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United Healthcare Physician Practice Mergers and Pricing

Summary:
This is not just Physican practices being bought up. A while back I was writing about hospitals merging with other hospitals and healthcare practices being bought up. The advantage of such is in negotiating rates with insurance companies. ~~~~~~~~ A measurement of the competitiveness of a hospital within a certain area of the country is done utilizing the Herfindahl-Hirschman Index (HHI). It has been used to measure competition in and around cities. The results of the HHI revealed an increase in the concentration of hospitals from mergers and acquisitions, going from moderately concentrated in 1990 with an HHI numeric of 1570, to more concentrated in 2009 with a HHI of 2500, and with some cities purely monopolistic at 10,000. The formation

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This is not just Physican practices being bought up. A while back I was writing about hospitals merging with other hospitals and healthcare practices being bought up. The advantage of such is in negotiating rates with insurance companies.

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A measurement of the competitiveness of a hospital within a certain area of the country is done utilizing the Herfindahl-Hirschman Index (HHI). It has been used to measure competition in and around cities. The results of the HHI revealed an increase in the concentration of hospitals from mergers and acquisitions, going from moderately concentrated in 1990 with an HHI numeric of 1570, to more concentrated in 2009 with a HHI of 2500, and with some cities purely monopolistic at 10,000.

The formation of ACOs was to lead to greater efficiencies resulting in lower costs. Instead of lowering costs the opposite occurred. The ACOs consolidated access to healthcare by buying up other hospitals, services, clinics, and specialties limiting competition as evidenced by higher Herfindahl-Hirschman Index ratios. Hospital prices have been increasing along with the consolidation.

Fifty percent of the increase in healthcare costs was due solely to price increases between 1996 and 2013 (JAMA, Factors Associated With Increases in US Health Care Spending, 1996-2013. Increasing Hospital Prices and Insurance Payments Lead to Higher Costs.

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In 2021 I wrote this as taken from various articles.

Today, for-profit insurers are bigger, richer, and more powerful. Recent mergers and acquisitions have enlarged these companies to the point of CVS Health being #5 on the Fortune 500 list of American companies and UnitedHealth Group is #7.

Their growth has been at the taxpayers’ expense. Seventy-two percent of United Healthcare’s revenues in the U.S. during the first quarter of 2021 came from government business through Medicare Advantage, Medicare Supplement plans, and the state Medicaid programs they manage. For several quarters during the pandemic, those programs have been the biggest source of enrollment growth.

Medicare Advantage has become a cash cow for big insurers. MA insurers are known to conduct business right at or to the line of what is considered ethical and legal and often crossing it to maximize profits. A recent analysis by HHS found CMS was overcharged by Humana ~ $200 million in just a single year (2015).

Health insurers treating millions of seniors have overcharged Medicare by nearly $30 billion over the past three years alone (2016 – 2918). Federal officials say they are moving ahead with long-delayed plans to recoup at least part of the money. Increasing Hospital Prices and Insurance Payments Lead to Higher Costs.

Now, Merrill Goozner on healthcare merger mania.

U.S. v. health care merger mania, Gooz News, by Merrill Goozner

This week’s big news in health care is that the Department of Justice is investigating UnitedHealth Group for possible collusion between its UnitedHealthcare insurance arm, which is the nation’s largest with 50 million covered lives, with its wholly owned Optum unit, which now employs 90,000 physicians, or about one in every ten American doctors. That number has doubled in the last five years.

News reports say investigators are probing whether the company’s physician practice acquisition binge is harming rival physician practices and consumers. Neither UnitedHealth or the DOJ has commented on the investigation, although, as the Wall Street Journal pointed out in its story,

“UnitedHealth executives have said Optum and UnitedHealthcare don’t favor one another, and routinely work with competitors.”

I fail to see how that is a defense. Of course, physician practices competing with Optum routinely work with UnitedHealthcare. They have to. When a company has 15% of the national market and is the dominant insurer in over 40 percent of the nation’s metropolitan areas, what choice do they have? If you’re not in-network with UnitedHealthcare, you’re out of business.

If this is the nature of the investigation, DOJ will have to prove that Optum’s newly acquired physician practices engaged in predatory pricing behavior to drive out their rivals. Or, they may charge the company purchased so many local practices that there no longer is any competition. Under either scenario, the Optum-owned physician practices could then raise their prices to UnitedHealthcare, which in turn would charge its customers (employers and individuals) higher rates to recoup their “losses.”

It is interesting that the story about the investigation was broken by the Examiner News, a local newspaper in Mount Kisco, N.Y., which is about an hour north of New York City. Nearly a decade ago, I interviewed Dr. Hal Teitelbaum, the CEO of Crystal Run Healthcare, the largest multi-specialty physician practice in the lower Hudson Valley with over 400 providers.

He was a major proponent of large practices taking on full risk for their patients through accountable care organizations. He wanted to compete directly with health insurers or partner with them by taking on full or substantial control of the individual patient premium.

After partnering with Montefiore Medical Center in the Bronx, things went south. A year ago, Optum purchased Crystal Run. It also purchased three other large physician practices in the region in the past few years.

Earlier this month, the Examiner News reported the company will dismiss about 119 employees at its wholly-owned subsidiaries. It also reported much of the back office operations have been outsourced to India, and that physicians are under pressure to double the number of patients they see each day.

“So instead of giving each patient 20 minutes, you give patients 10 minutes,” one source told the paper. “Instead of seeing 25 patients in a day, they want you to see 50 patients in a day.”

This isn’t the DOJ’s only ongoing investigation at UnitedHealth. The company’s $3.3 billion proposed acquisition of Amedisys, a hospice and home health provider, has also been under scrutiny since its announcement last summer.

States, which regulate insurers, rarely have the resources to investigate bad behavior by big health care companies, especially if it involves reviewing the internal bookkeeping of a corporation that racked up $372 billion in revenue in 2023. Massachusetts is one of the few states that regularly brings cases, having gone after UnitedHealthcare for selling unnecessary Medicare supplemental plans and its OptumRx unit selling overpriced drugs to the state’s workers compensation system.

Antitrust or price controls?

I have serious doubts about the power of antitrust action to halt the rise of the vertically-integrated mega-corporation in health care. CVS, another example, now owns not just its pharmacy chain but Aetna, an insurer, and Caremark, a pharmacy benefit manager. It has opened clinics in its stores and a year ago purchased Oak Street Health, a growing chain of primary care providers serving low- and moderate-income communities.

Hospitals, the major cost center for insurers, continue to merge as one strategy of dealing with growing insurer concentration. Though the Biden administration’s DOJ and Federal Trade Commission published new guidelines for going after hospital mergers in 2021 and won a few victories, it has done little to stop horizontal integration, which is the dominant trend in the industry. It did not challenge the merger of Chicago-based Advocate Aurora Health and Charlotte-based Atrium Health in 2022 because there was little overlap between the two systems’ service territories.

Even where there is overlap, there’s little evidence that these mega-corporations actively compete against one another. Every sector in health care — whether it is insurance companies, hospitals, large physician practices or pharmacy chains — is consolidating rapidly. They use their dominant positions in local markets to drain excess profits from the paying public.

One could try to bust them up. But, in my view, the better approach would be to directly regulate their prices and set rules for how they deliver their services. The consolidation horse has left the health care barn. Regulation is the best way to control an oligopolistic industry.

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