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Health Care Consolidation Worries Ways and Means Members

By Rebecca Adams, CQ HealthBeat Associate Editor

September 9, 2011 --- Ways and Means Committee Republicans and Democrats alike expressed concern about consolidation in the health care industry, saying that mergers and acquisitions can drive up medical prices.

Health Subcommittee Chairman Wally Herger, R-Calif., said at a hearing that the session was intended to be "a starting point for further assessment of the consolidation issue." He said that "all health care costs need to be closely examined, especially in this challenging economy."
Herger and some other GOP members of the panel seemed less inclined to let the market work its will and were open to stronger federal oversight of consolidation.

"I recognize that, at least in theory, consolidation can lead to greater efficiencies and improved outcomes," Herger said. "Unfortunately, research has shown that higher prices are more often the result."

Several witnesses at the hearing said that increased consolidation—of health insurance plans, different hospitals, pharmaceutical benefit management companies, and hospitals with other types of providers such as physician practices—can decrease competition and give larger players more leverage in price negotiations.

"Providers in more concentrated markets charge higher prices to private payers, without accompanying gains in efficiency or quality," said Martin Gaynor, a professor at Carnegie Mellon University.

Those higher prices can drive up prices for employers, who often pass those costs on to their workers through higher cost-sharing.

The hearing did not include any representatives of companies that have recently merged with or acquired others. But these companies often defend consolidation as a way to cut waste and duplication.

An example of one major merger that is in the works is between pharmacy benefit manager giants Express Scripts Inc. and Medco Health Solutions Inc., which was announced in July. The proposed merger would combine the largest and third-largest pharmacy benefit managers to create a company that is twice as large as the next biggest competitor.

At the time, George Paz, president and CEO of Express Scripts, said in a statement that companies like his and Medco "have a responsibility to provide the leadership and resources required to drive out waste in health care and provide the best care in the world." 

There were a large number of hospital mergers and acquisitions in the 1990s, with the pace slowing down in the early 2000s, Gaynor said. In the past few years, the activity has increased again, with high number of merger and acquisitions in 2004, 2005 and 2007.

Paul B. Ginsburg, president of the Center for Studying Health System Change, also noted that some hospitals have been driven out of business by their competitors, which is another way that markets have become more concentrated in recent years.

Subcommittee ranking Democrat Pete Stark, R-Calif., said he hopes more hearings will be held to bring attention to congressional concerns by members of both parties.

Herger did not spell out when he plans additional hearings or other action, but said the issue is a priority for him.

"At a time of elevated unemployment, Congress must ensure that it's doing all it can to foster a more competitive environment that promotes growth, not one that adds additional cost burdens and sticks it to employers, and by extension, to their employees," Herger said.

Members of another committee also signaled concern about this topic, specifically the Express Scripts and Medico merger proposal. Top Democrats on the House Energy and Commerce Committee wrote to Federal Trade Commission Chairman Jon Leibowitz about their issues with that consolidation proposal. The letter noted that the proposed merger would combine the largest and third-largest pharmacy benefit managers to create a company that is twice as large as the next biggest competitor. The new combined pharmacy benefit manager would control one-third of total market share and 60 percent of the market share for mail-order drugs, wrote Henry A. Waxman of California, Frank Pallone Jr. of New Jersey and Diana DeGette of Colorado.

"The proposed merger would affect hundreds of millions of Americans with private health insurance and have a potentially significant impact on drug cost for government programs including Medicare Part D, Medicaid, the Federal Employee Health Benefits Plan, and TriCare," said the letter, and "the impacts of this merger could be significant."

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