SiriusXM channel 111—Business Radio Powered by Wharton—aired its first segment on the business of health care on May 2, 2014. The show represented the first in a series of special programs on Business Radio that will focus on changes in the health care industry and public policy and what they mean for you, the consumer and business owner.
The focus of the discussion was on the consolidation of insurance companies and health systems.
Roundtable participants included Robert J. Town, associate professor of health care management at Wharton and an expert in health care consolidation who has worked with the Department of Justice and FTC on these issues, and Robert Field, a lecturer in the Health Care Management Department and author of Mother of Invention: How the Government Created “Free-Market” Health Care. (A great book by the way!)
Town spoke about monopolistic behavior in the Boston market at Partners HealthCare, made up of Mass General, the Brigham and Women’s Hospital, and more than 6,000 physicians. The perception that Partners holds with local employers is that it is a
“must-have provider.” Because of this dominant position, Partners is able to negotiate 15 to 20 percent higher reimbursement rates from payers such as Blue Cross Blue Shield of Massachusetts relative to other area health providers. This translates in Partners taking in more than $6 billion of the $20 billion spent annually in health care in Massachusetts.
Compare this to the Philadelphia market as Town did, and you see the “monopolistic” practices of an insurance company,
Independence Blue Cross, whose advantage translates into Independence being able to charge employers and individuals higher premiums.
There are numerous markets like this across the country—with a dominant payer or provider able to extract excessive “rents” from consumers. Brad Herring, GRW’00, associate professor of health economics at Johns Hopkins, recently found that in concentrated provider markets, consumers spend 14.3 percent more on premiums compared to consumers in competitive markets. He also found that in monopolistic insurance markets, versus markets that are competitive for providers, insurers can charge 7.2 percent higher premiums.
How did it get this way? Field and Town explained how deregulation under the Bill Clinton and George W. Bush administrations permitted payers to merge. In some markets, as few as five private insurers make up more than 50 percent of the market, compared with more than 20 payers before deregulation. State insurance departments, which have jurisdiction over antitrust laws under the McCarran Ferguson Act of 1945, typically do not have the resources to fight larger payers. Additionally, the U.S. Department of Justice also lost a number of provider consolidation cases—nine in all—during the 1990s, and this has likely made it more difficult to litigate provider consolidation.
Stay tuned for more health care content on SiriusXM channel 111, including the soon-to-come analysis of monopolistic practices in other markets.