Much public attention focused, in December, on whether Republicans would at last succeed in repealing key provisions of Obamacare. But while protestors raged in front of congressional offices, the most consequential decisions over the future of American health care were being quietly decided elsewhere, specifically in the board rooms of giant corporations.
Recent years have seen record levels of mergers and acquisitions in the health-care sector, to be sure. But of late the deal-making has reached a whole new level in both quantity and kind. Just the first six months of 2017 saw 58 major mergers among hospitals and health-care systems, with six of those involving corporations boasting $1 billion or more in revenue. Then in December came a new wave of consolidations that augers vast changes in the structure and balance of power within the sector. In human terms, everything about how you experience the health-care system, from your choice of doctor to how much you pay to whom, is now in play.
The month began with the announcement that the giant drugstore chain CVS was buying up the giant health insurer Aetna for $69 billion. The resulting entity would be at once a retailer, a pharmacy, a pharmacy benefit manager, and an insurer, while also operating an expanding base of clinics. A few days later, UnitedHealth Group announced that it too was expanding control up and down the health-care supply chain. No longer content to be merely the country’s largest health insurer, it is now in the business of practicing medicine as well after swooping up nearly 300 doctors’ clinics run by the DaVita Medical Group chain.
Then came word that two major hospital systems are negotiating a deal that would create the largest hospital chain the United States has ever seen. The merger of Ascension and Providence St. Joseph Health would create an entity controlling 191 hospitals in 27 states with an annual revenue of $44.8 billion.
Mergers beget mergers. Lurking behind these combines is a fear of being gobbled up not only by the giants emerging from the last round of mergers, but of a still larger goliath. Amazon has shown abundant signs that it is preparing to use its unprecedented market power to dominate medical supplies and pharmaceuticals. And if Amazon becomes the world’s largest pharmacy, what would stop it from expanding vertically by offering loss leading discounts to drive out all rivals as it has in so many other sectors? If you bought discounted Amazon prime health insurance you could buy discounted Amazon drugs prescribed by discounted Amazon doctors and dispensed by discounted Amazon nurses, who might also refer you to Amazon’s recently acquired Whole Foods for discounts on organic vegetables grown on Amazon plantations.
Could that be in the public interest? In health care, as elsewhere, deal makers always try to sell mergers with promises of increased efficiency. And when it comes to health care, there is certainly plenty of waste, as well as all kinds of harms done to patients by lack of care coordination and, let’s be frank, by price gouging.
But will creating new giant monopolies fix that? There’s a story you can spin. The combine of CVS and Aetna, for example, could have far greater bargaining power in negotiating with drug manufactures for lower prices. It might also gain efficiency by driving so-called Pharmacy Benefit Managers out of the supply chain. These middlemen are widely seen as driving up drug prices.
It’s also at least theoretically possible that the combine’s vertical integration could bring some clinical benefits. It might do so, for example, by taking a more active interest in whether patients were prescribed appropriate drugs and stayed on their medications.
But these possible benefits are far-fetched. Other vertical mergers in health care, such as between hospitals and doctors’ practices, have sometimes brought efficiency gains and less fragmented care, but the benefits are rarely shared with consumers. Indeed, because of the resulting increase in monopoly power, these mergers have generally brought higher prices and more political control over regulators.
A vertical merger between a payer and provider is potentially even more problematic. The CVS/Aetna combine for example would forestall competition both from other insurers and from other drug retailers, and thereby lead to less competitive markets in the not-so-long term.
New insurers would be unlikely to enter the market because they would lack the market power and data needed to compete with the CVS/Aetna combine in negotiating with drug companies. Meanwhile, other retailers wouldn’t be able compete with an entity that is using its own insurance company to drive customers to its stores.
So, while some mergers may bring greater efficiency, there is no reason to believe that the saving will be shared with health-care consumers. Meanwhile, the loss of competition will, over time, lead to higher prices and a reduced incentive into innovate.
Some might imagine that moving to a single-payer system would solve the problem of monopolization in health care. If under a “Medicare for All” plan the government was the sole purchaser of health care, wouldn’t it have the market power to dictate prices to health-care providers?
It would in the absence of monopoly. But what happens when single payer meets single provider? Already, in vast regions of the country, a single integrated system monopolizes nearly all as aspects of health care, from doctors’ practices to labs, clinics, and hospitals. As I’ve written elsewhere, if the Department of Health and Human Services tried to contract with the Cleveland Clinic or the Pittsburgh University Medical Center to provide medical services under a single-payer plan, it would have no more market power than our “single-payer” Pentagon procurement system does when it comes to bargaining with sole-source defense contractors.
And we know how that goes. Of course, the government could in theory just set the price it’s willing to pay for the next generation of fighter jets or aircraft carriers and refuse to budge. But in practice, a highly consolidated military-industrial complex has enough economic and political muscle to ensure not only that it is paid well, but also that Congress appropriates money for weapons systems the Pentagon doesn’t even want.
And so it would be with regard to the health-care industry. The only hope for meaningful health-care reform is to first slow down the rate of consolidation and apply some common sense anti-trust. Only then could a single-payer system really provide affordable care for everyone.