A shrinking number of players, led by behemoth companies that own health insurance and healthcare firms, are gobbling up competitors and extending their reach into all aspects of healthcare. As a result, the fees you pay are rising as your options decrease.
The Rich Get Richer
Over the last three years, revenues for six of the largest healthcare companies have exploded. In 2011 those companies made up under 10 percent of healthcare spending. Last year they comprised almost 30 percent.
To control healthcare, many companies have moved to acquire all or most of its components. That is why today the top three pharmacy benefit managers (PBM) are owned by just three of the largest players in health insurance.. Cigna owns Express Scripts; CVS, which merged with Aetna in 2018, owns Caremark and United Healthcare Group owns OptumRX.
Last year, almost 80 percent of prescriptions were processed by those three companies. With a total of 66 PBMs in the country, you can see how concentrated the market is.
These ever-ballooning companies contend that their size is their strength. They argue that by owning or controlling diverse elements of the healthcare system they can deliver higher quality care, more efficiently and at a savings to patients.
However, the evidence does not bear them out.
Healthcare Consolidation
The consolidation trend seems primarily to benefit the companies making the acquisitions. Those companies gain the leverage to reduce payments to doctors and medical staff while raising prices to patients.
“In existing studies,” a Rand report found, “horizontal consolidation of commercial insurers is associated with lower prices paid to providers as insurers gain market power in negotiations with providers. However, the lower prices paid to providers do not appear to be passed onto consumers, who face higher premiums following insurer consolidation.”
A study published in Health Affairs drew a similar conclusion.
“Increases in the market concentration of healthcare providers and insurers have been examined nationally,” according to the report. “Studies suggest that increases in market concentration are associated with increases in prices and premiums. However, we also know that the local markets for health care differ dramatically.”
Insurance Companies Becoming Harder to Recognize
Expansions and mergers have made health insurance companies and their components hard to distinguish.
If your doctor told you he/she worked for a company called Optum, you probably would not care. (You just want to turn your head, cough, and get it over with.) But, would you be surprised to know that Optum is a division of UnitedHealth Group? The other division is UnitedHealthcare Insurance.
Optum is now the largest employer of physicians in America CEO Dr. Amar Desai told a UnitedHealth Group investor conference in late November.
About 90,000 physicians are employed or affiliated with Optum, according to Dr. Desai. That is after adding almost 20,000 last year. In addition, over 40,000 nurse practitioners, physician assistants and advanced practice registered nurses work for Optum.
Roll-Up Strategy
Acquiring competitors and dominating a market is not a new idea. In the world of private equity, the practice even has a name. It is called a roll-up. The idea is to consolidate smaller companies into one larger company. The aim, roll-up enthusiasts will tell you, is to lower costs and raise profits through the resulting efficiency of scale. However, it also leads to market domination where the big dog calls the shots.
Sound familiar?
A Case in Point
Roll-ups are not limited to the behemoth healthcare companies. Last year the Federal Trade Commission (FTC) took aim at the private equity firm Welsh Carson Anderson & Stowe (WCAS).
The FTC, which, along with the Justice Department, is supposed to evaluate mergers for their impact on competition, filed a lawsuit against New York-based WCAS. The government alleged that the firm was suppressing competition among anesthesiologists in Texas and driving up prices.
According to the FTC, WCAS formed a company called U.S. Anesthesia Partners (USAP). The purpose of that company, claims the government, was to acquire anesthesia providers. Further, the FTC says USAP was highly successful.
USAP gobbled up “nearly every large anesthesia practice in Texas,” claimed the FTC. Once it achieved market dominance, USAP hammered out pricing agreements with the remaining independent providers, alleges the FTC.
Last week a Texas judge ruled that the FTC wiffed in its swing at WCAS. The equity firm is now a minority owner of USAP. As such Judge Kenneth Hoyt dismissed the case against WCAS. He determined that the FTC did not “cite any authority for the proposition that receiving profits from an entity that may be violating antitrust laws is itself a violation of antitrust laws.”
However, the case against the USPA continues.
Dominating Medicare Market
Large healthcare firms are also dominating government-regulated markets such as Affordable Care Act exchanges, Medicaid managed care and Medicare Advantage (MA) plans. That last one has been a real money-maker.
Medicare Advantage insurers reported gross margins averaging $1,730 per enrollee in 2021, according to a KFF report. That was more than twice as many insurers selling individual, group, and Medicaid-managed care.
However, increased usage and tighter government regulation have reduced profits since that time.
Another blow to MA insurers came last month when the Centers for Medicare and Medicaid Services (CMS) announced Medicare Advantage and Part D rates for 2025.
Under the new rates, says CMS, payments from the government to MA plans are expected to increase by 3.7 percent. That would be $16 billion more than this year. In all, CMS expects to pay $500 to $600 billion to MA insurers next year.
The big healthcare companies have maintained that the 2025 rates are too low to offset increased usage. Further, they maintain the rates threaten the ability to provide care to MA enrollees and may require premium increases.
However, even if MA plans do not make as much money as in past years, they are still likely to make a good profit. In fact, it is hard not to make a profit when you are overpaid.
MA plans are overpaid by 22 to 39 percent, according to an analysis from the Center for American Progress (CAP). That amounts to an estimated $83 to $127 billion for 2024. Over the next decade, Medicare could overpay MA plans between $1.3 and $2 trillion.
Spending the Most on Healthcare
The United States has long been the world leader in healthcare spending. Last year, the country shelled out $12.555 per person on healthcare, which is about 16.6 percent of GDP. That is far more than other developed countries. The Organization for Economic Co-operation and Development (OECD), which is made up of the world’s wealthiest nations, keeps tabs on such things. It reports that its members, including the U.S., averaged $4,986 in medical spending per person or 9.2 percent of GDP.
However, spending the most has not led America to the top in healthcare outcomes. In a few areas, the U. S. ranks near or above OECD averages. However, in some important areas we rank below those averages.
The U.S. has the lowest life expectancy of any OECD country at 76.4 years – 3.9 years below the average. Americans exceed OECD averages for people with chronic conditions and obesity.
In one area America stands alone. We are the only OECD country that does not have universal healthcare.
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