Antitrust Law Daily Wrap Up, ACQUISITIONS & MERGERS NEWS: American Medical Association voices concerns to DOJ over health insurance mergers, (Nov 13, 2015)

By Linda O’Brien, J.D., LL.M.

Proposed mergers between leading health insurance companies raise significant concerns regarding the impact on consumers in terms of health care access, quality, and affordability, the American Medical Association (AMA) observed in a November 11 letter to the U.S. Department of Justice (DOJ). In its comments, the AMA noted that the high market concentration is an important issue of public policy because the anticompetitive effects of insurers’ exercise of market power pose a substantial risk to consumers.

Background. The Justice Department is currently investigating Aetna Inc.’s $37 billion proposed acquisition of Humana Inc. and Anthem Inc.’s $54 billion proposed acquisition of Cigna Corp. These are the first of several possible mergers and acquisitions among health insurance companies looking to minimize costs due to the Patient Protection and Affordable Care Act (ACA).The ACA impacted the health insurance industry both by expanding Medicaid in many states and by requiring millions of Americans to purchase private health insurance through the exchanges.

AMA comments. In the letter, the AMA recommends that the DOJ block the proposed health insurance mergers. Under the association’s analysis, the mergers are occurring in markets where there has already been a “near total collapse of competition.” There is a growing body of peer-reviewed literature suggesting that greater health insurer consolidation will lead to price increases, as opposed to a greater efficiency or lower health care costs. The mergers can be expected to lead to a reduction in health plan quality, since consolidation reduces pressures on health plans to offer broader networks to compete for members.

Similar to what the DOJ has found in earlier cases, health insurer monopsony acquired through the proposed mergers would likely reduce the quantity of physician services, the AMA letter explains. Consumers do best when there is a competitive market for physician services. The health insurer exercise of monopsony power may motivate physicians to retire early or seek opportunities outside of medicine, which would exacerbate an already significant shortage of primary care physicians in the United States.

Furthermore, the letter states, there is no evidence to support the insurance companies’ claim that the proposed mergers would lead to greater efficiencies and innovative care management programs. There is also no economic evidence that consumers benefit when health insurers respond to hospital consolidation by acquiring countervailing power. Fostering competition, not consolidation, benefits American consumers through lower prices, better quality, and greater choice, the AMA letter observes.

According to the letter, the AMA based its conclusions on its participation in Congressional hearings on Aetna’s proposed acquisition of Humana and Anthem’s proposed acquisition of Cigna. In the course of the hearings, the AMA analyzed the likely competitive effects of the mergers both in the sell-side market for insurance and buy-side market for physician services. The AMA also considered data compiled on competition in health insurance, studies on the effect of health insurance mergers, expert testimony given in the House and Senate committees, and the written submissions and testimony of the merging companies. As a result, the AMA concluded that the mergers were likely to impair access, affordability, and innovation in the market for health insurance and deprive physicians of the ability to negotiate competitive health insurer contract terms in markets around the country.

In urging the DOJ to pursue vigilant merger enforcement, the AMA letter states that any remedy “short of blocking the mergers” would not adequately protect consumers. A divestiture would not protect against the loss of potential competition that occurs when two of the five largest health insurers are eliminated. A divestiture also could be highly disruptive to the marketplace and cause harm to consumers, especially in Medicare Advantage markets where seniors would be faced with a new insurer. Finally, it is unlikely that the DOJ could find buyers of divested assets since there are no would-be purchasers with the size and scope of the existing five national insurers that could replace lost competition, the AMA letter concludes.

Companies: American Medical Association; Aetna Inc.; Humana Inc.; Anthem Inc.; Cigna Corp.

News: AcquisitionsMergers Antitrust