On November 13, the Solomon Center for Health Law and Policy at Yale Law School held its inaugural conference, "The New Healthcare Industry: Integration, Consolidation, Competition in the Wake of the Affordable Care Act." The Solomon Center was recently established to focus on the governance, business and practice of healthcare in the United States. In this update we summarize some of the key issues discussed at the conference.

The Solomon Center Conference brought together healthcare industry representatives, regulators and academics to discuss both the benefits and antitrust concerns surrounding consolidation in the healthcare industry. Panels included a range of speakers and addressed consolidation from the payer and provider perspectives, as well as economic analysis and federal and state antitrust regulatory views.

DOJ's Antitrust Division Head Underscores Benefits of Competition in Healthcare Industry

Assistant Attorney General William Baer, head of the Department of Justice (DOJ), Antitrust Division delivered the opening remarks. Baer noted that the Affordable Care Act (ACA) is premised on the benefits of both robust competition in the healthcare space, for example, through establishment of health insurance exchanges, and legitimate cooperation among healthcare providers, for example, through establishment of Accountable Care Organizations (ACOs). Baer emphasized, however, that the ACA's incentives for collaboration do not give healthcare industry participants "a pass on antitrust scrutiny," and that merger enforcement will continue to be a priority for the DOJ going forward. Baer's remarks reflected an underlying belief expressed by many regulators and economists throughout the conference that competition at all levels of the healthcare market—including among and between insurers and providers—benefits consumers by lowering prices and promoting innovation and quality.

Massachusetts Attorney General Emphasizes Interplay Between State and Federal Regulators

Massachusetts Attorney General Maura Healey also delivered an opening address discussing the cooperative and collaborative relationship between the DOJ and state regulators, as well as the active role that states' attorneys general play in enforcing antitrust laws. Healey discussed her state's ongoing efforts in this area, and highlighted some unique state resources devoted to analyzing local market dynamics.

Payer-Provider Integration Trend Examined

Representatives of health insurers and health maintenance organizations, integrated health networks and the pharmacy industry discussed the benefits of integrating payment for and delivery of health services. The panelists highlighted the ways in which increased consolidation in the healthcare market can benefit both providers and patients by fostering a shift away from a siloed, episodic care delivery system to a more integrated and holistic system focused on patient wellness. The panel discussed how some HMOs have been integrating care and payment for decades thorough capitated payment models that create financial incentives to provide better care at lower costs. While the blurring of lines between providers and payers is not a new phenomenon, this trend has accelerated under the ACA.

To realize the benefits of payer-provider integration, panelists discussed the importance of aligning incentives between providers and payers to encourage concerted efforts in care delivery; effective use of data, in particular, to support care management, engage patients in care, and improve outcomes; and innovation, as well as the importance of developing regulatory schemes that both protect competition and promote innovation.

Horizontal Integration: Perils and Promises

Conference participants addressed the benefits and drawbacks of horizontal consolidation in the healthcare market. In particular, panelists highlighted increased concentration among payers—the market share of the four largest private health insurers increased from 65% in 2002 to 83% in 2015—and providers, noting the rapid increase in hospital mergers, driven in part by a desire to drive down overhead expenses.

Proponents of consolidation in the healthcare market often cite its potential benefits, including improvements in coordination of care; decreased fragmentation; increased efficiencies, including reductions in unnecessary duplication and cost reductions from economies of scale; and improved population health.

In contrast, economists on the panel argued that the evidence does not necessarily demonstrate these benefits, and raised several concerns about consolidation in different healthcare markets. In particular, economists focused on the following examples:

  • Payer market: One panelist reported that preliminary analysis suggests increased consolidation has a negative effect on innovation in the payer market.
  • Provider market: Another panelist argued that integrated delivery systems do not necessarily provide better care, and that provider mergers can lead to higher prices, lower quality of care, less innovation and decreased quality of care.

The panelists also addressed the degree to which the ACA has driven consolidation and impacted antitrust enforcement. A pharmaceutical industry representative argued that the ACA and an increased focus on value-based reimbursement are driving consolidation in the healthcare market. Peter Mucchetti, Chief of Litigation I Section of the DOJ's Antitrust Division provided an enforcement perspective, explaining that while the ACA has impacted antitrust enforcement in some ways, it does not change the applicable antitrust standards.

Like business transactions in all other industries, transactions in the healthcare industry are still subject to an assessment of whether they will substantially lessen competition. The reforms under the ACA do, however, alter issues fundamental to the antitrust enforcement analysis, including market definitions and barriers to entry. For example, the increase in individual health plans has led to increasingly narrow provider networks, which raises questions about access to care and how health insurance exchanges established under the ACA have altered the manner in which insurers enter and exit the market.

Show Me the Data: Understanding the Impact of Vertical Integration

Representatives of hospitals and government debated whether vertical integration in the healthcare industry benefits or harms competition. The debate highlighted both the beneficial and potentially concerning forces driving vertical integration, including generating economies of scale to permit greater investment in technology and improve the quality of care versus anticompetitive motives, such as increasing bargaining leverage or changing referral patterns.

Economists on the panel presented potential policy solutions to foster the efficiencies of vertical consolidation and minimize its harmful effects. Focusing on the states' unique ability to assess local markets, one suggestion was for states to collect and analyze claims data in order to determine the empirical effects of vertical integration. It was also noted that the FTC is similarly focusing on incorporating evidentiary analysis into its enforcement through, for example, its retrospective reviews of hospital mergers.

Conclusion

Key takeaways from the remarks of regulators, academics, and industry representatives include:

  • Although ACA reforms have driven consolidation in the healthcare market, antitrust regulators made clear that they will continue vigorous pursuit of merger review and that "the ACA made me do it" is not a valid defense to anticompetitive consolidation in the healthcare market.
  • Academics and regulators emphasized that competition in the healthcare market plays a critical role in controlling prices and driving positive health outcomes.
  • Industry representatives, on the other hand, suggested that efficiencies of consolidation outweigh potential competitive concerns.
  • States, including states' attorneys general, have unique opportunities to analyze local market dynamics.