Will the FTC ever get tough on health plans?

by Anne Zieger on August 25, 2012

The FTC doesn't seem interested in slapping down big health plan mergers.In this piece, I’m going to paint a pretty comprehensive picture of why I think the FTC is slacking off big-time when it comes to health plan mergers. If you don’t agree, I’d love to hear from you — but in the mean time, let’s see what you think of the following.

First, let’s look at some stats on FTC and  healthcare. While some say the agency isn’t enough of an activist, the Federal Trade Commission has intervened in several proposed healthcare mergers. A few examples:

*  In its first successful hospital merger challenge since 1990, the FTC won its case against Evanston Northwestern Healthcare Corp.’s acquisition of Highland Park Hospital.  Challenges to the 2007 ruling dragged out for a while, but the FTC got its way. Seems like a good call by the FTC, given the way giant hospitals/chains already dominate the Chicago metro.

* In 2009, FTC squeezed a consent agreement out of Roanoke, VA-based Carilion Clinic acquisition of two outpatient centers, which it bought in 2008 for $20 million. In March of this year, the Clinic settled the FTC complaint by selling a medical imaging center and two outpatient surgical centers. This must have been a big downer for Carilion, as it can’t pursue its plans to build a Mayo-like center without these accoutrements, but I suppose the FTC had a point about domination of of the smallish-metro.

*  Two years ago, the FTC blocked the acquisition of Prince William Health System by Inova Health System.  According to the FTC, the deal would have given Inova — which already controls almost 1,800 beds in Northern Virginia — a 73 percent share of licensed beds in the region. Faced with the FTC’s threat, Inova and Prince William cancelled the proposed deal. Not surprisingly, Inova continues to be the big bad player in Northern Virginia, but it failed to extend its reach to neighboring Prince William county.

Do you notice what’s missing here?  Health plans. While I’m not suggesting the FTC never reviews health insurer mergers, let us say that it hasn’t been, let us say, aggressive in this area. The list you’ve just reviewed is a pretty good representation of how the FTC rolls in this area.

And it gets worse.  According to the American Medical Association — which is boiling mad over what it sees as undue market control by big plans — there have been 400 health insurance mergers over the last 10 years, and 94 percent of markets in the U.S. are “highly concentrated.”

Now, the AMA data is from 2008. And do bear in mind that the AMA has an axe the size of Cleveland to grind, as bigger plans have the muscle to force their rates down.  But I’ve seen similar numbers elsewhere, from sources without a dog in the fight.

Hey, look at the $8.1 billion merger between United Healthcare and PacifiCare Health Systems, back in 2005. Where was the FTC? Barely involved.

It took the California Department of Insurance and the California Department of Managed Health Care to get the job done. And it was the Department of Justice which stepped  in and demand that United Healthcare divest subsidiaries in concentrated markets and end its network access agreement with Blue Shield of California.

Three years later, United Healthcare faced $1.3 billion in fines due to unfair payment practices resulting from the PacifiCare acquisition.  We know what that means; providers got slammed by the giant conglomerate and found that they had much less power to negotiate.

Well, it’s nice that the DOJ got involved here — though I hear that enforcement problems still exist — and I know that the FTC and DOJ often help each other out, this kind of thing doesn’t smell right.

What do you think?

P.S.  This week the agency released its horizontal merger guidelines, which update standards released in 1992.  While their press release doesn’t mention healthcare specifically, this is as good a place as any to learn more about their state of mind.

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