Under a watchful eye
Insurers put on notice regarding antitrust concerns
The U.S. Justice Department’s top antitrust official put health insurance companies on notice that their conduct and mergers will be scrutinized, saying that the success of her boss’ signature domestic policy achievement depends on robust competition among health plans.
“The goals of healthcare reform cannot be achieved if mergers between significant insurers in a particular market substantially reduce competition; nor can those goals be realized if dominant insurers use exclusionary practices to blockade entry or expansion by alternative insurers,” said Assistant Attorney General Christine Varney, according to a prepared text of remarks delivered last week in Arlington, Va., to a combined audience of the American Bar Association and the American Health Lawyers Association.
A spokesman for the trade group America’s Health Insurance Plans said the industry has nothing to worry about. “We support having appropriate oversight by the Department of Justice and the Federal Trade Commission,” AHIP spokesman Robert Zirkelbach said. “The fact is there are a variety of choices for people to choose from in every state,” Zirkelbach said, disputing longstanding complaints from doctors and hospitals. “Hospital consolidation has resulted in higher hospital prices,” he added.
The American Hospital Association, meanwhile, welcomed Varney’s message that the Justice Department appears quite interested in exploring for itself how health insurance markets are functioning, or malfunctioning.
Varney said the department is particularly interested in understanding why new competitors don’t come knocking when one or two big players are piling up profits in a particular market. She revealed that the Justice Department over the past few months conducted a review of its investigations involving health insurance mergers and acquisitions since 1996, looking closely at how consolidation affects the ability of competitors to enter or expand in the market.
One conclusion was that upstarts have trouble enrolling small and midsize employers without significant provider discounts, and they’re unlikely to get competitive provider discounts without a sizable member base. New competitors are least likely to make a run at markets in which one or two dominant players demand and receive larger discounts than providers extend to smaller competitors.
Therefore, Varney said, the Justice Department will be careful to “preserve the choices already available” by challenging mergers that will reduce competition, and that merging companies will have a hard time arguing the dominance of their combined organization would be vulnerable to hypothetical new competitors.
Varney also said the Justice Department will “carefully scrutinize and continue to challenge” the tools that dominant insurers employ to make sure they stay dominant. As examples, she cited so-called most-favorednation clauses, in which an insurer will demand that a provider extend rates at least as good as those given to any competitor.
Antitrust lawyer Fiona Schaeffer, a partner in the law firm Weil Gotshal, said the government’s efforts to police exclusionary conduct could be more important than efforts to block consolidation. “They should be looking at the causes of the impediments to entry,” Schaeffer said. “They’re not going to break those logjams through merger review alone.”
Varney said the Justice Department reviewed past insurer deals.