Reason To Act: Reform’s Failure Could Lead To More Health Mergers

Business analysts are predicting that if Congress fails to pass health care reform, health insurers and providers react to skyrocketing health care costs by merging into ever-larger companies. The industry will “seek its own answers to a push by government and the private sector to rein in costs, said Curtis Lane, senior managing director at MTS Health Partners, a New York-based equity fund.” “An aging U.S. population will spur demand for services and, at the same time, boost pressure to control spending, he said“:

One solution will be increased consolidation, with companies led by WellPoint Inc., the biggest U.S. insurer by enrollment, and Community Health Systems Inc., the largest publicly traded hospital chain, scooping up rivals unable to “spread rising costs across fewer customers,” said Paul Keckley, of the Deloitte Center for Health Solutions.

The health-care market “certainly seems to favor bigger, innovative, scalable companies,” said Keckley, executive director of the Washington-based center, in a phone interview. Drugmakers facing the loss of patent protection on top-selling medicines “were looking at decelerating revenues, with or without reform,” he said.

Of course, it’s unclear that mergers amongst insurers or provider networks will help contain health care costs. We have seen over 400 health care mergers in the last 10 years, while premiums have risen “nearly eight times faster than average U.S. incomes.” Today, one in six “metropolitan areas in a 2008 study of more than 300 U.S. markets [are already] dominated by a single health insurer that controls at least 70% of consumers enrolled in health maintenance organizations or preferred provider organizations.”

Similarly, in areas where hospitals have “too strong a market presence to be excluded from insurer networks,” they dictate prices to insurers, which in turn, pass on the cost to the beneficiary in the form of higher premiums. And, if an insurer feels like it’s getting squeezed by the provider, it may dump its beneficiaries (by pricing them out of their policies) and take its business elsewhere. Greater provider consolidation will likely accelerate this trend.

So the future looks grim without health care reform. Projections of increased consolidation are just another reason to push Democrats to repeal the insurers’ anti trust exemption and get the job done on health care reform.