As I was deplaning from my United flight Friday night, the flight attendant dutifully thanked me and my fellow passengers for choosing United. Only the Tuesday prior, my United flight was delayed 9 hours due to a mechanical delay, and Friday’s flight ended with my baggage missing. So, this weekend, I found myself pondering how I could avoid “choosing” United ever again, only to realize it’s really not a choice if the options are limited or none at all.
That’s the way many feel about “choices” in healthcare. Negotiations between insurers and state insurance commissioners has put “bare counties” where only one insurer is available to marketplace enrollees in the spotlight. Entering the next enrollment period November 1, approximately 974 (31%) of U.S. counties will offer marketplace enrollees one choice. The Big Five insurers—Aetna, United, Cigna, Humana and Anthem—control 44% of the national insurance market and in 12 states, the Blue Cross plan dominates coverage. And narrow networks offered by insurers to lower their premiums limits choice for enrollees. In short, limited choices for consumers in healthcare is the new normal.
The September issue of Health Affairs is devoted to the theme of market concentration in healthcare. The lead monograph by UC-Berkeley Adjunct Brent Fulton paints clearly an industry in which choices for consumers are increasingly limited due to industry consolidation:
Abstract: Policy makers and analysts have been voicing concerns about the increasing concentration of health care providers and health insurers in markets nationwide, including the potential adverse effect on the cost and quality of health care. The Council of Economic Advisers recently expressed its concern about the lack of estimates of market concentration in many sectors of the US economy. To address this gap in health care, this study analyzed market concentration trends in the United States from 2010 to 2016 for hospitals, physician organizations, and health insurers. Hospital and physician organization markets became increasingly concentrated over this time period. Concentration among primary care physicians increased the most, partially because hospitals and health care systems acquired primary care physician organizations. In 2016, 90% of Metropolitan Statistical Areas (MSAs) were highly concentrated for hospitals, 65% for specialist physicians, 39% for primary care physicians, and 57% for insurers. Ninety-one percent of the 346 MSAs analyzed may have warranted concern and scrutiny because of their concentration levels in 2016 and changes in their concentrations since 2010. Public policies that enhance competition are needed, such as stricter enforcement of antitrust laws, reducing barriers to entry, and restricting anticompetitive behaviors.
Some will take issue with Fulton’s methodology. His hospital concentration calculus was based only on inpatient services though half of a hospital’s revenues and the majority of profits come from outpatient programs. Physician concentration was based on five specialties– primary care physicians, cardiologists, oncologists/hematologists, radiologists, and orthopedists—representing fewer than half of all physicians, and insurer concentration was limited to those in employer-sponsored or individual plans, excluding Medicaid, Medicare and other government programs that insure more 45% of the population. But the study’s conclusion is plausible: the healthcare market is consolidating reducing choices for consumers. Why?
Healthcare consolidation is the result of economic reality: the private market in healthcare is shrinking, the public market is growing and choices for consumers are fewer. And the public market is not as profitable as the private market, so access to capital and positive operating margins are increasingly achieved by fewer and bigger organizations. And that means fewer choices for consumers in choosing with whom they’ll do business.
Major Federal Health Programs
Those fearful about the negative impact of healthcare consolidation believe consumers will push back if faced with limited choices. They point to studies showing most merger/acquisition deals produce little by way of savings though promised. They feel anti-trust regulations have been too weak and see the need for greater scrutiny. And many caution that U.S. healthcare is heading down a slippery slope to become a public utility akin to our electric, gas and water services due to the declining reimbursements and limits on public funding by an unpopular Congress.
But proponents of consolidation point to the relative fragmentation of healthcare compared to other industries like transportation, financial services and retailing. They argue that the scale and scope of services provided is enhanced when larger entities evolve and the guardrails anti-trust regulate protections. They cite the overnight successes of innovators who take on consolidated industries and win: Amazon took on Barnes and Noble and Borders initially, and now WalMart and CostCo. Fed Ex took on the U.S. Postal Service. CNN took on NBC, CBS and ABC. Since healthcare is a growth market growing at 2% above the GDP annually, the issue is efficiency and effectiveness, not choice, they argue.
And partisans in both camps foresee a referendum about a “single payer system” in the near future (while acknowledging it’s not a panacea).
But is consolidation the real issue? Is making sure consumers have ample choices the right aim for our health system? Or should the discussion instead be about providing a consistent level of quality and service and penalizing those that don’t? That’s the larger question now facing policymakers.
I flew American Airlines last night. I will fly Southwest today, United again later this week and Delta next. It’s not because I want to spread my patronage nor because I like my choices. It’s simply the choices I have. The four major carriers control 88% of U.S. passenger miles flown, so for most travelers like me, the reality is my choices are limited. So, it’s a trade-off: fewer carriers from which to choose but more routes and fares that are manageable. But if they get me where I need to go safely, close to on-time and at a price point within reach, I can live with it.
For many Americans, that’s the way it is with healthcare. We’re living with fewer options and we’re far from happy about what we’re getting. But is choice the real issue? Is consolidation the culprit? Like airline travel, if economic reality results in fewer choices but delivers service that’s accessible, evidence-based, and affordable, that’s probably good enough for the majority who can’t afford other options. It’s not about choice; it’s about service that’s consistent, affordable and effective.
Alan R. Weill “Market Concentration” Health Aff September 2017 36:1527 doi:10.1377/hlthaff.2017.1012
Brent D. Fulton “Health Care Market Concentration Trends In The United States: Evidence And Policy Responses” Health Aff September 2017 36:1530-1538 doi:10.1377/hlthaff.2017.0556