Consolidation in the health care industry: bane or boon?

In the past five years, there have been several thousand mergers and acquisitions in the health care industry – more if you include life sciences companies and vendors. The majority of these deals have been in the provider space: hospitals, ancillary providers, skilled/long term care and physician groups.

However, the managed care industry (the payors) has also been consolidating. Managed care organizations (MCOs) have accomplished their consolidation out of the limelight in most cases through:

  • smaller plans being acquired by larger ones
  • the marshalling of multiple plans under one corporate parent while continuing to do business under the original MCO trade name
  • acquisitions outside of core competencies or geographic regions, etc.
Providers have argued that lower costs and better care can be accomplished through consolidation

These consolidations, depending on whom you ask, either are a boon to the industry or its bane.

Providers have for years argued that lower costs and better care can be accomplished through consolidation. There has been little more than anecdotal support for that position. The arguments are made by providers, as well, that consolidation, which on its face reduces competition, would result in better plans and lower premiums. These arguments, too, are suspect. However, that a particular consolidation doesn’t lower cost, improve care or access/benefits, is not a basis for preventing its consolidation or for challenging it after the fact.

Government acquiescence

For years, this merger and acquisition activity in health care was largely ignored by the primary government agencies at the federal and state levels charged with enforcement of the antitrust/anticompetitive behavior statutes: the Department of Justice (DOJ), the Federal Trade Commission (FTC) and States Attorneys General. Many of the lawsuits brought in the last 25 years related to consolidation and business practices were brought by competitors or as class actions by providers and members/patients. The government enforcement efforts were few and far between and often unsuccessful. Those that were successful were often post-merger/acquisition challenges to specific behavior, not the consolidation, itself.

Government begins to take action

It wasn’t until approximately 2005 that the government enforcement actions began having some success. Those efforts and success continued until a few recent setbacks in the last year or so, but were sparingly employed.

The industry—whether as a result of the natural desire to consolidate and grow, business economies, the naked desire for more market share or actual efficiencies and economies of scale—has continued to contract in terms of industry participants, and the financial and regulatory barriers to entry have limited new competitors from coming on line.

When the Affordable Care Act was passed, the stated intent was for it to

  • increase competition
  • increase access
  • result in better benefits
  • lower costs for everyone

While these goals can be argued on many points, it is not up for serious argument that competition has not been increased.

Most challenges to payors were related to specific matters of anti-competitive behavior

In fact, many argue that it was the ACA and the massive regulations and efforts at reimbursement innovation that came after that pushed the frenzy to consolidate, reducing competition, driving up costs and reducing access and benefits.

The various legal, regulatory, economic and financial drivers of the consolidation have been met with an emboldened (but still very limited) effort by the DOJ, FTC, states and competitors to challenge the consolidations.

Consolidation in the payor space

Consolidation in the payor space was often ignored while efforts concentrated on hospital and physician group mergers or acquisitions in the life sciences arena. Until the challenges presented by the Centene/HealthNet merger (which was recently approved and closed) and the Aetna/Humana and Anthem/Cigna mergers/acquisitions (which are not the subject of federal court challenges by the DOJ), there had been little effort to slow down the consolidation in the payor sector.

Most challenges to payors were related to specific matters of anti-competitive behavior, which may have resulted in changes to business activities such as the elimination of “Most Favored Nation” clauses by Blue Cross Blue Shield of Michigan or the antitrust aspects of use of the Ingenix data base. Many would say the FTC and DOJ waited too long.

It is important for anyone involved in risk, liability, enforcement and solution to understand the basic laws involved, enforcement tools and agencies, defenses to claims and to potential direction of future efforts to preserve competition.



Kenneth WhiteGuest blogger Kenneth White, J.D., is the National Managed Care Practice Leader of Willis Towers Watson’s Health Care Practice, based in Ft. Lauderdale, Florida. Prior to joining Willis Towers Watson, Kenny was a trial attorney specializing in health
care for 28 years. His practice included claims related to professional liability, ERISA, beneficiary/provider
healthcare benefit claims, disciplinary and regulatory matters, life, health and disability insurance coverage
claims and other health care related matters.

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