Justice Dept. to subject plans to antitrust scrutiny

The government also will continue to keep a watchful eye on physicians, hospitals and others for anticompetitive activity.

By Tanya Albert, amednews staff. Oct. 7, 2002.

Federal antitrust officials are beginning to turn their attention toward health insurance companies -- a move that pleases physicians, who have complained that they are scrutinized more than health plans.

A Justice Dept. official in September said an uptick in the number of health insurance companies consolidating in recent years had sparked interest in the trend's effect on competition among plans.

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"Given these ongoing market changes, we will pay close attention to whether any particular merger would give the merged insurer sufficient market power to increase prices or reduce quality in the sale of managed care plans in specific geographic areas or to acquire monopsony power over providers," said Deborah Platt Majoras, deputy assistant attorney general for the Justice Dept.'s Antitrust Division. She spoke at a Federal Trade Commission workshop held in Washington, D.C.

Family health insurance costs almost 40% more than in 1996.

The Justice Dept. already has looked at the health insurance market in a "major metropolitan area" for possible evidence of coordination or collusion among managed care plans, she said. The department also investigated Philadelphia-area physicians' complaints that a dominant insurance company's use of a form of the all-products clause was anticompetitive, Majoras said.

"Furthermore, we continue to receive and evaluate complaints about managed care plans' use of most-favored-nations clauses to determine if they merit more complete investigation and, ultimately, any enforcement action," she said.

Representatives from the health plan industry said they weren't aware of anticompetitive activity and were not concerned about the oversight.

Physician reaction

Physicians said they welcomed the Justice Dept.'s increased attention to insurers. They noted that doctors had settled numerous anticompetitive charges with the government over the past two decades, while third-party payers faced no government action.

"We would like the Dept. of Justice and the Federal Trade Commission to prevent monopsony power of payers so that physicians can practice ethical, science-based medicine without the gross interference of onerous contract terms put forth by third-party payers who now enjoy an unlevel playing field," said American Medical Association President-elect Donald J. Palmisano, MD. "If there were a level playing field, no rational person would agree to some of these provisions."

At the September FTC workshop, Dr. Palmisano said that on an even playing field, physicians would not agree to all-products clauses, most-favored-nation clauses, undisclosed fee schedules, unilateral amendment by payers, slow payment, restrictive definitions of medical necessity and indemnification clauses for patient privacy violations.

Health plans blame hospital consolidations for rise in premiums.

"To what extent has market power enabled payers to impose abusive contract provisions and payment practices on physicians?" he asked. "The commission should consider the impact of such practices."

Dr. Palmisano said an unprecedented wave of mergers among health insurance companies between 1995 and 2000 was driving up premiums and had hurt physicians and patients.

He pointed to a 2001 AMA study finding that nearly 70% of HMO markets were highly concentrated in the 40 largest metropolitan areas with populations of more than 1 million.

"In other words, these payers may have the ability to profitably raise premiums to employers without losing market share and to depress physician payments without losing their physicians," Dr. Palmisano said.

The average annual health insurance premium in 2000 was $2,655 for an individual and $6,772 for a family with private employer coverage, an increase of 33.3% and 36.7% respectively since 1996, according to the Agency for Healthcare Research and Quality.

Dr. Palmisano said physician costs had not been one of the major drivers in price increases for health products or services.

Spending on inpatient and outpatient hospital care increased 12% in 2001.

The health plan industry has a different take on the reasons for climbing premiums.

Stephanie Kanwit, general counsel and senior vice president of the American Assn. of Health Plans, said studies showed that hospital consolidations are one of the prominent causes.

"While consolidation ... has the potential to benefit consumers by adding efficiency and affordability to the health care market, in evaluating the impact of any consolidation from an antitrust standpoint, the key question ... is whether this test is met," she said. "Unfortunately, the evidence published to date suggests that some consolidations may have had unintended, negative consequences."

She said several areas should be evaluated. For example, consolidations have given hospitals more leverage in contract negotiations. In some markets, hospital systems require plans to contract with every facility in the system even though some don't fit a need in the plan's network. She also said some hospital systems send termination letters to health plans to try to obtain higher rates.

Hospitals also have increased leverage through joint arrangements with physicians, Kanwit said. "When large hospital systems also own physician groups that represent the majority of physicians in the market, the limits on consumer choice as well as the impact on consumer affordability are of equal concern," she said.

New data from the Center for Studying Health System Change show that spending on inpatient and outpatient hospital care, which grew 12% last year, is a primary force in rising health care costs. The trend is fueled by higher hospital payment rates and increased use of services as managed care plans ease restrictions on care.

Government officials said the FTC and Justice Dept. would continue to evaluate competition in all health care arenas. The FTC traditionally looks into antitrust issues among doctors, pharmacies and hospitals. The Justice Dept. typically looks at insurers.

"We've had resources increase in the health care area," said Mike Cowie, an FTC assistant director.

"We expect to give greater attention than we have traditionally given to the area of health care insurance," Majoras added. "At the same time, of course, we will maintain flexibility to enable us to adapt our enforcement focus to any significant anticompetitive activities that arise in the health care industry."