOODLATTE, Virginia, Chairman
F. JAMES SENSENBRENNER, Jr., JOHN CONYERS, Jr., Michigan
Wisconsin JERROLD NADLER, New York
HOWARD COBLE, North Carolina ROBERT C. ``BOBBY'' SCOTT,
LAMAR SMITH, Texas Virginia
STEVE CHABOT, Ohio MELVIN L. WATT, North Carolina
SPENCER BACHUS, Alabama ZOE LOFGREN, California
DARRELL E. ISSA, California SHEILA JACKSON LEE, Texas
J. RANDY FORBES, Virginia STEVE COHEN, Tennessee
STEVE KING, Iowa HENRY C. ``HANK'' JOHNSON, Jr.,
TRENT FRANKS, Arizona Georgia
LOUIE GOHMERT, Texas PEDRO R. PIERLUISI, Puerto Rico
JIM JORDAN, Ohio JUDY CHU, California
TED POE, Texas TED DEUTCH, Florida
JASON CHAFFETZ, Utah LUIS V. GUTIERREZ, Illinois
TOM MARINO, Pennsylvania KAREN BASS, California
TREY GOWDY, South Carolina CEDRIC RICHMOND, Louisiana
MARK AMODEI, Nevada SUZAN DelBENE, Washington
RAUL LABRADOR, Idaho JOE GARCIA, Florida
BLAKE FARENTHOLD, Texas HAKEEM JEFFRIES, New York
GEORGE HOLDING, North Carolina
DOUG COLLINS, Georgia
RON DeSANTIS, FLORIDA
JASON T. SMITH, Missouri
Shelley Husband, Chief of Staff & General Counsel
Perry Apelbaum, Minority Staff Director & Chief Counsel
------
Subcommittee on Regulatory Reform, Commercial and Antitrust Law
SPENCER BACHUS, Alabama, Chairman
BLAKE FARENTHOLD, Texas, Vice-Chairman
DARRELL E. ISSA, California STEVE COHEN, Tennessee
TOM MARINO, Pennsylvania HENRY C. ``HANK'' JOHNSON, Jr.,
GEORGE HOLDING, North Carolina Georgia
DOUG COLLINS, Georgia SUZAN DelBENE, Washington
JASON T. SMITH, Missouri JOE GARCIA, Florida
HAKEEM JEFFRIES, New York
Daniel Flores, Chief Counsel
James Park, Minority Counsel
C O N T E N T S
----------
SEPTEMBER 19, 2013
Page
OPENING STATEMENTS
The Honorable Spencer Bachus, a Representative in Congress from
the State of Alabama, and Chairman, Subcommittee on Regulatory
Reform, Commercial and Antitrust Law........................... 1
The Honorable John Conyers, Jr., a Representative in Congress
from the State of Michigan, and Ranking Member, Committee on
the Judiciary.................................................. 5
WITNESSES
Sharis A. Pozen, Partner, Skadden, Arps, Slate, Meagher & Flom
LLP, representing American Hospital Association
Oral Testimony................................................. 6
Prepared Statement............................................. 9
Joseph Miller, General Counsel, America's Health Insurance Plans
Oral Testimony................................................. 15
Prepared Statement............................................. 17
Barak D. Richman, Edgar P. and Elizabeth C. Bartlett Professor of
Law and Business Administration, Duke University
Oral Testimony................................................. 28
Prepared Statement............................................. 31
Thomas P. Miller, J.D., Resident Fellow in Health Policy Studies,
American Enterprise Institute
Oral Testimony................................................. 71
Prepared Statement............................................. 73
Thomas L. Greaney, Chester A. Myers Professor of Law, Saint Louis
University School of Law
Oral Testimony................................................. 93
Prepared Statement............................................. 96
David Balto, Law Offices of David Balto
Oral Testimony................................................. 108
Prepared Statement............................................. 110
LETTERS, STATEMENTS, ETC., SUBMITTED FOR THE HEARING
Prepared Statement of the Honorable Bob Goodlatte, a
Representative in Congress from the State of Virginia, and
Chairman, Committee on the Judiciary........................... 142
Prepared Statement of the Honorable Steve Cohen, a Representative
in Congress from the State of Tennessee, and Ranking Member,
Subcommittee on Regulatory Reform, Commercial and Antitrust Law 146
APPENDIX
Material Submitted for the Hearing Record
Prepared Statement of the Honorable John Conyers, Jr., a
Representative in Congress from the State of Michigan, and
Ranking Member, Committee on the Judiciary..................... 149
Response to Questions for the Record from Sharis A. Pozen,
Partner, Skadden, Arps, Slate, Meagher & Flom LLP, representing
American Hospital Association.................................. 151
Response to Questions for the Record from Joseph Miller, General
Counsel, America's Health Insurance Plans...................... 168
Response to Questions for the Record from Barak D. Richman, Edgar
P. and Elizabeth C. Bartlett Professor of Law and Business
Administration, Duke University................................ 169
Response to Questions for the Record from Thomas P. Miller, J.D.,
Resident Fellow in Health Policy Studies, American Enterprise
Institute...................................................... 173
Response to Questions for the Record from Thomas L. Greaney,
Chester A. Myers Professor of Law, Saint Louis University
School of Law.................................................. 175
Response to Questions for the Record from David Balto, Law
Offices of David Balto......................................... 177
PATIENT PROTECTION AND AFFORDABLE
CARE ACT, CONSOLIDATION, AND THE
CONSEQUENT IMPACT ON COMPETITION
IN HEALTHCARE
----------
THURSDAY, SEPTEMBER 19, 2013
House of Representatives,
Subcommittee on Regulatory Reform,
Commercial and Antitrust Law
Committee on the Judiciary,
Washington, DC.
The Subcommittee met, pursuant to call, at 1:02 p.m., in
room 2141, Rayburn Office Building, the Honorable Spencer
Bachus (Chairman of the Subcommittee) presiding.
Present: Representatives Bachus, Goodlatte, Marino,
Holding, Collins, Smith of Missouri, Cohen, Conyers, DelBene,
and Garcia.
Staff present: (Majority) Anthony Grossi, Counsel; Ashley
Lewis, Clerk; Justin Sok, Legislative Assistant to Mr. Smith of
Missouri; Jon Nabavi, Legislative Director to Mr. Holding;
Jaclyn Louis, Legislative Director to Mr. Marino; Jennifer
Lackey, Legislative Director to Mr. Collins; and (Minority)
James Park, Minority Counsel.
Mr. Bachus. The Subcommittee on Regulatory Reform,
Commercial and Antitrust Law hearing will come to order.
Without objection, the Chair is authorized to declare
recesses of the Committee at any time.
Mr. Cohen is engaged in the debate on the floor concerning
the SNAP program, and he will arrive in the next few minutes.
But he has asked me to go ahead and proceed.
The first order of business is the opening statements by
the Members.
Let me welcome everyone to today's hearing on consolidation
in the health care marketplace. The Patient Protection and
Affordability Act--I am going to refer to it as Obamacare, as
it is sometimes commonly known and referred to even in the
press for brevity. But its effect or its impact on
consolidation and the resulting effects on competition. The
cost of health care is an issue that comes up almost on a daily
basis in the news and certainly in conversations with my
constituents and here on the Hill, especially small business
owners.
A way to curb these expenses and address the rising cost of
Government entitlement programs like Medicare and Medicaid is
to promote a competitive health care marketplace. As Members of
the Judiciary Subcommittee with antitrust oversight, we have
the responsibility to ensure that the laws passed by Congress
do not produce anticompetitive effects and that our enforcement
agencies are properly policing anticompetitive conduct.
Today we will be focusing our oversight on the health care
industry and the impact of the passage of the Affordable Care
Act on consolidation and competition in the health care
marketplace.
Significant consolidation in the industry started around
the beginning of the 1990's when there was an industry shift to
managed care organizations. Nearly 2 decades later when
Obamacare was signed into law, over 80 percent of the hospital
markets and over 70 percent of the health insurance markets
were considered highly concentrated by the standards used by
the Department of Justice and the FTC. And I know some of our
witnesses were with the FTC. In other words, Obamacare was
enacted in an environment of clear consolidation in the health
care industry which actually began to occur long before its
passage.
And now not all consolidation is necessarily negative.
Consolidation can result in greater efficiencies. In the
context of health care, this can translate into a higher
quality of care at a lower cost.
However, consolidation can be troubling when it falls into
one of two categories. The first is consolidation in a
particular market that reaches a level where competition is
improperly stifled. The second is consolidation motivated by
Government intervention.
Our hearing today will focus on these types of
consolidation. It is my belief that Obamacare with its top-
down, highly regulatory approach will further accelerate
consolidation in the industry. Less competition in this case
could mean less patient choice or will mean less patient choice
and decisions being made according to Government dictates
rather than according to the needs of consumers in the health
care marketplace. Broadly speaking, this is a result of
provisions in the law that compel the insurance industry to
offer a more commoditized product where profits can be achieved
only through economies of scale, incentivizing further
consolidation activity and the health care services market by
increasing regulatory burdens, revising Medicare and Medicaid
reimbursement rates, and promoting the formation of
consolidated entities commonly referred to as ``accountable
care organizations.''
We have a distinguished panel of witnesses here today that
will provide us with testimony concerning the current state of
the competitive landscape and how the new health care law has
impacted and continues to impact consolidation and competition
in the health care industry. And I look forward to hearing
their testimony.
And we have people of varying opinions and obviously
contrasting opinions, and that is a part of a democracy. So I
think by hearing all sides or different sides of an argument,
we can form--at least hope to begin to form some opinions as to
what the true state of the health care industry is as it
relates to consolidation.
Once we recognize other Members who wish to make an opening
statement--I know Mr. Conyers is not here. Mr. Goodlatte is not
here. Mr. Cohen is not here. So do the gentlemen from
Pennsylvania or New York have anything they want to say? Two
former U.S. attorneys with us. Watch what you say. Didn't I say
North Carolina? Yes, I did.
Without objection, other Members' opening statements will
be made a part of the record.
As I said, we have a very distinguished panel today, and I
will begin by first introducing our witnesses and then we will
move to the statements of our panelists.
Ms. Pozen is a partner in the antitrust and competition
practice group at Skadden, Arps. I am going to read the whole
name of the law firm because Skadden, Arps is what we call it.
Right? So it is Skadden.
Ms. Pozen. Skadden.
Mr. Bachus. Skadden. And she is representing the views of
the American Hospital Association.
Prior to joining the law firm, she served as Assistant
Attorney General at the Department of Justice. During her time
at DOJ, she oversaw the antitrust litigation that resulted in
injunctions against the proposed purchase by AT&T of T-Mobile
and of H&R Block's proposed merger with TaxACT. Ms. Pozen also
served as an attorney advisor to FTC Commissioners Dennis Yao
and Christine Varney.
She received her B.A. from Connecticut College and her J.D.
from Washington University Law School in St. Louis.
The first of our Millers--we have two millers testifying
today--is Mr. Joseph Miller. He is the General Counsel of the
America's Health Insurance Plans. Prior to joining AHIP, he
served in the Antitrust Division of the Department of Justice
from 1998 to 2010, including 6 years as Assistant Chief of the
Litigation Section. There he oversaw enforcement and
competition advocacy in, among other things, health care and
insurance markets. Before joining the DOJ, he worked for
Collier, Shannon, Rill & Scott as a trial attorney for the FTC.
He received his B.A. from Emory University and his J.D.
from George Mason University School of Law. And I guess that
means you are conservative. Right? George Mason School of Law?
Professor Barak Richman is an Edgar P. and Elizabeth C.
Bartlett Professor of Law and Professor of Business
Administration at Duke University School of Law and is on the
health sector management faculty at Duke's Business School,
Fuqua. His work has been featured in the Columbia Law Review,
the University of Pennsylvania Law Review, Law and Social
Inquiry, the New England Journal of Medicine, and the Journal
of the American Medical Association, and Health Affairs.
Prior to joining Duke Law, Professor Richman clerked for
Judge Bruce Selya of the United States Court of Appeals for the
First Circuit and served on the staff of the Senate Finance
Committee.
Professor Richman has an A.B. magnum cum laude from Brown
University and a J.D. magnum cum laude from Harvard Law School
and a Ph.D. from the University of California-Berkeley. Did you
ease up at Berkeley and just did not study as hard? Was the
competition more intense?
Mr. Richman. It took a long time. I had a very patient and
supportive wife.
Mr. Bachus. Mr. Tom Miller is a health policy research and
resident fellow at the American Enterprise Institute. He is a
prominent frequent speaker and author on health care issues
with his work presented to, among others, the American College
of Physicians, the American Society of Health Economists,
Brigham and Women's Hospital, Harvard Medical School, and the
World Health Care Congress Leadership Summit on Medicare.
Prior to joining AEI, he was the Senior Health Economist on
the Senate Joint Economic Committee for 4 years and Director of
Health Policy Studies at the Cato Institute.
Mr. Miller received his B.A. cum laude from New York
University and his J.D. from Duke University. So we have two
Duke University graduates.
Professor Tom L. Greaney. And I am pronouncing it right?
Mr. Greaney. Greaney.
Mr. Bachus. Greaney. Okay. I stand corrected. I was
thinking it was Greaney and then the staff said it was
pronounced Greaney.
Mr. Greaney. It's Irish.
Mr. Bachus. It's Irish? Okay. You are one of 40 million
Irish Americans. Do you know how many people are in Ireland
today, by the way? There is a little over 4 million and there
are 40 million Irish Americans. Their population has just now
gotten back up to the population in the Potato Famine, just in
the last few years. Interesting little facts that you all can
forget as soon as you leave this hearing.
Let's see. Professor Greaney is a Chester A. Myers
Professor of Law and Co-Director of the Center for Health Law
Studies at Saint Louis University School of Law, author of
``Health Law,'' one of the leading health care case books, as
well as numerous articles on the intersection of antitrust and
health law that have been published in, among other places, the
New England Journal of Medicine, Antitrust Law Journal, Journal
of the American Medical Association, and the Yale Journal of
Health Law and Policy.
Prior to joining the Saint Louis University School of Law,
he served as Assistant Chief in the Antitrust Division of the
Department of Justice.
He received his B.A. magnum cum laude from Wesleyan
University and his J.D. from Harvard Law School.
Welcome, Professor.
Mr. David Balto is an antitrust attorney at the Law Offices
of David Balto. So you are in charge. Right?
Mr. Balto. Right.
Mr. Bachus. He has over 15 years of government antitrust
experience as a trial attorney in the Antitrust Division of the
Department of Justice and in several senior level positions at
the Federal Trade Commission during the Clinton administration,
including Policy Director of the Bureau of Competition and
Attorney Advisor to FTC Chairman Robert Pitofsky?
Mr. Balto. Pitofsky.
Mr. Bachus. They did not teach phonetics. I was taught
sight reading. So I blame it on the educational system.
He is also an author of the 1996 DOJ FTC Health Care
Antitrust Enforcement Guidelines and served as a liaison on
competition issues to the Food and Drug Administration and
Congress, advising several committees on pharmaceutical
competition and Hatch-Waxman reform.
He received his B.A. from the University of Minnesota and
his J.D. from Northeast University School of Law.
At this time, Mr. Conyers, would you care to make an
opening statement?
Mr. Conyers. Just briefly, sir.
Mr. Bachus. Okay. Go ahead. The Ranking Member of the full
Committee is recognized for an opening statement.
Mr. Conyers. Thank you very much, Mr. Chairman.
And I welcome, as you have already, the six witnesses that
we have. And I consider this a very important hearing in view
of the 41 attempts by the conservative Members of the House to
repeal it ultimately unsuccessfully.
But for those who care about the Nation's health care
system, about the millions of uninsured and under-insured, and
about the need to serve all consumers of medical services with
affordable prices, today's hearing takes on a special
importance. And if we care about unfair trade practices, we
should consider the measure in the 111th Congress to repeal
McCarran-Ferguson. To me that is an incredibly important
consideration, and we need to ensure that more providers and
insurers will be able to enter the marketplace through a more
vigorous antitrust enforcement. The exchanges also will be of
some help.
We need to understand how the Affordable Health Care Act
will ensure that consumers will obtain lower prices, better
health insurance coverage, and improved quality care.
So I am very pleased to join this discussion and
examination.
I noticed that one of our witnesses has written a book
about why he opposes the Affordable Health Care Act. As a
matter of fact, it is entitled ``Why Obamacare is Wrong for
America.'' So I await our witness' discussion of this subject
since he has made his position very, very clear to all who are
interested in it, as I am.
I want to point out that I have introduced H.R. 99, the
Health Insurance Industry Antitrust Enforcement Act, on the
very first day of this Congress, which would, in effect, repeal
the McCarran-Ferguson exemption for health insurance companies.
Why should this industry be able to engage in a lot of
anticompetitive conduct when I see no sound justification for
this exemption? Some of this conduct sometimes includes price
fixing, bid rigging, market allocations.
And the problem is compounded, Members of the Committee, by
the fact that even though most of the Nation's health insurance
markets are disproportionately dominated by a handful of
powerful players, enforcement actions challenging consolidation
in the health insurance market were rare until only recently.
Many of us know of regions that have only two major insurers,
some only one. And so this Administration has breathed new life
into the Justice Department and the Federal Trade Commission's
action, and even in Michigan, there has been action against
Blue Cross Blue Shield of Michigan because of their dominance
and conduct in my home State. And there are lawsuits going on
in other places.
Now, the marketplaces will foster competition with existing
insurers and potentially allow for even new innovators to enter
the market. And so I am hopeful that this discussion this
afternoon will shed light on these activities.
And I salute the Chairman of this Committee for bringing a
subject of this significance to our attention for examination.
I think that it will be a helpful one.
And I yield back the balance of my time.
Mr. Bachus. I thank the Ranking Member.
Without objection, other Members' opening statements will
be made a part of the record.
At this time, I would like to recognize one of our former
colleagues, the gentleman from Massachusetts, Mr. Bill
Delahunt, who is a good friend of many of us. Bill, why don't
you come up here and sit near the front?
Mr. Delahunt. I prefer being in the back.
Mr. Bachus. Do you? Okay. He served on our Commercial and
Administrative Law Subcommittee and he was a distinguished
Member and I think a great friend of many of us. We have a
tremendous amount of respect. I do for you personally. We
welcome you back, and we miss you in Congress and what was a
rational, reasonable voice.
At this time, we will start with our witnesses, and Ms.
Pozen, if you will go first. Basically 5 minutes, but we are
not going to adhere. If it is 6 minutes, it is 6 minutes.
Whoever wrote the book on why Obamacare--was that Mr. Miller?
You can get 8 minutes. [Laughter.]
Mr. Thomas Miller. Not long enough. [Laughter.]
Mr. Bachus. No. I am kidding.
Thank you.
TESTIMONY OF SHARIS A. POZEN, PARTNER, SKADDEN, ARPS, SLATE,
MEAGHER & FLOM LLP, REPRESENTING AMERICAN HOSPITAL ASSOCIATION
Ms. Pozen. Well, on behalf of the nearly 5,000 member
hospitals and 43,000 individual members of the American
Hospital Association, I appreciate the opportunity to speak to
the Committee today.
I am Sharis Pozen. As was noted, I am a partner in the
Antitrust and Competition Group at Skadden, Arps. I previously
served as acting Assistant Attorney General at the Department
of Justice, and I also had the privilege of serving at the
Federal Trade Commission.
An editorial in Tuesday's Politico, co-authored by the
President of the National Business Group on Health, attributed
the nearly unprecedented low growth in health care inflation
largely to the new models of health care delivery in both the
public and private sectors.
There is no question that the health care field is
undergoing a period of fundamental transformation in which the
very model of health care delivery is being changed in order to
improve quality and lower costs. The reasons for such changes
are varied, but chief among them----
Mr. Bachus. Wait. Let's have order on the dais. If we could
let the witnesses testify. It is just kind of picking it up.
Ms. Pozen. As I said, there is no question that the health
care field is undergoing a period of fundamental transformation
in which the very model of health care delivery is being
changed in order to improve quality and lower costs. The
reasons for such changes are varied, but chief among them are
the expectations by patients, employers, insurers, and
government at all levels for higher quality and more efficient
health care, in other words, greater value.
Meeting these expectations requires building a continuum of
care to replace the current fragmented system. In addition,
hospitals are facing enormous pressure to raise capital to
invest in new technologies and facility upgrades.
Some degree of consolidation through a variety of means,
through mergers and acquisitions or others, is one way chosen
by providers to make these goals a reality. It is also why
doctors and other caregivers are being added to the hospital
family. They are the linchpin of better, more coordinated care.
Providers often choose consolidation as a way to gain
enhanced efficiencies in quality, as was noted, because
regulatory barriers can keep hospitals and doctors from working
closely together unless they are under the same ownership
umbrella. Antitrust laws, fraud and abuse policies, and even
tax exempt rulings can cause providers to choose consolidation
over clinical integration. It is notable that all the Federal
agencies that administer these laws needed to provide guidance
or waivers to make the Medicare ACO program feasible. But this
effort is not extended to commercial organizations yet.
Some pundits decry this changing landscape. These critics,
it seems, would like to have it both ways. On the one hand,
they blame the current health care system for high costs and
inefficient and uncoordinated care. On the other hand, they
express alarm over the prospects of hospitals trying to replace
the current silos with a better coordinated continuum of care
that delivers higher quality care at lower costs.
These criticisms are often at odds with the assessments of
professional observers such as Moody's and Standard & Poor's
and are too often based on flawed data and possibly out-of-date
biases. Moreover, they rarely pause to examine the impact that
a concentrated health insurance market currently has on health
care prices and quality.
They are also at odds with the data. A recent study
conducted for the AHA by the Center for Healthcare Economics
and Policy, which was updated today in fact, found that only 12
percent of the Nation's nearly 5,000 hospitals were involved in
a merger or acquisition between 2007 and June 2013. And far
from being anticompetitive, these activities can have real
benefits for the affected patients and communities. Of those
hospitals that were involved in these transactions, all but 22
occurred in areas where there were more than five independent
hospitals. That means that there are plenty of independent
hospitals left following the transaction to maintain a
competitive marketplace.
The stories about how the transaction benefited the
community are compelling. Nine of the transactions, in fact,
involved small hospitals with 50 or fewer beds, the type of
hospitals that often struggle without a larger partner to
supply essential capital for specialized expertise.
Moreover, mergers and acquisitions are vigorously policed
by two Federal and numerous State antitrust authorities.
Officials at the antitrust agencies have stated repeatedly that
they have been and will remained focused on competition in the
health care sector. Transactions that these authorities deem to
be anticompetitive in fact have been challenged.
However, despite this activity, hospitals' price growth is
at an historic low and is not the main driver of higher health
insurance premiums. The growth in health insurance premiums
from 2010 to 2011 was more than double that of the underlying
health costs, including the costs of hospital services.
The antitrust authorities should continue to pay as much
attention to the health insurance industry as it does to the
hospital field, and there is no question that the health
insurance industry is highly concentrated and is now acquiring
hospitals and providers in an effort to replicate the care
continuum hospitals are building.
In closing, thank you for the opportunity to testify today.
Patients receive significant benefits when caregivers work
together to provide more coordinated, more efficient, and
higher quality care. We look forward to working with the
Subcommittee to forge ahead toward a shared goal: improving the
quality of American health care. Thank you.
[The prepared statement of Ms. Pozen follows:]
Prepared Statement of Sharis A. Pozen, Partner, Skadden,Arps, Slate,
Meagher & Flom LLP, representing American Hospital Association
__________
Mr. Bachus. Thank you very much.
Mr. Miller?
TESTIMONY OF JOSEPH MILLER, GENERAL COUNSEL, AMERICA'S HEALTH
INSURANCE PLANS
Mr. Joseph Miller. Good afternoon, Chairman Bachus and
Members of the Subcommittee. I am Joe Miller, General Counsel
for America's Health Insurance Plans.
I appreciate this opportunity to testify on issues
surrounding competition and consolidation in the U.S. health
care system. These issues have far-reaching implications for
the cost of health care, quality improvement, consumer choice,
and innovative approaches to the delivery of care.
In the health insurance marketplace, competition is helping
to drive innovative programs as health plans continually work
to make their products more appealing to consumers and
employers based on both quality improvements and cost savings.
Our members have demonstrated strong leadership in developing
and implementing initiatives that provide value to consumers.
These include developing performance measures to provide
consumers better information about quality and costs to help
them make value-based decisions about their medical treatments,
providing disease management services to enrollees who stand to
benefit the most from proactive interventions, and working with
primary care physicians to expand patient-centered medical
homes that promote care coordination and accountability for
clinical outcomes.
Through these and other strategies, health plans are
working to ensure that their enrollees receive high quality
health care at competitive prices. Vigorous competition among
other participants in the health care system, including
hospitals and physician practices, also is crucial to promoting
the best interests of consumers.
Consumers benefit when health care providers compete to
offer them lower costs, higher quality services, and innovative
approaches to delivering care. There are situations in which
provider consolidation does not impede these or even enhances
these goals. In other situations, however, consolidation
substantially reduces competition among providers and leaves
consumers with higher costs and diminished quality.
The Federal antitrust agencies have selectively and
carefully challenged mergers of hospitals that hold a
significant prospect of harm to such consumers. Now, while such
challenges represent a relatively small percentage of the total
number of hospital mergers, they are of great importance to
consumers. Not only do such challenges prevent harm in specific
markets, they also deter other anticompetitive transactions.
According to Irving Levin Associates, the number of
hospital mergers and acquisitions in the United States has more
than doubled from 50 in 2009 to 105 in 2012. Moreover, an
analysis by Bates White Economic Consulting found that hospital
ownership in 2009 was highly concentrated in more than 80
percent of the 335 areas studied.
Professors Richman and Greaney cite the academic literature
in their written statements that demonstrate hospital
consolidation can result in consumer harm. I will add to that
list two policy studies to bring to your attention. A June 2012
Robert Wood Johnson study found that increases in hospital
market concentration led to increases in the price of hospital
care and that when hospitals merge in already concentrated
markets, the price increase can be dramatic, often exceeding 20
percent. Second, a September 2013 research brief by the Center
for Studying Health System Change reported that increases in
provider prices explain most, if not all, of the increase in
premiums in recent years.
Now, through the ACA implementation process, AHIP has
emphasized that affordability must be a central goal in health
reform and addressing provider market issues is an important
part of achieving this goal. Promoting competition and halting
harmful consolidation in provider markets are critically
important steps toward increasing affordability. With that in
mind, our written testimony offers the following
recommendations.
We urge the Federal Trade Commission and the Department of
Justice to continue to be vigilant in identifying hospital
mergers that would harm consumers by concentrating market power
in a way that diminishes competition.
We further encourage the agencies to examine the increasing
acquisition of physician practices by hospitals and the
potential competitive implications of such acquisitions.
We urge the Committee and other policymakers to closely
monitor the Medicare shared savings program and ensure it is
operating under a regulatory framework that promotes choice and
competition and does not allow accountable care organizations
to accumulate market power that leads to higher costs.
Third, we encourage the Federal agencies, HHS, and other
agencies to take steps to help consumers obtain useful,
actionable information about provider cost and quality.
Thank you, Mr. Chairman, for the opportunity to testify and
I look forward to your questions.
[The prepared statement of Mr. Joseph Miller follows:]
__________
Mr. Bachus. Thank you, Mr. Miller.
Professor Richman?
TESTIMONY OF BARAK D. RICHMAN, EDGAR P. AND ELIZABETH C.
BARTLETT PROFESSOR OF LAW AND BUSINESS ADMINISTRATION, DUKE
UNIVERSITY
Mr. Richman. Thank you, Mr. Chairman and Members of the
Committee. It is an honor to testify before you on a topic that
is extraordinarily important both to our Nation's physiological
health and also our Nation's long-term fiscal health.
Latest statistics reveal that the United States spends
nearly 18 percent of its gross domestic product on health care
services. This is nearly twice the average for OECD nations and
far more than number two, which spends less than 12 percent.
Viewed another way, the United States in purchase-adjusted
dollars spends more than two and a half times the OECD average
per capita on health care and more than one and a half times
the second largest spender. Yet, in spite of our leadership in
health care spending, we are safely in the bottom half of OECD
nations on most measures of health care outcomes.
We are spending too much and getting too little in return,
and the Nation simply is on an unsustainable trajectory. All
discussions about health care policy should begin with the
recognition that curbing health care spending needs to be among
our Nation's highest priorities. The cost of private health
insurance is bankrupting companies and families alike, and the
cost of public health care programs are putting unmanageable
burdens on both the Federal and State budgets.
Many studies suggest that the cost of health care is
unsustainable not because we consume too much health care, but
because we pay too much for the health care that we do consume.
In other words, as one study put it famously, ``It's the
prices, stupid.'' And one of the most severe contributors to
the rise of health care prices has been the alarming rise in
market power by health care providers.
The past several decades have witnessed extraordinary
consolidation in local hospital markets, with a particularly
aggressive merger wave occurring in the 1990's. By 1995, the
merger and acquisition activity was nine times the level at the
start of the decade, and by 2003, almost 90 percent of
Americans living in the Nation's larger MSA's faced highly
concentrated markets. This wave of hospital consolidation alone
was responsible for sharp price increases, including price
increases of 40 percent when merging hospitals were closely
located.
There is also evidence that hospital consolidation leads to
worse outcomes. Another important studied showed this with the
clever title ``Death by Market Power.'' One of the authors, by
the way, is now the Chief Economist at the Federal Trade
Commission, and the taxpayers should be very, very happy that
he, Martin Gaynor, is now working for them and their consumer
interests.
Even after this merger wave in the 1990's prompted alarm, a
second merger wave starting in 2006 significantly increased the
hospital concentration in 30 MSA's and the vast majority of
Americans are now subject to monopoly power in their local
hospital markets.
Hospitals and hospital networks did not achieve this market
dominance through superior skill, foresight, and industry,
which would be unobjectionable under the antitrust laws. This
is not the free market at work. To the contrary, this
consolidation occurred because of mergers and acquisitions, and
permitting hospital mergers to achieve such remarkable levels
of consolidation represents a major failure of our antitrust
policy. There is plenty of blame to share--both Democratic and
Republican administrations, Congress, the executive, and the
courts. But we are now in a position where we must cope with
hospital monopolists. In other words, we not only must resist
additional consolidation that creates greater market power, but
we must develop policy tools that stem the harm that current
hospital monopolists are in a position to inflict.
My testimony is divided into three parts. The first briefly
reviews some failures in antitrust policy that permitted
hospital consolidations with a focus on court decisions in the
1990's. I submit that part of my testimony for the record
saying now just that for too long there was a widely held
perception that hospitals and especially nonprofit hospitals,
unlike all other economic entities, did not reflect economic
harm when possessing market power. Research has thoroughly
refuted this belief, but for too long hospitals tended to enjoy
selective scrutiny under the antitrust laws. The courts'
inability over time to apply antitrust law rigorously to the
big business of health care and the FTC's failure in convincing
them to do so and Congress' failure in instructing them to do
so is one important reason why many health care markets are now
dominated by firms with alarming pricing power.
The second part of my testimony explains why hospital and
health care provider monopoly power is especially costly, even
more costly to American consumers than what one might call a
typical monopolist. This discussion I also submit for the
record saying now only briefly that it is the combination of
monopoly power with health insurance that magnifies the effect
of provider market power. Health insurance enables a monopolist
of a covered service to charge substantially more than the
textbook monopoly price, thereby earning even more than the
usual monopoly profit. The magnitude of the monopoly plus
insurance distortion contributes severely to both excess health
care spending and the misallocation of health care dollars.
The third part of my testimony discusses available policy
instruments to protect health care consumers against current
and growing hospital monopolists. I turn very briefly in some
detail to this third part.
Because most hospital monopolists are already highly
concentrated, we need a new antitrust agenda. A first order of
business would be to fastidiously prevent the formation of new
provider monopolies. Because health care providers continue to
seek opportunities to consolidate, either through the recent
wave of forming accountable care organizations or through
alternative means, there remain several fronts available for
policymakers to wage an antitrust battle.
A second order of business might be to revisit some already
consummated hospital mergers. Retrospective mergers have the
additional cost of unscrambling the eggs, but they are worth
considering for mergers that have inflicted significant
economic harm. Alternative conduct remedies should be
considered as well.
But in addition to prohibiting new mergers and revisiting
old ones, an array of other enforcement policies can target
monopolists behaving badly, those trying either to expand their
monopoly into currently competitive markets or to foreclose
their markets to possible entrants. Thus, several fronts remain
available for policymakers seeking to restore competition to
health care markets. A new antitrust agenda begins with
recognizing the extraordinary costs of the health care provider
monopolies and continues with aggressive and creative anti-
monopoly interventions.
[The prepared statement of Mr. Richman follows:]
__________
Mr. Bachus. Thank you. We appreciate that testimony,
Professor.
Mr. Miller, number two, Mr. Thomas Miller instead of Mr.
Joe Miller.
TESTIMONY OF THOMAS P. MILLER, J.D., RESIDENT FELLOW IN HEALTH
POLICY STUDIES, AMERICAN ENTERPRISE INSTITUTE
Mr. Thomas Miller. Thank you, Mr. Chairman and Members of
the Subcommittee, for the opportunity to testify today on
health care consolidation and competition under the Affordable
Care Act.
Health care providers with market power enjoy substantially
pricing freedom than monopolists in other markets, as Professor
Richman further explains in his testimony. Traditional
antitrust enforcement tools did little to halt extraordinary
consolidation in local hospital markets over the last 2
decades, which drove higher price increases for in-patient
services. Comprehensive U.S.-style health insurance further
enhances the pricing freedom of health care firms with market
power. The ACA also does little to address the monopoly problem
and may even worsen it.
Problems of excessive concentration and insufficient
competition in health care markets are not new, although their
industry sector source has varied over time. Most recently,
markets for our hospital services have presented the more
serious competition policy issues.
A less-noted future problem involves the increased
political competition under the ACA among dominant health
sector players to obtain, maintain, or extend their market
power advantages. The highly regulated and heavily subsidized
regime ahead already has triggered a feverish scramble among
health businesses to get bigger and also become better
connected politically to ensure that they will be among the
politically dependent survivor incumbents in the years ahead.
With most of the key decisions in health care financing,
coverage, and even treatment likely to be made in Washington,
investments in winning future rounds of political competition
is likely to trump responsiveness to market competition.
Hence, we have seen even more health care market
consolidation since passage of the ACA. The primary effect of
the law and its increasingly dense web of regulation has been
to encourage a substantial increase in vertical integration and
consolidation of health care services, mostly in the form of
acquisitions of physician practices by hospitals. Increased
vertical and even horizontal consolidation potentially could
improve the allocation of health care resources but it also
risks coming into conflict with pro-competition policies
favoring greater price transparency, improved quality
reporting, and lower prices. Well-integrated health provider
networks or health systems may face less competition, lock in
patients to non-interoperable health IT systems, and leverage
market power across health services domains.
One strong factor in the move toward greater consolidation
of health care services is the continued likelihood of tighter
reimbursement limits combined with cost increasing mandates
that would shift more financial risk to providers.
On the health insurance side, post-ACA-enactment
consolidation has not been as rapid thus far. However, longer-
term factors suggest that this is likely to change. The new
health exchanges or, as I like to call them, marketplaces
without market prices are structured to gravitate toward more
standardized corridors of coverage. It is important to
distinguish between short-term effects as the ACA exchanges
begin their first shakedown year of implementation and the more
likely longer-term dynamics of this more heavily regulated and
tax-subsidized market for individual and small group insurance.
Passage of the ACA triggered a new wave of defensive
consolidation in the health care sector instead of just
presenting better opportunities to reconfigure operations and
business relationships to become more efficient. Anti-
competitive strategies were predictable responses to the new
law's incentives and penalties. Under the ACA's regime of
complex, confusing, and costly regulation, it will take a
larger village of lawyers, lobbyists, and lines of credit to
comprehend, cope and comply or maneuver around this. Growing
bigger or staying large becomes the best hedge against
political and regulatory risks.
The evolving regulatory balance, of course, does remain
unsteady and is not fully charted at this time. Well, is this
time different? Antitrust enforcers should be congratulated for
recently ending their long losing streak in the courts in
challenging hospital mergers seemingly likely to reduce
competition and raise prices. But prospects for addressing
competition problems in the ACA era of health care markets
through conventional antitrust enforcement remain limited.
Better antitrust policy still has an important role to play in
ensuring more competitive health care practices. We need
expanded solutions to the chronic problems of too much
concentration and too little competition.
Beyond tighter review of new hospital mergers and
consolidations, they should include curbing new abuses of State
action immunity, challenging anticompetitive terms in insurance
provider contracts, requiring unbundling of monopolized health
care services, promoting inter-regional competition in health
care services, removing or limiting regulatory barriers to
entry by new health sector competitors, ensuring that new
accountable care organizations deliver on their promises rather
than facilitate aggregation and abuse of market power, and
finally, empowering consumers and private purchasers with
better information tools.
Thank you very much.
[The prepared statement of Mr. Thomas Miller follows:]
__________
Mr. Bachus. I thank you.
Now, our next two witnesses have been waiting patiently to
respond I guess. Mr. Cohen and our Democratic Members here
invited them. Are you all raring to go? Professor Greaney, you
are up next.
TESTIMONY OF THOMAS L. GREANEY, CHESTER A. MYERS PROFESSOR OF
LAW, SAINT LOUIS UNIVERSITY SCHOOL OF LAW
Mr. Greaney. Thank you, Chairman Bachus and Members of the
Committee. I think you will find my diagnosis is a bit
different than Mr. Miller's but I think our prescriptions for
the remedy are pretty much the same.
Let me summarize my testimony with five key points.
First of all, the Affordable Care Act actually depends upon
and promotes competition in provider and payer markets.
Secondly, hospital market concentration is the result of
merger waves that have been going on for the last 20 years. And
this consolidation was actually fomented by what I believe are
erroneous Federal court decisions, lax antitrust enforcement,
and was exacerbated by Government payment policies and other
laws.
Third, as to provider consolidations, the Affordable Care
Act fosters pro-competitive consolidations through reforms and
incentives and encourages providers to form efficient delivery
systems. But I think it is erroneous and misleading to claim
the Affordable Care Act is somehow responsible for
anticompetitive mergers when in fact these mergers are designed
precisely to avoid the pro-competitive features of the act.
Fourth, there has been a significant resurgence in
antitrust enforcement, and I think that should serve to limit
consolidations going forward. But as other witnesses have said,
antitrust will not unwind pre-existing consolidations.
The fifth point in my testimony is much on track with what
you have heard from Professor Richman. What he and I both call
the provider monopoly problem calls for countermeasures,
countermeasures that reduce barriers to entry, enable payers to
develop tools that promote consumer choice, and encourage new
delivery systems.
So let me take these one at a time. First, beginning with
the proposition I began with, that the Affordable Care Act both
depends on and promotes competition, the natural question to
ask is why you need the Government to make health care markets
more competitive. And the answer in my testimony is what I call
the ``witches' broth of history,'' provider dominance, ill-
conceived payment systems, and most importantly, the market
characteristics of health care which make markets different in
health care.
And as a result, we found ourselves at the beginning of the
century with the worst of two worlds. We had fragmentation on
the one hand, doctors operating in silos, practices of onesies
and twosies unconnected to each other and providing duplicative
care that is not evidence-based. At the same time, we had
growing pockets of concentration, dominant hospitals and
dominant specialty practices that were able to charge monopoly
prices.
My testimony details some of the specifics about how the
ACA's numerous efforts to reform both private and governmental
insurance payments create marketplaces for people to shop and
compare plans, and undue existing obstacles will make markets
work maybe for the first time. And I can go into some detail
about some of the Medicare reforms that I think are important
and pro-competitive and without which markets will not work.
Next, a couple of points briefly on the provider monopoly
problem.
First, provider monopolies is not just a problem for the
Affordable Care Act. It is a problem for those who would rely
on laissez-faire approaches to health care, for those who would
propose vouchers for Medicare. Provider market power has been
shown through the countless studies that Professor Richman and
I cite as a primary culprit in increasing costs today, prices
rising as much as 40 percent after hospital mergers.
The good news I mentioned in my testimony was the
resurgence of antitrust enforcement with the Government
agencies, coupled with many, many of the State Attorneys
General challenging hospital mergers. An important case goes to
trial on Monday challenging physician acquisitions by a
hospital in Idaho. And also going after practices such as most
favored nations clauses and other discriminatory practices that
harm competition. And finally, the FTC has done an admirable
job of competition advocacy, urging State legislatures to avoid
legislation that is anticompetitive.
But now, the caveat I offered earlier. Antitrust has little
to say about extant market power, power that is already there
lawfully acquired. There is no silver bullet, but my testimony
points to several kinds of actions that could be taken. These
are, to be sure, legislative and regulatory but they are pro-
competitive regulations and statutes.
Just very quickly, dealing with the certificate of need,
which in many States creates a barrier to entry, excessive
restrictions that have been imposed by the Affordable Care Act
on physician-controlled specialty hospitals and State laws that
may impair quick clinics and things like that, these are the
sources of new entry into the dominant markets that may at
least provide a relief valve.
In addition, we could expand the opportunities for mid-
level professionals through State law changes that would allow
them to practice within the full scope of their professional
license. This move would serve to help new organizational
arrangements like patient-centered medical homes and ACO's
provide a counterweight in the dominant markets.
The second set of remedies goes to things that might
strengthen employers' and payers' ability and willingness to
negotiate effectively in the face of provider market power.
Some of the ideas that both Professor Richman and I have talked
about deal with laws that might abolish most favored nations
clauses, as Michigan did in response to the Justice
Department's suit there, doing away with contractual
commitments to prevent insurers from using tiering and other
things that may at least allow consumers to undercut the
monopoly power in these markets. Laws affecting price
transparency can help and enlist consumers in the effort. And
finally, calling upon the expertise and leverage of the
agencies and the insurance regulators to back up or nudge
payers that face monopolies. And State insurance commissioners
and exchanges can require or at least encourage the unbundling
of services, as Professor Richman suggests, but also do other
things to insist on dealing with market power.
Let me close with just a cautionary note. These ideas I
have outlined are competition-enhancing regulations and laws
designed to address the provider monopoly problem. If those do
not work, the last resort, if all options fail, will be public
utility-style regulation. That is what most economists predict
for dominant monopolies such as all payer rate controls or
empowering insurance commissioners to place caps on their
expensive provider contracts.
Thank you very much.
[The prepared statement of Mr. Greaney follows:]
__________
Mr. Bachus. Thank you.
Mr. Balto?
TESTIMONY OF DAVID BALTO,
LAW OFFICES OF DAVID BALTO
Mr. Balto. Thank you, Chairman Bachus and the other Members
of the Committee. I am David Balto. I am the former Policy
Director of the Federal Trade Commission. I am a public
interest antitrust attorney.
I have a simple message. Does the Affordable Care Act
matter to consumers? You bet it does. In 2 weeks, health
insurance exchanges will be formed. Very few people would
contest the competitive problems in the health insurance
market. Those exchanges will offer consumers the ability to do
one-stop shopping and will lead to greater competition between
health insurance in markets in which there is barely enough
competition as it is.
Does the act matter? The act provides that when health
insurers companies increase rates too much, the Secretary of
HHS can just say no. And she did last year, and she forced them
to return over $1.2 billion to over 6.8 million consumers. That
is over $1.2 billion in excessive rate increases by insurance
companies.
Now, my testimony is like the other people's testimony,
focusing on the problems in the health care market. Five key
points.
First, there is increased consolidation, but as other
people have said, there are lots of reason for that
consolidation, not just the Affordable Care Act. It existed
before the Affordable Care Act passed.
Second, there is a tension between the Affordable Care Act
and some of the past antitrust enforcement. To be honest, as a
past antitrust enforcer, antitrust enforcers like atomistic
health care providers. They prefer to see lots and lots of
competition. But recent scholarship has really shown us how an
atomistic health care market, especially on the provider side,
leads to increased health care costs. That is why the
Affordable Care Act incents greater integration, and that
integration is positive.
Third, antitrust enforcement is going in the right
direction. I applaud my co-panelist, Sharis Pozen, who as the
Deputy Assistant Attorney General of the Antitrust Division
helped revitalize health insurance antitrust enforcement,
stopping anticompetitive mergers where there had been barely
any enforcement before.
Fourth, is antitrust enforcement enough? No, it is not.
Antitrust provides a limited tool. What we really need to look
for, as Congress did in the Affordable Care Act, are increased
means of regulation. What should enforcers do? Well, what they
should not do is approve otherwise anticompetitive mergers
because they think they will fulfill the mission of the
Affordable Care Act. That is what the FTC did when it approved
the merger of Express Scripts and Medco, two of the three
largest PBMs. That is making a deal with the devil. They
thought that would lead to greater bargaining power that would
hold down drug costs, but what it is leading to today is
consumers having less choice and having to pay more and
community pharmacies suffering a great deal.
Now, let me just touch on two small issues here.
First, rural antitrust. Whenever antitrust cops look at a
rural market, they see somebody with a big market share and
they think it is time to take out their antitrust guns. That is
a mistake. The antitrust authorities have to recognize the
unique characteristics of rural markets and the need for rural
hospitals and doctors to be able to effectively collaborate.
And when the antitrust standard is set up too high, when they
prevent those folks from being able to collaborate, those
hospitals in those small towns have no choice--they have no
choice--but to sell out to the big hospital system in the major
metropolitan area.
Second, the advocacy by antitrust enforcement agencies. The
antitrust enforcement agencies, rather than trying to welcome
State regulation, oftentimes oppose State regulation. I provide
two examples where the antitrust folks said, no, consumer
choice would not work here. I mean, Professor Greaney just
talked about transparency. I can show you four letters where
the FTC opposes transparency when it comes to pharmacy benefit
managers. Fortunately, oftentimes, including in your States,
the State legislatures pay the FTC no heed. But if the FTC is
not going to take more aggressive enforcement actions here, the
least they should do is not try to stop States from being able
to effectively regulate.
I have five suggestions at the end.
First, the FTC and DOJ need to focus on payers. That is
insurance companies, PBM's, and also group purchasing
organizations. That is where there are chronic competitive
problems. These markets are overly concentrated.
Second, the FTC, in looking at these markets, should use
its power under section 5 of the FTC Act to go after unfair
trade practices and unfair methods of competition that are not
technical violations of the antitrust law.
Third, everybody applauds the FTC's retrospective study of
hospital mergers. We should do the same for health insurance.
There was just a study issued earlier this year that looked at
the United-Sierra merger in Nevada that found that consumers
are paying 13 percent more in premiums because the Justice
Department approved that merger. We need more of those studies
to figure out where we need to have greater health insurance
antitrust enforcement.
Fourth, the enforcement agencies need to recognize it is
not the PBM who is the consumer. It is not the insurance
company that is the consumer. It is you and me are the
consumer. Too often, like in the Express Scripts-Medco merger,
the FTC approves things thinking that the PBM is really the
consumer and not looking at the ultimate consumer.
Finally, we have a problem which is in 2 weeks the
insurance exchanges go live, and we do not have a national
consumer protection cop on health insurance. The FTC says the
McCarran-Ferguson Act prevents them from being a health
insurance cop. I think they are wrong. But to the extent they
might not be wrong and McCarran-Ferguson prevents them from
protecting consumers from egregious practices by health
insurance companies, it is time to repeal the McCarran-Ferguson
Act, as suggested by Congressman Conyers.
Thank you for the opportunity testify, and I welcome your
questions.
[The prepared statement of Mr. Balto follows:]
__________
Mr. Bachus. Thank you, and I think it is very thorough
testimony by all the panelists. I very much appreciate it. That
is a tremendous amount of information to try to absorb and
analyze.
At this time, I will recognize the gentleman from
Pennsylvania, Tom Marino, for questions.
Mr. Marino. Thank you, Chairman.
Good afternoon, panel. Thank you for being here.
I am going to try and stay focused on the antitrust aspect
of this, even though I do oppose most of what Obamacare has to
offer, which I think is very little at this point.
But, Mr. Balto, you talked about rural hospitals. I come
from Pennsylvania, the 10th congressional district, very rural,
largest geographic district in the State of Pennsylvania. I
visited all of my hospitals since I have been in Congress,
being elected and taking office in 2011, numerous times. And
one of the biggest complaints that I hear from the
administrators is the cost of administration and not being able
to provide the services because they are in a rural area with
escalating costs.
Are you saying that--and I think you touched a little bit
on the fact that rural hospitals are a different type of
animal. Am I correct in that? Please go ahead.
Mr. Balto. Yes. First of all, many rural hospitals are
critical access care hospitals.
Mr. Marino. Yes.
Mr. Balto. We are trying to preserve them. Because of the
limited population, it is hard for them to attract doctors, and
they have a very high cost structure.
Mr. Marino. So are we talking about two sets of rules then
pertaining to Obamacare and rural hospitals versus metropolitan
hospitals?
Mr. Balto. So the agencies had to come up with the
antitrust standards for affordable care organizations. They
came up with a special provision for rural ACOs to try to
provide them a little more leeway to form ACOS, recognizing
that any ACO would probably appear to have market power. I do
not think that went far enough, and I do not think we see
enough development so far of rural ACOs.
Mr. Marino. Professor Greaney, you talked about--I wish I
had an hour to discuss this with each of you. I took so many
notes during your input.
You talked about more regulation. Did I understand that
properly? You think we need more regulation by the Federal
Government when it comes to health care.
Mr. Greaney. I am talking about State and Federal
regulation that would really do away with pre-existing
legislation and other regulations that block entry, such as
certificate of need and so forth. But at the same time, for
those markets in which there are dominant provider markets,
there really is not a good competitive solution to ensure price
competition simply because there is not any price competition.
Mr. Marino. But how do you do that in a situation
concerning hospitals? It is very complex. They have to cover a
multitude of needs that walk through the door. They certainly
have to have--it is a great deal of paperwork involved as it is
now. That appears to me--and I am told by the administrators
that their paperwork is increasing. Their costs are going up.
And then factor in the aspect of what hospitals are not paid
because when people come in, at least in Pennsylvania and I am
sure across the country, you provide care for people who are
injured even though they cannot pay for it. So how does all
that factor into when you were saying we need more competition?
Because does it not make companies run more lean?
Mr. Greaney. Well, first of all, let me mention that much
of what the Affordable Care Act tries to do is remove those
burdens of uncompensated care that they are providing through
Medicaid expansion and other means.
Mr. Marino. I understand that. I mean, that opens up a
whole other can of worms as to who is going to pay for this.
But aside from that--and I will let you finish here in a
minute. I just want to throw out this other thought. Are you
saying that regardless if it is a government entity controlling
a hospital or it is a private hospital, that overlapping
services, if they are eliminated, are not going to lower the
cost of health care?
Mr. Greaney. I think the issue that we are addressing today
is dominant hospitals that have achieved market power such that
they can charge monopoly prices. And the question is whether
antitrust can do anything about that. And I am afraid the
answer is very little or nothing.
So the question for regulators such as insurance
commissioners or certain States might be to put some kind of
benchmark or caps on provider pricing. That is a regulatory
option, but frankly that is one of the few tools they have.
On the other hand, other measures such as ACO's and
patient-centered medical homes, might provide some pressure
from the ground up to reduce over-prescribing and excess costs.
Mr. Marino. I see my time has expired. I will close with
saying this. I get constant calls in my office from businesses,
large and small, and from individuals as to say what do I do
about my health care now. And we go a step further. We try to
touch base with HHS and ask the questions, not pertaining to
antitrust, but just services, and we get no answers. The answer
we get is we do not know at this point. So that is one of my
biggest problems with Obamacare.
It is very clear that businesses are now saying to their
employees we are going to have to take your family off the
health care program or you are going to have to pay more into
it or we may eliminate it. Whereas I admit antitrust is a big
factor, it is a project of mine watching antitrust issues
concerning particularly the pharmaceuticals, as you discussed--
and you and I know about that a little bit. But there are many
other issues concerning this.
I yield back and thank you, gentlemen.
Mr. Bachus. Thank you.
Mr. Smith? No questions? Okay. Thank you.
Let me ask you this. Professor Richman, you and Professor
Greaney have said you agree on certain things that could be
done to increase competition. Have the other panelists--are
they aware of what they have proposed? Is there any awareness
of some of the things they have proposed? Maybe you ought to
comment on some of the things they have proposed.
Mr. Joseph Miller. Thanks for the question.
I would like to start with the idea that everybody here
seems to agree on that antitrust does not have a big role to
play once a provider has aggregated market power. Historically
that has been true. The FTC has tried it in the Evanston case.
That case was something like 7 years from the beginning of the
investigation until the litigation ended in a settlement. So it
is not a solution that is going to get to the whole problem,
but I do not want to let the moment pass without saying
antitrust laws still have jurisdiction and if there is the
right case, the agencies can go back and look at a consummated
merger.
In terms of the other proposals, we have not taken a
position. I think they are all worthy of further study and
debate. There are some that are relatively obvious to be in
favor of, allowing practitioners to practice to the top of
their licenses, lowering regulatory barriers to entry for
competitors, and those sorts of things. There is a lot that has
been suggested that is worth discussing.
Mr. Bachus. Mr. Miller or Mr. Balto or Ms. Pozen?
Mr. Thomas Miller. Sure. Full disclosure, since I edited
and published a study by Professor Richman, I would agree with
many of his prescribed remedies.
Let me just say as a preliminary, though, you know, there
is a tendency when you talk to folks in antitrust--it is the
old hammer and nail situation. They have a certain set of tools
they can normally apply, and therefore, they find problems to
which they can apply their remedy. In the area of hospital
mergers, one of the reasons why the problem is not large
anymore is hospitals have run out of targets. They are about as
consolidated as they can be, and there are not many more
opportunities to consolidate although there have been some
rollbacks recently.
We need to focus a little bit more on a different type of
regulatory barrier to entry, which is the simple cost and
burden of complying with regulation keeps the new entrants out
of the field. You know, we think we are doing so many wonderful
things with regulation, but we might be closing out and
foreclosing the opportunity for someone to enter that business
in a less conventional mean. It is not just scale. It is the
ability to have the lawyers and compliance experts to get in
the door. Health insurance is a hard area to get into to begin
with. It is hard to start up new hospitals. We raised the bar
even higher by the thickening web of what it takes to actually
be a going concern in that regard.
On the remedies, I think they are all worth exploring to
the extent that they improve market entry and also facilitate
market exit.
I think the unbundling issue is a little harder to parse. I
think it is promising. We have not figured out exactly where
the thresholds are for where it could be applied. There was a
lot of bad antitrust law in the past which over-exaggerated the
degree to which you can leverage market power from one area to
another. That may, though, be applicable in the case in which
Professor Richman is talking about. We would have to go in and
have to probe that a little bit further as to what is a
workable way to actually carry that out.
Again, we keep forgetting that transparency can go a long
way. The folks in Massachusetts who talked so much about the
terrible consolidation and all the anticompetitive practices,
when they finally got to the end of the line, they had to say,
you know, it is not just a matter of more exotic payment and
integration. We have to be able to find a way to measure this
stuff and make it transparent to the people who are actually
paying for it, and that is where you will get the real push-
back from the true consumers and purchasers in this area.
Mr. Bachus. Ms. Pozen and then Mr. Balto.
Ms. Pozen. If I could, I just wanted to refocus a bit on
this issue of consolidation in hospitals. As I mentioned in my
testimony and it is further elaborated on in the written
testimony--and we actually can provide a study from 2007 to
2013 in terms of the number of hospital mergers. We actually
calculated the number in the United States and found that
number to be at 12 percent of the total number of hospitals. So
this notion of consolidation and undue consolidation through
mergers and acquisition--I think the study that the AHA
commissioned from the Center on Healthcare Economics and Policy
really rebuts that notion.
I think, secondly, there has been a lot of discussion about
retrospectives, and I really commend the Committee to think
long and hard before it would advocate retrospectives in the
hospital industry. Those were done previously. I think those
who participated in that, the hospitals and the millions and
millions of dollars that they had to pay to be reviewed by the
antitrust agencies many years, as Mr. Miller mentioned after
the mergers had occurred, would dispute the effectiveness of
those retrospectives. Those that were actually involved in it
like my former mentor and Commissioner Tom Leary who was at the
commission at the time, wrote afterwards that he did not think
those should ever be undertaken again, that they were not
worthwhile.
And I would add, as I mentioned in my testimony, you have
the hospital industry going through tremendous change, these
models of delivery, as I mentioned, and the drive toward
efficiency and value. To undertake a retrospective and divert a
hospital from its mission to serve patients to respond to a
Government inquiry I think one should think twice before
advocating that.
Mr. Bachus. Mr. Balto?
Mr. Balto. Thank you.
You know, I just want to make an observation. From time to
time I represent small town hospitals. I also sue hospitals
actually for antitrust violations. We have all mentioned price.
None of us have mentioned service. And I think that everybody
has to be cautious about the extent that perhaps increases in
reimbursement rates lead to improved service and how that goes
into the balance.
Now, as to the question of remedies, remember what
Professor Richman is talking about is improving life for the
insurance companies. The insurance companies will be able to--
will not be paying as much to hospitals. Does that matter to
the consumer? It depends if the insurance market is competitive
and it results in lower premiums. But right now insurance
markets are not particularly competitive. To the extent, as
Professor Richman observes, that insurance exacerbates the
problems of provider market power, I think having monopoly
insurance makes those problems much worse.
As to the two suggestions Professor Richman has, look,
there is a more efficient answer than antitrust enforcement.
The DOJ brought a big case to challenge a single most favored
nations provision, and that is it. The case ended when the
State passes legislation. Could it have been better for the DOJ
to issue a guideline saying most favored nations provisions are
illegal? Would it have been better instead of going to court
for the DOJ to go to State legislatures and try to get them to
pass similar legislation? Sometimes there are more effective
ways than antitrust enforcement.
As to Professor Richman's approach on bundling
arrangements, I think that is certainly worth exploring. By the
way, those bundling arrangements are clearly a problem when we
look at the pharmaceutical industry where pharmacy benefit
managers effectively force consumers to buy specialty drugs,
very expensive drugs for people with chronic conditions, from
the PBM's own specialty pharmacy. Every one of the problems
that Professor Richman has identified there is in spades when
you look at pharmacy benefit managers.
Mr. Greaney. I want to drill in one more point about
regulations. I alluded to the fact that there are important
changes underway right now with respect to Medicare payment
both the physicians and hospitals. And I think it is important
for Congress to support some of the recommendations coming out
of CMS and, most importantly, out of Medpac.
One great example is the fact that some of the physician
acquisition by hospitals is motivated by the fact that the
hospitals can charge a higher fee for the very same services
that were provided independently in the doctor's office, and
that certainly is an incentive, a very perverse incentive, for
acquisition.
So I think Congress should pay attention to what Medpac and
others are saying, and I think the reforms that are underway,
partially spurred by the Affordable Care Act, are very
important. They are looking at retooling how we pay doctors
because we have a fairly absurd system.
And by the way, Medicare payment policy is followed by
private payers in many, many instances. So the fact that we pay
physicians based on inputs of their costs rather than outcomes
and their value is a complete distortion, and the fact that
private payers follow that model is important. So Medicare
reform is very important in driving both efficiency and
competition in the private market.
Mr. Richman. If I could just add two small points. Actually
both of them relate to what my fellow panelists have already
said.
Professor Greaney points to one feature which is really
endemic throughout the industry, which is how providers and
insurers alike seek to exploit different loopholes in the
reimbursement system. And to a large degree, this is the market
model that most providers have assembled. And I think it, to
one degree, was why Congressman Marino has observed in his
district and districts throughout America--why the
administrative costs of running hospitals are so high. It is
because they respond to these different incentives both with
public payers and private payers. The whole market model is one
designed to capture a market and extract maximum dollars from
payers.
There is an alternative business model, which really has
not been pursued a whole lot among providers, and that is to
really pursue efficiency or value-based models. It is one
reason why business education is so critical to encourage both
providers and administrators to really pursue. It really
involves a very different kind of economic model.
That also speaks to one very interesting dynamic that we
heard both from Ms. Pozen and Mr. Joe Miller. Mr. Chairman, you
observed in the beginning you were hoping to hear from all
sides, and what is funny about that conversation you hear out
of AHA and AHIP is sometimes you are hearing both sides of what
really is the same coin. The insurers often lament
consolidation among the providers and use that as a
justification to consolidate themselves. Providers lament big
insurance companies and use that as a justification for their
own consolidation.
And the end of this kabuki dance--this kabuki dance really
has gotten us to a large degree in this mess that we are in,
but the end of it is culminated in exactly the litigation that
Mr. Balto described in Michigan where essentially you had one
dominant provider, one dominant insurer, and they were in
cahoots with each other. That is what these contractual
provisions, the MFN clauses, the anti-steering clauses, really
are. It is the dominant insurer saying to the dominant provider
we will make sure there are no entries, and the dominant
providers saying the same to the insurer. That is where this
dance is ending. If either we do not figure out ways not just
to address market power but really--and it involves a
combination of cooperation among market players and regulators
to figure out a way to revitalize competition in this industry.
Mr. Bachus. Thank you. That is an excellent point. And any
input that you can give the Committee, any proposals that some
of you even maybe come together and cooperate with some of this
because I see a lot of agreement on certain points that are
made.
At this time, the Ranking Member of the Committee has
waited patiently for several hours and observed, heard all this
testimony, and he has now got some questions.
Mr. Cohen. That is my story and I am sticking to it.
Thank you, Mr. Chair. I was on the floor on SNAP and some
other things trying to preserve food for hungry children and
veterans and people without opportunities otherwise to have a
meal. So I thought that was more important. But I am here, and
this is very important too.
First, I would like to ask Ms. Pozen a question because I
am real concerned about these States that have not decided to
expand their Medicaid programs. What will the impact of not
expanding Medicaid programs be on hospital revenues and
hospital existence in the States around the country and
particularly if you know about Tennessee? But in general, will
this be harmful to hospitals?
Ms. Pozen. I think when you think about what has been going
on in, as I mentioned, this transformation of health care and
the idea of the Government payer and those getting into States
so that actually there is access to care and that care can be
provided, I can only imagine the hospitals in that situation
and how they would respond to it. Again, the Affordable Care
Act from the AHA's standpoint is about access to care and
coordination of care. So without that, I think we will continue
to see this fragmented health care system.
Mr. Cohen. In the State of Tennessee, I think we have not
decided to expand our Medicaid. Our Governor there has a
problem with his Senate, which is catching up. It is at about
1956 I think right now. So it takes time to catch up to the
current situation. And I think $500 million we may be giving up
a year by not expanding.
Is it true, as it has been suggested, that rural hospitals
might have to close because of the failure?
Ms. Pozen. I cannot speak specifically to Tennessee or the
rural hospitals in Tennessee, but I do know, as has been
mentioned today on this panel, that the rural hospitals do
struggle, and these smaller hospitals need inputs and sometimes
need a partner, as I mentioned in my testimony. So without
adequate funding and inputs, certainly they could struggle.
Mr. Cohen. And how about the public hospitals? We have the
Med in Memphis and Nashville General and Erlanger and UTS
hospital in Knoxville. Will the public hospitals in general,
the ones that serve the people that otherwise do not have
insurance--will they suffer greatly too?
Ms. Pozen. Again, I think those hospitals have to be open
for business and accept those that come and need care, as was
mentioned by one of the Members earlier. And so that certainly
affects how hospitals produce and serve if they are doing it
for free.
Mr. Cohen. Mr. Joseph Miller, I understand you represent
the insurance industry?
Mr. Joseph Miller. Yes, sir.
Mr. Cohen. Can you tell us how much money the industry paid
back because of the Affordable Care Act which required that you
only spend no more than 20 percent of your money on salaries
and profits and advertising, that cost ratio? How much money
did you all end up paying back to consumers for overpayment of
insurance premiums because they did not come within that 80-20
differential?
Mr. Joseph Miller. I am sorry, Mr. Cohen. I do not have
that figure in front of me.
Mr. Cohen. But it would be a considerable amount of money,
would it not?
Mr. Joseph Miller. I do not know what you mean by
``considerable.'' I think it went down from the first year to
the second.
Mr. Cohen. Yes, because you all were starting to bring your
programs because you did want to have to be doing more than 80
percent, starting to conduct yourselves within the parameters
of the law and looking better.
What are some of the other reforms that have come upon the
insurance? Can you all no longer have yearly caps on an
individual's insurance? Is that not allowed anymore?
Mr. Joseph Miller. Annual lifetime limits have been
outlawed from the beginning of the ACA. That is right.
Mr. Cohen. And you used to be able to not allow people with
pre-existing conditions to get insurance. You cannot do that
anymore, can you?
Mr. Joseph Miller. Starting now, yes, in 2014 pre-existing
condition exclusions are no longer permitted.
Mr. Cohen. And children with pre-existing conditions--they
have already been affected by that. So they are getting
insurance. Right?
Mr. Joseph Miller. I am sorry. I did not hear you.
Mr. Cohen. Children.
Mr. Joseph Miller. Children, yes.
Mr. Cohen. And then parents--they used to not be able to
keep their children on their insurance until they are aged 26.
Can they do that now because of the Affordable Care Act?
Mr. Joseph Miller. Yes. Children up to the age of 26 are
permitted to stay on their parents' policies, some I think
before the Affordable Care Act, but now it is required.
Mr. Cohen. Mr. Balto, I guess you have probably had a
chance to hear all the testimony. I apologize for trying to see
that people did not starve to death in our country in the
future years.
Are those reforms good? I mean, is it a good thing that
people who have pre-existing conditions can get insurance and
that insurance companies cannot take over 20 percent of what
they take in for profits and advertising and other overhead and
that people do not have yearly caps and lifetime caps on their
insurance? Is that really good for the people?
Mr. Balto. Yes. As a public interest attorney who often
represents consumer groups, I absolutely think so.
By the way, the number you were looking for was that last
year HHS required the insurance industry to return over $12
billion to over 6.8 million consumers.
Mr. Cohen. Can you say that again?
Mr. Balto. I did it twice when you were not here.
Mr. Cohen. $12 billion to how many consumers?
Mr. Balto. Over 6.8 million consumers.
Mr. Cohen. Did you say it? Mr. Miller must not have heard
you. He did not commit that to memory, but I am sure he has got
it down now. That is amazing. That is amazing. $12 billion was
returned to American citizens and how many millions of people?
Mr. Balto. Over 6.8 million.
Mr. Cohen. So they have already benefited from the
Affordable Care Act because instead of just paying that to
extra profits and advertising and overhead to the insurance
companies, it came back to American citizens, and then they
could spend that in the marketplace. And the ripple effect on
that in the economy--wow, that is pretty strong.
Mr. Balto. Yes, it would be, and we hope that once the
exchanges go live and there is an increase in competition
between insurance companies, insurance rates should continue to
stay stable or even decrease.
Mr. Cohen. Professor Greaney, what do you think about all
this?
Mr. Greaney. Well, I would make a couple points on the
insurance reforms. When you think about it, what the Affordable
Care Act has done is say to insurers what you used to do and
you did it very well was find good risks by pre-existing
conditions clauses and things like that. You did not manage
care. You did not force providers to provide cost-effective,
quality care. Taking that off the table, turns the tables on
competition and says insurers are going to have to compete to
provide better care through the providers they contract with.
And when you think about it, some of these things that were
taken off the table are things I do not think anybody would
bargain for, pre-existing conditions, lifetime limits, and
things like that. It is okay for, I think, legislators to say
there are certain things that are not going to be in insurance
contracts. Let's compete on quality and other matters. And that
is what I think the Affordable Care Act did.
By the way, we in Missouri have also declined to expand
Medicaid, and my colleagues on the Saint Louis University Law
School faculty have accumulated a lot of evidence about the net
cost not only to the taxpayer of Missouri but to the
government. It is going to cost the government more in pre-
existing programs that it could have done away with.
And finally, there is a health care issue in Medicaid
expansion. We have actually calculated the number of probable,
based on statistics, mortality rates that will occur in
Missouri as a result of the lack of Medicaid expansion. People
without health insurance will die in greater numbers.
Mr. Cohen. Let me ask you something else. And I forgot
about that, that under this program, the donut hole will be
eliminated. Is that going to help people in Missouri?
Mr. Greaney. It sure will. I mean, the donut hole is one of
the most oddball contraptions ever designed. It was a
compromise in many ways, but it was very hard to make the case
that that really improved rational shopping among consumers.
You know, I think co-pays and deductibles are important and
they can serve a purpose, but in many ways co-pays and
deductibles can have a bad effect. And there is a lot of
academic literature out there, studies, that show people making
decisions under the pressure of economic constraints through
co-pays and deductibles. They do change their behavior.
Unfortunately, the studies also show they are just as likely to
forgo unnecessary care as needed care.
Mr. Cohen. Even for a small co-pay.
Mr. Greaney. Even for a small co-pay. In the Medicaid
context, that is certainly true. Small co-pays can do----
Mr. Cohen. So like under this----
Mr. Greaney. Co-pays can be targeted, however, Congressman.
They could be targeted in areas where it makes sense and the
consumer can make that tradeoff. It is no so clear the consumer
can make that tradeoff when the doctor says you need an MRI.
Mr. Cohen. In the Affordable Care Act, if you go in to your
doctor and you should get a colonoscopy because you turned 50
or you have gone 10 or so years after that, there is no co-pay
now. Is there?
Mr. Greaney. No. The Affordable Care Act rightly eliminated
co-pays for preventative services.
Mr. Cohen. And mammograms?
Mr. Greaney. And did exactly that for that very purpose.
Those are the kind of decisions that should not be affected by
the financial constraint because they are so important.
Mr. Cohen. And then it costs more money later because if
they develop this illness and it costs more money later.
Preventative care can save money in the long run. I am even
more happy that I voted for the Affordable Care Act today than
I ever was. Thank you. This has been a great hearing and I
appreciate your testimony.
Mr. Marino [presiding]. I think that we have time, if you
have time, to have another round. I have a couple of questions
I would like to zero in on.
Like my good friend here, I have to go down and vote
against SNAP because of all those who do not want to work and
want the government to keep them at a cost that is just
doubling and tripling. But be that as it may, we still have a
good relationship.
Mr. Cohen. We do.
Mr. Marino. Mr. Balto, I am a little confused on the
figures that you threw out now, and I think my colleague says
that based on what you said, that $12 billion has been paid
back to individuals, and in your testimony you said $1.2
billion. Can you help me out?
Mr. Balto. I misstated it. Thank you, Congressman. It is
$1.2 billion.
Mr. Marino. Okay. It is still a lot of money. So maybe we
can take that $1.2 billion and put it into Medicare where the
President took out $500 billion and moved it over to Medicaid,
which would help our seniors. So we both have a cause here.
Mr. Thomas Miller, can you please--I am going to throw this
thought out. I have rural hospitals and municipal hospitals
that tell me that the 80-20 setup is not working for them, and
that is one of the reasons they just cannot afford to keep
operating under the premise. Now, I am a capitalist. I believe
the market will determine what prices are. I have a daughter
with a pre-existing condition which is causing me a problem now
because of Obamacare. And what do we do when the hospital says
we are going to go out of business if we do not merge with a
larger entity?
Mr. Thomas Miller. Well, given your premises, I mean, there
are situations in which small hospitals do not have capacity to
be effective, efficient operators. That is an issue for the
particular case as to what the economics look like. So I cannot
give you an automatic reaction to it on that alone. And we
certainly do have some small hospitals that have been in that
situation, and they have been rolled up into larger chains. I
am not quite sure what else you are asking beyond that.
Mr. Marino. Well, they are still in existence. The point I
am getting to, particularly in my district, is these smaller
hospitals are still in existence even though they have merged.
And so someone does not have to go 50 miles away from their
home to get to a hospital. If it were not for the merger, it
would be a 30 or 40 or 50 mile trip to get to a hospital even
for emergency purposes. Now, we do have EMT's and people that
can sustain life, but it is quite a distance to travel.
Mr. Thomas Miller. Well, we are certainly looking toward
improvements in the ability, whether you want to talk about
telemedicine. We have had employers literally paying their
folks to travel further to centers of excellence. So there is a
shaking out on that as to what is a more efficient economic
operation, although we know that patients have an underlying
natural bias to want to be close to home when they look for a
hospital, and that has shown up in most referral patterns.
Mr. Marino. There are parts of Obamacare that I had been
promoting even before I came to Congress--I was in government
and I was a prosecutor for years--simply because of my
daughter's condition. But given the fact that it appears at
this point--let's forget about the antitrust side of this for a
moment and the merging--that there are going to be a fair
number of hospitals that will go out of business. Particularly
in my area, we are going to have a problem obtaining qualified
nurses and physicians to come into those areas. So how do we
compensate for that if the merger is characterized as being
just this dangerous monster that is going to increase the cost
of health care, which Obamacare is doing? I mean, the insurance
companies, the health care providers are telling me about this.
Mr. Thomas Miller. Well, I am not assuming up front that
necessarily those mergers are bad or dangerous under the
circumstances that you have described. The flip side of this is
that we have tried this for years in many areas to try to chase
after it with additional subsidies. That has diminishing
returns over time, and it turns out we run out of subsidized
money and then we have done some other sets of distortions.
So what we are really thinking about is a different type of
health delivery system landscape in which the people who need
services can find them in other means if it turns out the
existing institutions cannot serve them as well as they would
like to in an economic manner. The more we can break down some
barriers to having those type of transformations occur, the
better off we will be in getting to that resorting.
Mr. Marino. I apologize for walking out and coming back. I
had another Committee hearing going on and we were doing a
markup and I had to vote.
But as I was coming in, did I hear a conversation
concerning payment based on outcome? Would anyone like to
explain that to me? Because it seems a little strange when you
say ``payment based on outcome.'' I am not being facetious, but
I am going to exaggerate a point here.
A patient goes in the hospital. Everything is fine. The
surgery went well. And then for some reason, the patient passes
away. So what do you do based on that outcome?
Mr. Richman. The measurement of health outcomes is a very
complicated science, but it is a science that is getting very
good. And there are certain things that are easy to measure,
certain preventable outcomes like infection rates that are
easily prevented, and unnecessary readmissions is another. And
the approach among payers, private payers and also Medicare, is
to increasingly try to put pressure on providers to avoid
avoidable adverse outcomes like infection rates. And the result
actually has been a reduction in certain rates.
And it is a bit of an embarrassment that American hospitals
still boast higher infection rates and other avoidable problems
than our colleagues in other OECD nations. It is not because
American physicians or American hospitals are worse than other
hospitals, but I think it is because the payment system really
does not incentivize them to look for avoidable measures that
are costly ultimately to Medicare and also to insurance
subscribers.
Mr. Marino. Thank you.
Ms. Pozen, please.
Ms. Pozen. Could I add a little bit to that as well?
Mr. Marino. Yes, please.
Ms. Pozen. Because I do think one of the things, to address
some of the issues that we have been talking about--and we have
talked a little bit about accountable care organizations or
what we call in antitrust clinical integration and this notion
of allowing the providers actually to work together to
coordinate their care for a given patient so that when a
patient comes in, that group of physicians knows here is my
checklist based on what I know is likely that I can apply. It
is easier for the hospitals and physicians to establish those
not only because they are serving that population, but also
everyone that comes in is insured either commercially or from a
private payer and you do not want to have different checklists.
So I would say having the provider community own this issue
in a sense and owning it through the creation of accountable
care organizations that have proper integration and have these
kinds of protocols established can help in a large part to end
again this fragmentation of health care to provide the kind of
efficiency and quality care that I think we as Americans hope
for.
Mr. Marino. Mr. Greaney?
Mr. Greaney. Chairman, I once heard a CEO of a major
system--it may have been the Mayo system--say it does not pay
to be good. An example would be readmissions. If you have a lot
of readmissions that are preventable as a hospital, you get
paid twice. If you do not, you only get paid once. That is sort
of a simple outcome measure but it is one.
Medicare is looking at value-based purchasing, as it calls
it. And again, it would be facilities that have measurable bad
outcomes like infectious disease rates, et cetera because none
of us want to pay for something we did not get. And I think
that is just a sensible way of doing business, and I think
private payers are going in that direction as well.
Again, remember, Medicare payment is the tail that wags the
dog or vice versa in that the way Medicare pays often leads the
way for private payers. So what these reforms are doing in
Medicare are changing the way payment is made and delivery
occurs.
Mr. Marino. Thank you. I think we need to develop a hybrid
here.
Mr. Thomas Miller. If I could just say, most of our quality
measurement in the past and even currently has tended to be
process measures. We think if you do something, it will create
a good result. There are efforts--and they need to be pushed
further--to begin to move toward actually measuring what
matters to people which is their outcomes. Now, sometimes it
may be an intermediate marker. It might be a lab test. There
are the no-brainers, which is how to eliminate the infections
and the readmissions, but that is not a large enough scale.
I think there has been some progress under the law in CMS
in trying to make more available the wider database,
particularly Medicare data, to make that more accessible for
other folks to begin to analyze that and come up with
something. But it is a matter of probabilities. It is not
certainties. We have two competing views which is if we just
tell you what to do in a certain manner, good things will occur
as opposed to saying why don't we actually see whether or not
you are producing something that works. There might be some
ways to get there. And that is the difference in terms of those
two approaches to measurement.
Mr. Marino. Thank you.
The Chair now recognizes Congressman Cohen.
Mr. Cohen. Thank you, sir. I appreciate it.
Mr. Balto, you obviously missed a decimal. Was it $1.2
billion that has been paid back to red-blooded, hardworking,
good American citizens?
Mr. Balto. Yes.
Mr. Cohen. And how many millions of people was that?
Mr. Balto. 6.8 million.
Mr. Cohen. That number has not changed. 6.8 million people
got refunds. That is great. That is $1.2 billion with a ``B''
monies paid back. How many million?
Mr. Bachus. I thought he said 8 billion.
Mr. Cohen. Are you Johnny Manziel? [Laughter.]
So, Professor Greaney, let me ask you a question. You are
an antitrust expert. Right?
Mr. Greaney. I have been toiling in that vineyard for a lot
of years.
Mr. Cohen. And you know something about mergers. Apparently
this has been going in some of the hospital industry.
Mr. Greaney. Yes.
Mr. Cohen. Hasn't this been going on for a long time?
Mr. Greaney. Yes. I left the Antitrust Division in 1987,
and there were challenges then. And what happened going back
was a series of several cases which I think a lot of economic
studies now prove were wrongheaded. Courts defined very large
markets, allowed mergers to go through. And then the enforcers
got cold feet and stopped bringing merger cases involving
hospitals. What that precipitated was a real wave of hospital
mergers in the 1990's and early 2000's. So it was a bringing
together of both questionable precedents and a lack of
willingness to go forward.
Mr. Balto said we have had retrospective studies and others
that I think have changed matters, and right now the FTC is
pursuing a number of important merger cases with greater
success.
Mr. Cohen. And so those mergers started, you say, in the
1980's and the early 1990's?
Mr. Greaney. The challenges to the mergers did, yes. And
there were rampant mergers in the 1990's, yes.
Mr. Cohen. That was before Barack Obama was even a State
Senator.
Mr. Greaney. That is correct.
Mr. Cohen. It is amazing.
And there have been a lot of mergers in the airline
industry, has there not?
Mr. Greaney. There have.
Mr. Cohen. And in the supermarket industry?
Mr. Greaney. I believe so, yes.
Mr. Cohen. And department stores.
Mr. Greaney. Yes.
Mr. Cohen. So there is nothing unique about hospitals per
se in a way. I mean, hospitals, airlines, grocery stores,
department stores--mergers have been commonplace in America in
all areas independent of the fact that Barack Obama was even
around or that the Affordable Care Act was passed because the
Affordable Care Act had nothing to do with Northwest and Delta
getting together or Macy's buying out Goldsmith's in Memphis
and I do not know who they bought in St. Louis. Do you still
have a regular home department store in St. Louis?
Mr. Greaney. We do. We have several department stores left,
but there have been mergers there as well.
Mr. Cohen. And Schnucks came to Memphis and then they
``schnucked'' us out and sold to Kroger's who has turned out to
be a good group.
Mr. Greaney. Well, we had an interesting FTC case involving
the Schnuck's merger in St. Louis that did not turn out so
well.
Mr. Cohen. And all that had nothing to do with the
Affordable Care Act, did it?
Mr. Greaney. It did not. What I think has precipitated some
of these mergers is the attempt to sort of gain ground by
preemptively merging so they do not have to face competition.
Mr. Cohen. And Mr. Miller, the insurance Mr. Miller, I just
want to make sure you did not get $12 billion in your mind. You
got $1.2 billion.
Mr. Joseph Miller. Yes. We are checking on the number.
I do want to address the point you are making on the
medical loss ratio.
Mr. Cohen. Yes, sir.
Mr. Joseph Miller. It does nothing to address the issue
that we are talking about in this hearing, the underlying cost
of care.
Mr. Cohen. It has a lot to do with the bill, though, the
Affordable Care Act, and that is what this is all about. In
this House that I serve in the 113th Congress, 40 times there
has been an attempt to repeal Obamacare, and now there is a
possibility of shutting down the Government, which John Roberts
upheld as the law that the Congress passed and the Senate
passed and the President signed. And the President is not going
to sign any kind of repeal bill and the Senate is not going to
see it. And that is what this is about.
Mr. Joseph Miller. Yes, as far as that goes, AHIP tries to
stay out of politics.
Mr. Cohen. Good move.
Mr. Joseph Miller. But I did want to talk just for a minute
about the MLR. Everything that health plans do to add value is
penalized under the MLR. Formation of high-value networks, care
coordination, coordination of medical homes, population health
management, and most fraud deterrence expenditures are
penalized. They are on the wrong side of the ratio. And so
things that we could be doing to help hold down costs were
deterred under the MLR.
Mr. Cohen. Mr. Balto, do you have a response to that?
Mr. Balto. Look, I think the Affordable Care Act
appropriately looked at insurance company operations. I did not
recite all the testimony delivered in the last Congress about
problems in the health insurance market. There were very
serious problems, you know, escalating premiums, a huge number
of uninsured. It was appropriate to go and look at what was
going on and impose certain types of regulation. Those
regulations--hopefully 5 or 6 years from now we will not need
those regulations because the exchanges will have made the
market more robustly competitive and there will not be this
kind of padding that is going on.
I do want to go back to your question, does the Affordable
Care Act cause the problems in the market. I just want to
caution here. Insurance companies and PBMs will knock on the
FTC's door and say please let us merge. You need us to get
bigger because the drug companies are getting bigger or the
hospitals are getting bigger. Going and creating some bigger
entity to try to bargain with another big entity always harms
consumers. It ends up costing consumers.
Mr. Cohen. Thank you, sir.
And I yield back the balance of my time.
Mr. Marino. Thank you.
The Chair recognizes the Chairman of the full Committee,
Congressman Goodlatte.
Mr. Goodlatte. Thank you, Mr. Chairman, and I want to thank
you and Chairman Bachus for holding this hearing.
And I just want to ask Thomas Miller if--we have had some
discussion here about the fact that consolidation takes place
in the natural order of things and in other industries for
other reasons. But I would like to come back to whether you
think that Obamacare by itself has the prospect of more
consolidation because of this new health care law and why that
would be.
Mr. Thomas Miller. I do. I think that there is less
opportunity for further consolidation in the hospital industry
in light of what has already occurred. But certainly we are
seeing, in terms of the integration and consolidation--we are
not sure whether it is true clinical integration, which is the
outstanding question in a lot of the ACO's. But in general,
among physicians and other medical practitioners, they are
selling out and being bought up, saying I have got to have some
shelter in the larger organization.
Now, we have got limited evidence on what the ACO's are
really producing. We had the early results from the pioneer
ACO's where it is a little hard to find many cost savings
coming from the early going. This is in keeping with many of
the previous demonstration projects or other pilots that CMS
has done in this field. We got a lot of promises of
efficiencies in integration, but the actual delivery indicates
a little bit more of a mixed record. We are not sure who is
really running the show. What we do know is that consumers
often are not asked whether they want to participate in the
ACO. So it is more for the other parties about it.
There is a longer-term dynamic. I think it is early to say
what is happening in the health exchanges. I was just looking
at a study by McKinsey last night suggesting there are two
different types of reactions between whether or not the
exchanges are being run by the States, which are a little more
enthusiastic in recruiting a lot of insurers to participate
initially, as opposed to the default federally run exchanges or
even the partnerships where there is less participation. The
big insurers are staying out in year one more so than what have
been predicted. We are getting a lot of the Medicaid insurers
trying to leverage up and provide Medicaid-like products with
more limited networks and lower reimbursement as a way to be
the low-cost bidders in the exchanges. So I think it is hard to
say where those exchanges are going to be a couple of years
from now, but in all likelihood, as we have seen before, the
folks who get the market share early tend to hold onto it and
there is going to be less switching in subsequent years.
So the story of this widespread, competitive dynamic with
everyone having every choice in the world--I would suggest you
take a look at the New England Journal of Medicine article by
Henry Aaron and Kevin Lucia suggesting this is just the
beginning. We really want to clamp down on this stuff and be
much tighter in terms of what we are going to allow with more
active purchasing. Those tools are there under the ACA, and I
think if they can get out of the initial bumpy road, extremely
bumpy road, of implementation, we may see a different face as
to how those exchanges are actually run.
Mr. Goodlatte. And in terms of pricing of health care and
health insurance, more Government subsidies, it would seem to
me, are likely to not result in better price control but
actually greater demand not being readily met, resulting in
higher prices for health care.
Mr. Thomas Miller. The Government is good at usually
increasing demand. It is a little harder at increasing supply.
That is why I certainly think some of the proposals here to
expand in more creative ways supply, such as eliminating some
of the barriers to entry by other types of providers of health
care services, will be necessary. But we are going to run out
of enough physicians.
Let me just allude briefly. You know, Medicaid expansion.
Speaking of Tennessee, I think they already had their
experience with a large expansion in terms of what happened to
their health care market. So sometimes you can invite a lot of
people in the front door and end up wrecking your system
because you cannot actually handle the capacity of what seem to
be those demands.
Mr. Goodlatte. And you may price other people out of the
market. Is that not a possibility? Are we seeing a reaction
from a number of fronts that the fact that the Government is
going to standardize the health insurance policies, that that
is going to have an upward force on pricing that is going to
cause some employers to push their employees into the
exchanges? It is going to cause others to only hire part-time
employees, others to not grow their business above 50
employees. Young people who are going to have to pay higher
rates because of the community rating that is involved here are
going to get priced out of the market. I think a case could be
made that there may be as many people losing health insurance
as there are gaining health insurance from the new Government
subsidies and expansion of Medicaid, pushing people from a
place where they have earned health care through their own work
into a place where they are dependent on Government for
providing it. Is that a good competitive environment?
Mr. Thomas Miller. Well, we are having pseudo prices as
opposed to real prices. So people react to whatever they see in
front of them. Certainly the record in terms of the posted
premiums and the analyses as to what these exchanges are going
to offer--they are all over the lot. People are actually
somewhat guessing because they do not know who is going to
enroll, whether the exchange is going to work as well, whether
you are only going to get the higher risks and what people are
going to be willing to pay for it. We do not have the answer to
that, but there is enough reason for alarm.
And one of the better indicators is what State and local
governments are doing. They are getting out of the insurance
business. They are cutting back on their full-time workers.
They are the folks who are most squeezed on their budgets, as
other budgets may be squeezed in the future. And normally in
that environment, what you were promised does not end up
getting delivered. It turns out it is a lot less, and it starts
looking a lot more like Medicaid, which has already got enough
problems in its current size without trying to put it up on
steroids.
Mr. Goodlatte. And I noted last week that IBM, one of the
largest and most successful corporations in American history,
announced that they were going to put all of their retirees,
110,000 of them, into the exchanges. Is it possible that we are
going to find that many businesses find the cost-benefit
analysis here says it is cheaper to put into the exchanges than
it is to continue to provide ever-rising costs of health
insurance and that the exchanges are going to wind up with more
people than intended and the penalty that employers and
individuals are--or was it a tax? I cannot remember what the
Supreme Court said. Oh, actually they said it was both a
penalty and a tax.
Mr. Thomas Miller. That is right.
Mr. Goodlatte. But whatever it is, it is highly likely that
it is not going to be enough money to pay for all because,
after all, that is why they made the rational decision to be
put into the exchange or go into exchange because it was
cheaper to do that than to provide for this ever-increasing
cost of insurance. Aren't the taxpayers going to get slammed
with----
Mr. Thomas Miller. Well, we know the taxpayer is the
ultimate default payer in most of these arrangements.
Mr. Goodlatte. Yes, absolutely.
Mr. Thomas Miller. Of course, we do not know whether we are
going to have an employer mandate. We will just have to guess
on that for another year or so. You do not know what law you
have until you actually try it out in the field, the same way
the individual mandate may or may not have much strength behind
it in terms of its impacts as to what its results will be.
What we have got is a different type of insurance and
health care market in a lot of turmoil. Employers might want to
dump their employees into it if they know it works. They have
to see if there is any water in the pool. So we are going to
have a very precarious ride over the next year or 2, and we can
spin all our theories as to whether it will be better or worse.
But we do not know. We are taking a pretty large leap.
Mr. Goodlatte. Thank you very much.
And by the way, Mr. Chairman, a hospital in a rural area in
the congressional district right next to mine announced just
last week that they are closing, and the number one reason they
are closing is the uncertainty caused by the economic
environment and they listed Obamacare as their number one
concern.
So I thank you very much, and I yield back.
Mr. Marino. Chairman, do you have an opening statement you
would like to submit into the record?
Mr. Goodlatte. I will do that as well. Yes, thank you.
[The prepared statement of Mr. Goodlatte follows:]
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Mr. Cohen. And I would like, with consent, to introduce my
opening statement for the record.
Mr. Marino. Without objection.
[The prepared statement of Mr. Cohen follows:]
Prepared Statement of the Honorable Steve Cohen, a Representative in
Congress from the State of Tennessee, and Ranking Member, Subcommittee
on Regulatory Reform, Commercial and Antitrust Law
I thank Chairman Bachus for holding today's hearing on the impact
of the Patient Protection and Affordable Care Act on consolidation and
competition in the health care industry. I hope that we can have a
serious discussion on the important antitrust issues before us today.
As all of our witnesses have outlined in their written statements,
consolidation in the health care industry has been going on for some
time, long before the ACA's enactment. In both the hospital and
insurance sectors, we have seen substantial consolidation.
With respect to the hospital sector, we have seen numerous studies
suggesting that such consolidation among providers may have resulted in
increased prices, although some challenge that conclusion.
We have seen far fewer studies done on the substantial
consolidation in health insurance markets, though the effects of such
consolidation have been highly detrimental for consumers.
According to a May 30, 2013 memorandum released by the Obama
Administration, in 2012, the individual insurance market was dominated
by one or two different insurance companies in most states.
In 11 states, the largest two issuers covered 85% or more of the
individual market. In 29 states, one insurer covered more than 50% of
all enrollees in the individual insurance market, and in 46 states and
the District of Columbia, two insurers covered more than half of all
enrollees.
At least one recent study has shown that such concentration among
health insurers has caused average premiums to rise by 7%, or about $4
billion.
Lax antitrust enforcement during the Bush Administration against
health insurance companies was part of the problem. As David Balto, one
of our witnesses, has noted, during the previous Administration ``there
were more than 400 health insurance mergers brought before the DOJ,
only two of which required restructuring.''
While I am heartened to see that the enforcement agencies have
stepped up efforts to stop anti-competitive mergers in the last few
years, such efforts may not be able to entirely undo the harmful
effects of already consummated mergers.
In recognition of this fact, the ACA takes a number of measures to
improve consumer choices and the quality of health care.
Most prominently, the ACA requires the establishment of Health
Insurance Exchanges or Marketplaces. These Marketplaces will serve to
foster competition by facilitating the offering and purchasing of
health insurance by pairing a large and stable risk pool with a number
of health plans competing for their business, whether on price or
coverage or both.
The ACA also prohibits certain anticompetitive practices by health
insurers, including cherry-picking only the youngest and healthiest
policyholders and keeping a disproportionate amount of revenue from
premiums for profit rather than using it for policyholders' health
care-related issues.
The ACA also recognizes that not all coordination or integration
among health care providers is bad. In fact, as most of our witnesses
appear to acknowledge, such integration and coordination can be
procompetitive.
For instance, the ACA encourages the formation of Accountable Care
Organizations. This is because our current health care delivery system
is fragmented and our health payment system incentivizes quantity over
quality. If structured properly, ACO's can overcome these problems by
encouraging health care providers to share relevant information with
each other that can result in more efficiency, better quality care, and
cost savings.
To the extent that the premise of this hearing is that the ACA will
encourage anticompetitive consolidation, I note that two different
Commissioners of the Federal Trade Commission have noted in recent
public remarks that there is no inherent conflict between the ACA and
antitrust law.
Commissioner Julie Brill--a Democrat--noted that the argument that
``the ACA encourages providers to `consolidate' whereas the antitrust
laws require that providers `compete' is mistaken. The ACA requires
providers to create entities that coordinate the provision of patient
care services. The ACA neither requires nor encourages providers to
merge or otherwise consolidate.''
Similarly, just last Friday, Commissioner Maureen Ohlhausen--a
Republican--stated that ``the antitrust laws and the [ACA] are simply
not at odds. The goals of the Act include fostering greater
efficiencies for patients--that is, higher quality at lower cost--
through increased coordination of care, while FTC challenges to
anticompetitive consolidations of hospitals or providers serve to
protect competition that creates efficiencies and benefits patients.''
I hope we keep all of these points in mind as we consider the
discussion before us today.
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Mr. Marino. Chairman Bachus?
Mr. Bachus. Let me just make a comment first of all and
then I am going to ask a question.
Anytime we talk about competition, we have to talk about
new businesses, new starts because ultimately most competition
comes from new ventures or new companies. Traditionally in this
country, it has generated probably two-thirds of the growth of
our job market. So we are all, I think, very concerned that we
do not do anything to restrain new companies, small businesses.
And in that regard, the Small Business Administration,
others have taken a look at the cost of Federal regulations,
whether you say good regulations, bad regulations, or so-so
regulations. The number that the Small Business Administration
comes up with is that Federal regulations alone absorb 14
percent of our gross domestic product, or we could say our
economy. That is one way of saying our economy. 14 percent.
That is not taxes. That is not health care. That is Federal
regulation. That is not State and local ordinances. And that
figure is outdated because we have had 25 percent more
regulations added since that time primarily in the Affordable
Health Care Act, Dodd-Frank, and climate control legislation,
and increased EPA, the lion's share.
So whether we say the Affordable Health Care Act is a good
thing or a bad thing, it increases regulation. There are good
regulations. There are regulations that protect us, our safety,
our health. So this is not a diatribe against all regulations.
And jobs I think is something that unite all of us. We want
better jobs. We want more jobs for our children and our
grandchildren. It is affecting our deficit. It is affecting our
debt. It is affecting our ability to finance government. It is
affecting our ability--a weak economy--our ability to pay for
our elder care and health care. It is one reason there is a
discussion on the floor today about the level of food stamps.
And we have been having hearings in this Committee where if
you can increase the gross national product or grow the
economy, you take it from 2 percent to 4 percent, you can add
enough jobs to where you are creating close to a million jobs
every month. And economically it would be a boon for this
country. If you take that 14 percent figure and you try to get
out of that one out of seven, just cut the cost by one-seventh,
you pick up as much as 2 percent in gross national product
because regulations tie up capital, they divert some of the
workforce into complying. And obviously, you have got capital
plus the workforce or population, whatever, and innovation and
productivity. And anytime that you are complying with certain
regulations, it reduces productivity.
Every President has said--and this is President Bush,
President Clinton, President Obama--we need to get rid of some
of the Federal regulations. Not all of them. There are some
outstanding ones, some good ones. But none of these Presidents
have done that. Every President has added pretty much the same
number of regulations, although when these regulations from
really the two biggest pieces of legislation in the last 30 or
40 years--it is going to increase tremendously.
So I would just say we all ought to be committed to better
jobs, more jobs, higher paying jobs. And one thing we ought to
look at, which President Obama has made two speeches on, is
let's look at our regulations and let's eliminate some. And I
do not think we have eliminated any of them in years.
My one question is certificate of need. I seem to hear a
pretty much consensus that certificate of need boards are not a
good thing, that they inhibit competition and they drive up the
cost of health care. Is that basically the consensus? Can I
have a show of hands that believe they are not a good thing?
Mr. Richman. That they are not a good thing?
Mr. Bachus. Not a good thing.
We have one in Alabama. I truly believe it is not
beneficial. So I do see some agreement here. And that is
something for States to address as we look for savings.
So thank you very much for the hearing today, and I will
yield back to the Chairman.
Mr. Marino. Thank you, Chairman.
This concludes today's hearing, and I want to thank our
witnesses. It was a good, lively discussion. I actually wish we
had more time.
I want to thank the people in the audience for sitting
through this and listening to this exchange.
And without objection, all Members will have 5 legislative
days to submit additional written questions for the witnesses
or additional materials for the record.
This hearing is adjourned.
[Whereupon, at 3:05 p.m., the Subcommittee was adjourned.]
A P P E N D I X
----------
Material Submitted for the Hearing Record
Prepared Statement of the Honorable John Conyers, Jr., a Representative
in Congress from the State of Michigan, Ranking Member, Committee on
the Judiciary, and Member, Subcommittee on Regulatory Reform,
Commercial and Antitrust Law
The Affordable Care Act makes critical reforms to our Nation's
health care system and will help millions of uninsured Americans to
gain access to affordable health insurance.
Today's hearing considers the impact the Act may have on
competition in the health care industry among both health care
providers and health insurance companies.
My principal objective is to ensure that consumers will be the
primary beneficiaries of these reforms through lower prices and better
health insurance coverage.
To begin with, I share with my friends across the aisle concerns
about the detrimental effects that consolidation in the health
insurance market can have on our ability to achieve this objective.
But let us be clear. Consolidation in the health insurance market
has been occurring at least since the 1990's.
A major reason why this has occurred is that the health insurance
industry has enjoyed almost complete immunity from the antitrust laws
through the McCarran-Ferguson Act of 1945.
Thanks to this exemption, insurers have been allowed to run
roughshod over consumers and care-givers.
That is why I introduced H.R. 99, the ``Health Insurance Industry
Antitrust Enforcement Act of 2013,'' on the very first day of the 113th
Congress.
My legislation would repeal the McCarran-Ferguson antitrust
exemption for health insurance companies with respect to price-fixing,
bid-rigging, or market allocations, the worst kinds of anti-competitive
conduct.
This legislation should enjoy broad bipartisan support based on the
fact that the House passed a similar bill during the 111th Congress
with more than 400 votes.
Accordingly, I would very much welcome the Majority's assistance in
bringing this measure to the Floor again.
The problem is compounded by the fact that although most of the
Nation's health insurance markets are disproportionately dominated by
only a handful of powerful players, enforcement actions challenging
consolidation in the health insurance market were rare until only
recently.
The Justice Department, for example, has finally taken action
against Blue Cross Blue Shield of Michigan because of its dominance and
conduct in my home state.
In addition, the Department has recently brought actions against
insurers in other states.
Federal antitrust enforcement, however, has been, on the whole,
insufficient. Most markets are dominated by one or two plans.
Our regulating and enforcement agencies must continue to enhance
their efforts to prevent incumbent, dominant insurers from hampering
competition through exclusionary or collusive conduct.
I believe, however, that the Affordable Care Act's provisions for
Health Insurance Marketplaces will encourage new insurance companies to
enter this industry.
The barriers to entry to starting new insurance companies or
entering new markets are extremely high, and these market
concentrations, in turn, have pushed hospitals to claim the need to
merge in order to effectively negotiate with the major insurance plans.
These Marketplaces will help foster competition with existing
insurers and potentially allow for new and innovative players to enter
the market.
Just this past Tuesday, the Department of Health and Human Services
released a report showing that about 6.4 million Americans who are
eligible to buy health insurance through the new Marketplaces will be
able to obtain health insurance for less than $100 a month in premiums
thanks to tax subsidies.
And, according to HHS, health insurance premiums will be 20% lower
in 2014 than initial estimates suggested thanks to these new
Marketplaces.
The quality of insurance plans offered through the Marketplaces
will also be better for consumers, as the Affordable Care Act requires
these plans to provide certain minimum coverage.
And, the Act prohibits insurance companies from cherry-picking only
the youngest and healthiest individuals to sell policies to, among many
other reforms.
Some have suggested that the Act may further promote healthcare
consolidation, particularly through its encouragement of the
establishment of accountable care organizations and minimum loss
ratios, among other things.
They ignore the fact that these features have the potential to be
pro-consumer, providing better health care quality and efficiency.
Moreover, given that they will not come into effect until 2014, the
conjecture about their anti-competitive effects is premature.
More broadly, our privatized healthcare system, by its nature,
creates an innate tension between increasing shareholder profits, on
the one hand, and improving access to quality health care, on the
other.
This is precisely why our Nation ultimately needs a single-payer
system.
Basic economics would suggest that with fewer market participants,
the incumbent firms will eventually end up exercising market power with
no countervailing benefits for consumers.
The ultimate question in antitrust, however, is whether conduct
results in net harm to consumers. To the extent that conduct results in
net benefits to consumers, it should not run afoul of the antitrust
laws.
So the real challenge is whether the Act will be implemented in a
way that will mitigate some of the negative effects of consolidation in
the health insurance and provider markets while also maximizing the
pro-consumer benefits of greater integration and coordination among
providers.
Because implementation of the Act is still in its early phases, and
because major pieces of the law will not come into full effect until
2014, we have the opportunity now to influence how it is implemented to
increase competition, quality, and access to care.
__________
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