House Subcommittee Hears Testimony on Health Care Industry Consolidation

This Post was Originally Published on the Mintz Levin: Health Law & Policy Matters Blog 

Written by Jared Alves, Kevin Kappel, and Stephanie Willis

A House Ways and Means Health Subcommittee hearing on September 9^th showed that the debate over the meaning of the terms “consolidation” versus “integration” in the health care context is more than petty semantics.  During a hearing titled “Health Care Industry Consolidation,” the majority of the participants testified that, in theory, health care industry integration can lead to lower prices, greater efficiency, and better outcomes.  But many argued that provider mergers in the health care delivery and insurance markets are integrations in name only.  Instead, these consolidations have led to higher prices and a glut of services.  

Ways and Means Committee Chairman Rep. Wally Herger’s (R-CA) opening statement expressed his concern that the health care reform law will encourage even more consolidation and further price increases rather than meet the intended goals of efficiency and quality improvement.  Ranking Member Rep. Pete Stark (D-CA) even noted that the Republican majority’s focus on the negative effects of consolidation is perhaps the opposite of the party’s traditional stance in favor of competition.  Overall, the House members and witnesses seemed to agree that additional government involvement was needed to ensure that health care reform efforts like the Affordable Care Act foster the positive aims behind integration while mitigating the negative effects of consolidation.   

ML Strategies staff listened in on the hearing.  Witnesses made the following main points in their spoken statements:  

 Dr. Martin Gaynor, PhD, Professor, John Heinz III School of Public Policy and Management, Carnegie Mellon University:

• Consolidation is a widespread problem, with hospital, physician practice, and insurance markets becoming highly concentrated.
• There is a clear connection between consolidated markets and higher prices.
• Increased insurance costs for employers often result in lower compensation for employees.
• Antitrust enforcement and/or rate regulation are policy options that can combat the negative effects of consolidation.

Dr. Paul B. Ginsburg, PhD, President, Center for Studying Health System Change:

•  In contrast to the 1990s, the consolidation trends of today have increased provider leverage in negotiating prices of health care services.
• Because of provider leverage, insurance companies have less power to exclude certain provider groups from their networks.
• Hospital employment of physicians (vertical consolidation) creates a guaranteed referral stream that increases market power and allows hospitals to negotiate greater compensation rates than smaller physician practices.
• Policies such as vigorous antitrust enforcement and rate regulation should be considered to reduce and limit consolidation. 

Ms. Dianne Kiehl, Executive Director, Business Health Care Group:

• Vertical integration of physicians into hospitals as employees fosters a focus on revenue and maximizing the volume instead of the quality of care, which often results in service duplication across hospitals rather than specialization.
• Transparency in price and quality of care metrics are imperative to efforts to control health care costs.

Mr. Michael Guarino, Member, Board of Directors, Ambulatory Surgery Center Association

• Consolidation, particularly hospital acquisitions of outpatient/ ambulatory surgery centers, results in higher health care costs to beneficiaries because they pay more for procedures done in hospitals.

Mr. David Balto, Senior Fellow, Center for American Progress Action Fund

• Antitrust enforcement should be a key response to health insurance market concentration.
• Physician controlled Accountable Care Organizations (ACOs) should be allowed to compete with hospital-controlled ones.

During the Q&A session, House members quizzed witnesses on issues such as who suffers the most from consolidation and what motivates health care providers to consolidate in the market.  They also asked whether the Affordable Care Act and other government actions will combat the negative effects of consolidation on health care costs and quality of care while still fostering competition.  The debate will likely continue as more facts come to light about pending health care mergers and the more data becomes available about ACOs.