DOJ attempts to block health plan mergers: What to know

Jul 27, 2016

The government recently filed lawsuits to block Aetna-Humana and Anthem-Cigna mergers. Here’s how experts say this will impact the industry.

On July 21, United States Attorney General Loretta E. Lynch announced that the government has filed lawsuits to block the Aetna-Humana and Anthem-Cigna mergers.

"If allowed to proceed, these mergers would fundamentally reshape the health insurance industry,” Lynch said during a press conference. “They would leave much of the multitrillion-dollar health insurance industry in the hands of three mammoth insurance companies, drastically constricting competition in a number of key markets that tens of millions of Americans rely on to receive healthcare.”

Here’s how industry insiders are responding.

The industry implications if the mergers do go through

HallDon Hall, a Managed Healthcare Executive editorial advisor, former health plan CEO, and principal, DeltaSigma LLC, agrees with Lynch that these mega mergers could lead to serious consequences.

“One of the biggest problems with healthcare affordability is the lack of true competition in many parts of the country,” Hall told Managed Healthcare Executive (MHE). “These mergers would only exacerbate that and effectively create near monopolies in even more areas. In addition, they could leverage their resources to undercut competitors in markets where they exist and drive them out of business.”

In addition, Hall said the mergers could further jeopardize the likelihood that health insurance exchanges will be a viable model moving forward, particularly as questions regarding their feasibility are arising.  

“My biggest concern is that [the payer parties involved in the mergers] would use their market size to exit the exchanges, as some of the larger health insurers are already doing, and effectively kill them as a source of competitive pricing and marketing,” he said. “End result: higher premiums.”

AbramsMichael Abrams, cofounder and managing partner of healthcare consulting firm Numerof and Associates, says the mergers could also raise problems for providers.  

“Bigger insurers in general have more leverage negotiating reimbursement rates and terms with hospitals, systems and physicians,” Abrams told MHE, adding that the impact would vary from market to market. Still, he said, “It’s probably safe to say that consolidation will narrow margins for providers.”

He added that if the mergers do move forward, it could put more pressure on physicians and provider organizations to consolidate. The mergers could also negatively impact other payer competitors, and increase pressure on them to “buy or be bought,” he said.

Still, Abrams said, the mergers could “counterbalance” the consolidation among providers that has allowed some providers to dominate certain regions. “There is evidence that such consolidation leads to higher prices without corresponding improvement in the quality of care,” said Abrams.

Next: More on the potential effects

 

 

Stephen Moore, PwC partner and U.S. health services deals leader, says that the payers involved in the mergers point out that the mergers will provide greater efficiencies that can be passed along to consumers, help control costs and allow for reinvestment into consumer-friendly models, like more flexible point of care models and consumer-friendly enabling technologies.

Still, Moore told MHE that there are potential “risks” associated with the mergers, as the mergers could lead to a restriction of choice of providers, such as narrower networks, and increase pressure on provider contracting rates.

The main argument against the mergers (and the core position the DOJ has taken) is the belief that having three large, national payers would tend to create an anticompetitive atmosphere and marketplace, said Moore.  

In order to defend the mergers, the parties involved will need to argue that these deals are not anti-competitive.

“Today’s marketplace is large, dynamic and ever-evolving, and although these deals will consolidate national payers, there remains an abundance of smaller, regional payers that are coming online every day, provider-sponsored health plans are proliferating and joint ventures directly between payers and providers to start local/regional health plans continue to emerge,” said Moore. “To defend the mergers, [the parties involved have] already begun to take some of the necessary steps, such as looking at markets across the country where they carry a significant market share to divest certain lines of business to maintain and ensure a balanced and competitive marketplace.”

MendelsonDan Mendelson, CEO of Avalere Health, agrees that the parties involved will need to show that these mergers will benefit consumers through scale economies and leverage that will result in lower premiums.  “Also, that the market concentration resulting from these mergers benefits market competition,” he told MHE.

Mendelson said he disagrees with the argument that that the mergers would be adverse to competition and would raise prices for consumers.

“It’s important to look at the effects of the mergers by market, and that means by geography and payer,” he said. “Both mergers would result in stronger competition in Medicare Advantage, as they would tend to consolidate weaker plans into stronger more competitive plans without resulting adverse concentration.  The few exceptions to this could be divested.”

 

As far as a timeline goes regarding the outcome of whether these mergers will go through, Mendelson cautioned that litigation can take some time, and that a considerable amount of technical evidence will need to be considered. 

“We’re also in the midst of a political season, and it may well benefit these mergers for some time to pass so that rationality can be the basis of a decision,” he said.

Next: If the mergers do not go through

 

 

The industry implications if the mergers do not go through

Hall believes that if the mergers do not go through it will be a “signal” to the broader industry that the health insurance market must be more competitive. “I also think it would be a relief for providers who fear big insurers running their practices,” he said.

Abrams said that the DOJ lawsuit to block the mergers is not likely to halt other merger efforts among payers, particularly when it comes to smaller mergers. “… Mergers will involve smaller insurance acquisitions to stay off the radar of DOJ, and we might see more vertical consolidation with payers buying delivery organizations,” he said.

Naturally, payers and providers are seeking more control as they face increasing regulations from CMS, said Abrams. “As long as government sees the cure for healthcare cost inflation as coming from top-down regulation and not by encouraging market-based competition, payers and hospitals will continue to look for safety in size.”

MooreMoore agreed that if the mergers are not completed, the industry can expect change in other forms of consolidation due to the need to operate more efficiently.

“Without these blockbuster transactions, other deals that promote collaboration will occur, focusing on the removal of waste and excess costs, better managing care through population health models, and continuing to trend toward a pay-for-performance, value-based care system,” said Moore. “These may be in the form of joint ventures, more advanced ACO models, additional smaller-scale mergers, etc.”

Next: Mergers are not the only trend to watch

 

 

Mergers are not the only trend to watch

Sukanya Soderland, a partner in the Health & Life Sciences Practice of Oliver Wyman’s Boston office, says questions regarding the outcome of megamergers and the potential impact that outcome will have are part of a larger, bigger picture issue.

Soderland“Regardless of the DOJ decision, health insurance plans recognize that the basis of competition is changing and the drivers of success are shifting,” Soderland told MHE. “With significant margin pressure post reform, untenable industry cost increases, the move to value based reimbursements, growth in government businesses, the rise of the empowered healthcare consumer, and a flood of venture capital funding in health insurance technology, insurers recognize that there is a new normal.”

While health plans attempt to succeed in the “new normal,” many are attempting to expand in size and scale (as evidenced by mergers and acquisitions, both on a large and small scale), said Soderland.

But that’s not the only avenue health plans are pursuing, and several trends will continue to evolve regardless of how the DOJ actions affect merger activity, she said.

“Insurers across the board will continue to find ways to drive size and scale (via mergers of varying sizes, synthetic scale partnerships etc.) to reduce admin costs, they will continue to drive local market partnerships/vertical integration to shave down medical costs, they will continue to funnel dollars into non-regulated diversified businesses, and they will continue to invest in creating population specific expertise to manage the risk and health of particular populations (e.g., Medicare, Medicaid),” said Soderland.

 

 

 

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