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PATIENT PROTECTION AND AFFORDABLE CARE 

ACT, CONSOLIDATION, AND THE CONSEQUENT 

IMPACT ON COMPETITION IN HEALTHCARE 

HEARING 

BEFORE THE

SUBCOMMITTEE ON 

REGULATORY REFORM, 

COMMERCIAL AND ANTITRUST LAW 

OF THE

COMMITTEE ON THE JUDICIARY 

HOUSE OF REPRESENTATIVES 

ONE HUNDRED THIRTEENTH CONGRESS 

FIRST SESSION 

SEPTEMBER 19, 2013 

Serial No. 113–51 

Printed for the use of the Committee on the Judiciary 

( 

Available via the World Wide Web: http://judiciary.house.gov 
(II) 

COMMITTEE ON THE JUDICIARY 

BOB GOODLATTE, Virginia, Chairman 

F. JAMES SENSENBRENNER, JR., 

Wisconsin 

HOWARD COBLE, North Carolina 

LAMAR SMITH, Texas 

STEVE CHABOT, Ohio 

SPENCER BACHUS, Alabama 

DARRELL E. ISSA, California 

J. RANDY FORBES, Virginia 

STEVE KING, Iowa 

TRENT FRANKS, Arizona 

LOUIE GOHMERT, Texas 

JIM JORDAN, Ohio 

TED POE, Texas 

JASON CHAFFETZ, Utah 

TOM MARINO, Pennsylvania 

TREY GOWDY, South Carolina 

MARK AMODEI, Nevada 

RAU ́ L LABRADOR, Idaho 

BLAKE FARENTHOLD, Texas 

GEORGE HOLDING, North Carolina 

DOUG COLLINS, Georgia 

RON DeSANTIS, FLORIDA 

JASON T. SMITH, Missouri 

JOHN CONYERS, JR., Michigan 

JERROLD NADLER, New York 

ROBERT C. ‘‘BOBBY’’ SCOTT, Virginia 

MELVIN L. WATT, North Carolina 

ZOE LOFGREN, California 

SHEILA JACKSON LEE, Texas 

STEVE COHEN, Tennessee 

HENRY C. ‘‘HANK’’ JOHNSON, JR., 

Georgia 

PEDRO R. PIERLUISI, Puerto Rico 

JUDY CHU, California 

TED DEUTCH, Florida 

LUIS V. GUTIERREZ, Illinois 

KAREN BASS, California 

CEDRIC RICHMOND, Louisiana 

SUZAN DelBENE, Washington 

JOE GARCIA, Florida 

HAKEEM JEFFRIES, New York 

SHELLEY HUSBAND, Chief of Staff & General Counsel 

PERRY APELBAUM, Minority Staff Director & Chief Counsel 

SUBCOMMITTEE ON REGULATORY REFORM, COMMERCIAL AND ANTITRUST LAW

SPENCER BACHUS, Alabama, Chairman 

BLAKE FARENTHOLD, Texas, Vice-Chairman 

DARRELL E. ISSA, California 

TOM MARINO, Pennsylvania 

GEORGE HOLDING, North Carolina 

DOUG COLLINS, Georgia 

JASON T. SMITH, Missouri 

STEVE COHEN, Tennessee 

HENRY C. ‘‘HANK’’ JOHNSON, JR., 

Georgia 

SUZAN DelBENE, Washington 

JOE GARCIA, Florida 

HAKEEM JEFFRIES, New York 

DANIEL FLORES, Chief Counsel 

JAMES PARK, Minority Counsel 
(III) 

C O N T E N T S 

SEPTEMBER 19, 2013 

Page 

OPENING STATEMENTS 

The Honorable Spencer Bachus, a Representative in Congress from the State 

of Alabama, and Chairman, Subcommittee on Regulatory Reform, Commercial and Antitrust Law ........................................................................................ 1 

The Honorable John Conyers, Jr., a Representative in Congress from the 

State of Michigan, and Ranking Member, Committee on the Judiciary ......... 5 

WITNESSES 

Sharis A. Pozen, Partner, Skadden, Arps, Slate, Meagher & Flom LLP, representing American Hospital Association 

Oral Testimony ..................................................................................................... 6 

Prepared Statement ............................................................................................. 9 

Joseph Miller, General Counsel, America’s Health Insurance Plans 

Oral Testimony ..................................................................................................... 15 

Prepared Statement ............................................................................................. 17 

Barak D. Richman, Edgar P. and Elizabeth C. Bartlett Professor of Law 

and Business Administration, Duke University 

Oral Testimony ..................................................................................................... 28 

Prepared Statement ............................................................................................. 31 

Thomas P. Miller, J.D., Resident Fellow in Health Policy Studies, American 

Enterprise Institute 

Oral Testimony ..................................................................................................... 71 

Prepared Statement ............................................................................................. 73 

Thomas L. Greaney, Chester A. Myers Professor of Law, Saint Louis University School of Law 

Oral Testimony ..................................................................................................... 93 

Prepared Statement ............................................................................................. 96 

David Balto, Law Offices of David Balto 

Oral Testimony ..................................................................................................... 108 

Prepared Statement ............................................................................................. 110 

LETTERS, STATEMENTS, ETC., SUBMITTED FOR THE HEARING 

Prepared Statement of the Honorable Bob Goodlatte, a Representative in 

Congress from the State of Virginia, and Chairman, Committee on the 

Judiciary ............................................................................................................... 142 

Prepared Statement of the Honorable Steve Cohen, a Representative in Congress from the State of Tennessee, and Ranking Member, Subcommittee 

on Regulatory Reform, Commercial and Antitrust Law ................................... 146 

APPENDIX 

MATERIAL SUBMITTED FOR THE HEARING RECORD

Prepared Statement of the Honorable John Conyers, Jr., a Representative 

in Congress from the State of Michigan, and Ranking Member, Committee 

on the Judiciary ................................................................................................... 149 

Response to Questions for the Record from Sharis A. Pozen, Partner, 

Skadden, Arps, Slate, Meagher & Flom LLP, representing American Hospital Association ................................................................................................... 151 
Page

IV 

Response to Questions for the Record from Joseph Miller, General Counsel, 

America’s Health Insurance Plans ..................................................................... 168 

Response to Questions for the Record from Barak D. Richman, Edgar P. 

and Elizabeth C. Bartlett Professor of Law and Business Administration, 

Duke University ................................................................................................... 169 

Response to Questions for the Record from Thomas P. Miller, J.D., Resident 

Fellow in Health Policy Studies, American Enterprise Institute ..................... 173 

Response to Questions for the Record from Thomas L. Greaney, Chester 

A. Myers Professor of Law, Saint Louis University School of Law ................. 175 

Response to Questions for the Record from David Balto, Law Offices of 

David Balto ........................................................................................................... 177 
(1) 

PATIENT PROTECTION AND AFFORDABLE 

CARE ACT, CONSOLIDATION, AND THE 

CONSEQUENT IMPACT ON COMPETITION 

IN HEALTHCARE 

THURSDAY, SEPTEMBER 19, 2013 

HOUSE OF REPRESENTATIVES, 

SUBCOMMITTEE ON REGULATORY REFORM, COMMERCIAL AND ANTITRUST LAW

COMMITTEE ON THE JUDICIARY, 

Washington, DC. 

The Subcommittee met, pursuant to call, at 1:02 p.m., in room 

2141, Rayburn Office Building, the Honorable Spencer Bachus 

(Chairman of the Subcommittee) presiding. 

Present: Representatives Bachus, Goodlatte, Marino, Holding, 

Collins, Smith of Missouri, Cohen, Conyers, DelBene, and Garcia. 

Staff present: (Majority) Anthony Grossi, Counsel; Ashley Lewis, 

Clerk; Justin Sok, Legislative Assistant to Mr. Smith of Missouri; 

Jon Nabavi, Legislative Director to Mr. Holding; Jaclyn Louis, Legislative Director to Mr. Marino; Jennifer Lackey, Legislative Director to Mr. Collins; and (Minority) James Park, Minority Counsel. 

Mr. BACHUS. The Subcommittee on Regulatory Reform, Commercial and Antitrust Law hearing will come to order. 

Without objection, the Chair is authorized to declare recesses of 

the Committee at any time. 

Mr. Cohen is engaged in the debate on the floor concerning the 

SNAP program, and he will arrive in the next few minutes. But he 

has asked me to go ahead and proceed. 

The first order of business is the opening statements by the 

Members. 

Let me welcome everyone to today’s hearing on consolidation in 

the health care marketplace. The Patient Protection and Affordability Act—I am going to refer to it as Obamacare, as it is sometimes commonly known and referred to even in the press for brevity. But its effect or its impact on consolidation and the resulting 

effects on competition. The cost of health care is an issue that 

comes up almost on a daily basis in the news and certainly in conversations with my constituents and here on the Hill, especially 

small business owners. 

A way to curb these expenses and address the rising cost of Government entitlement programs like Medicare and Medicaid is to 

promote a competitive health care marketplace. As Members of the 
2 

Judiciary Subcommittee with antitrust oversight, we have the responsibility to ensure that the laws passed by Congress do not 

produce anticompetitive effects and that our enforcement agencies 

are properly policing anticompetitive conduct. 

Today we will be focusing our oversight on the health care industry and the impact of the passage of the Affordable Care Act on 

consolidation and competition in the health care marketplace. 

Significant consolidation in the industry started around the beginning of the 1990’s when there was an industry shift to managed 

care organizations. Nearly 2 decades later when Obamacare was 

signed into law, over 80 percent of the hospital markets and over 

70 percent of the health insurance markets were considered highly 

concentrated by the standards used by the Department of Justice 

and the FTC. And I know some of our witnesses were with the 

FTC. In other words, Obamacare was enacted in an environment 

of clear consolidation in the health care industry which actually 

began to occur long before its passage. 

And now not all consolidation is necessarily negative. Consolidation can result in greater efficiencies. In the context of health care, 

this can translate into a higher quality of care at a lower cost. 

However, consolidation can be troubling when it falls into one of 

two categories. The first is consolidation in a particular market 

that reaches a level where competition is improperly stifled. The 

second is consolidation motivated by Government intervention. 

Our hearing today will focus on these types of consolidation. It 

is my belief that Obamacare with its top-down, highly regulatory 

approach will further accelerate consolidation in the industry. Less 

competition in this case could mean less patient choice or will 

mean less patient choice and decisions being made according to 

Government dictates rather than according to the needs of consumers in the health care marketplace. Broadly speaking, this is 

a result of provisions in the law that compel the insurance industry 

to offer a more commoditized product where profits can be achieved 

only through economies of scale, incentivizing further consolidation 

activity and the health care services market by increasing regulatory burdens, revising Medicare and Medicaid reimbursement 

rates, and promoting the formation of consolidated entities commonly referred to as ‘‘accountable care organizations.’’ 

We have a distinguished panel of witnesses here today that will 

provide us with testimony concerning the current state of the competitive landscape and how the new health care law has impacted 

and continues to impact consolidation and competition in the 

health care industry. And I look forward to hearing their testimony. 

And we have people of varying opinions and obviously contrasting opinions, and that is a part of a democracy. So I think by 

hearing all sides or different sides of an argument, we can form— 

at least hope to begin to form some opinions as to what the true 

state of the health care industry is as it relates to consolidation. 

Once we recognize other Members who wish to make an opening 

statement—I know Mr. Conyers is not here. Mr. Goodlatte is not 

here. Mr. Cohen is not here. So do the gentlemen from Pennsylvania or New York have anything they want to say? Two former 
3 

U.S. attorneys with us. Watch what you say. Didn’t I say North 

Carolina? Yes, I did. 

Without objection, other Members’ opening statements will be 

made a part of the record. 

As I said, we have a very distinguished panel today, and I will 

begin by first introducing our witnesses and then we will move to 

the statements of our panelists. 

Ms. Pozen is a partner in the antitrust and competition practice 

group at Skadden, Arps. I am going to read the whole name of the 

law firm because Skadden, Arps is what we call it. Right? So it is 

Skadden. 

Ms. POZEN. Skadden. 

Mr. BACHUS. Skadden. And she is representing the views of the 

American Hospital Association. 

Prior to joining the law firm, she served as Assistant Attorney 

General at the Department of Justice. During her time at DOJ, she 

oversaw the antitrust litigation that resulted in injunctions against 

the proposed purchase by AT&T of T-Mobile and of H&R Block’s 

proposed merger with TaxACT. Ms. Pozen also served as an attorney advisor to FTC Commissioners Dennis Yao and Christine 

Varney. 

She received her B.A. from Connecticut College and her J.D. 

from Washington University Law School in St. Louis. 

The first of our Millers—we have two millers testifying today— 

is Mr. Joseph Miller. He is the General Counsel of the America’s 

Health Insurance Plans. Prior to joining AHIP, he served in the 

Antitrust Division of the Department of Justice from 1998 to 2010, 

including 6 years as Assistant Chief of the Litigation Section. 

There he oversaw enforcement and competition advocacy in, among 

other things, health care and insurance markets. Before joining the 

DOJ, he worked for Collier, Shannon, Rill & Scott as a trial attorney for the FTC. 

He received his B.A. from Emory University and his J.D. from 

George Mason University School of Law. And I guess that means 

you are conservative. Right? George Mason School of Law? 

Professor Barak Richman is an Edgar P. and Elizabeth C. Bartlett Professor of Law and Professor of Business Administration at 

Duke University School of Law and is on the health sector management faculty at Duke’s Business School, Fuqua. His work has been 

featured in the Columbia Law Review, the University of Pennsylvania Law Review, Law and Social Inquiry, the New England Journal of Medicine, and the Journal of the American Medical Association, and Health Affairs. 

Prior to joining Duke Law, Professor Richman clerked for Judge 

Bruce Selya of the United States Court of Appeals for the First Circuit and served on the staff of the Senate Finance Committee. 

Professor Richman has an A.B. magnum cum laude from Brown 

University and a J.D. magnum cum laude from Harvard Law 

School and a Ph.D. from the University of California-Berkeley. Did 

you ease up at Berkeley and just did not study as hard? Was the 

competition more intense? 

Mr. RICHMAN. It took a long time. I had a very patient and supportive wife. 
4 

Mr. BACHUS. Mr. Tom Miller is a health policy research and resident fellow at the American Enterprise Institute. He is a prominent frequent speaker and author on health care issues with his 

work presented to, among others, the American College of Physicians, the American Society of Health Economists, Brigham and 

Women’s Hospital, Harvard Medical School, and the World Health 

Care Congress Leadership Summit on Medicare. 

Prior to joining AEI, he was the Senior Health Economist on the 

Senate Joint Economic Committee for 4 years and Director of 

Health Policy Studies at the Cato Institute. 

Mr. Miller received his B.A. cum laude from New York University and his J.D. from Duke University. So we have two Duke University graduates. 

Professor Tom L. Greaney. And I am pronouncing it right? 

Mr. GREANEY. Greaney. 

Mr. BACHUS. Greaney. Okay. I stand corrected. I was thinking it 

was Greaney and then the staff said it was pronounced Greaney. 

Mr. GREANEY. It’s Irish. 

Mr. BACHUS. It’s Irish? Okay. You are one of 40 million Irish 

Americans. Do you know how many people are in Ireland today, by 

the way? There is a little over 4 million and there are 40 million 

Irish Americans. Their population has just now gotten back up to 

the population in the Potato Famine, just in the last few years. Interesting little facts that you all can forget as soon as you leave 

this hearing. 

Let’s see. Professor Greaney is a Chester A. Myers Professor of 

Law and Co-Director of the Center for Health Law Studies at Saint 

Louis University School of Law, author of ‘‘Health Law,’’ one of the 

leading health care case books, as well as numerous articles on the 

intersection of antitrust and health law that have been published 

in, among other places, the New England Journal of Medicine, 

Antitrust Law Journal, Journal of the American Medical Association, and the Yale Journal of Health Law and Policy. 

Prior to joining the Saint Louis University School of Law, he 

served as Assistant Chief in the Antitrust Division of the Department of Justice. 

He received his B.A. magnum cum laude from Wesleyan University and his J.D. from Harvard Law School. 

Welcome, Professor. 

Mr. David Balto is an antitrust attorney at the Law Offices of 

David Balto. So you are in charge. Right? 

Mr. BALTO. Right. 

Mr. BACHUS. He has over 15 years of government antitrust experience as a trial attorney in the Antitrust Division of the Department of Justice and in several senior level positions at the Federal 

Trade Commission during the Clinton administration, including 

Policy Director of the Bureau of Competition and Attorney Advisor 

to FTC Chairman Robert Pitofsky? 

Mr. BALTO. Pitofsky. 

Mr. BACHUS. They did not teach phonetics. I was taught sight 

reading. So I blame it on the educational system. 

He is also an author of the 1996 DOJ FTC Health Care Antitrust 

Enforcement Guidelines and served as a liaison on competition 

issues to the Food and Drug Administration and Congress, advising 
5 

several committees on pharmaceutical competition and Hatch-Waxman reform. 

He received his B.A. from the University of Minnesota and his 

J.D. from Northeast University School of Law. 

At this time, Mr. Conyers, would you care to make an opening 

statement? 

Mr. CONYERS. Just briefly, sir. 

Mr. BACHUS. Okay. Go ahead. The Ranking Member of the full 

Committee is recognized for an opening statement. 

Mr. CONYERS. Thank you very much, Mr. Chairman. 

And I welcome, as you have already, the six witnesses that we 

have. And I consider this a very important hearing in view of the 

41 attempts by the conservative Members of the House to repeal 

it ultimately unsuccessfully. 

But for those who care about the Nation’s health care system, 

about the millions of uninsured and under-insured, and about the 

need to serve all consumers of medical services with affordable 

prices, today’s hearing takes on a special importance. And if we 

care about unfair trade practices, we should consider the measure 

in the 111th Congress to repeal McCarran-Ferguson. To me that is 

an incredibly important consideration, and we need to ensure that 

more providers and insurers will be able to enter the marketplace 

through a more vigorous antitrust enforcement. The exchanges also 

will be of some help. 

We need to understand how the Affordable Health Care Act will 

ensure that consumers will obtain lower prices, better health insurance coverage, and improved quality care. 

So I am very pleased to join this discussion and examination. 

I noticed that one of our witnesses has written a book about why 

he opposes the Affordable Health Care Act. As a matter of fact, it 

is entitled ‘‘Why Obamacare is Wrong for America.’’ So I await our 

witness’ discussion of this subject since he has made his position 

very, very clear to all who are interested in it, as I am. 

I want to point out that I have introduced H.R. 99, the Health 

Insurance Industry Antitrust Enforcement Act, on the very first 

day of this Congress, which would, in effect, repeal the McCarranFerguson exemption for health insurance companies. Why should 

this industry be able to engage in a lot of anticompetitive conduct 

when I see no sound justification for this exemption? Some of this 

conduct sometimes includes price fixing, bid rigging, market allocations. 

And the problem is compounded, Members of the Committee, by 

the fact that even though most of the Nation’s health insurance 

markets are disproportionately dominated by a handful of powerful 

players, enforcement actions challenging consolidation in the 

health insurance market were rare until only recently. Many of us 

know of regions that have only two major insurers, some only one. 

And so this Administration has breathed new life into the Justice 

Department and the Federal Trade Commission’s action, and even 

in Michigan, there has been action against Blue Cross Blue Shield 

of Michigan because of their dominance and conduct in my home 

State. And there are lawsuits going on in other places. 

Now, the marketplaces will foster competition with existing insurers and potentially allow for even new innovators to enter the 
6 

market. And so I am hopeful that this discussion this afternoon 

will shed light on these activities. 

And I salute the Chairman of this Committee for bringing a subject of this significance to our attention for examination. I think 

that it will be a helpful one. 

And I yield back the balance of my time. 

Mr. BACHUS. I thank the Ranking Member. 

Without objection, other Members’ opening statements will be 

made a part of the record. 

At this time, I would like to recognize one of our former colleagues, the gentleman from Massachusetts, Mr. Bill Delahunt, 

who is a good friend of many of us. Bill, why don’t you come up 

here and sit near the front? 

Mr. DELAHUNT. I prefer being in the back. 

Mr. BACHUS. Do you? Okay. He served on our Commercial and 

Administrative Law Subcommittee and he was a distinguished 

Member and I think a great friend of many of us. We have a tremendous amount of respect. I do for you personally. We welcome 

you back, and we miss you in Congress and what was a rational, 

reasonable voice. 

At this time, we will start with our witnesses, and Ms. Pozen, if 

you will go first. Basically 5 minutes, but we are not going to adhere. If it is 6 minutes, it is 6 minutes. Whoever wrote the book 

on why Obamacare—was that Mr. Miller? You can get 8 minutes. 

[Laughter.] 

Mr. THOMAS MILLER. Not long enough. [Laughter.] 

Mr. BACHUS. No. I am kidding. 

Thank you. 

TESTIMONY OF SHARIS A. POZEN, PARTNER, SKADDEN, ARPS, 

SLATE, MEAGHER & FLOM LLP, REPRESENTING AMERICAN 

HOSPITAL ASSOCIATION 

Ms. POZEN. Well, on behalf of the nearly 5,000 member hospitals 

and 43,000 individual members of the American Hospital Association, I appreciate the opportunity to speak to the Committee today. 

I am Sharis Pozen. As was noted, I am a partner in the Antitrust 

and Competition Group at Skadden, Arps. I previously served as 

acting Assistant Attorney General at the Department of Justice, 

and I also had the privilege of serving at the Federal Trade Commission. 

An editorial in Tuesday’s Politico, co-authored by the President 

of the National Business Group on Health, attributed the nearly 

unprecedented low growth in health care inflation largely to the 

new models of health care delivery in both the public and private 

sectors. 

There is no question that the health care field is undergoing a 

period of fundamental transformation in which the very model of 

health care delivery is being changed in order to improve quality 

and lower costs. The reasons for such changes are varied, but chief 

among them—— 

Mr. BACHUS. Wait. Let’s have order on the dais. If we could let 

the witnesses testify. It is just kind of picking it up. 

Ms. POZEN. As I said, there is no question that the health care 

field is undergoing a period of fundamental transformation in 
7 

which the very model of health care delivery is being changed in 

order to improve quality and lower costs. The reasons for such 

changes are varied, but chief among them are the expectations by 

patients, employers, insurers, and government at all levels for 

higher quality and more efficient health care, in other words, greater value. 

Meeting these expectations requires building a continuum of care 

to replace the current fragmented system. In addition, hospitals are 

facing enormous pressure to raise capital to invest in new technologies and facility upgrades. 

Some degree of consolidation through a variety of means, 

through mergers and acquisitions or others, is one way chosen by 

providers to make these goals a reality. It is also why doctors and 

other caregivers are being added to the hospital family. They are 

the linchpin of better, more coordinated care. 

Providers often choose consolidation as a way to gain enhanced 

efficiencies in quality, as was noted, because regulatory barriers 

can keep hospitals and doctors from working closely together unless they are under the same ownership umbrella. Antitrust laws, 

fraud and abuse policies, and even tax exempt rulings can cause 

providers to choose consolidation over clinical integration. It is notable that all the Federal agencies that administer these laws 

needed to provide guidance or waivers to make the Medicare ACO 

program feasible. But this effort is not extended to commercial organizations yet. 

Some pundits decry this changing landscape. These critics, it 

seems, would like to have it both ways. On the one hand, they 

blame the current health care system for high costs and inefficient 

and uncoordinated care. On the other hand, they express alarm 

over the prospects of hospitals trying to replace the current silos 

with a better coordinated continuum of care that delivers higher 

quality care at lower costs. 

These criticisms are often at odds with the assessments of professional observers such as Moody’s and Standard & Poor’s and are 

too often based on flawed data and possibly out-of-date biases. 

Moreover, they rarely pause to examine the impact that a concentrated health insurance market currently has on health care 

prices and quality. 

They are also at odds with the data. A recent study conducted 

for the AHA by the Center for Healthcare Economics and Policy, 

which was updated today in fact, found that only 12 percent of the 

Nation’s nearly 5,000 hospitals were involved in a merger or acquisition between 2007 and June 2013. And far from being anticompetitive, these activities can have real benefits for the affected 

patients and communities. Of those hospitals that were involved in 

these transactions, all but 22 occurred in areas where there were 

more than five independent hospitals. That means that there are 

plenty of independent hospitals left following the transaction to 

maintain a competitive marketplace. 

The stories about how the transaction benefited the community 

are compelling. Nine of the transactions, in fact, involved small 

hospitals with 50 or fewer beds, the type of hospitals that often 

struggle without a larger partner to supply essential capital for 

specialized expertise. 
8 

Moreover, mergers and acquisitions are vigorously policed by two 

Federal and numerous State antitrust authorities. Officials at the 

antitrust agencies have stated repeatedly that they have been and 

will remained focused on competition in the health care sector. 

Transactions that these authorities deem to be anticompetitive in 

fact have been challenged. 

However, despite this activity, hospitals’ price growth is at an 

historic low and is not the main driver of higher health insurance 

premiums. The growth in health insurance premiums from 2010 to 

2011 was more than double that of the underlying health costs, including the costs of hospital services. 

The antitrust authorities should continue to pay as much attention to the health insurance industry as it does to the hospital 

field, and there is no question that the health insurance industry 

is highly concentrated and is now acquiring hospitals and providers 

in an effort to replicate the care continuum hospitals are building. 

In closing, thank you for the opportunity to testify today. Patients receive significant benefits when caregivers work together to 

provide more coordinated, more efficient, and higher quality care. 

We look forward to working with the Subcommittee to forge ahead 

toward a shared goal: improving the quality of American health 

care. Thank you. 

[The prepared statement of Ms. Pozen follows:] 
9 

Prepared Statement of Sharis A. Pozen, Partner, Skadden,Arps, Slate, 

Meagher & Flom LLP, representing American Hospital Association 

I~ American Hospital 

Association 

S' "ltmCIII 

oftbe 

AmericaD Hospita l Association 

bdore the 

\IIIQ __ 1IXI 

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--.tlC_·~ 

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Subcommittee on Regulatory Rdorm, CQmmercial and Antitrust Law 

of tile 

Commlll~ on the Judiciary 

oflhe 

U.S. House of Represeol31lvH 

"The I'Dlient Prol""lion a nd Affordable Care Act, ConSOlidation, anti Th e Consequent 

Im!",ct u" Comp.etitiOIl in 8 ea l/beart" 

Scpten,he. 19, 2013 

On behalf of our nearly 5,000 member hospitals, he.!lth systems and other health care 

organizations, and our 43,000 individua l members., the American Hospital Association (AliA) 

appreciates the opportunity 10 submillhis statemmllC the Subeommilkc on Regulatory Refonn, 

Commercial and Antitrust Law of the CommiUee on the Judiciary as il examines QThc Patient 

Protection and Affordable Care Act, Consolidation, and the Coose<juent Impact on Compelition 

in He8hhcare.» 

The heallh care field is undergoi ng 11 period offuruiamcntaitransformalioll in which tl>c very 

model ofhca.lth.:arc delivery is being changod in order to improve quality and \{)wcrCQsIS. The 

reasons for such change are varicd; bUI chief among them are expc~tations by patients., 

employers, insurers and government at all lcvels for higher quality, more efficient health carein other WQrds. greater valuc. Meeting tl>cse expectations requires building a continuum of care 

to replaco the current fragmented system of health care. In addition, hospitals are facing 

cnormouS pressure 10 raise capital to invest in new technologics and facility upgTlldc!i. 

Merg.ers or acqoisitions arc often essential to make!llese goals a reality. That is also why 

doctors and otherearegivers are being added 10 thc hospi181 fam ily - they are linchpins ofbeller. 

more coordinated care. One reason: Outdated regulatory barriers can 1u:<:p hospitals and doctors 

from working closely togetherunlcss they are under the same ownership umbrella. 
10 

Some pundits decry the changing landscape. These critics, it seems, woulu have it both ways. 

On the one hand, they blame the Cll1Tent health care system for high costs and inefficient and 

uncoordinated care, among other ills. On the other hand, they express alarm over the prospect of 

hospitals trying to replace the current silos with a better-coordinated continuum of care lhat 

delivers higher quality care at a lower cost. 

Th~se criticisms arc often at odds with the assessments of professional observers, such as 

Moody's and Standaru & Poor's, for example, and are too often based on flawed data and out-ofdate biases. Moreover, they rarely pause to examine the impact that a concentrated health 

insurance market currently has on health care prices and quality, or to note that the health 

insnrance industry is engaged in a round of acquisitions of its own (e.g., doctors and hospitals). 

They are also at odds with the data. A recent study conducted for the AlIA by the Center for 

Healthcare Economics and Policy found that only 10 percent of the nation's nearly 5,000 

hospitals were involved in a merger or acquisition between 2007 and 2012. The average number 

of hospitals acquired in a given transaction was small-just one or two. And far [rom being anticompetitive, these activities had real benefits for the affe<:ted patients and communities. 

THE FORCES DIUVING REALIGNMENT 

From Volume to Value. The hospital field has long recognized the need to build a more 

coordinated continuum of care, and the benefits that the continuum could have for patients. 

More than a decade ago in its 2000 report, To Err is IIuman: Building a Safer IIealth System. the 

Institute of Medicine (10M) called for improvements in the way care is delivered and stressed 

the importance of creating systems that support car"givers and minimiz" risk of en·ors. In its 

subsequent 2001 report, CrOSSing the Quality Chasm: A New Health Systemfor the 21st Century, 

the 10M challenged the adequacy and appropriateness of the current health care system to 

address all components of quality and meet the needs of all Americans. According to the rcport, 

a 21st century system should provide care that is "evidence-based, patient-centered, and systcmsorient~d." 

As an outgrowth of those repOlis, a number of commentators, including the 10M, advocated 

linking provider payment to provider performance on quality measures because such an approach 

is "one of several mutually reinforcing strategies that collectively could move the health care 

system toward providing better-quality care and improved outcomes." Numerous pay-forperformance and incentive programs were launched in the private sector and were incorporated 

into Medic-are payment systems for both hospitals and pltysicians. Those programs were 

predicated on collaboration through aligning hospital and physician incentives, encouraging 

them to work toward the same goals of improving quality and patient safety, and providing 

effective and appropriate care to create better health outcomes. 

According to a 2012 Moody's report, "[t]he ability to demonstrate lower costs while providing 

higher quality will he the key driver in government and commercial reimhursement going 

forward.'" One estimate is that 6 percent of hospital revenue could be at risk from penalties from 

government and commercial payers for lack of coordination. 

2 
11 

Investment Needed to Drive Improvement. At the same time, the need for capital to build the 

continuum is also driving hospitals together. Hospitals are faced with unprecedented demands 

for capital to invest in new technology such as electronic health records - as much as $50 million 

for a mid-size hospital- implement new modes of delivering care such as telemedicine, and 

build new and improved facilities. Moody's states dlat "[aJccess to capital markets has become 

more diflicull [or lower-rated hospitals, driving the need for many to seek a partner." 

BARRIERS IMPEDING PROGRESS 

Regulatory IIurdles. Mergers and acquisitions are often the preferred way to build the care 

continuum because of numerous regulatory barriers that prevent providers from working together 

to deliver care morc eflicicntly. Antitrust laws, outdated fraud and abuse policies and even taxexempt rulings favor consolidation over clinical integration. It is notable that all of the federal 

agencies that administer these laws needed to provide guidance or ""aivers to make the Medicare 

Accountable Care Organization (ACO) program feasible. Hm'iever, their coordination ends 

outside of that narrow program. 

As long ago as 2005, an AHA Task Force on Delivery System Fragmentation found that better 

alignment mnong providers was the key to improving patient care and enhancing productivity, 

and that removing impediments to such alignment created by various federal laws and policies 

was essential. It called upon a variety offederal agencies, including the Federal Trade 

Commission (FTC) and Department of Justice (DOJ), to: 

Establish a simpler, consistent set of rules for how hospitals and physicians 

c.onstruct their working relationships. The complexity, inconsistency and 

sometimes conflicting interpretations of federal laws and regnlations aftecting 

hospital-physician arrangements are a signifIcant barrier. Few arrangements can 

be structured without very significant legal expense. 

Despite those calls, and calls from many others, including members of Congress, most of these 

regulatory barriers remain. As noted, these barriers favor mergers and acquisitions over 

integration and should be addressed V\'ithout delay. 

CHANGING LANDSCAPE PROVIDING BENEFITS TO PATIENTS AND CO'\1MUNITIES 

Much has been written and said about hospital mergers and acquisitions - primarily, that they are 

anticompetitive and driving up health care costs. But what the facts show is that the 

overwhelming majority oftransactions over the past six years are procompetitive and fully 

support the twin goals of higher quality and more affordable health care. 

The ARA. and the Center for Healthcare Economics and Policy (Center) recently released the 

results of a comprehensive study the Center undertook to determine just how many hospital 

transactions there have been since 2007 and how many hospitals remained in a local area 

following those transactions to provide options for patients in need of hospital care.;' 
12 

Hospital markets are local. Detennining the potential competitive impact o[any transaction 

begins by looking for other hospitals in the area. The Center measured the impact of these 

transactions by Metropolitan Statistical Area, which is a geographical region with a relatively 

high population density at its eorC and close economic tics throughout the area. Between 2007 

and 2012 only a fraction of the hospital field, 551 hospitals or about 10 percent of community 

hospitals, have even been involved in a transaction (merger or acquisition). 

The transactions themselves have been modest: the average number of hospitals acquired in a 

transaction was between I and 2. Of those hospitals that have been involved in a transaction, all 

but 20 have occurred in areas where there were more than five independent hospitals. That 

means there were plenty of hospitals left following the transaction to maintain a competitive 

marketplace. 

Looking more closely at hospitals included within this group of20, the stories about how the 

transaction benefitted the community are compelling. Nine ofthe transactions involved small 

ho,pital, with 50 or fewer beds; the type of hospitals that often stmggle without a larger partner 

to supply essential capital or specialized expertise. 

One hospital (25 bcds) was in bankruptcy whcn it was acquired. 

Anothe,' hospital (34 beds), received a commitment 0[$10 million in new investment over 10 

years. 

One hospital (SO bcds) was struggling with excess capacity when it was acquired. 

For two hospitals (25 beds), the acquisitions included promises of new services (e.g., a 

birthing cent~r, a new information system). 

For another hospital (12 beds), recently altered federal regulations made it difficult to grow 

or expand and the hospital likely would not have been able to stay open; the transaction was 

reviewed by the state attorney general. 

For a slightly larger rural hospital (85 beds), the city approved the transaction to "ensure the 

long-term viability of the community's acute care hospital, long-term care facility and 

independent living apartments for seniors." Officials spec.ifically noted the challenging 

regulatory environment facing mral hospitals. 

Another larger hospital (181 beds) was losing money and had laid off91 employees the year 

before it was acquired. 

In a transaction that involved two different hospitals being acquired at the same time (and that 

was cleared by Federal Trade Commission(FTC)), one of those hospitals was owned by a 

corporation that went out ofbu,iness shortly after lh~ acquisition and the other was suITcling 

from a deteriorating facility, decreased patient volumes and various financial challenges. 

Mergers and acquisitions are vigorously policed by two iederal and numerous state antitrust 

authorities. Deals and integrative anang~ments that these authorities deemed to be 

anticompetitive have been challenged. In fact, there has been much more attention paid to the 

hospital iield than to the health insurance industry. The result is that the health insurance 

industry is highly concentrated and is now acquiring hospitals and providers in an enart to 

replicate the care continuum hospitals are building. 

4 
13 

Despite this activity, hospitals' price growth is at an historic low and is not the main driver of 

higher health insul'Unce premiums. The growth in health insurance premiums from 20 10 to 

2011 was more than double that of underlying health costs, including the cost of hospital 

services. An important feature of hospital costs is that two-thirds of those costs are attributable 

to caring for patients, specifically the wages and benetits paid to caregivers and other essential 

staff. This is unlike any other part of the health care sector. 

The numbers of transactions and the stories behind them demonstrate that mergers and 

acquisitions are supporting the changing landscape of health care delivery in a positive way for 

patients and communities. 

Lack of Health Plan Scrutiny. While these hospital transactions have been scrutinized, less 

oversight has been applied to the health insurance market. The American Medical Association 

annnally reports that an abundance of health insurance market, are concentratedi;i with negative 

impact on providers. Tn May 2009, the AHA called upon DOJ to re·eJ(amine and bolster its 

enforcement policy as it applies to health plans in The Case for Reinvigorating Antitrust 

Enforcement for Health Plan Mergers and Anticompelitive Conduct to Protect Consumers and 

Providers and Support Aleaningful Reform.iv 

Among the AHA's requests was that the Antitrust Division: 

Undertake a comprehensive study of consummated health plan mergers; and 

Revisit and revise its analytical framework for reviewing health plan mergers and conduct 

complaints. The areas of scrutiny should include whether: 

o Proposed mergers by plans with pre-existing market power should be viewed as 

preswnptively unlawful; 

o The ability of merged or dominant health plans to price discriminate against certain 

hospitals poses particular concerns about likely competitive hann; 

o Merged or dominant health plans can wreak competitive harm in ways other than 

reducing prices below competitive levels, such as adversely affecting the 

development or adoption of quality protocols or technology tailored to meet the needs 

of hospitals and the patients they serve; and 

o Mergers of health plans with service areas that technically do not overlap because of 

license or other agreements still pose a risk of competitive harm and, therefore, 

should be challenged. 

While we are pleased that DOJ has increased its enforcement activities against health plans, 

continued vigilance, commensurate to that applied to hospitals, is essential to ensure continued 

progress toward building a new health care continuum. 

COl\CLUSION 

Patients receive significant benefits when caregivers work together to provide more coordinated, 

more efficient and higher·quality care. That is the path we are on and the one that holds the 
14 

greatest promise for not only improving health but fixing the fragmented health care delivery 

system. 

We look forward to working with this subcommittee to forge ahead toward a shared goal: 

improving the quality of American health care. 

i Moody·s Investors Servicc Inc. (2012.) New Forces Driving Rise in NOI,(or·Projil IIospilal 

Consolidation. Accessed at: \vvv'w.moodvs.com. 

;; Center for I Iealthcare Economics and Policy (2013). How Hospital Mergers and Acquisitions Benefit 

C ommunllies. Accessed at: http://v.-'''v..-w.aha.or2/contentl13/13mergebenefitcol1nnty .Ddf. 

" American Medical Association. (2012). Competition in Health Insurance: A Comprehensive Study of 

u.s. Markets. 2012 Update. Accessed at: hltps:l/commcrcc.ama. 

assn.Ol'gistorcicatalog/productDetail.jsp?product id=:orod 1170048&navAction~push. 

I, American Hospital Association. (2009). The Case for Reinvigorating Antitrust Enforcement for Health 

Plan j1.1ergers and Anticompetitive Condl~ct to Protect Consumers and Providers and Support lWeaningftd 

Reform. Accessed at: \vww.aha.orgiahaicontentl2009!pdfi09-0S-1 J ·antitn,st-rep.pdf. 

6 
15 

Mr. BACHUS. Thank you very much. 

Mr. Miller? 

TESTIMONY OF JOSEPH MILLER, GENERAL COUNSEL, 

AMERICA’S HEALTH INSURANCE PLANS 

Mr. JOSEPH MILLER. Good afternoon, Chairman Bachus and 

Members of the Subcommittee. I am Joe Miller, General Counsel 

for America’s Health Insurance Plans. 

I appreciate this opportunity to testify on issues surrounding 

competition and consolidation in the U.S. health care system. 

These issues have far-reaching implications for the cost of health 

care, quality improvement, consumer choice, and innovative approaches to the delivery of care. 

In the health insurance marketplace, competition is helping to 

drive innovative programs as health plans continually work to 

make their products more appealing to consumers and employers 

based on both quality improvements and cost savings. Our members have demonstrated strong leadership in developing and implementing initiatives that provide value to consumers. These include 

developing performance measures to provide consumers better information about quality and costs to help them make value-based 

decisions about their medical treatments, providing disease management services to enrollees who stand to benefit the most from 

proactive interventions, and working with primary care physicians 

to expand patient-centered medical homes that promote care coordination and accountability for clinical outcomes. 

Through these and other strategies, health plans are working to 

ensure that their enrollees receive high quality health care at competitive prices. Vigorous competition among other participants in 

the health care system, including hospitals and physician practices, 

also is crucial to promoting the best interests of consumers. 

Consumers benefit when health care providers compete to offer 

them lower costs, higher quality services, and innovative approaches to delivering care. There are situations in which provider 

consolidation does not impede these or even enhances these goals. 

In other situations, however, consolidation substantially reduces 

competition among providers and leaves consumers with higher 

costs and diminished quality. 

The Federal antitrust agencies have selectively and carefully 

challenged mergers of hospitals that hold a significant prospect of 

harm to such consumers. Now, while such challenges represent a 

relatively small percentage of the total number of hospital mergers, 

they are of great importance to consumers. Not only do such challenges prevent harm in specific markets, they also deter other anticompetitive transactions. 

According to Irving Levin Associates, the number of hospital 

mergers and acquisitions in the United States has more than doubled from 50 in 2009 to 105 in 2012. Moreover, an analysis by 

Bates White Economic Consulting found that hospital ownership in 

2009 was highly concentrated in more than 80 percent of the 335 

areas studied. 

Professors Richman and Greaney cite the academic literature in 

their written statements that demonstrate hospital consolidation 

can result in consumer harm. I will add to that list two policy stud-
16 

ies to bring to your attention. A June 2012 Robert Wood Johnson 

study found that increases in hospital market concentration led to 

increases in the price of hospital care and that when hospitals 

merge in already concentrated markets, the price increase can be 

dramatic, often exceeding 20 percent. Second, a September 2013 research brief by the Center for Studying Health System Change reported that increases in provider prices explain most, if not all, of 

the increase in premiums in recent years. 

Now, through the ACA implementation process, AHIP has emphasized that affordability must be a central goal in health reform 

and addressing provider market issues is an important part of 

achieving this goal. Promoting competition and halting harmful 

consolidation in provider markets are critically important steps toward increasing affordability. With that in mind, our written testimony offers the following recommendations. 

We urge the Federal Trade Commission and the Department of 

Justice to continue to be vigilant in identifying hospital mergers 

that would harm consumers by concentrating market power in a 

way that diminishes competition. 

We further encourage the agencies to examine the increasing acquisition of physician practices by hospitals and the potential competitive implications of such acquisitions. 

We urge the Committee and other policymakers to closely monitor the Medicare shared savings program and ensure it is operating under a regulatory framework that promotes choice and competition and does not allow accountable care organizations to accumulate market power that leads to higher costs. 

Third, we encourage the Federal agencies, HHS, and other agencies to take steps to help consumers obtain useful, actionable information about provider cost and quality. 

Thank you, Mr. Chairman, for the opportunity to testify and I 

look forward to your questions. 

[The prepared statement of Mr. Joseph Miller follows:] 
17 

J". 

AHIP 

Competition and Consolidation in the U.S. Health Care System 

by 

Joe Miller 

General Counsel 

America's Health Insurance Plans 

for the 

House Judiciary Committee 

Subcommittee on Regulatory Reform, Commercial and Antitrust Law 

September 19,2013 
18 

I. Introduction 

Chairman Bachus, Ranking Member Cohen, and members of the subcommittee, I am Joe Miller, 

General Counsel for America's Health Insurance Plans (AHIP), which is the national association 

representing health insurance plans. AHIP's members provide health and supplemental benefits 

to more than 200 million Americans through employer-sponsored coverage, the individual 

insurance market, and public programs such as Medicare and Medicaid. AHIP advocates for 

public policies that expand access to affordable health care coverage to all Americans through a 

competitive marketplace that fosters choice, quality, and innovation. 

Before joining AHlP in 2010, I worked at the Antitrust Division of the U.S. Department of 

Justice for 12 years. My last job at the Antitrust Division was as Assistant Chief of the 

Litigation I Section, with jurisdiction over health care and health insurance. I have also worked 

in private practice, and began my legal career as a staff attorney for the Federal Trade 

Commission. 

We appreciate this opportunity to testify on issues surrounding competition and consolidation in 

the U.S health care system. These issues have far-reaching implications for the cost of health 

care, quality improvement, consumer choice, and innovative approaches to the delivery of care. 

We applaud the committee for holding this hearing to call attention to these important issues. 

Our testimony today focuses on the following topics: 

• The importance of ensuring vigorous competition in the health care system; 

• The harmful impact of anticompetitive consolidation among hospitals and other health care 

providers; 

• The ability of hospital s to pursue innovation and quality without harmful consolidation; and 

• Issues for policymakers to consider in the new regulatory environment created by the 

Atlordable Care Act (ACA). 
19 

TT. The Importance of Ensuring Vigorous Competition in the U.S. Health Care System 

A highly competitive health care system is the best way to achieve innovative, high quality, 

affordable health care for all Americans. Vigorous competition creates incentives for all 

stakeholders to increase efficiency and hold down costs for consumers. 

In the health insurance marketplace, competition is helping to drive innovative programs as 

health plans continually work to make their products more appealing to consumers and 

employers based on both quality improvements and cost savings. Our members, while operating 

in competitive markets, have demonstrated strong leadership in developing and implementing 

initiatives through which they are: 

• developing performance measures to provide consumers better information about quality and 

costs to help them make value-based decisions about their medical treatments and how their 

health care dollars are spent; 

• rewarding quality and promoting evidence-based health care through payment reforms; 

• providing disease management services to enrollees who stand to benetlt the most from proactive interventions; 

• working with primary care physicians to expand patient-centered medical homes that 

promote care coordination and accountability for clinical outcomes; 

• providing incentives to promote the use of decision-support tools and health information 

technology; 

• providing quality improvement reports for physicians to monitor their progress in managing 

disease; 

2 
20 

• improving the flow of information between clinicians and plans through administrative 

simplifications; 

• of Ie ring personalized risk assessments and wellness programs; 

• encouraging electronic prescribing and consumer safety alerts; and 

• providing peer-to-peer comparisons to demonstrate the appropriate use of health care 

services across specialists. 

Through these and other strategies, health plans are working hard to ensure that their enrollees 

receive high quality health care at competitive prices. Vigorous competition among other 

participants in the health care system, including hospitals and physician practices, also is crucial 

to promoting a fair system that serves the best interests of consumers. Such competition - which 

is stitled in a growing number of markets by provider consolidation - is needed not only to 

create incentives for providers to control costs and increase efficiency, but also to promote 

quality improvements and innovation. 

III. The Harmful Impact of Anticompetitive Consolidation Among Hospitals and Other 

Health Care Providers 

Provider-related costs are a significant portion of total medical costs, and the growth in such 

costs has had an important, and detrimental, effect on consumers. Consumers benefit when 

health care providers compete to otfer them lower costs, higher quality services, and innovative 

approaches to delivering care. There are situations in which provider consolidation does not 

impede these benefits or even enhances them. Tn other situations, however, consolidation 

diminishes competition among providers and leaves consumers with higher costs, diminished 

quality, and a reduced prospect of innovation or improvement. The federal antitrust agencies 

have selectively and carefully challenged mergers of hospitals that hold a significant prospect of 

such harm to consumers. While such challenges represent a relatively small percentage of the 

total number of hospital mergers, they are of great importance to consumers. Not only do such 

3 
21 

challenges, and the investigations that preceded them, prevent harm in specific markets, they also 

deter other anti competitive transactions through a sentinel effect 

According to Irving Levin Associates', a health care research firm, the number of hospital 

mergers and acquisitions in the United States more than doubled from 50 in 2009 to 105 in 2012. 

Moreover, an analysis of provider consolidation by Bates White Economic Consulting2 found 

that hospital ownership in 2009 was "highly concentrated" in more than 80 percent of the 335 

areas studied. Numerous research findings demonstrate that this consolidation in the hospital 

industry is resulting in higher health care costs for consumers and employers: 

A June 2012 study published by the Robert Wood Johnson Foundation (RWJF)' found that 

"increases in hospital market concentration lead to increases in the price of hospital care," 

and that "when hospitals merge in already concentrated markets, the price increase can be 

dramatic, often exceeding 20 percent." This study further cautions that "physician-hospital 

consolidation has not led to either improved quality or reduced costs" and, additionally, 

points out that consolidation "is often motivated by a desire to enhance bargaining power by 

reducing competition." An earlier RWJF research project4

, focusing on hospital 

consolidation in the 1990s, stated: "Studies that examine consolidation among hospitals that 

are geographically close to one another consistently tlnd that consolidation leads to price 

increases of 40 percent or more." 

• An article published in June 2011 by the American JOllrnal of Managed Care5 found that 

"hospitals in concentrated markets were able to charge higher prices to commercial insurers 

than otherw'ise-similar hospitals in competitive markets." 

• An issue brief published in July 2011 by the National Institute for Health Care Management 

Foundation(' found that one of the factors contributing to higher prices is "ongoing provider 

1 Ne\v Laws and Rislng Costs Create a Surge of SLLperS]/-lng Hospitals, New York nmes, ALLgLlSt 12, 2013 

:2 Market concentration of hospitals, Bates White Economic Consulting, COT}' Capps, PhD, David DrallO\'e, PhD. 

June 2011 

3 The impact of hospital consolidation-Update, Martin Gaynor, PhD and Robert To\Vll, PhD, Robert Wood Johnson 

Foull(l1tiOlL Jmle 2012 

'How has hospital consolidation "ffected the price and qlmlity of health care?, William B. Vog!. PhD and Robert 

Town, PhD, Robert Wood Johnson Foundation, February 2006 

5 Hospital Market Concentratioll, Plicing, and Profitability in OI1hopcdic Surgery and Illtcrvclltiollal Cardiology, 

James C. Robinson, PhD, American Journal ofJlanaged Care, JUlle 24, 20ll 

4 
22 

consolidation and enhanced negotiating strength vis-a-vis insurers, resulting in an ability to 

extract higher payment rates from insurers." 

• Paul Ginsburg and Robert Berenson, in an article published in the February 2010 edition of 

Health Ajfi7irs-, stated that "providers' growing market power to negotiate higher payment 

rates from private insurers is the 'elephant in the room' that is rarely mentioned." 

• The Massachusetts Center for Health Information and Analysis8 recently released its "2013 

Annual Report on the Massachusetts Health Care Market." In a discussion about the impact 

of provider consolidation, the report notes that the highest priced 25 percent of providers in 

Massachusetts received over 50 percent of commercial payments made to acute hospitals and 

physician groups in 2012. A Boston Globe article9 pointed out that the report's findings 

show that as hospitals and provider groups consolidate, "larger groups often have the 

leverage to demand higher prices from insurers." 

• A September 2013 research brief by the Center for Studying Health System Change") 

reported that "it is clear that provider market power is key in price negotiations and that 

certain hospitals and physician groups, known as 'must-haves,' can extract prices much 

higher than nearby competitors." This study also concludes that "increases in provider prices 

explain most if not all of the increase in premiums" in recent years. 

More recently, a great deal of provider consolidation has been occurring at the so-called 

"vertical" level. In such situations, hospitals employ, acquire, or effectively control previously 

independent physicians or physician practices. Again, the effects of such consolidation will 

depend upon the specitlc facts and circumstances in particular markets. Some of this 

consolidation, however, holds the prospect of harm to consumers similar to that which results 

when previously competing hospitals merge with each other. For example, if such vertical 

integration reduces competition among hospitals because the relevant physicians will now only 

6 Understanding u.s. Health Care Spending, National Institute for Health Care Management Foundation, lLLly lOll 

i Unchecked Provider CIOLLt In Califomia ForeshadO\vs Chal1enges To Health Refonll, f1ealth /I/fairs, February 

20l1) 

s 2013 Atmlwl Report on the Mossochusetts Heolth Core Morket, Mossoehusetts Center for Heolth Information ond 

Analysis. August 2013 

9 Portners hospitals, doctors top heolth-poyment list, The Boston Globe, August 14,2013 

]0 High and Varying Plices for Privately Insured Patients Underscore Hospital Market Po\VCf, Center for Studying 

Health System Change, September 2013 

5 
23 

refer to one hospital, consumers may suffer harm. Similarly, if previously competing physicians 

are consolidated so that there is no, or less, competition among these physicians, consumers will 

be harmed. While this is an area in which there is less of an enforcement history, we are pleased 

that the Department of Justice and the Federal Trade Commission appear to be focusing on these 

issues as well. We encourage their vigilant inquiries into this area and, where appropriate, their 

challenge of such consolidation. 

IV. Innovation and Quality Are Possible Without Harmful Consolidation 

Hospitals seeking to pursue the goals of health refonn - higher quality, more efficient care - can 

achieve these goals without undertaking anti competitive consolidation. Through the appropriate 

use of technology and care coordination strategies with partners, hospitals can address health 

care quality without the hannful effects of consolidation that limits competition. 

As we discussed above, health plans and providers have engaged in a wide range of collaborative 

efforts to improve the quality and efficiency of health care delivery - and these efforts have 

succeeded without anti competitive hospital consolidation. In fact, it is likely that such 

consolidation would have the opposite impact on quality improvement efforts. Just as 

anti competitive consolidation has been recognized to have a chilling effect on innovation in 

many other markets, such consolidation among hospitals is likely to reduce innovative 

collaborations between heaJth plans and providers. This would be an unfortunate outcome for 

consumers who might otherwise benefit from the improvements in quality and efficiency 

generated by these innovative collaborations. 

Indeed, many of the health plan initiatives noted above involve health plans partnering with 

providers to improve quality and lower costs in a manner that does not depend upon 

anticompetitive provider consolidation (see map below). For example, health plans have been 

leaders in the adoption of patient-centered medicaJ homes, which attempt to replace episodic care 

with a sustained relationship between patient and physician." Similarly, health plans have been 

strong partners in many accountable care organizations, with promising early results in reducing 

1I AHIP Press Release, AHIP Board of Directors Releases Plinciples onPaticllt-Ccntcrcd Medical Home, JUlle 25_ 

2008 

6 
24 

preventable readmissions and total inpatient hospital days,12 The range of such efforts is vast, 

beginning with 1he point of contaC1 with the patient and extending all the way to the "back 

office" interactions between plans and providers. For example. in Ohio, health plans sponsored 

an infom18tion teehnology initia1ive \0 improve 1he efficiency of1ransac1ions bctween plans and 

physicians by providing a one-stop service in ele<:tronic transactions for physicians, lJ 

Delivery and Payment Models- Private Sector Initiatives 

• • 

-• 

• • 

• • 

.. .. 

----

_c.. __ • • 

•• 

~ .. c..,..,...... 

'""'-_ .... _-----.. - ... _._.,,-_ .. __ .. _ .. _ ..... _-

• • 

Such ini1iatives not only are consis1ent with provider competition. but often they rely upon il. 

The false choice -1hat we can have either compe1ition OJ innovation. but not both - should be 

rejected. InS1ead. by pr01e<:1ing competition in provider markets, authorities will help quality 

improvemen1 ini1iatives to nourish in a variety offonns, with the benefits nowing to consumers 

as plans and providers work toge1her to address COS1S and quali1Y. 

" Earl}' lI'$..,,,,, from Acc<>u'1able Ca", Models ill 'lie PIi,·ale Secl<>!; f'art""lSlups Belween Heallh Plan • • ,td 

Pro,'Hle r$, Apomo Higgins. el al.. lleallh A/Ja;',f. Scptcni>cr 2011 

Ll AHIP Press Releaso. Heallb Plans Collaboralc on La,tdlllark lniliali,'c 10 Red"",> Time. E.'l"'nse for Physician 

omoo Praelioo P"I"'J\lO"' ". O<I"""r 5. 1009 

7 
25 

V. Issues for Policymakers to Consider in the New Regulatory Environment Created 

by the Affordable Care Act 

On October I, less than two weeks from today, health insurance Exchanges across the nation will 

begin open enrollment for new coverage options that will go into effect on January 1,2014 under 

the ACA We believe that Exchanges can be vehicles that deliver important benefits to 

consumers, and below we offer a number of suggestions for increasing the likelihood and impact 

of such benefits 

Our members are strongly committed to offering high quality, affordable health insurance plans 

under the framework established by the new health refonnlaw. The ways in which they otTer 

such plans vary, but one common theme is that they consistently are seeking to increase 

atTordability and quality. They recognize, though, that this cannot be done without addressing 

the issue of provider market concentration. Throughout the ACA implementation process, we 

repeatedly have emphasized that affordability must be a central goal in the health refonn process 

and that addressing provider market issues is an important part of achieving this goal. Promoting 

competition and halting harmful consolidation in provider markets are critically important steps 

in making progress toward increased atTordability. 

Enforcement of Antitrust Laws by FTC and DOJ 

The Federal Trade Commission (FTC) and the Department of Justice (DOJ), which have 

authority to enforce federal antitrust laws, play an important role in challenging anticompetitive 

behavior in the marketplace. This includes investigating and challenging specific cases of 

provider consolidation that threaten to stifle competition, increase costs, reduce choices, and 

undermine quality for consumers and employers. AHIP has supported such agency challenges in 

the past, including an amicus brief'4 we filed in November 2012 supporting the FTC in its 

challenge of a merger involving two hospitals in Toledo, Ohio. 

14 Anticus Brief filed by AHIP in U. S. Comt of Appeals for the Si,,1h Circuit with respect to ProMedica Health 

System, Inc. v. Federal Trade COllllnissioll, November 21, 2012 

8 
26 

We appreciate the FTC and DOl's commitment to preserving and promoting competition in 

health care markets. In testimony" submitted for an April 2013 hearing in the Senate Judiciary 

Committee, the FTC expressed concern about anticompetitive mergers among hospitals, other 

health care providers, and pharmaceutical manufacturers, cautioning that such mergers can 

increase health care prices for consumers. We urge the FTC and DOJ to continue to be vigilant 

in identifying hospital mergers that would hann consumers by concentrating market power in a 

way that diminishes competition. We further encourage the agencies to examine the increasing 

acquisition of physician practices by hospitals and the potential competitive implications of such 

acquisitions, both in specific instances and more generally. Dealing with existing market power, 

as opposed to new transactions that create it, is a more complicated issue for the antitrust 

agencies. We encourage them, though, to look both back as well as forwards to identify lessons 

from past consolidation and infonn the dialogue about ways to address its hannful effects. 

Finally, we also urge Congress to ensure that the agencies have sutllcient resources to investigate 

and challenge hospital and other provider consolidation that does not serve the best interests of 

the American people. 

Regulatory Framework for Accountable Care Organizations 

Building upon the success of accountable care organizations (ACOs) that were pioneered in the 

private sector, the ACA establishes a role for ACOs in the new Medicare Shared Savings 

Program (MSSP). Under this program, the Department of Health and Human Services (HHS) is 

contracting with ACOs to assume responsibility for improving quality of care, coordinating care 

across providers, and reducing the cost of care for certain Medicare beneficiaries. If cost and 

quality targets are met, ACOs will receive a portion of any savings realized by the Medicare 

program. As implementation of the MSSP continues, it is important for policymakers to closely 

monitor this program and ensure that it is operating under a reh'lllatory framework that promotes 

choice and competition and does not allow ACOs to accumulate market power that leads to 

higher costs for consumers. 

Specifically, we look forward to learning what the agencies have learned from the provision by 

HHS of aggregated claims data on allowed charges and all fee-for-service payments for all 

15 Testimony 011 "Oversight of the Enforcement of the Antitrust La\ys," Edith Ramirez, Chainvoman of the Federal 

Trade Commission, Apll116, 2013 

9 
27 

ACOs in the MSSP. We support the role of many ACOs as a route to improving the care 

delivered to patients, but we share the FTC and DOl's caution 1(, that "under certain conditions 

ACOs could reduce competition and harm consumers through higher prices or lower quality 

care." We are pleased that the FTC and DO] will be given information that will be helpful in 

addressing this concern, and we look forward to the availability offurther information that will 

help policymakers understand what has happened to date and how to reduce the risk of 

competitive harm in the future 

Transparency on Provider Cost and Quality 

Along the same lines, we encourage the federal antitrust agencies, HHS, and other agencies with 

access to or oversight related to information on provider cost and quality to take steps to help 

consumers obtain useful, actionable information. Increasingly, consumers are using information 

to make decisions about their care. These include select network products, reference pricing, and 

tiering, among others. These products depend upon consumers having access to actionable 

information and being empowered to use it. 

VI. Conclusion 

Thank you for considering our perspecti ves on these important issues. We appreciate this 

opportunity to testify about the important role of provider competition, and enforcement that 

protects such competition, in addressing health care costs. We look forvvard to continuing to 

work with the committee and the antitrust agencies to promote and preserve competition with the 

goal of further expanding access to high quality, affordable health care. 

lfi Federal Trade Commission, Department of Justice Issue Final Statement of Antitnlst Policy Enforcement 

Regarding Accountable Care Organizations, October 20,2011 

10 
28 

Mr. BACHUS. Thank you, Mr. Miller. 

Professor Richman? 

TESTIMONY OF BARAK D. RICHMAN, EDGAR P. AND ELIZABETH C. BARTLETT PROFESSOR OF LAW AND BUSINESS ADMINISTRATION, DUKE UNIVERSITY 

Mr. RICHMAN. Thank you, Mr. Chairman and Members of the 

Committee. It is an honor to testify before you on a topic that is 

extraordinarily important both to our Nation’s physiological health 

and also our Nation’s long-term fiscal health. 

Latest statistics reveal that the United States spends nearly 18 

percent of its gross domestic product on health care services. This 

is nearly twice the average for OECD nations and far more than 

number two, which spends less than 12 percent. Viewed another 

way, the United States in purchase-adjusted dollars spends more 

than two and a half times the OECD average per capita on health 

care and more than one and a half times the second largest spender. Yet, in spite of our leadership in health care spending, we are 

safely in the bottom half of OECD nations on most measures of 

health care outcomes. 

We are spending too much and getting too little in return, and 

the Nation simply is on an unsustainable trajectory. All discussions 

about health care policy should begin with the recognition that 

curbing health care spending needs to be among our Nation’s highest priorities. The cost of private health insurance is bankrupting 

companies and families alike, and the cost of public health care 

programs are putting unmanageable burdens on both the Federal 

and State budgets. 

Many studies suggest that the cost of health care is 

unsustainable not because we consume too much health care, but 

because we pay too much for the health care that we do consume. 

In other words, as one study put it famously, ‘‘It’s the prices, stupid.’’ And one of the most severe contributors to the rise of health 

care prices has been the alarming rise in market power by health 

care providers. 

The past several decades have witnessed extraordinary consolidation in local hospital markets, with a particularly aggressive 

merger wave occurring in the 1990’s. By 1995, the merger and acquisition activity was nine times the level at the start of the decade, and by 2003, almost 90 percent of Americans living in the Nation’s larger MSA’s faced highly concentrated markets. This wave 

of hospital consolidation alone was responsible for sharp price increases, including price increases of 40 percent when merging hospitals were closely located. 

There is also evidence that hospital consolidation leads to worse 

outcomes. Another important studied showed this with the clever 

title ‘‘Death by Market Power.’’ One of the authors, by the way, is 

now the Chief Economist at the Federal Trade Commission, and 

the taxpayers should be very, very happy that he, Martin Gaynor, 

is now working for them and their consumer interests. 

Even after this merger wave in the 1990’s prompted alarm, a second merger wave starting in 2006 significantly increased the hospital concentration in 30 MSA’s and the vast majority of Americans 

are now subject to monopoly power in their local hospital markets. 
29 

Hospitals and hospital networks did not achieve this market 

dominance through superior skill, foresight, and industry, which 

would be unobjectionable under the antitrust laws. This is not the 

free market at work. To the contrary, this consolidation occurred 

because of mergers and acquisitions, and permitting hospital mergers to achieve such remarkable levels of consolidation represents a 

major failure of our antitrust policy. There is plenty of blame to 

share—both Democratic and Republican administrations, Congress, 

the executive, and the courts. But we are now in a position where 

we must cope with hospital monopolists. In other words, we not 

only must resist additional consolidation that creates greater market power, but we must develop policy tools that stem the harm 

that current hospital monopolists are in a position to inflict. 

My testimony is divided into three parts. The first briefly reviews 

some failures in antitrust policy that permitted hospital consolidations with a focus on court decisions in the 1990’s. I submit that 

part of my testimony for the record saying now just that for too 

long there was a widely held perception that hospitals and especially nonprofit hospitals, unlike all other economic entities, did not 

reflect economic harm when possessing market power. Research 

has thoroughly refuted this belief, but for too long hospitals tended 

to enjoy selective scrutiny under the antitrust laws. The courts’ inability over time to apply antitrust law rigorously to the big business of health care and the FTC’s failure in convincing them to do 

so and Congress’ failure in instructing them to do so is one important reason why many health care markets are now dominated by 

firms with alarming pricing power. 

The second part of my testimony explains why hospital and 

health care provider monopoly power is especially costly, even more 

costly to American consumers than what one might call a typical 

monopolist. This discussion I also submit for the record saying now 

only briefly that it is the combination of monopoly power with 

health insurance that magnifies the effect of provider market 

power. Health insurance enables a monopolist of a covered service 

to charge substantially more than the textbook monopoly price, 

thereby earning even more than the usual monopoly profit. The 

magnitude of the monopoly plus insurance distortion contributes 

severely to both excess health care spending and the misallocation 

of health care dollars. 

The third part of my testimony discusses available policy instruments to protect health care consumers against current and growing hospital monopolists. I turn very briefly in some detail to this 

third part. 

Because most hospital monopolists are already highly concentrated, we need a new antitrust agenda. A first order of business would be to fastidiously prevent the formation of new provider 

monopolies. Because health care providers continue to seek opportunities to consolidate, either through the recent wave of forming 

accountable care organizations or through alternative means, there 

remain several fronts available for policymakers to wage an antitrust battle. 

A second order of business might be to revisit some already consummated hospital mergers. Retrospective mergers have the additional cost of unscrambling the eggs, but they are worth consid-
30 

ering for mergers that have inflicted significant economic harm. Alternative conduct remedies should be considered as well. 

But in addition to prohibiting new mergers and revisiting old 

ones, an array of other enforcement policies can target monopolists 

behaving badly, those trying either to expand their monopoly into 

currently competitive markets or to foreclose their markets to possible entrants. Thus, several fronts remain available for policymakers seeking to restore competition to health care markets. A 

new antitrust agenda begins with recognizing the extraordinary 

costs of the health care provider monopolies and continues with aggressive and creative anti-monopoly interventions. 

[The prepared statement of Mr. Richman follows:] 
31 

"The Patient Protection and Affordable Care Act, Consolidation, and the Consequent 

Impact on Competition in Healthcare" 

Subcommittee on Regulatory Reform, Commercial and Antitrust Law 

Committee on the Judiciary 

United States House of Representatives 

Barak D. Richman' 

Bartlett Professor of Law and Business Administration 

Duke University 

I. Introduction ....................................................................................................................................... 1 

II. Explaining Past Failures in Antitrust Policy ........................................................................ 4 

A. Dispelling the Myth that Nonprofit Hospitals Do Not Exercise Pricing Power .... 6 

B. Dispelling the Myth that Nonprofit Hospitals Use Profits for Charitable 

Purposes ........................................................................................................................................... 10 

III. The Particular Costliness of Healthcare Provider Monopolies: Market Power + 

Insurance ......................................................................................................................................... 15 

A. Supra-Monopoly Pricing ............................................................................................................ 16 

B. Misallocative Consequences .................................................................................................... 19 

IV. A New Antitrust Agenda ............................................................................................................ 22 

A. The Special Problem of Accountable Care Organizations .......................................... 24 

B. Requiring Unbundling of Monopolized Services ............................................................. 29 

C. Challenging Anticompetitive Terms in Insurer-Provider Contracts ...................... 32 

V. Conclusion ....................................................................................................................................... 35 

, Many ofthe ideas expressed herein are derived from scholarship coauthored with 

Clark C. Havighurst. 
32 

I. Introduction 

Thank you Mr. Chairman and members of the committee. It is an honor to 

testify before you on a topic that is extraordinarily important to our nation's longterm fiscal health. 

Latest statistics reveal that the United States spends nearly 18% of its Gross 

Domestic Product on health care services. This is nearly twice the average for OECD 

nations and far more than #2, which spends less than 12%. The US, in purchaseadjusted dollars, spends more than two-and-a-halftimes the OECD average per 

capita on health care and more than one-and-a-halftimes the second largest 

spender. In spite of our leadership in healthcare spending, we are safely in the 

bottom half of OECD nations on any measure of health care outcomes. 

We are spending too much and getting too little in return, and are simply on 

an unsustainable trajectory. All discussions about national health care policy should 

begin with the recognition that curbing healthcare spending needs to be among our 

highest national priorities. The cost of private health insurance is bankrupting 

companies and families alike, and the cost of public healthcare programs are putting 

unmanageable burdens on the federal and state budgets. 

Many studies suggest that the cost of health care is unsustainable not because 

we consume too much healthcare, but because we pay too much for the healthcare 

that we do consume. In other words, as one study put it famously, "It's the Prices, 

1 
33 

Stupid."l And one of the most severe contributors to the rise of health care prices 

has been the alarming rise in market power by healthcare providers. 

The past several decades have witnessed extraordinary consolidation in local 

hospital markets, with a particularly aggressive merger wave occurring in the 

1990s. By 1995, merger and acquisition activity was nine times its level at the start 

of the decade, and by 2003, almost ninety percent of Americans living in the nation's 

larger MSAs faced highly concentrated markets. 2 This wave of hospital 

consolidation alone was responsible for sharp price increases, including price 

increases of 40% when merging hospitals were closely located.' Even after this 

merger wave in the 1990s prompted alarm, a second merger wave from 2006 to 

2009 significantly increased the hospital concentration in 30 MSAs, and the vast 

majority of Americans are now subject to monopoly power in their local hospital 

markets. 4 

1 Gerard F. Anderson et aI., It's the Prices, Stupid: Why the United States Is So 

Different from Other Countries, HEALTH AFF., May-June 2003, at 89. 

2 William B. Vogt & Robert Town, How Has Hospital Consolidation Affected the Price 

and Quality o/Hospital Care? ROBERT WOOD JOHNSON (2006); CLAUDIA H. 

WILLIAMS ET AL., ROBERT WOOD JOHNSON FOUND., HOW HAS HOSPITAL 

CONSOLIDATION AFFECTED THE PRICE AND QUALITY OF HOSPITAL CARE? 

(2006), available at www.rwjf.org/files/research/n09policybrief.pdf 

3 Id. For surveys of how hospital consolidations have increased hospital prices, see 

Gloria 

J. Bazzoli et aI., Hospital Reorganization and Restructuring Achieved Through Merger, 

27 HEALTH CARE MGMT. REV. 7 (2002); Martin Gaynor, Competition and Quality in 

Health Care Markets, 2 FOUNDS. & TRENDS IN MICROECON. 441 (2006); see also 

WILLIAM B. VOGT, NAT'L INST. FOR HEALTH CARE MGMT. FOUND., HOSPITAL 

MARKET CONSOLIDATION: TRENDS AND CONSEQUENCES (2009), available 

at http://nihcm.org/pdflEV-Vogt FINAL.pdf (documenting the extent of provider 

market concentration among hospitals & other providers). 

4 Cory Capps & David Dranove, Market Concentration of Hospitals (June 2011), 

available at: http://www.aiJipcoverage.com/wp-colltellt/lIpioads/2011/1 0/ A COsCoo,-Capps-Hospital-Market-Col1solidatioll-Fillal.ndf 

2 
34 

Hospitals and hospital networks did not achieve this market dominance 

through "superior skill, foresight, and industry,"" which would be un controversial 

under the antitrust laws. To the contrary, this consolidation occurred because of 

mergers and acquisitions, and permitting hospital markets to achieve such 

remarkable levels of consolidation represents a major failure of our antitrust policy. 

There is plenty of blame to share - both Democratic and Republican 

Administrations; Congress, the Executive, and the Courts - but we are now in a 

position where we must cope with hospital monopolists. In other words, we not 

only must resist any additional consolidation that creates greater market power, but 

we must develop policy tools that stem the harm that current hospital monopolists 

are in a position to inflict. 

My testimony is divided into three parts. The first briefly reviews some of 

the failures of antitrust policy that permitted hospital consolidations, with a focus 

on court decisions in the 1990s. The second part explains why hospital and 

health care provider monopoly power is especially costly, even more costly to 

American consumers than what one might call a "typical" monopolist. The third 

part, discusses available policy instruments to protect health care consumers against 

current and growing hospital monopolists. Of particular interest is monitoring the 

unfurling of Accountable Care Organizations ("ACOs"), which are encouraged by the 

Patient Protection and Affordable Care Act ("ACA") and, though aiming to address 

5 United States v. Aluminum Co. of America, 148 F.2d 416, 430 (2d Cir. 1945) (Hand, 

J.) ("The successful competitor, having been urged to compete, must not be turned 

upon when he wins.") 

3 
35 

important failures in coordinating care, pose a serious danger to creating additional 

provider market power. 

II. Explaining Past Failures in Antitrust Polic:y 

Ever since the antitrust laws were first applied systematically in the health care 

sector in the mid-1970s, some judges and commentators have resisted giving the 

statutory policy of fostering competition its due effect in health care settings. 6 

Between 1995 and 2000, for example, antitrust enforcers encountered judicial 

resistance when challenging mergers of nonprofit hospitals, suffering a six-case 

6 For cases in which the Supreme Court found it necessary to overrule lower courts' 

attempts to infer special antitrust exemptions or craft softer antitrust rules for 

health care providers, see National Gerimedical Hospital and Gerontology Center v. 

Blue Cross of Kansas City, 452 U.S. 378 (1981) (rejecting implied exemption for 

market-allocation agreements brokered by health planning agencies created under 

federal statute); Patrick v. Burget, 486 U.S. 94 (1988) (rejecting state legislature's 

encouragement of physician peer review in hospitals as a basis for exempting 

abuses from federal antitrust remedies); Summit Health v. Pinhas, 500 U.S. 322 

(1991) (easing standard for establishing potential effect of hospital medical staff 

decisions on interstate commerce); Arizona v. Maricopa County Medical Soc'y, 457 

U.S. 332 (1982) (treating physicians' collective agreements on maximum prices as 

unlawful because claim of pro competitive effects was facially unconvincing); FTC v. 

Indiana Federation of Dentists, 476 U.S. 447 (1986) (upholding adequacy of 

evidence to support FTC finding that dentists' agreement to deny insurers access to 

patients' x-rays was anticompetitive, not procompetitive). But see California Dental 

Ass'n v. FTC, 526 U.S. 756 (1999) (raising FTC's burden of proof in finding 

anticompetitive collective action by health professionals). The latter decision is 

critically examined in Clark C. Havighurst, Health Care as a (Big) Business: The 

Antitrust Response, 26 J. HEALTH POL. POL'y & L. 939, 949-53 (2001). The antitrust 

movement in health care was triggered in part by the Supreme Court's rejection in 

1975 of general antitrust immunity for the so-called "learned professions." Goldfarb 

v. Virginia State Bar, 421 U.S. 773 (1975). See generally CARL F. AMERINGER, THE 

HEALTH CARE REVOLUTION: FROM MEDICAL MONOPOLY TO MARKET COMPETlTlON (2008). 

4 
36 

losing streak in such cases in the federal courts. 7 Although most of those promerger decisions ostensibly turned on findings offact (mostly in identifying a 

geographic market in which to estimate the merger's probable effects on 

competition), those findings were often so arbitrary as to signify judicial skepticism 

about the wisdom of applying antitrust law rigorously in hospital markets. II Even as 

nonprofit hospitals are the primary provider of the nation's hospital careresponsible for 73% of admissions, 76% of outpatient visits, and 75% of hospital 

expenditures-they tended to enjoy selective scrutiny under the antitrust laws. 

Implicitly, and often explicitly, the judges seemed to harbor a beliefthat nonprofit 

hospitals either would not exercise or would put to good use any market power they 

might possess. 9 

7 U.S. FED. TRADE COMM'N AND U.S. DEPT. OF JUSTICE, IMPROVING HEALTH CARE: A DOSE OF 

COMPETITION ch. 4, at 1-2 n. 7 (2004), available 

at http://www.usdoLgov/atr/public(healthcare/204694.htm (accessed 13 May 

2009) [hereinafter DOSE OF COMPETITION]. 

8 For discussions of these cases and ofthe general ambivalence towards competition 

in health care markets, see Barak D. Richman, Antitrust and Nonprofit Hospital 

Mergers: A Return to Basics, 156 U. PA. L. REV. 121 (2007); Martin Gaynor, Why Don't 

Courts Treat Hospitals Like Tanks for Liquefied Gasses? Some Reflections on Health 

Care Antitrust Enforcement, 31 J. HEALTH POL. POL'Y & L. 497 (2006); Thomas L. 

Greaney, Night Landings on an Aircraft Carrier: Hospital Mergers and Antitrust Law, 

23 AM.J.L.&MED.191 (1997). 

9 The district judge in FTC v. Butterworth Health Corp., 946 F. Supp. 1285 (W.O. 

Mich. 1996), was especially unambiguous in championing nonprofit hospitals as 

benign monopolists: 

Permitting defendant hospitals to achieve the efficiencies of scale that 

would clearly result from the proposed merger would enable the 

board of directors of the combined entity to continue the quest for 

establishment of world-class health facilities in West Michigan, a 

course the Court finds clearly and unequivocally would ultimately be 

in the best interests of the consuming public as a whole. 

Id. at 1302. Likewise, the judge revealed a hostility to price competition between 

hospitals, remarking that "[i]n the real world, hospitals are in the business of saving 

lives, and managed care organizations are in the business of saving dollars." Id. The 

5 
37 

The courts' inability over time to apply antitrust law rigorously in the big 

business that health care-and the FTC's failure in convincing them to do so, and 

Congress' failure in instructing them to do so-is one important reason why many 

health care markets are now dominated by firms with alarming pricing 

power. 10 Fortunately, the government has more recently won back some of the 

legal ground it lost. 

A. Dispelling the Myth that Nonprofit Hospitals Do Not Exercise Pricing 

Power 

In 2007, the Federal Trade Commission (FTC), in a case challenging a merger of 

nonprofit hospitals on Chicago's North Shore, found convincing proof that, following 

the merger, the new entity had substantially raised prices to managed-care 

organizations.ll The case was unusual because, rather than intervening to stop the 

acquisition when it was first proposed, the Commission initiated its challenge four 

years after the merger was consummated. Bringing the case at that stage 

Butterworth court was not alone in its predilections. A Missouri judge, reviewing a 

hospital merger challenged by the FTC, remarked to the federal agency, "I don't 

think you've got any business being in here .... It looks to me like Washington, D.C. 

once again thinks they know better what's going on in southwest Missouri. I think 

they ought to stay in D.C' FTC v. Freeman Hosp., 69 F.3d 260, 263 (8th Cir. 1995) 

(quoting district court oral hearing). 

10 For surveys of how hospital consolidations have increased hospital prices, see G.B. 

Bazzoli, et ai., "Hospital Reorganization and Restructuring Achieved through 

Merger," 27 HEALTH CARE MANAGEMENT REV. 7 (2002); Martin Gaynor, Competition and 

Quality in Health Care Markets, 2 FOUNDATIONS AND TRENDS IN MICROECONOMICS 441 

(2006); William B. Vogt, How Has Hospital Consolidation Affected the Price and 

Quality of Hospital Care?, THE SYNTHESIS PROJECT, at 9 (2006). See also See William B. 

Vogt, Hospital Market Consolidation: Trends and Consequences, EXPERT VOICES, 

NIHCM Foundation, available at: http://nihcm.org/pdf/EV-Vogt FINAL.pdf 

(documenting the extent of provider market concentration among hospitals & other 

providers). 

11 In re Evanston Northwestern Healthcare Corp., 2007 WL 2286195 (F.T.C. 2007). 

6 
38 

accomplished two things: First, it made it unnecessary for the Commission to seek a 

preliminary injunction against the merger in federal court - where antitrust 

enforcers had lost the six previous cases. Second, challenging a completed merger 

gave the Commission's staff an opportunity to demonstrate in fact, and not just in 

theory, that nonprofit hospitals gaining new market power will use it to increase 

prices. The direct proof obtained in the Evanston Northwestern case makes it 

unlikely that future federal courts will allow the consummation of mergers of 

nonprofit hospitals under the illusion that such mergers do not have the usual anticompetitive effects. 

The FTC's findings in Evanston Northwestern also discredited expert 

economic testimony that one court had cited prominently in approving a hospital 

merger in Grand Rapids, Michigan. That testimony rested on empirical research 

purporting to show that in concentrated markets nonprofit hospitals generally had 

lower prices than corresponding for-profits.1 2 Although that research had been 

effectively discredited in later economic studies,13 the facts found in Evanston 

12 FTC v. Butterworth Health Corp., 946 F. Supp. 1285, 1297 (W.D. Mich. 1996) 

(citing expert's findings suggesting "that a substantial increase in market 

concentration among nonprofit hospitals is not likely to result in price increases"). 

The expert cited by the court, William J. Lynk, reached the same conclusion in 

scholarly articles. William j. Lynk, Nonprofit Hospital Mergers and the Exercise of 

Market Power, 38 J.L. & ECON. 437 (1995); William j. Lynk Property Rights and the 

Presumptions of Merger Analysis, 39 ANTITRUST BULL. 363, 377 (1994). 

13 See DOSE OF COMPETITION, supra note 7, ch.4, at 33 (concluding "the best available 

evidence indicates that nonprofits exploit market power when given the 

opportunity to do so"); David Dranove & Richard Ludwick, Competition and Pricing 

by Nonprofit Hospitals: A Reassessment of Lynk's Analysis, 18 j. HEALTH ECON. 87 

(1999); Emmett B. Keeler, Glenn Melnick, & jack Zwanziger, The Changing Effects of 

Competition on Non-Profit and For-Profit Hospital Pricing Behavior, 18 j. HEALTH 

ECON. 69 (1999). 

7 
39 

Northwestern should put finally to rest the notion that nonprofit hospitals are 

immune from the temptation to raise prices when they are in a position to do so. 

Evanston Northwestern's findings also undercut the common beliefthat 

community leaders on a nonprofit hospital's governing board are vigilant about 

health care costs. The judge in the Grand Rapids case permitted the merger in part 

because the chairmen ofthe two hospitals' boards each represented a large local 

employer and "testified convincingly thatthe proposed merger [was] motivated by a 

common desire to lower health care costs .... "11 In this same vein, a proponent of 

another hospital merger not long ago gave assurance that allowing it would not 

cause health insurance premiums to increase because several hospital "board 

members ... are employers who worry about the cost of health-care." 15 Economists 

generally agree, however, that employees themselves, not employers, ultimately 

bear the cost oftheir own health coverage in reduced wages or other fringe 

benefits. 16 To be sure, employers are never happy to pay higher insurance 

premiums and would prefer to increase their employees' compensation in more 

visible ways. But they are ultimately committing their workers' money, not their 

own (or their shareholders'), in hospital boardrooms. Moreover, nonprofit hospitals 

14 946 F. Supp. at 1297. 

15 Felice j. Freyer, Hospital Merger Reaction Cautious, PROVIDENCE JOURNAL-BULLETIN, 

july 29,2007, at B1 (describing proposed merger of Rhode Island's two largest 

hospital systems). See also FTC v. Freeman Hospital, 911 F. Supp. 1213,1222 (W.O. 

Mo. 1995) ("if a nonprofit organization is controlled by the very people who depend 

on it for service, there is no rational economic incentive for such an organization to 

raise its prices to the monopoly level, even if it has the power to do so") 

16 See generally jonathan Gruber, Health Insurance and the Labor Market (Nat'l 

Bureau of Econ. Research, Working Paper No.6 762, 1998) (reviewing the empirical 

literature and finding "a fairly uniform result: the costs of health insurance are fully 

shifted to wages"). 

8 
40 

have few legal or institutional reasons to engage in only progressive 

redistribution. 17 In general, community leaders on nonprofit hospital boards have 

little incentive to resist any hospital project that seems good for the community if it 

can be financed from the hospital's reserves and future surpluses. 

A recent report by the Massachusetts Attorney General documents how 

nonprofit hospitals in that state have aggressively exploited their market power, 

even when health care costs were strangling public and private budgets. IS 

Following Massachusetts's passage of the nation's first legislative effort to achieve 

universal health coverage, the state legislature directed the Attorney General to 

analyze the causes of rising health care costs. The resulting report concluded that 

prices for health services are uncorrelated with either quality or costs of care but 

instead are positively correlated with provider market power.19 The report further 

observed that prominent nonprofit academic medical centers-specifically, the 

Massachusetts General Hospital and Brigham and Women's Hospital, which had 

merged in 1993 to create Partners HealthCare-were most responsible for 

leveraging their market and reputational power to extract high prices from 

insurers.20 Reporting by the Boston Clobe had previously shown the surprising 

extent to which Partners was able to extract extraordinary prices in agreements 

17 See Timothy Greaney & Kathleen Boozang, Mission, Market and Trust in the 

Nonprofit Healthcare Enterprise,S YALE j. HEALTH LAW & POL. 1 (2005); Clark 

C. Havighurst & Barak D. Richman, Distributive lnjustice(s) in American Health Care, 

LAW & CONTEMP. PROBS., Autumn 2006, at 22-24. 

18 Massachusetts Attorney General, Examination of Health Care Cost Trends and Cost 

Drivers Pursuant to C.L. c. 118C, § 61,6(b) (March 16,2010), available 

at: httn:/fwl1/w.mass.(jovICagoldocslhealthcarelfinal report w cover appendices gl 

ossary.pdf[hereinafter "Health Care Cost Trends"] 

19 ld. at 16-33. 

20 ld.; see especially 29-30. 

9 
41 

with presumably cost-conscious insurers.21 For example, when some insurers, such 

as the Tufts Health Plan, resisted Partners' demands for price increases and tried to 

assemble networks with Boston's other hospitals, Partners launched an aggressive 

marketing campaign that triggered threats by many of Tufts' corporate customers to 

switch insurers.22 

The foregoing observations should finally dispel any impression that 

nonprofit hospitals, as community institutions, can safely be allowed to possess 

market power on the theory that, as nonprofits, they can be trusted not to exercise 

it. 

B. Dispelling the Myth that Nonprofit Hospitals Use Profits for Charitable 

Purposes 

Federal judges may have tolerated mergers conferring new market power on 

nonprofit hospitals less because they thought the hospitals would not exercise that 

power than because such hospitals seemed to differ from conventional monopolists 

in ways that should lessen social concern about their enrichment. Specifically, 

nonprofit, tax-exempt hospitals are required by their charters and the federal tax 

21 Special Report: Unhealthy System, available 

at: http://vvww.boston.com Inews!specia]s/healthrare spotlightl (detailing special 

reporting on Partners HealthCare, culminating in a three-part series); "A Healthcare 

System Badly Out of Balance," Boston Globe, Nov. 16, 2008; "Fueled by Profits, a 

Healthcare Giant Takes Aim at Suburbs," Boston Globe, Dec. 21, 2008; "A Handshake 

That Made Healthcare History," Boston Globe, Dec.28, 2008. 

22 "A Handshake That Made Healthcare History," id., (describing the "humiliation" 

experienced by the Tufts Health Plan's CEO as he caved to Partners' price demands 

and "became an object lesson for other insurers, a lesson they would not soon forget 

[as the 1 the balance of power had shifted" to Partners). In Orlando, insurer United 

Healthcare experienced similar threats as it resisted a request for a 63 percent price 

increase by the region's leading nonprofit hospital chain. Linda Shrieves, 400,000 

Fear They'll Have to Switch Doctors, ORLANDO SENTINEL, Aug.7, 2010. 

10 
42 

code to retain their profits and use them only for "charitable" purposes. Thus, if one 

could assume that the redistributions of wealth resulting from the exercise of 

market power by nonprofit hospitals run generally from richer to poorer rather 

than in the opposite direction, there would be at least an argument for viewing 

nonprofit hospital monopolies as benign for antitrust purposes. Although such an 

argument would be based on a questionable reading of the antitrust statutes, one 

widely noted case allowed prestigious universities to act anti-competitively in order 

to direct their limited scholarship funds toward lower-income students.2:l One 

easily senses in hospital merger cases a similar judicial dispensation in favor of 

nonprofit enterprises that combine for seemingly progressive purposes.Z4 

But however antitrust doctrine views (or should view) monopolies dedicated 

to progressive pursuits, it is far from clear that nonprofit hospitals reliably use their 

dominant market positions to redistribute wealth only in progressive directions. 

The Internal Revenue Code's charitable-purposes requirement has been interpreted 

very broadly, allowing such hospitals to spend their untaxed surpluses on anything 

that arguably "promotes health."25 This includes much more than just caring for the 

indigent. Indeed, many exempt hospitals are located in areas that need relatively 

23 United States v. Brown Univ., 5 F.3d 658 (3d Cif. 1993). Reading this ruling as an 

endorsement ofthe universities' redirection of scholarship funds to needier 

students would at least limit substantially (and prudently) the kind of worthy 

purpose a cartel of nonprofit entities may offer as an antitrust defense. 

24 See, e.g., supra note 9. 

25 Rev. RuL 69-545,1969-2 C.B. 117 (1969). Ironically, this controversial ruling, 

relaxing an earlier requirement that an exempt hospital "must be operated to the 

extent of its financial ability for those not able to pay for the services rendered," Rev. 

RuL 56-185, 1956-1 c.B. 202, came at a time when the Medicare and Medicaid 

programs were relatively new and private health insurance was expanding, all 

seemingly reducing the need for nonprofit hospitals to be charitable in the original 

sense. 

11 
43 

little in the way of truly charitable care, either because the community is relatively 

affluent and its population well-insured or because a public hospital assumes most 

of the charity burden. Moreover, although all hospitals inevitably subsidize the 

treatment of some uninsured patients, many of today's uninsured are members of 

the middle class and not obvious candidates for subsidies from the insured 

population. 26 Finally, federal, state, and local governments separately and 

substantially subsidize nonprofit hospitals' most clearly charitable activities, both 

through special tax exemptions and relief and by direct subventions; such activities 

therefore should not count significantly in estimating the net direction of 

redistributions effected by hospitals through the exercise of newly acquired market 

power. 

Thus, true charity has in recent years accounted for only a relatively small 

fraction of what nonprofit hospitals do in return for their federal tax exemptions. 

Indeed, such hospitals can usually qualify for exemption merely by spending their 

surpluses on medical research, on training various types of health care personnel, 

and, most importantly, on acquiring state-of-the-art facilities and equipment, which 

(ironically) can also secure and enhance their market dominance,27 Many ofthese 

26 Supplemental census data from 2007 showed that nearly 38% of America's 

uninsured come from households with over $50,000 in annual income and nearly 

20% from households with over $75,000. See U.S. CENSUS BUREAU, INCOME, POVERTY, 

AND HEALTH INSURANCE COVERAGE IN THE UNITED STATES 21 table 6 (August 

2007), http://www.census.gov/prod/2007pubs/p60-233.pdf. Implementation of 

the PPACA will greatly reduce hospitals' charity burdens, leaving illegal aliens as the 

principal category of the uninsured. 

27 On Partners HealthCare's use of its surpluses to build new and better facilities and 

expand into new markets, thereby securing additional market power, see "Fueled by 

Profits, a Healthcare Giant Takes Aim at Suburbs," BOS. GLOBE, Dec. 21, 2008. 

12 
44 

activities confer significant benefits on interests and individuals relatively high on 

the income scale. 211 To be sure, most ofthe activities and projects financed from 

hospital surpluses are hard to criticize in the abstract. But many of them are not so 

obviously progressive in their redistributive effects (or otherwise so obviously 

worthy of public support) that antitrust prohibitions should be relaxed so that 

hospitals can finance more of them. 

In any case, financing hospital activities and projects of any kind from 

hospitals' monopoly profits causes their costs to fall ultimately and more or less 

equally on individuals bearing the cost of health insurance premiums. The 

incidence of this financial burden thus closely resembles that of a "head tax" - that 

is, one levied equally on individuals regardless of their income or ability to pay. Few 

methods of public finance are more unfair (regressive) than this. Those who take a 

Not only does tax exemption create opportunities for dominant firms to 

increase their dominance, but a nonprofit firm lacking such dominance may be 

ineligible for exemption - and thus at a severe competitive disadvantage - precisely 

because it faces competition and therefore lacks the discretionary funds necessary 

to demonstrate how it "benefits the community." Tax policy thus rewards, fosters, 

and protects provider monopoly, only ensuring that monopoly profits, however 

large, are not put to objectionable, non-health-related uses. Cf Geisinger Health 

Plan v. Commissioner, 985 F.2d 1210, _ (3d Cir. 1993) (denying tax exemption to 

nonprofit health plan in part because it was not a provider, but only arranged for the 

provision, of health services and also because, although it planned to subsidize 

premiums for some low-income subscribers, it had been "unable to support the 

program with operating funds because it operated at a loss from its inception"). 

28 Many physicians, for example, benefit handsomely first from the valuable training 

hospitals provide and later from using expensive hospital facilities and equipment at 

no direct cost to themselves. The tax authorities regard such "private benefits" as 

merely "incidental" to the hospitals' larger purpose of promoting the health of the 

community. See I.R.S. Gen. Couns. Mem. 39,862 (Dec. 2, 1991): "In our view, some 

private benefit is present in all typical hospital-physician relationships .... Though 

the private benefit is compounded in the case of certain specialists, such as heart 

transplant surgeons, who depend heavily on highly specialized hospital facilities, 

that fact alone will not make the private benefit more than incidental." 

13 
45 

benign view of the seemingly good works of health care providers should focus 

more attention on who (ultimately) pays for and who benefits from those nominally 

charitable activities. 2Y 

The regressive redistributive effects of nonprofit hospitals' monopolies 

appear never to have been given due weight in antitrust appraisals of hospital 

mergers.:'O To be sure, pure economic theory withholds judgment on the rightness 

or wrongness of redistributing income because economists have no objective basis 

for preferring one distribution of wealth over another. Butthe antitrust laws enjoy 

general political support principally because the consuming public resents the idea 

of illegitimate monopolists enriching themselves at their expense. 3 ! This is why 

mergers of all kinds are suspect in the eyes of antitrust enforcers: they may be an 

easy and unjustified shortcut to gaining market power. Although proponents of 

consolidations increasing concentration in provider markets usually tout 

efficiencies they expect to achieve by combining and rationalizing operations, the 

29 See generally Symposium, Who Pays? Who Benefits? Distributional Issues in Health 

Care, LAW & CONTEMP. PROBS., Autumn 2006. 

30 Under reasonable assumptions, a hospital merger creating new market power 

would raise insurance premiums by roughly 3 percent, increasing the "head tax" on 

the median insured family by roughly $400 per year, hardly a trivial amount. In 

addition, according to one estimate, hospital mergers in the 1990s caused nearly 

700,000 Americans to lose their private health insurance. Robert Town et aI., The 

Welfare Consequences of Hospital Mergers (Nat'l Bureau of Econ. Research, Working 

Paper No. 12244,2006). 

3! HERBERT HOVENKAMP, FEDERAL ANTITRUST POLICY: THE LAW OF COMPETITION AND ITS 

PRACTICE 50 (3d ed. 2005) ("[T]he primary intent of the Sherman Act framers [was] 

the distributive goal of preventing monopolists from transferring wealth away from 

consumers.") 

14 
46 

opportunity to increase their bargaining power vis-a.-vis private payers is the 

likelier explanation for all such mergers in concentrated markets.:;2 

In sum, a tragic failure of antitrust enforcement-fueled in no small part by 

certain sanguine attitudes toward nonprofit monopolies-contributed to what is 

now a crisis in provider markets. As a result, there are few markets in which price 

competition keeps prices for specific hospital and other health care services and 

goods near their marginal cost. The ubiquity of nonprofit hospitals with market 

power now constitutes a significant source of the provider-monopoly problem in 

health care. 

III. The Particular Costliness of Healthcare Provider Monopolies: Market 

Power + Insurance 

In economic theory, monopoly is objectionable because it enables a seller to 

charge higher prices that then cause some consumers, who would happily pay the 

competitive price, to forgo enjoyment ofthe monopolized good or service. 

Monopolists thus divert scarce resources to less-valued uses and reduce aggregate 

welfare. Fortunately, such output- and welfare-reducing (misallocative) effects are 

greatly lessened in health care markets because the large number of patients with 

32 See DAVID DRANOVE, THE ECONOMIC EVOLUTION OF AMERICAN HEALTH CARE: FROM MARCUS 

WELBY TO MANAGED CARE 122 (2000): "I have asked many providers why they wanted 

to merge. Although publicly they all invoked the synergies mantra, virtually 

everyone stated privately that the main reason for merging was to avoid 

competition and/or obtain market power." See also Robert A. Berenson et aI., 

Unchecked Provider Clout in California Foreshadows Challenges to Health Reform, 29 

HEAL TH AFF. 699, 699 (2010)., at 6 (quoting a local physician as saying, "Why are 

those hospitals and physicians [integrating]? It wasn't for increased coordination of 

care, disease management, blah, blah, blah - that was not the primary reason. The 

wanted more money and market share.") 

15 
47 

health insurance can easily pay provider monopolists' asking prices for desirable 

goods or services rather than being induced to forgo their consumption. 

Unfortunately, however, health insurance has other, possibly more severe 

consequences because it both amplifies the redistributive effects of provider and 

supplier monopolies and contributes to allocative inefficiency of a different and 

arguably more serious kind. 

A. Supra-Monopoly Pricing 

In the textbook model, monopoly redistributes wealth from consumers to 

powerful firms. The monopolist's higher price enables it to capture for itself much of 

the welfare gain, or "surplus," that consumers would have enjoyed if they had been 

able to purchase the valued good or service at a low, competitive price. In health 

care, insurance puts the monopolist in an even stronger position by greatly 

weakening the constraint on its pricing freedom ordinarily imposed by the limits of 

consumers' willingness or ability to pay. This effect appears in theory as a 

steepening of the demand curve for the monopolized good or service. Whereas 

most monopolists encounter a reduction in demand with each price increase, health 

insurance mutes the marginal consequences of rising prices. 

If health insurers were dutiful agents oftheir subscribers and perfectly 

reflected subscribers' preferences, they would reflect consumers' demand curve and 

pay only for services that were valued by individual insureds at levels higher than 

the monopoly price. Deficiencies in the design and administration of real-world 

health insurance, however, prevent insurers from reproducing their insureds' 

preferences and heavily magnify monopoly power. For legal, regulatory, and other 

16 
48 

reasons, health insurers in the United States are in no position (as consumers 

themselves would be) to refuse to pay a provider's high price whenever it appears 

to exceed the service's likely value to the patient. Instead, insurers are bound by 

both deep-rooted convention and their contracts with subscribers to pay for any 

service that is deemed advantageous (and termed "medically necessary" under 

rather generous legal standards) for the patient's health, whatever that service may 

cost. 33 

Consequently, close substitutes for a provider's services do not check its 

market power as they ordinarily would for other goods and services. Indeed, 

putting aside the modest effects of cost sharing on patients' choices, the only 

substitute treatments or services that insured patients are likely to accept are those 

they regard as the best ones available. Unlike the situation when an ordinary 

monopolist sells directly to cost-conscious consumers, the rewards to a monopolist 

selling goods or services purchased through health insurance may easily and 

substantially exceed the aggregate consumer surplus that patients would derive at 

competitive prices. 

Thus, health insurance enables a monopolist of a covered service to charge 

substantially more than the textbook "monopoly price," thereby earning even more 

than the usual "monopoly profit." The magnitude ofthe monopoly-plus-insurance 

33 See generally Timothy P. Blanchard, "Medical Necessity" Determinations-A 

Continuing Healthcare Policy Problem," Journal of Health Law 37, no. 4 (2003): 599-

627; William Sage, "Managed Care's Crimea: Medical Necessity, Therapeutic Benefit, 

and the Goals of Administrative Process in Health Insurance," Duke Law Journal 53 

(2003): 597; Einer Elhauge, ''The Limited Regulatory Potential of Medical 

Technology Assessment," Virginia Law Review 82 (1996):1525-1617. 

17 
49 

distortion has sometimes even surprised its beneficiaries. 34 Of course, since thirdparty payors (and not patients) are covering the interim bill, these extraordinary 

profits made possible by health insurance are earned at the expense of those 

bearing the cost of insurance. Insureds, even when their employers are the direct 

purchasers of health insurance, are ultimately the ones seeing their take-home 

shrink from hikes in insurance premiums caused by provider monopolies. 

Discussions of antitrust issues in the health care sector rarely, if ever, 

explicitly observe how health insurance in general or U.S.-style insurance in 

particular enhances the ability of dominant sellers to exploit consumers. Although 

scholars have previously observed that prices for health services are much higher in 

the United States compared to other OECD nations (without observable differences 

in quality),35 and although many have observed that provider market power has 

been a significant factor in inflating those prices,36 few have observed the 

synergistic effects of monopoly and health insurance. 

Perhaps more notably, despite the huge implications for consumers and the 

general welfare, the special redistributive effects of monopoly in health care 

markets are not mentioned in the antitrust agencies' definitive statements of 

34 For truly stunning examples ofthe price-increasing and profit-generating effects 

of combining US-style health insurance and monopoly, see Geeta Anand, "The Most 

Expensive Drugs," Parts 1-4, Wall Street Journal, November 15-16, December 1, 28, 

2005; in this series, see especially "How Drugs for Rare Diseases Became Lifeline for 

Companies," November 15, 2005, Ai (in which one drug company executive is 

quoted as saying, "I never dreamed we could charge that much.") 

35 See, e.g., Diana Farrell et aI., Accounting for the Cost of U.S. Health Care: A New 

Look at Why Americans Spend More, (McKinsey Global Institute, 2008). 

36 See supra, notes 2-3. 

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50 

enforcement policy in the health care sector. 37 Antitrust analysis of hospital 

mergers-as well as of other actions and practices that enhance provider or 

supplier market power-must therefore explicitly recognize the impact of insurance 

on health care markets. The nation will find it far harder, perhaps literally 

impossible, to afford PPACA's impending extension of generous health coverage to 

additional millions of consumers if monopolists of health care services and products 

can continue to charge not what "the market" but what insurers will bear. 

B. Misallocative Consequences 

Allowing providers to gain market power by merger not only causes 

extraordinary redistributions of wealth but also contributes to inefficiency in the 

allocation of resources. In ironic contrast to the output restrictions associated with 

monopoly in economic theory, the misallocative effects cited here mostly involve the 

production and consumption of too much-rather than too little-of a generally 

good thing. These misallocations are both theoretically and practically important. 

They provide still another new reason for special antitrust and other vigilance 

against providers' monopolistic practices, particularly scrutinizing anticompetitive 

mergers and powerful joint ventures. 

Even in the absence of monopoly, conventional health insurance enables 

consumers and providers to overspend on overly costly health care. This is, of 

course, the familiar effect of moral hazard-economists' term for the tendency of 

patients and providers to spend insurers' money more freely than they would spend 

the patient's own. To be sure, some moral-hazard costs are justified as an 

37 See supra, note 7. 

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51 

unavoidable price to protect individuals against unpredictable, high-cost events. 

But American health insurers are significantly constrained in introducing 

contractual, administrative, and other measures to contain such costs. U.S.-style 

health insurance is therefore more destructive of allocative efficiency than health 

insurance has to be. Although uncontrolled moral hazard is a problem throughout 

the health sector, combining inefficiently designed insurance with provider 

monopolies compounds the economic harm. 

The extraordinary profitability of health-sector monopolies also introduces a 

dynamic source of resource misallocation by greatly strengthening the usual 

inducement for firms to seek market dominance. The introductions of new 

technologies have been a major source-perhaps primary, responsible for as much 

as 40-50 percent-ofhealthcare cost increases over the past several decades. 38 And 

even though many innovations offer only marginal value, their monopoly power 

under intellectual property laws secure lucrative payments from insurers whose 

hands are tied. Although many have recognized that new technologies are a 

principal source of unsustainable increases in health care costs, and several others 

have recognized how the moral hazard of insurance has both fueled technologydriven cost increases and distorted innovation incentives (toward cost-increasing 

38 Daniel Callahan, "Health Care Costs and Medical Technology," in From Birth to 

Death and Bench to Clinic: The Hastings Center Bioethics Briefing Book for 

Journalists, Policymakers, and Campaigns, ed. Mary Crowley (Garrison, NY: The 

Hastings Center, 200S), 79-S2. See also Paul Ginsburg, "Controlling Health Care 

Costs," New England Journal of Medicine 351 (2004): 1591-93; Henry Aaron, 

Serious & Unstable Condition (Washington, DC: Brookings Institution Press, 1991). 

20 
52 

innovations at the expense of cost-reducing innovations),3Y few have appreciated 

the contributing role of insurance in exacerbating the monopolies' effects. 

Provider monopolies also inflict economic harm by spending heavily to 

sustain current monopoly barriers. Indeed, Richard Posner has theorized that 

monopoly's most serious misallocative effect is not the output reduction recognized 

in theoretical models but instead is the monopolist's strenuous efforts to obtain, 

defend, and extend market power. 40 A monopolist is willing to invest up to the 

private value of its monopoly in maintaining it (and keeping out competitors), and 

the more lucrative the monopoly, the more a firm will be induced to invest heavily 

in sustaining monopoly barriers. Since so many monopolies are maintained with 

legal and regulatory barriers-certificate-of-need laws, accreditation, and contracts 

restricting provider networks, for example-much of this effort is spent on legal and 

political resources that fritter away the private value ofthe monopoly, rather than 

reinvesting in activities that create additional social value. Even managers of 

nonprofit firms, though they have no interest in profits as such, have incentives to 

maintain monopolies to fund the construction and expansion of empires that 

39 See Alan M. Garber, Charles I. Jones, and Paul M. Romer, "Insurance and Incentives 

for Medical Innovation" (working paper 12080, National Bureau of Economic 

Research, 2006); Burton Weisbrod, "The Health Care Quadrilemma: An Essay on 

Technological Change, Insurance, Quality of Care, and Cost Containment," Journal of 

Economic Literature 29, no. 2 (June 1991): 523-52; Sheilah Smith, Joseph P. 

Newhouse, & Mark Freeland, "Income, Insurance, and Technology: Why Does Health 

Spending Outpace Economic Growth?" Health Affairs 28, no. 5 (2009): 1276-84. See 

also Dana Goldman and Darius Lakdawalla, "Understanding Health Disparities 

across Education Groups" (working paper 8328, National Bureau of Economic 

Research, 2001) (suggesting that population-wide increases in education have 

encouraged pursuit of patient-intensive innovations that increase costs, rather than 

simpler technologies that reduce them). 

40 Richard A. Posner, Antitrust Law: An Economic Perspective, 2nd ed. (University of 

Chicago Press, 2001), 13-18. 

21 
53 

enhance their self-esteem and professional influence. Such empire building is most 

easily accomplished by obtaining market power and using it to generate surpluses 

with which to further entrench and extend the firm's dominance. 

In light of the disproportionately large share of national resources already 

being spent on health care in the United States compared to every other nation in 

the world, and especially once one recognizes the extraordinary pricing freedom 

that U.S.-style health insurance confers on monopolist providers and suppliers, the 

enormous burden of distortive health-sector monopolies provide compelling, even 

alarming, reasons to apply the antitrust laws with particular force. Antitrust 

policymakers, I believe, are up to the task of restoring competition in health care 

markets where it is lacking, but it will require targeting providers and suppliers of 

health services seeking to achieve, entrench, and enhance market power. 

IV. A New Antitrust Agenda 

Can government, through antitrust enforcement or otherwise, do anything about 

the problem of provider and supplier market power in health care markets? 

Although the enforcement agencies and courts should certainly scrutinize new 

hospital mergers and similar consolidations with greater skepticism, preventing 

new mergers cannot correct past failures to maintain competition in hospital and 

other markets. Enforcers may challenge the legality of previously consummated 

mergers, as the FTC did in the Evanston Northwestern case, but there are practical 

and judicial difficulties in fashioning a remedy that might restore the competition 

that the original merger destroyed. The FTC was unwilling, for example, to demand 

22 
54 

the dissolution of Evanston Northwestern Healthcare Corp. and instead merely 

ordered its jointly operated hospitals to negotiate separate contracts with health 

plans-a remedy, incidentally, that gave the negotiating team of neither hospital any 

reason to attract business from the other.11 Although the FTC might seek more 

substantial relief in other such cases, the general rule seems to be that old, unlawful 

mergers are amenable to later breakup only in the unusual case where the 

component parts have not been significantly integrated.42 In any case, given their 

past skepticism about antitrust enforcement in health care markets, and especially 

their hand in blessing many mergers that ought now be unwound, courts would be 

hard to enlist in an antitrust campaign to roll back earlier consolidations.43 

Thus, a policy agenda capable of redressing the provider monopoly problem in 

health care will need to employ other legal and regulatory instruments. A first order 

of business would be to fastidiously prevent the formation of new provider 

monopolies. Because health care providers continue to seek opportunities to 

consolidate-either through the recent wave of forming Accountable Care 

Organizations ("ACOs") or though alternative means-there remain several fronts 

available for policymakers to wage antitrust battle. In addition, an array of other 

41 Despite losing thoroughly on the merits, the respondent declared itself "thrilled" 

with the FTC's remedy. See North Shore University Health Systems "FTC Ruling 

Keeps Evanston Northwestern Healthcare Intact," press release, August 6, 

2007, www.northshore,org/about-us!press(pressreleases/ftc-ruling-keepsevanston-northwestern-healthcareintactl (accessed May 3, 2012). 

42 See, for example, United States v. E.!. du Pont de Nemours & Co., 353 U.S. 586 

(1957); see also Phillip Areeda and Herbert Hovenkamp, Antitrust Law 2nd ed. 

(New York: Aspen Publishers, 2003): 1205b. 

43 For a chronicling of government challenges to mergers that lost in federal court, 

see Dose of Competition, supra note 7. For an exploration of judicial resistance to 

enforcing the antitrust laws against hospitals, see Richman, supra note 8. 

23 
55 

enforcement policies can target monopolists behaving badly-those trying either to 

expand their monopoly power into currently competitive markets or to foreclose 

their market to possible entrants. Thus, several fronts remain available for 

policymakers seeking to restore competition to healthcare markets. A new antitrust 

agenda begins with recognizing the extraordinary costs to healthcare provider 

monopolies and continues with aggressive and creative antimonopoly interventions. 

A. The Special Problem of Accountable Care Organizations 

A primary target for a revived antitrust agenda is the emerging Accountable 

Care Organizations, whose development the Affordable Care Act is designed to 

stimulate. The ACA encourages providers to integrate themselves in ACOs for the 

purpose of implementing "best practices" and thereby providing coordinated care of 

good quality at low cost. As an inducement for providers to form and practice 

within these presumptively more efficient entities, the ACA instructs the Medicare 

program to share with an ACO any cost savings it can demonstrate, permitting 

proposed ACOs either to keep any savings beyond a minimum savings rate ("MSR") 

of up to 3.9% while being insured against losses if savings are not obtained or to 

keep savings beyond an MSR of 2% while being exposed to the risk oflosses.~~ 

ACOs are being hailed as a meaningful opportunity to reform our deeply inefficient 

delivery system, but the unintended consequences of promising health policy 

initiatives often invest prematurely in projects that ultimately disappoint. The 

44 See Department of Health and Human Services, Medicare Program; Medicare 

Shared Savings Program: Accountable Care Organizations, 42 CFR Part 425, Federal 

Register 76, no. 212 (November 2,2011): 67802, 67985-88. 

24 
56 

formation of ACOs run the specific risk of creating even more aggregation of pricing 

power in the hands of providers . 

ACOs, in theory, could offer an attractive solution to problems stemming 

from the complexity and fragmentation ofthe health care delivery system. is 

Together with good information systems and compensation arrangements, vertical 

integration of complementary health care entities can achieve important efficiencies 

by reducing medical errors, obviating duplicative services and facilities, and 

coordinating elements needed to deliver high quality, patient-centered care.in 

Skeptics, who include former FTC Commissioner Thomas Rosch, note that 

"available evidence suggests that the cost savings [from ACOs] will be very small to 

nonexistent" and warn that any purported reductions in expenditures "will simply 

be shifted to payors in the commercial sector."47 Others have warned that efforts to 

replicate early successes in integrated delivery systems-which serve as models for 

reformers' aspirations-have often failed, in part because many physicians are 

reluctant to forgo the lucrative possibilities of unconstrained fee-for-service practice 

and in part because physicians who do integrate with hospital systems predictably 

resist adhering to efficiency-enhancing management. Moreover, many ACOs are 

reportedly being sponsored by hospitals, which any efficient delivery system would 

use sparingly. Hospital investments might be designed to preempt control of ACOs, 

45 Einer Elhauge, ed., The Fragmentation of US Health Care (Oxford, UK: Oxford 

University Press, 2010). 

46 Alain C. Enthoven and Laura A. ToBen, "Competition in Health Care: It Takes 

Systems to Pursue Quality and Efficiency," Health Affairs (September 7, 2005), 

dOi:10.1377/hlthaff.w5.420. 

47 Remarks of j. Thomas Rosch before the ABA Section of Antitrust Law, November 

17,2011. 

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57 

rather than harness their potential efficiencies, so any cost savings will come at the 

expense of others and not themselves. 

In contrast to the varying views on the potential benefits of ACOs, there is 

widespread agreement that they could engineer and leverage greater monopoly 

power in an already-concentrated healthcare market. 111 Organizers of ACOs are 

forging collaborations among entire markets of physicians and hospitals, entities 

that would otherwise compete with each other. The New York Times has reported 

"a growing frenzy of mergers involving hospitals, clinics and doctor groups eager to 

share costs and savings, and cash in on the [ACO program's] incentives."19 In fact, 

providers' main purpose in forming ACOs may not be to achieve cost savings to be 

shared with Medicare but to strengthen their market power over purchasers in the 

private sector. ACOs "may be the latest chapter in the steady accumulation of 

market power by hospitals, health care systems, and physician groups, a sequel to 

48 See America's Health Insurance Plans, Accountable Care Organizations and 

Market Power Issues (October 

2010), www.ahip.org!Workareallinkit.aspx?ltemlD=9222 (accessed May 25, 2012); 

Berenson, Ginsburg, and Kemper, "Unchecked Provider Clout" (which notes ACOs' 

"potential not only to produce higher quality at lower cost but also to exacerbate the 

trend toward greater provider market power"); and Jeff Goldsmith, "Analyzing Shifts 

in Economic Risks to Providers in Proposed Payment and Delivery System Reforms," 

Health Affairs 29, no. 7 (2010): 1299, 1304. ("Whether the savings from better care 

coordination for Medicare patients will be offset by much higher costs to private 

insurers of a seemingly inevitable ... wave of provider consolidation remains to be 

seen."). 

49 Robert Pear, "Consumer Risks Feared as Health Law Spurs Mergers," New York 

Times, November 20, 2010. 

26 
58 

the waves of mergers in the 1990s when health care entities sought to counter 

market pressure from managed care organizations."so 

Antitrust policymakers therefore should carefully scrutinize the formation of 

ACOs. Conventional antitrust reasoning appropriately permits purported efficiency 

claims to trump concerns about concentration on the seller side of the market, and 

any review of a proposed ACO would certainly consider the potential benefits of 

vertical integration. But any antitrust analysis should also recognize that health 

insurance greatly exacerbates the price and misallocative effects of monopoly. 

Notwithstanding the special efficiency claims that can be made on behalf of ACOs, 

the potency of healthcare monopolies provides a strong warrant for an especially 

stringent anti-concentration, anti merger policy in the health care sector. These 

heightened dangers should be weighed heavily in appraising an ACO's likely market 

impact. 

Antitrust policymakers therefore should carefully scrutinize the formation of 

ACOs. Conventional antitrust reasoning appropriately permits efficiency claims to 

overcome concerns about concentration on the seller side ofthe market, and any 

review of a proposed ACO would certainly consider the potential benefits of vertical 

integration. But any antitrust analysis should also recognize that health insurance 

greatly exacerbates the price and misallocative effects of monopoly. 

Notwithstanding the special efficiency claims that can be made on behalf of ACOs, 

the potency of health care monopolies strongly warrants especially stringent anti50 Barak Richman and Kevin Schulman, "A Cautious Path Forward on Accountable 

Care Organizations," Journal ofthe American Medical Association 305, no. 6 

(February 9,2011): 602-03. 

27 
59 

concentration, anti-merger policy in the health care sector. These heightened 

dangers should be weighed heavily in appraising an ACO's likely market impact. 

It remains unclear what role the FTC and DO) have in applying this necessary 

level of scrutiny to new ACO proposals. But the antitrust agencies surely enjoy a 

good deal of discretion in ensuring that ACO complies with the principles of 

competition. The agencies could demand a heightened showing that a proposed 

consolidation will generate identifiable efficiencies, and they similarly might 

demand that an ACO's proponents assume the burden of showing an absence of 

significant horizontal effects in local sub market. The agencies similarly could 

impose demanding cures to illegal concentrations, perhaps encouraging the vertical 

integration envisioned by PPACA's proponents while reducing the horizontal 

collaboration that providers so routinely pursue. Finally, the agencies could also 

impose conduct (i.e. non-structural) remedies to potentially harmful ACOs, such as 

requiring nonexclusive contractual arrangements with payors and with regional 

hospitals, or pledging to undo certain integrations if prices proceed to rise above a 

certain threshold. How the FTC and DO) monitor the formation of ACOs could 

determine whether the ACA meaningfully advances a (desperately needed) 

reorganization of healthcare delivery or merely offers a loophole to permit greater 

consolidation. 

The CMS might also serve a meaningful role in preventing ACOs from 

furthering anticompetitive harm in health care marketplaces. The final rules permit 

CMS to share savings with ACOs only after a showing of quality benchmarks, which 

CMS administrators ought to take seriously. The rules also require cost and quality 

28 
60 

reporting, and CMS might require a demonstration of meaningful quality 

improvements and cost savings in order to receive a continued share of Medicare 

savings. CMS might even condition an ACO's permission to market to private payers 

on a demonstration that its prices to private payers did not increase significantly 

following its formation. 

One might wonder, of course, whether a governmental single payer like 

Medicare has the mission, the impulse, or the requisite creativity to be helpful in 

making private markets for health services effectively competitive. Perhaps CMS's 

new Center for Medicare and Medicaid Innovation could shape the institution's 

capacity to affect reform. It might be equally likely, unfortunately, that Medicare 

will aim to preserve its own solvency by encouraging the shifting of costs to the 

private sector-and may even reward ACOs' cost shifting as cost savings. This is 

the danger with using a large and unavoidably inflexible bureaucracy to engineer an 

effort to induce innovation. Nonetheless, you go to war with the bureaucracy you 

have, and CMS ought to concentrate on developing competition-oriented regulations 

and cautiously monitor the market impact of emerging ACOs. 

B. Requiring Unbundling of Monopolized Services 

Any effort to restore price competition in health care markets must include a 

strategy that targets already-concentrated markets. Antitrust enforcers therefore 

need to develop policy instruments that target current monopolists, both to limit the 

economic harm they inflict and to thwart their efforts to expand their monopoly 

power. 

29 
61 

One promising initiative could be to require hospitals and other provider 

entities to unbundle, at a purchaser's request, certain services for the purposes of 

negotiating prices. Providers routinely bundle services for unified payments, and 

many such bundles serve efficiency purposes. Some services are so intertwined that 

separating them proves costly, and similarly, many clinically related services offer 

efficiencies when sold together. However, when providers bundle services in 

markets they have monopolized with services in which there is competition, a menu 

of anti competitive consequences can result: the monopolist can squeeze out rivals 

in the competitive market, creating for itself another monopoly; and by squelching 

rivals in the competitive market, the monopolist limits the ability of entrants to 

challenge its hold on the monopolized market. The magnified consequences of 

healthcare monopolies should heighten concern over practices that can expand or 

enshrine provider monopolists. 

The general antitrust rule on tying is that a firm with market power may not 

use itto force customers to purchase unwanted goods or services. 51 Ifthis 

principle is invoked to frustrate hospitals' practice of negotiating comprehensive 

prices for large bundles of services, purchasers could then bargain down the prices 

of services with good substitutes. 52 If a hospital still wished to fully exploit its 

various monopolies, it would have to do so in discrete negotiations, making its 

highest prices visible. Health plans could then hope to realize significant savings by 

51 See Jefferson Parish Hosp. Dist. No.2. v. Hyde, 466 U.S. 2 (1984). 

52 The ability to leverage market power in one sub-market into price increases in a 

competitive market helps explain wide price variation for like services in common 

geographic markets. See Paul B. Ginsburg, "Wide Variation in Hospital and Physician 

Payment Rates Evidence of Provider Market Power," HSC Research Brief no. 16 

(November 2010), www.hschange.com/CONTENT/1162/ (accessed May 25,2012). 

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challenging such monopolies, either by inducing enrollees to seek care in alternative 

venues (effectively expanding the geographic market) or by encouraging new entry. 

Often the mere threat of new entry is sufficient to modify a monopolist's demands, 

but entry is more credible if the monopolized service is discrete and associated with 

a distinct price that entrants can target. 

To date, there have been only limited enforcement efforts to prevent 

hospitals from tying their services together in bargaining with private payers. 53 

Although hospitals would predictably argue that bundling generally makes for 

efficient negotiating and streamlined delivery of care, the added costs of bargaining 

service by service could be easily offset by the lower prices resulting from greater 

competition. Recent scholarship on tying and bundling confirms that permitting a 

hospital monopolist to tie unrelated services expands the monopoly's reach, 

profitability, and longevity and harms consumer welfare. 54 The extreme harm from 

health care monopolies makes hospitals' tying practices particularly vulnerable to 

antitrust attack. 

A workable rule would permit antitrust law to empower a purchaser to 

demand separate prices for divisible services that are normally bundled. 55 

53 In a private suit, a dominant hospital chain was sued by its lone rival for, among 

other things, bundling primary and secondary services with tertiary care in selling 

to the area's insurers. See Cascade Health Solutions v. PeaceHealth, 515 F.3d 883, 

890-91 (9th Cir. 2008). The district court permitted certain claims to proceed to 

trial, including a claim of illegal bundled discounts, but dismissed the tying claim. 

54 See Einer Elhauge, "Tying, Bundled Discounts, and the Death of the Single 

Monopoly Profit Theory," Harvard Law Review 123, no. 2 (2009): 397-481. 

55 This proposal is in line with recommendations from the Antitrust Modernization 

Commission, Report and Recommendations (April 2007): 

96, http://permancnt.access.gpo.govllps81352/amc final report.pdf (accessed May 

9,2012). What is "divisible" in health care is of course subject to debate, just as most 

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Although one hopes that antitrust courts and a credible threat oftreble damages 

would discourage a provider monopolist from retaliating against any purchaser that 

aggressively challenges its anti competitive practices, the costs and delay from such 

complex antitrust actions suggest that public enforcement should supplement 

private suits. Properly authorized regulators could either enable individual payers 

to demand unbundling to facilitate their efforts to get better prices, or regulators 

could demand it themselves. Effective unbundling requests could trigger more 

competition and greater efficiency both in the tied sub markets where monopoly is 

not a problem and also in the tying markets where it is. 

C. Challenging Anticompetitive Terms in lnsurer-Provider Contracts 

Restrictive terms in contracts between providers and insurers are another 

potentially fruitful area for antitrust and regulatory attention in dealing with the 

provider monopoly problem. A common practice, for example, is for a providerseller to promise to give an insurer-buyer the same discount from its high prices as 

any it might give to a competing health plan. Such price-protection, payment-parity, 

or "most-favored-nation" (MFN) clauses are common in commercial contracts and 

serve to obviate frequent and costly renegotiation of prices. Their efficiency 

benefits may sometimes be outweighed by anticompetitive effects, however. Thus, a 

provider monopolist may find that a large and important payer is willing to pay its 

very high prices only if the provider promises to charge no lower prices to its 

competitors. Such a situation apparently arose in Massachusetts, where the 

services accused of being bundled are often defended as a single product. See, for 

example, Jefferson Parish Hosp., 466 U.S., 19-22. 

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Commonwealth's largest insurer, a Blue Cross plan, reportedly acceded to Partners 

HealthCare's demand for a very substantial price increase only after Partners agreed 

to "protect Blue Cross from [its] biggest fear: that Partners would allow other 

insurers to pay less."s6 

Antitrust law can offer relief against a provider monopolist agreeing to an 

MFN clause to induce a powerful insurer to pay its high prices. Because such clauses 

protect insurers against their competitors' getting better deals, many are likely to 

give in too quickly to even extortionate monopolist price demands. But the 

availability of an antitrust remedy (which would probably be only a prospective 

cease-and-desist order rather than an award of treble damages for identifiable 

harms) might not be sufficient to deter a powerful provider from granting MFN 

status to a dominant insurer. Alternatively, regulatory authorities could presumably 

prohibit dominant providers from conferring such status. Regulators presumably 

would be in as good a position as any party to distinguish between restrictive 

agreements that achieve transactional efficiencies from agreements that restrict 

insurers' freedom to cut price deals with competitors and reduce pressure on, and 

opportunities for, all insurers to seek new and innovative service arrangements. 

A more potent antitrust attack on anticompetitive MFN clauses would aim at 

the dominant insurer demanding them, rather than at the cooperating provider. 

56 "A Handshake That Made Healthcare History," Boston Globe, Dec. 28, 2008. The 

Massachusetts attorney general has noted that such payment-parity agreements 

have become "pervasive" in provider-insurer contracts in the commonwealth and 

has expressed concern that "such agreements may lock in payment levels and 

prevent innovation and competition based on pricing." Office of Attorney General 

Martha Coakley, Examination of Health Care Cost Trends and Cost Drivers (March 

16,2010),40-41. 

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The Department of Justice (DOn sued Blue Cross Blue Shield of Michigan, a 

dominant insurer, to enjoin it from using MFN clauses in its contracts with Michigan 

hospitals. The DOJ alleged that such restrictions on provider price competition 

reduced competition in the insurance market by preventing other insurers from 

negotiating favorable hospital contractsY In the wake ofthe government's 

initiative in Michigan, which resulted in a settlement, Michigan (and subsequently 

several other states) have prohibited the use of MFN agreements between health 

insurers and providers. Even without state regulations prohibiting MFN clauses, the 

DO) theory met sufficient support that in Massachusetts, for example, the Blue Cross 

plan should now think long and hard before renewing (or enforcing) the MFN clause 

in its contract with Partners HealthCare. 

Other contract provisions that threaten price competition are also in use in 

provider-insurer contracts in Massachusetts, according to the Commonwealth's 

Attorney General. In particular, so-called "anti-steering" provisions prohibit an 

insurer from creating insurance products in which patients are induced to patronize 

lower-priced providers. Under such a contractual constraint, a health plan could not 

offer more generous coverage-such as reduced cost-sharing-for care obtained 

from a new market entrant or from a more distant, perhaps even an out-of-state or 

out-of-country, provider. Other contractual terms in use in Massachusetts (and 

presumably in other jurisdictions as well) guarantee a dominant provider that it will 

57 See Complaint at 1-2, United States v. Blue Cross Blue Shield of Mich. (E.D. Mich. 

2010) (No. 2:10-CV-14155); see also David S. Hilzenrath, "U.S. Files Antitrust Suit 

Against Michigan Blue Cross Blue Shield," Washington Post, October 18,2010. 

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not be excluded from any provider network that the health plan might offer its 

subscribers. 

The contractual terms noted here all have the potential to enshrine the 

cooperative supremacy of dominant providers and dominant insurers. The 

resulting competitive hard extends beyond the sustenance of high prices. These 

partnerships also foreclose opportunities for consumers to benefit, both directly as 

patients and indirectly as premium payers, from innovative insurance products that 

competing health plans might otherwise introduce. Antitrust law can prohibit the 

use of such anticompetitive contract terms that protect provider monopolies and 

curb insurer innovation, and insurance regulators might bar such provisions 

wherever they threaten to preclude effective price competition. These actions 

remain available even in the continued presence of a provider monopoly. 

V. Conclusion 

There is an urgent need to recognize the unusually serious consequences, for 

both consumers and the general welfare, of leaving insured health care consumers 

exposed to monopolized health care markets. Because health insurance, especially as 

it is designed and administered in the United States, hugely expands a monopolist's 

pricing freedom, providers with market power inflict wealth-redistributing and 

misallocative effects substantially more serious than conventional monopoly power. 

Vigorous-not tentative or circumspect-enforcement of the antitrust laws can 

mitigate the harms from provider market power. Retrospective scrutiny on earlier 

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67 

horizontal mergers of hospitals or other providers could help correct decades of 

ineffectual enforcement, but if looking backwards remains unlikely, renewed rigor 

moving forward is all-the-more essential. Parties proposing new mergers and 

alliances, whether traditional associations or new ACOs, must convincingly show 

that their reorganization either leads to only a minimal increase in market power or 

creates specific efficiencies. Other measures should target current monopolists, so 

as to prevent the enshrinement or expansion of their market dominance. An 

antitrust or regulatory initiative to curb hospitals' tying practices and to prohibit 

anticompetitive contracts between payers and providers-perhaps as remedies for 

earlier mergers found unlawful after the fact-might also significantly reduce the 

extraordinary pricing freedom that hospital and other monopolists enjoy by virtue 

of U.S.-style health insurance. 

Enthusiasts for market-oriented solutions would also seek reductions to 

provider market power by encouraging creativity among third-party purchasers. 

Health plans that bypass, or foster new competitors for, local monopolists promote 

price and quality competition where it is currently lacking, could undermine the 

potency of insurance-plus-monopolies. A pro-competition regulatory agenda might 

seek ways to facilitate inter-regional competition and empower third-party payors 

to seek flexible and creative strategies to stimulate provider competition. 

Additional hope lies in the possibility that health insurers and third-party 

purchasers will purchase (and that ACA regulations will let them purchase) proven 

non-medical interventions that improve health and reduce healthcare costs. The 

exorbitant prices for monopolized medical services should encourage health 

36 
68 

insurers to develop creative alternatives, both seeking effective (and less-costly) 

substitutes and reorganizing what has become a fragmented, error-prone, and 

inefficient delivery of care. 

Unfortunately, health insurers have not shown much eagerness either to contest 

provider market power or to pursue meaningful innovations to providing care for 

their subscribers. As investigations in Michigan and Massachusetts reveal, insurers 

all-too-often become co-conspirators with provider monopolists, agreeing to 

exclusive agreements that protect both themselves and monopolists but 

unforgivingly gouge consumers. Insurers' failure to act as aggressive purchasing 

agents of consumers is partly due to the hiding of the true cost of insurance and 

partly due to consumers' undue reluctance to accept anything less than the very 

best-even close substitutes. If consumers were both aware ofthe true cost oftheir 

health coverage and conscious that they, rather than someone else, are paying for it, 

they surely would demand more value from their insurers. Dominant U.S. health 

plans appear inadequately incentivized to reduce costs and overly hesitant to adopt 

innovative strategies with associated legal or political risks. Any hopefulness for the 

future of U.S. health care is tempered by doubts aboutthe ability and willingness of 

U.S. health insurers-as well as insurance regulators and elected officials that 

purchase insurance for public employees-to take the aggressive actions needed to 

procure appropriate, affordable care. 

The ACA, by providing conventionally generous health insurance to many 

million more Americans, has the potential to aggravate and extend the significant 

shortcomings of such insurance. Not only does the new law seem to have no 

37 
69 

effective answer to the problem of provider and supplier monopolies, but its broad 

extension of coverage is likely to further amplify the uniquely harmful effects of 

their market power. Moreover, its new regulatory requirements-the impositions 

of medical loss ratios and essential health benefits, for example-might constrain 

innovations among payors to create inter-regional provider competition and 

reconfigure a deeply inefficient health care delivery system. 

However, the ACA also has the capacity to open up the insurance market. Many 

consumers will, for the first time, realize the full cost of health insurance, which 

perhaps-via sticker shock-induce them to demand lower-cost alternatives. 

Moreover, the insurance exchanges might offer a platform for new entry in the 

insurance market, thus injecting some dynamism to an industry desperately in need 

of creative ideas. And regardless of how the new insurance markets take shape, 

antitrust policymakers and other regulators still have the capacity to foster valueenhancing innovation-both by preventing tactics that might enshrine the current 

monopolist regime and also by promoting the development of new insurance 

products. Although current tax policies and regulations have dulled many insurers 

into being agents for providers rather than for their subscribers, there remains a 

potent opportunity for third-party payors to inject the healthcare sector with valuecreating innovations that redesign both the offerings and the delivery of care. 

Whatever the PPACA may achieve, its legacy and cost to the nation will depend 

largely on whether market actors, regulators, and antitrust enforcers can effectively 

address the provider monopoly problem and to instill desperately needed 

competition among providers. Aggressive antitrust enforcement can prevent 

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further economic harm and perhaps can undo costly damage from providers that in 

error were permitted to become monopolists. But ultimately, creative market and 

regulatory initiatives will be needed to unleash the competitive forces that 

consumers need. Where there is danger, there is opportunity, and competitionoriented policies can and should yield substantial benefits both to premium payers 

and to an economy that badly needs to find the most efficient uses for resources that 

appear to become increasingly limited. 

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Mr. BACHUS. Thank you. We appreciate that testimony, Professor. 

Mr. Miller, number two, Mr. Thomas Miller instead of Mr. Joe 

Miller. 

TESTIMONY OF THOMAS P. MILLER, J.D., RESIDENT FELLOW 

IN HEALTH POLICY STUDIES, AMERICAN ENTERPRISE INSTITUTE 

Mr. THOMAS MILLER. Thank you, Mr. Chairman and Members of 

the Subcommittee, for the opportunity to testify today on health 

care consolidation and competition under the Affordable Care Act. 

Health care providers with market power enjoy substantially 

pricing freedom than monopolists in other markets, as Professor 

Richman further explains in his testimony. Traditional antitrust 

enforcement tools did little to halt extraordinary consolidation in 

local hospital markets over the last 2 decades, which drove higher 

price increases for in-patient services. Comprehensive U.S.-style 

health insurance further enhances the pricing freedom of health 

care firms with market power. The ACA also does little to address 

the monopoly problem and may even worsen it. 

Problems of excessive concentration and insufficient competition 

in health care markets are not new, although their industry sector 

source has varied over time. Most recently, markets for our hospital services have presented the more serious competition policy 

issues. 

A less-noted future problem involves the increased political competition under the ACA among dominant health sector players to 

obtain, maintain, or extend their market power advantages. The 

highly regulated and heavily subsidized regime ahead already has 

triggered a feverish scramble among health businesses to get bigger and also become better connected politically to ensure that they 

will be among the politically dependent survivor incumbents in the 

years ahead. With most of the key decisions in health care financing, coverage, and even treatment likely to be made in Washington, 

investments in winning future rounds of political competition is 

likely to trump responsiveness to market competition. 

Hence, we have seen even more health care market consolidation 

since passage of the ACA. The primary effect of the law and its increasingly dense web of regulation has been to encourage a substantial increase in vertical integration and consolidation of health 

care services, mostly in the form of acquisitions of physician practices by hospitals. Increased vertical and even horizontal consolidation potentially could improve the allocation of health care resources but it also risks coming into conflict with pro-competition 

policies favoring greater price transparency, improved quality reporting, and lower prices. Well-integrated health provider networks 

or health systems may face less competition, lock in patients to 

non-interoperable health IT systems, and leverage market power 

across health services domains. 

One strong factor in the move toward greater consolidation of 

health care services is the continued likelihood of tighter reimbursement limits combined with cost increasing mandates that 

would shift more financial risk to providers. 
72 

On the health insurance side, post-ACA-enactment consolidation 

has not been as rapid thus far. However, longer-term factors suggest that this is likely to change. The new health exchanges or, as 

I like to call them, marketplaces without market prices are structured to gravitate toward more standardized corridors of coverage. 

It is important to distinguish between short-term effects as the 

ACA exchanges begin their first shakedown year of implementation 

and the more likely longer-term dynamics of this more heavily regulated and tax-subsidized market for individual and small group 

insurance. 

Passage of the ACA triggered a new wave of defensive consolidation in the health care sector instead of just presenting better opportunities to reconfigure operations and business relationships to 

become more efficient. Anti-competitive strategies were predictable 

responses to the new law’s incentives and penalties. Under the 

ACA’s regime of complex, confusing, and costly regulation, it will 

take a larger village of lawyers, lobbyists, and lines of credit to 

comprehend, cope and comply or maneuver around this. Growing 

bigger or staying large becomes the best hedge against political and 

regulatory risks. 

The evolving regulatory balance, of course, does remain unsteady 

and is not fully charted at this time. Well, is this time different? 

Antitrust enforcers should be congratulated for recently ending 

their long losing streak in the courts in challenging hospital mergers seemingly likely to reduce competition and raise prices. But 

prospects for addressing competition problems in the ACA era of 

health care markets through conventional antitrust enforcement 

remain limited. Better antitrust policy still has an important role 

to play in ensuring more competitive health care practices. We 

need expanded solutions to the chronic problems of too much concentration and too little competition. 

Beyond tighter review of new hospital mergers and consolidations, they should include curbing new abuses of State action immunity, challenging anticompetitive terms in insurance provider 

contracts, requiring unbundling of monopolized health care services, promoting inter-regional competition in health care services, 

removing or limiting regulatory barriers to entry by new health 

sector competitors, ensuring that new accountable care organizations deliver on their promises rather than facilitate aggregation 

and abuse of market power, and finally, empowering consumers 

and private purchasers with better information tools. 

Thank you very much. 

[The prepared statement of Mr. Thomas Miller follows:] 
73 

~l American Enterprise Institute 

_ for Public Policy Research ( 

Statement before the House Committee on the Judiciary 

Subcommittee on Regulatory Refonn, Commercial and Antilmst Law 

Hearing 

The Patient Protection and Affordable Care Act, 

Consolidation, and the Consequent Impact on Competition in Healthcare 

More Consolidation & More "Political" Competition, 

Less Patient-Centered Market Competition 

Thomas P. Miller, J.D. 

Resident Fellow in Health Policy Studies 

American Enterprise Institute 

September 19,20 13 
74 

Summary Points 

• Health care providers with market power enjoy more pricing freedom 

than monopolists in other markets 

• Traditional antitrust enforcement did little to halt extraordinary 

consolidation in local hospital markets over the last two decades 

• The Affordable Care Act (ACA) does little to address to address the 

monopoly problem and may even worsen it 

• The ACA will entrench dominant incumbents, chill innovative startups, and encourage consolidation to increase market share 

• We need better solutions to the chronic problem of too much 

concentration and too little competition in health care markets 

• An expanded tool kit of pro-competitive policies should include: 

./ closer monitoring of emerging accountable care organization 

./ curbing new abuses of "state action" immunity 

./ challenging anti competitive terms in insurer-provider contracts 

./ promoting interregional competition in health care services 

./ removing or limiting regulatory barriers to entry by new health 

sector competitors, and 

./ empowering consumers and private purchasers with better 

information tools 

2 
75 

Thank you Chairman Goodlatte, Subcommittee Chainnan Bachus, 

Committee Ranking Member Conyers, Subcommittee Ranking Member 

Cohen, and Members of the Subcommittee for the opportunity to testify 

today on health care consolidation and competition under the Affordable 

Care Act (ACA). 

1 am testifying today as a health policy researcher and a resident 

fellow at the American Enterprise Institute (AEl). 1 also will draw upon 

previous experience as a senior health economist at the Joint Economic 

Committee, member of the National Advisory Council for the Agency for 

Healthcare Research and Quality, and health policy researcher at several 

other Washington-based research organizations (including several years as 

co-editor of the Washington Antitrust Report at the Competitive Enterprise 

Institute) . 

All types of monopoly are not created equal in the U.S. economy. 

Health care providers with market power enjoy substantially more pricing 

freedom than monopolists in other markets. 1 Traditional antitrust 

enforcement tools have done little to halt extraordinary consolidation in 

local hospital markets over the last two decades, which drove higher price 

increases for inpatient services. Comprehensive, u.S.-style health insurance 

further enhances the pricing freedom of health care finns with market 
76 

power. The Affordable Care Act of 20 I 0 (ACA) does little to address the 

monopoly problem and may even worsen it. 

Problems of excessive concentration and insufficient competition in 

health care markets are not new, although their industry sector source has 

varied over time. For example, insurers were more dominant price-setters 

during the heyday of managed care in the 1990s. But more recently, markets 

for hospital services have presented the most serious competition policy 

issues. Havighurst and Richman observe that whereas monopolies in other 

parts of the economy enable sellers to charge higher prices while reducing 

output, comprehensive third-party health insurance coverage enables many 

cost-insensitive patients to pay monopolist providers' asking prices rather 

than being induced to give up desirable health care goods and services. 

Hence, it amplifies the redistributive effects of health care monopolies 

(lower-income premium payers subsidize upper-income providers and 

insurance consumers) and inflicts allocation inefficiencies as wel1. 2 

In other words, "too much of a good thing," at excessive prices. The 

combination of market concentration and generous insurance means 

consumers and providers end up overspending even more on costly health 

care. The combination of market concentration and generous insurance 

4 
77 

means consumers and providers end up overspending even more on costly 

health care. 

Competition policy in health care has been further hampered by 

judicial resistance to antitmst challenges to mergers involving nonprofit 

hospitals (which account for roughly three-quarters of hospital admissions, 

outpatient visits, and expenditures). Past cases have tumed on skepticism by 

judges that local nonprofit hospitals would take advantage of their pricing 

power, and their belief that hospital monopolists would put to good use any 

market power they might possess. (As if nonprofit empire building never 

occurs!) 

Effects of the ACA on Health Care Competition 

A less-noted future problem in health care policy involves the 

increased "competition" among dominant market players to obtain, maintain, 

or extend their market power advantages. The highly regulated and heavily 

subsidized regime ahead under the ACA already has triggered a feverish 

scramble among health industry finns (insurers, pharmaceutical 

manufacturers, physician practice groups, and device makers, as well as 

hospitals) to get bigger market share and also become better "connected" 

politically to ensure that they will be among the politically dependent 

survivor incumbents in the years ahead. With most of the key decisions in 

5 
78 

health care financing, coverage, and even treatment likely to be made in 

Washington, investments in winning future rounds of political competition is 

likely to tmmp responsiveness to market competition. Heavily regulated 

health care providers and insurers increasingly will have to focus more on 

dealing with the mandates, rules, and payment incentives of their main 

"customers" - government administrators, and less on the needs and wants 

of their patients and other private payers. 

Hence, we have seen even more health care marketplace consolidation 

since passage of the ACA. To be sure, most of the consolidation in hospital 

markets occurred during the "merger wave" of the mid-J990s. But the more 

important policy question today is whether the ACA has made a bad 

problem worse. The primary effect of the law and its increasingly dense web 

of regulation has been to encourage a substantial increase in vertical 

integration and consolidation of health care services; mostly in the form of 

acquisitions of physician practices by hospitals. 

As my AEI colleague Scott Gottlieb pointed out last year in testimony 

before this subcommittee, the trend toward physicians working as salaried 

employees has accelerated in recent post-ACA-enactment years. The 

majority of those physician employment contracts (and related 

6 
79 

arrangements) are with hospitals. Insurers have largely been trying to playa 

catch-up game in tightening contractual links to physicians. 

The more sanguine view of this trend among ACA advocates is that it 

represents overdue efforts to better integrate and coordinate health care 

delivery, in response to the law's new payment incentives (e.g., accountable 

care organizations, bundled payments, electronic health records adoption, 

value-based reimbursement). Such increased vertical, and even horizontal, 

consolidation potentially could improve the allocation of health care 

resources through less duplication, improved transitions between sites of 

care, reduced hospital readmissions, and better information sharing. But it 

also risks coming into conflict with pro-competition policies favoring greater 

price transparency, improved quality reporting, and lower prices. 3 Wellintegrated health provider networks, or health systems, may face less 

competition, lock in patients to non-interoperable health IT systems, and 

leverage market power across health services domains. 4 

One strong factor in the move toward greater consolidation of health 

care services - particularly between hospitals and physicians - is the 

continued likelihood of tighter reimbursement limits combined with costincreasing mandates that would shift more financial risk to providers. More 

physicians are selling their small practices, shedding business costs, and 

7 
80 

seeking the "shelter" of salaried arrangements with hospitals or larger 

physician groups. On the other end of these transactions, hospitals and 

physician groups that can accumulate more capital, acquire in-demand 

practitioners, and increase patient referrals may be tempted to gain undue 

market power, demand higher rates, and increase health care costs; instead 

of just becoming more efficient and delivering higher value care. 

Thus far, those who are skeptical of such pro-competitive 

consolidation have past history on their side. 

On the health insurance side of the market, post-ACA-enactment 

consolidation has not been as rapid, thus far. However, longer-term factors 

suggest that this is likely to change. The new health exchanges, recently 

relabeled "marketplaces" (without market prices!), are stmctured to gravitate 

toward more standardized corridors of coverage. They are based on a limited 

set of actuarial-value tiers, cost-sharing limits, and bureaucratic preapproval; then reinforced by a broader insurance regulatory scheme of 

mandatory essential health benefits, first-dollar coverage of preventive 

services, premium rate review, new medical loss ratio (MLR) ceilings on 

insurers' profits and administrative costs, and a thickening web of additional 

"guidance." 

8 
81 

For example, the minimum MLR rules for insurers may superficially 

appeal to some insurance purchasers, but they could further disann payers in 

aggressive price negotiations with providers and stifle insurers' investments 

in innovative monitoring and improvement of health care delivery.5 MLR 

rules also could inhibit new entry by start-up insurance carriers lacking 

sufficient investment capital cushions to overcome initial marketing and 

administrative expenses. The eventual scope and scale of the ACA's 

regulatory requirements for essential health benefits also could discourage 

investments in low-cost, nonmedical alternative interventions that can 

produce results superior to mandated traditional care. 

It is important to distinguish between short-term effects as the ACA 

exchanges begin their first shake-down year of implementation and the more 

likely long-term dynamics of this more heavily regulated and tax-subsidized 

"market" for individual and small-group insurance. Given the potential 

leverage that state and federal exchange administrators may eventually 

exercise over participating insurers, 6 the most likely scenario to unfold as 

the costs of guaranteed benefits squeeze against the supply of revenue from 

tax subsidies and enrollees' discounted premilnns is for a few surviving 

large insurers to gain a dominant share ofthe coverage provided in the 

exchanges, as they gravitate more toward a regulated public utility model 

9 
82 

(e.g., captive customers, low but predictable rates ofretunl, economies of 

scale in managing regulatory compliance costs, and commodity-like 

products). Whether this dynamic might eventually spill over into the larger 

employer-based health insurance market remains conjectural, but not 

implausible, at this point. 

Larger Problems: 

Health Firms Grow Bigger & Politics Reigns Supreme 

Passage of the ACA triggered a new wave of defensive consolidation 

in the health care sector, instead of just presenting better opportunities to 

reconfigure operations and business relationships to become more efficient. 

Anticompetitive strategies were predictable responses to the new law's 

incentives and penalties. The elegant theory of how the ACA's payment 

incentives and regulatory guidance will inspire more coordinated, high-value 

care within larger, more vertically integrated health care systems needs to be 

tempered by some more likely political and economic realities. 

Hntrenching Dominant incumbents 

The ACA's reimbursement schemes and regulatory burdens are more 

likely to entrench large, existing players in health care markets than to 

encourage start-up innovators. The law is designed to limit retUnlS on private 

capital invested in health care services and products; indeed it often frames 

10 
83 

private profits as reducing the resources needed for direct patient care (e.g., 

rate review thresholds, MLR limits, fonnulaic "productivity adjustments" in 

reimbursement, rebate-like taxes on health care providers, insurance 

cooperative subsidies, and mandated benefits). However, these very mles 

bias the evolving health system further against entry by the new, innovative 

entrepreneurs most likely to search for hyper-profitable new ways to 

reengineer inefficient health care practices, products, and systems. 

Under the ACA's regime of complex, confusing, and costly 

regulation, it will take a larger village of lawyers, lobbyists, and lines of 

credit to comprehend, cope, and comply (or maneuver).7 Growing bigger, or 

staying large, becomes the best hedge against political and regulatory risks. 

Too big to fail may not be guaranteed, but too small to survive becomes 

more likely. 

The evolving regulatory balance, of course, remains unsteady and not 

fully charted. Possible settings could range all the way from eventual 

"capture" and protectionism for the largest producers that last longest at the 

bargaining table, to gains from trade in political markets to override 

economic ones, and to the most likely one in this case - symbiosis. Although 

some symbiotic relationships (obligate ones) require both parties to depend 

entirely on each other for survival, more "parasitic" ones benefit one party 

11 
84 

while the other is hanned. It remains to be seen whether the government side 

of the ACA relationship with the health industry can succeed instead in 

achieving ectosymbiosis, in which it lives on its junior partners in the health 

industry, or even "inside" of them. 8 

Market Impel:iection V.I'. Government Failure 

Most apologists for a heavier role for government intervention in 

health care usually begin by asserting that "health care is special" and its 

markets inevitably are riddled with imperfections that justify greater 

regulation. Yet health policy in the U.S. has spent decades trying to 

implement such corrective strategies, with a mounting record of government 

failure. Excessive levels of third-party payment, lack of price transparency, 

barriers to entry, opaque cross-subsidies, unsustainable unfunded liabilities 

in health entitlement programs, rewarding volume rather than value, lagging 

adoption of information technology, excessive reimbursement and 

i nadeq uate rei m bursem ent - th ese are arguably greater refl ecti on s of tl awed 

public policy more than of malfunctioning private markets. 

The two sectors of the U.S. economy traditionally plagued by rising 

costs, uneven quality, poor value, and disparities for decades have been 

health care, and primary and secondary education - the two most heavily 

regulated and publicly subsidized ones. Yet the next doses of stronger 

12 
85 

govemment-centric remedies are always promised to work better than the 

last ones. 

For example, the ACA promises that Medicare should lead the way to 

innovative health care delivery reform. Meanwhile, it remains a 

predominantly fragmented, fee-for-service system that has reimbursed 

providers for greater volume of services rather than higher quality and better 

outcomes; sets thousands of administered payments that distort prices 

elsewhere; saddles younger and future generations with cmshing unfunded 

liabilities; and launches dozens of demonstration projects designed to be 

"inconclusive." But it keeps the HHS inspector general's statfbusy tallying 

large estimated amounts of fraudulent and improper payments. 

Yes, Medicare is such a dominant influence across the health care 

sector that it really does have to help lead the way to better performing care 

delivery. It just hasn't done much of that thus far. 

ACA advocates wam that providing too many health care choices in 

private markets will cause information overload for hapless consumers, who 

need a handful of more standardized price, coverage, and treatment options. 

Evidently, similar mental processing constraints do not apply to purchasers 

or providers facing tens of thousands of pages of often late-arriving and 

shape-shifting new regulatory guidance under the ACA. 

13 
86 

This Time Is Different? 

Antitrust enforcers should be congratulated for recently ending their 

long losing streak in the courts in challenging hospital mergers seemingly 

likely to reduce competition and raise prices. But prospects for addressing 

competition problems in the ACA-era of health care markets through 

conventional antitmst enforcement remain limited. Rolling back previous 

hospital mergers is quite difficult legally, impractical administratively, and 

often counterproductive economically. The hospital consolidation horse not 

only left the barn several decades ago; it's taken several laps around the 

track. 

In any case, application of pro-consumer-welfare antitmst policy 

enforcement has a spotty record and it remains more of a late-20th-Century 

development. Indeed, just about any sorts of effective antitmst constraints on 

medical practitioners were virtually unprecedented until the exemption for 

"learned professionals" began to erode in the mid-1970s. 9 Moreover, 

antitmst law often applies its mles of health care competition differently for 

market participants than for government regulators and policymakers. 

Administered prices and rate setting represent business as usual for the 

latter, whereas price-fixing by private parties is per se illegal. The "state 

action" doctrine not only authorizes regulatory constraints on market 

14 
87 

competition; it may encourage private special interest groups to stretch its 

boundaries and provide cover for their anticompetitive strategies. 10 In the 

political arena, Noerr-Pennington immunity applies to actions where private 

individuals seek anti competitive action from the government (short of 

"sham" litigation) which might otherwise violate federal antitrust laws. 11 

The Search for More Effective Policy Solutions 

The better version of antitrust policy still has an important role to play 

in ensuring more competitive health care practices. We need better solutions 

to the chronic problems of too much concentration and too little competition. 

Beyond tighter review of new hospital mergers and consolidations, they 

should include: 

• Curbing new abuses of "state action" immunity, 

• Challenging anticompetitive terms in insurer-provider contracts, 

• Requiring unbundling of monopolized health care services, 

• Promoting interregional competition in health care services, and 

• Removing or limiting regulatory barriers to entry by new health sector 

competitors, 

• Ensuring that new accountable care organizations deliver on their 

promises rather tharl facilitate aggregation arId abuse of market power, 

and 

15 
88 

• Empowering consumers and private purchasers with better 

infonl1ation tools. 

The longstanding state action immunity doctrine, which essentially 

allows state regulation to ilmmmize otherwise anti competitive (and illegal) 

private conduct, needs to be tightened. Although the Supreme Court 

appeared to make progress on this front earlier this year in a case from 

Georgia,12 subsequent legal developments appear to have hampered the 

shaping of an effective remedy. 

One troublesome practice in insurer-provider contracts is for a 

dominant health care provider-seller to promise to give an insurer-buyer the 

same discount from its high prices it might give to a competing health plan. 

Such most-favored-nation (MFN) clauses can playa useful role in many 

commercial contracts, but they have been prone to anti competitive abuse in 

certain highly concentrated health care markets recently (most notably in 

Massachusetts and Michigan). When MFN clauses protect insurers against 

their competitors' getting better deals, many of those insurers can become 

too likely to give in quickly to extortionate monopolist price demands. 

Regulators have a necessary role in distinguishing better between restrictive 

agreements that achieve transactional efficiencies and agreements that 

16 
89 

restrict insurers' freedom to cut self-serving price deals with competitors. 

Other anticompetitive contractual practices worthy of closer regulatory 

scrutiny involve "anti-steering provisions" and "must include in network" 

guarantees. 

Another promising antitrust enforcement step suggested by Richman 

and Havighurst could be to require hospitals and other provider entities to 

unbundle, at a purchaser's request, certain health care services so that the 

purchaser can negotiate their prices separately. They note that permitting a 

hospital monopolist to tie unrelated services together expands its reach, 

profitability, and longevity - at the expense of consumer welfare. Drawing 

the exact lines for when and how to exercise this "unbundling" enhancement 

of anti-tying antitrust enforcement needs further work (such as where to set 

market concentration thresholds for its application), but it is worthy of 

consideration for improved price competition. 

A different mechanism to battle local monopolies in health care would 

involve expanding the locus of competition. Future health policy should 

strive to encourage, not inhibit, interregional competition by reducing 

regulatory and reimbursement barriers to both domestic and international 

versions of "medical tourism." 13 Other "market opening" supply-side 

policies should extend to revision of scope of practice restrictions at the state 

17 
90 

level and reconsideration of current limits on expansion of physician-owned 

hospitals. 

An important target for careful antitmst scmtiny involves the 

emergence of politically favored accountable care organizations (ACOs). 

Although promoted by the Obama administration as one of its magic bullets 

to refonn our inefficient delivery system and reduce its projected future 

costs, ACOs could instead mutate into new vehicles to engineer and leverage 

greater monopoly power in already-concentrated health provider markets. 

The regulatory framework to govern ACOs has been revised since its initial 

incamation but still needs to be monitored closely to ensure that promised 

efficiencies in health care coordination and integration are more likely to 

outweigh the danger of even further consolidation of provider market power, 

and that such organizations remain tmly accountable to patients and market 

forces (and not just to political patrons). 

Finally, we should remember that information is power within health 

care markets. The June 2011 report by the Attorney General of 

Massachusetts on "Health Care Cost Trends and Cost Drivers" in the state 

noted the following: Its health care markets lacked transparency in price and 

quality infonllation. Variation in prices was not correlated to the 

methodology used to pay for health care services (risk sharing versus fee for 

18 
91 

service). Globally paid providers did not have consistently lower total 

medical expenses. The report emphasized that health care markets must be 

responsive to the "purchaser" (i.e., consumers and employers), armed with 

necessary incentives and infonnation. 14 

The ACA promises to enhance and expand health infonnation, but it 

relies more on measurement and dissemination through governmentmediated, centralized channels, rather than a more pluralistic market-based 

competition to discover, refine, and deliver it. Expansion of all-payer claims 

data bases, outcome-based performance measurement, and wider access to 

Medicare claims data for qualified entities may help on the supply side, but, 

the ACA's complex cross-subsidies, administered prices, and rating 

restrictions are likely to suppress necessary information about the full costs 

of health care services and discourage consumers' incentives to seek it. 

Instead of doubling down on the "metabolic eating disorder" triggered 

by public policies that have encouraged overconsumption of conventional, 

highly subsidized health insurance -- or resorting to tighter price controls 

and public-utility-style regulation of politically mandated coverage, we 

should consider some better remedial medicine - a stronger dose of market 

competition. 

19 
92 

Notes 

I Bardk D. Richman, Concentration in IIealth Care jJarkets: Chronic Problems and Better Solutions 

(Washington, DC: American Enterprise Institute, June 2012). 4-7. 

2 Clark C. Havighurst and Bamk D. Richman. "Distributivc Injustice(s) in American Health Care." Law & 

('ontemp. Probs, AutunUl2006. 

, Katherine Baicker and Helen Levy. "Coordination versus Competition in Health Care Rcfonn." New 

i!ngland Journal of Medicine 369 (9): 789-791. 

4 Ibid. 

, Scott E. Harrington. "Medical Loss Ratio Regulation lUlder the Affordable Care Act," inquiry 50: 9-26: 

Seoll E. Harrington. Regime Change jiJr IIealih Insurance Regulalion: Rethinking Role Review. lvfedical 

Loss Ratios, and ir{formed Competition (Washington, DC: American Enterprise Institute. December 2010). 

6 See. [or example. Herny J. Aaron and Kevin W. Lucia. "Only the Begimring - What's Next at the Health 

Insurance Exchanges"" New i!ngland Journal ofJ.dedicine (online first September 4,2013). 

"'\l·'Ln~jrll.Qrg! <illjlfgJlIllllll:'i2lNr~~1I;J3 IJim:l:1311tCn:=]·OC. , See Sheryl G. Stolberg, "Reaping Profit After Assisting on Health Law:' New York Times, September 18. 

2013. AI. 

8 "Symbiosis:' Wikipedia. en.wikipedia.org/wikiiSymbiosis. 

Y See Goldfarh v. T7rginiaSIaie Rar, 421 U.S. 773 (1975). 

10 See Ricinllan. 2012. at 11-13. 

11 See. for example, Faslern Railroad Presidenls Conference v. Noerr Motor Freighl, Inc., 365 U.S. 127 

(1961): United Mine Workers v. 1'ennington, 381 U.S. 657 (1965): and California Motor 'J'ransport Co. v. 

Trucking Unlimited. 404 U. S. 508 (1972). 

12 Federal l'rade Commission v. 1'hoebe 1'utne1' Health S1'stem,inc. et al.. 568 US (2013). 

"ww.supremCCOllfl.gov/opilricms/12pdf/I1-1160 I8M.pdfMareh 

13 Riciullan. 2012. at 15-16. 18: Aaditya Mattoo and Randeep RathindralL "How Health Insurance Inhibits 

Trade in Health Care." Ileallh Affilirs 25(2): 358-368. 

H Offiee of Attomey General Martha Coakley. Examination of Health Care Cost Trends and Cost Drivers 

(Boston. MA: June 22. 2011). 

20 
93 

Mr. BACHUS. I thank you. 

Now, our next two witnesses have been waiting patiently to respond I guess. Mr. Cohen and our Democratic Members here invited them. Are you all raring to go? Professor Greaney, you are 

up next. 

TESTIMONY OF THOMAS L. GREANEY, CHESTER A. MYERS 

PROFESSOR OF LAW, SAINT LOUIS UNIVERSITY SCHOOL OF 

LAW 

Mr. GREANEY. Thank you, Chairman Bachus and Members of the 

Committee. I think you will find my diagnosis is a bit different 

than Mr. Miller’s but I think our prescriptions for the remedy are 

pretty much the same. 

Let me summarize my testimony with five key points. 

First of all, the Affordable Care Act actually depends upon and 

promotes competition in provider and payer markets. 

Secondly, hospital market concentration is the result of merger 

waves that have been going on for the last 20 years. And this consolidation was actually fomented by what I believe are erroneous 

Federal court decisions, lax antitrust enforcement, and was exacerbated by Government payment policies and other laws. 

Third, as to provider consolidations, the Affordable Care Act fosters pro-competitive consolidations through reforms and incentives 

and encourages providers to form efficient delivery systems. But I 

think it is erroneous and misleading to claim the Affordable Care 

Act is somehow responsible for anticompetitive mergers when in 

fact these mergers are designed precisely to avoid the pro-competitive features of the act. 

Fourth, there has been a significant resurgence in antitrust enforcement, and I think that should serve to limit consolidations 

going forward. But as other witnesses have said, antitrust will not 

unwind pre-existing consolidations. 

The fifth point in my testimony is much on track with what you 

have heard from Professor Richman. What he and I both call the 

provider monopoly problem calls for countermeasures, countermeasures that reduce barriers to entry, enable payers to develop 

tools that promote consumer choice, and encourage new delivery 

systems. 

So let me take these one at a time. First, beginning with the 

proposition I began with, that the Affordable Care Act both depends on and promotes competition, the natural question to ask is 

why you need the Government to make health care markets more 

competitive. And the answer in my testimony is what I call the 

‘‘witches’ broth of history,’’ provider dominance, ill-conceived payment systems, and most importantly, the market characteristics of 

health care which make markets different in health care. 

And as a result, we found ourselves at the beginning of the century with the worst of two worlds. We had fragmentation on the 

one hand, doctors operating in silos, practices of onesies and 

twosies unconnected to each other and providing duplicative care 

that is not evidence-based. At the same time, we had growing pockets of concentration, dominant hospitals and dominant specialty 

practices that were able to charge monopoly prices. 
94 

My testimony details some of the specifics about how the ACA’s 

numerous efforts to reform both private and governmental insurance payments create marketplaces for people to shop and compare 

plans, and undue existing obstacles will make markets work maybe 

for the first time. And I can go into some detail about some of the 

Medicare reforms that I think are important and pro-competitive 

and without which markets will not work. 

Next, a couple of points briefly on the provider monopoly problem. 

First, provider monopolies is not just a problem for the Affordable Care Act. It is a problem for those who would rely on laissezfaire approaches to health care, for those who would propose vouchers for Medicare. Provider market power has been shown through 

the countless studies that Professor Richman and I cite as a primary culprit in increasing costs today, prices rising as much as 40 

percent after hospital mergers. 

The good news I mentioned in my testimony was the resurgence 

of antitrust enforcement with the Government agencies, coupled 

with many, many of the State Attorneys General challenging hospital mergers. An important case goes to trial on Monday challenging physician acquisitions by a hospital in Idaho. And also 

going after practices such as most favored nations clauses and 

other discriminatory practices that harm competition. And finally, 

the FTC has done an admirable job of competition advocacy, urging 

State legislatures to avoid legislation that is anticompetitive. 

But now, the caveat I offered earlier. Antitrust has little to say 

about extant market power, power that is already there lawfully 

acquired. There is no silver bullet, but my testimony points to several kinds of actions that could be taken. These are, to be sure, legislative and regulatory but they are pro-competitive regulations 

and statutes. 

Just very quickly, dealing with the certificate of need, which in 

many States creates a barrier to entry, excessive restrictions that 

have been imposed by the Affordable Care Act on physician-controlled specialty hospitals and State laws that may impair quick 

clinics and things like that, these are the sources of new entry into 

the dominant markets that may at least provide a relief valve. 

In addition, we could expand the opportunities for mid-level professionals through State law changes that would allow them to 

practice within the full scope of their professional license. This 

move would serve to help new organizational arrangements like patient-centered medical homes and ACO’s provide a counterweight 

in the dominant markets. 

The second set of remedies goes to things that might strengthen 

employers’ and payers’ ability and willingness to negotiate effectively in the face of provider market power. Some of the ideas that 

both Professor Richman and I have talked about deal with laws 

that might abolish most favored nations clauses, as Michigan did 

in response to the Justice Department’s suit there, doing away with 

contractual commitments to prevent insurers from using tiering 

and other things that may at least allow consumers to undercut the 

monopoly power in these markets. Laws affecting price transparency can help and enlist consumers in the effort. And finally, 

calling upon the expertise and leverage of the agencies and the in-
95 

surance regulators to back up or nudge payers that face monopolies. And State insurance commissioners and exchanges can require 

or at least encourage the unbundling of services, as Professor 

Richman suggests, but also do other things to insist on dealing 

with market power. 

Let me close with just a cautionary note. These ideas I have outlined are competition-enhancing regulations and laws designed to 

address the provider monopoly problem. If those do not work, the 

last resort, if all options fail, will be public utility-style regulation. 

That is what most economists predict for dominant monopolies 

such as all payer rate controls or empowering insurance commissioners to place caps on their expensive provider contracts. 

Thank you very much. 

[The prepared statement of Mr. Greaney follows:] 
96 

Prepared Statement of 

Professor Thomas L. Greaney 

Before the 

Committee on the Judiciary 

United States House of Representatives 

Subcommittee on Regulatory Reform, Commercial and 

Antitrust Law 

on 

"The Patient Protection and Affordable Care Act and the 

Consequent Impact on Competition in HeaIthcare" 

September 19, 2013 
97 

Chairman Goodlatte, Sllbcommittee Chairman Bachus, Committee Ranking Member 

Conyers, Subcommittee Ranking Member Cohen and Members of the Subcommittee, I much 

appreciate ti,e opportunity to testify on the important issue of health care consolidation and 

competition policy in the context of healtll reform. By way of introduction, I am the Chester A. 

Myers Professor of Law and Director of the Center for Health Law Studies at Saint Louis 

University School of Law. I have devoted most of my 26-year academic career to studying 

issues related to competition and regtllation in the health care sector, writing nlllnerous articles 

on the subject and co-authoring the leading casebook in health law. Before that J served as 

Assistant Chief in the Antitrust Division of the United States Department of Justice, litigating 

and supervising cases involving health care. My professional affiliations include membership 

in the American Health Lawyers Associations and I serve on the Advisory Board of the 

American Antitrust Institute. 

Let me Sllmmarize the key points of my analysis of the market concentration problem: 

The Affordable Care Act depends on and promotes competition in provider and 

payor markets. 

The current extent of hospital market concentration is the result of various 

"merger waves" over the last twenty years facilitated by erroneous COllft 

decisions and lax antitrust enforcement, and exacerbated by govemment policies. 

There is a broad consensus among economists and health policy experts that 

concentration in provider markets is a major driver of higher prices in health care 

and is associated with wide variations in payment and quality around the 

country. 

It WOllld be erroneous to claim that the Affordable Care Act is somehow 

responsible for anticompetitive consolidation when in fact such mergers and 

joint ventures are efforts to avoid the procompetitive aspects of the Act. 

The Affordable Care Act encourages procompetitive consolidations through 

payment reforms and incentives to form efficient delivery systems which have 

begtm to flourish, such as accOlmtable care organizations and patient-centered 

medical homes. 

The resurgence in antitrust law enforcement should limit fuhue increases in 

concentration and curb the exercise of market power, but will not unwind most 

prior consolidations. 

The problem posed by extant provider monopolies lends support for 

countermeasures including Medicare reimbursement reforms, reducing barriers 

to entry, and other forms of pro-competition regulation. 
98 

Competition Policy and the Affordable Care Act 

I'd like to begin with an important proposition that is sometimes lost in the rhetoric 

about health reform. The Affordable Care Act both depends on and promotes competition in 

provider and insurance markets. A key pOint is that the new law does not regulate prices for 

commercial health insurance or prices in the hospital, physician, pharmaceutical, or medical 

device markets. Instead the law relics on (1) competitive bargaining between payers and 

providers and (2) rivalry within each sector to drive price and quality to levels tllatbest serve 

the public. 

Why do we need government intervention to make health care markets perform more 

efficiently? The answer lies in a witches' broth of history, provider dominance, ill-conceived 

government payment and regulatory policies, and perhaps most importantly, market 

imperfections that arc endemic to delivery of services, inSllTanCC, and third party payment. 

Justification for regulation to promote competition can be found in virtoallyeveryeconomic 

analysis of health care. Markets for providing and financing care are beset with myriad market 

imperfections: inadequate information, agency, moral hazard, monopoly and selection in 

insurance markets that greatly distort markets. Add to that governmental failures - payment 

systems that reward intensity and volume, but not accOlmtability for resources or outcomes; 

restrictions on referrals £hat impede efficient cooperation among providers; and entry 

impediments in the form of licenSllTe and CON, to name a few. Finally, toss in a strain of 

professional norms that are highly resistant to marketplace incentives-and you have the root 

callses of our broken system. 

Looking at the result in health care markets, we find the worst of two worlds: both 

fragmentation and concentration. As I'll discuss in a minute, hospital and specialty provider 

markets arc highly concentrated while most primary care physicians have historically operated 

in "silos" of solo or small practice groups. In most places, there is scant "vertical integration" 

among providers of different services-a phenomenon that impedes effective bargaining to 

reduce costs and prevent overutilization of services, and also has adverse effects on the quality 

of health services patients receive because it inhibits coordination of care. 

The Affordable Care Act tackles these problems on many fronts. My article, The 

Affordable Care Act and Competition Policy: Antidote or Placebo?,' describes these measures in some 

detail, bi,t I will focus on a few of the most important. Although it may be counterintuitive to 

those who dichotomize between competition and regulation, law canfoster competition by 

imposing rules and standards, and even by mandating purchasing or creating competitionI Thoma~], Greaney, the .tflol'dahie Care .'Iet and Competition Policy:. '/ntidote OJ' Place/Jo?, X9 Or. I,. Rev. X11 

(20ll) 

2 
99 

enabling institutions. As T have argued since the early days of the "competitive revohltion" in 

health care, this kind of regulation is a condition precedent for effective markets.' 

To briefly recap some of the ACA's competition-improving steps: 

First, a centerpiece of reform is the Health Tnsllfance Exchange. At bottom, exchanges 

arc really jllst efficient markets for offering and pllrchasing health insurance analogous to 

farmers markets or travel websites. The ACA adopts regulations that are necessary to make 

insurance products comparable and tmderstandable, that require basic minimums of coverage, 

and that protect against the insurance industry's long-standing practice of chasing dovvn only 

good risks-all textbook efforts to make competition work efficiently in the insurance market. 

Second, Medicare payment and delivery reform plays a critical-and generally 

unappreciated-role in promoting competitive markets, both private and public. Underlying 

the myriad changes in payment policy and the ACA's pilot programs and other innovations, 

such as value-based purchasing, accountable care organizations and reforms to bidding in the 

Medicare Advantage program, is the understanding that Medicare policy strongly influences 

the private sector. Private payors often follow Medicare's lead on payment methods and 

depend on the program to set quality standards. Moreover, the incentives it creates in the way 

medicine is delivered has unquestioned spillover effects on commercialllealth plans. Most 

notable in this regard are the prodigious efforts undertaken by the ACA to redirect federal 

payment away from fee-for-service payment. 

Third, the ACA seeks to create incentives for providers to develop innovative 

organizational strllctures that can respond to payment mechanisms that rely on competition to 

drive cost containment and quality improvement. The watchword here is integration. Congress 

recognized that it was essential to stimulate formation of organizations that could receive and 

distribute reimbursement and be responsible for the quality of care under the new payment 

arrangements contained in the ACA and developing in the private sector such as blmdled 

payments and global reimbursements. Given the badly fragmented struchlfe of health delivery, 

a critical innovation is the Medicare Shared Savings Program, wllich fosters development of 

Accountable Care Organizations to serve both Medicare beneficiaries and private payers and 

employers. 

Finally, the new law deals with a very significant "public goods" market failure-the 

underprodllction of research and the inadequate dissemination of information concerning the 

effectiveness and qllality of health care services and procedllfes. The Act does so by 

subsidizing research and creating new entities to support such research and to disseminate 

information about outcome and medically-effective treatments. Numerous other provisions 

attempt to correct flaws in Medicare and Medicaid reimbursement methodologies and add 

il1centives to improve quality by llsing "evidence based medicille." 

SeC' Thomas L Greaney, Competiiive Reform in Health Care: The JTulnC'rable Revalulion, 5 Yale. J. on Reg. 179 

(19XX) (predicting lhal compLlilion in hcalLh care would not ~uccccd if rcgLLlatioll and inJraslructLLfc do not support 

it) 

3 
100 

The important take-away is that mllch of the extensive regtllation contained in the new 

law is explicitly designed to promote competition. It aims to encourage the redesign of 

payment and delivery systems so that private payers and providers can interact in the 

marketplace to provide the best mix of cost and quality in health care. As I'll discuss in a 

moment, however, there are obstacles to realizing the potential benefits of the competitive 

strategy for health care reform. 

Concentration and Antitrust Enforcement 

So, what could possibly go wrong? Many observers, including myself, have pointed to 

the extensive concentration that pervades health care markets and constitute a serious 

impediment to effective competition. It is important however to pllt this phenomenon into 

context-both as to how it cmnc about al1d what can be done about it. 

First, it ShOllld be understood that althOllgh we have experienced a "merger wave" in 

recent years, it is not the first, nor is it responsible for the widespread concentration we see in 

many markets today. Hospital consolidation has proceeded in spurts several times over the 

past twenty years, with the biggest wave occurring in the mid-1990s. The Robert Woods 

Johnson FOlllldation S)mthesis Project analysis summarized this phenomenon: 

Tn 1990, the typical person living in a metropolitan statistical area (MSA) faced a 

concentrated hospital market with an HHI [the index of concentration used in antitrust 

cases] of 1,576. By 2003, however, the typical MSA resident faced a hospital market with 

an HHI of 2,323. This change is equivalent to a reduction from six to four competing 

local hospital systems.' 

Notably, the largest number of hospital mergers was undertaken after the defeat of the 

Clinton Health Reform proposal and during a time when managed care was at its zenith. While 

academics disagree on what caused the sharp increase in mergers, recent studies suggest that 

hospitals' anticipation of increased cost pressures from managed care led them to consolidate. 

Moreover, one thing is clear: a series of llnsllccessful antitmst challenges to hospital mergers in 

federal court gave a green light to consolidation. Al1d, as the governmcl1t al1titrust agcl1cies 

themselves admit, these decisions caused federal and state enforcers to back away from 

challenging hospital mergers for almost seven years." Adding to this tale of misfortune is the 

widely-held opinion that the courts got it wrong: the majority of judicial decisions allowing 

3 \VILLIAM n. VOClT & Ronr.RT To\\'N, How HAS HOSPITAL CON1',OLTDATION Arrr.CTf,D TJIF. PRIer. AND Qc ALTTY OF 

11oSl'LTAL CAIW'? (2006), available at htlP.//V'iV\·w.nvjrorgkontent/dmn/rarm/reporlslissue _ briefs/2006lrwjfl2056/ 

subassetslIwjfl2056 _ j 

·1 An Assistanl Din::c[or of the FTC's Bureau of Compdition acknowledged, "'Both the FTC and the DOl left the 

hospital merger business and deterruined that these cases ,vere umvinnable in federal district court."" Victoria Stagg 

I"]liot, FTC, in Turnahollt, Takes a Closer I.ook at 1I0spitali\lel'gel's, American Medical Ne\v~ (April 9,2012), 

http Ilww,x.amednews.com/article/20 j 20409ibusllless/304099973171 

4 
101 

hospital mergers found unrealistically large geographic markets that did not conform with 

sound economic analysis.' 

The result of this spike in hospital concentration was disastrous for the American public. 

A largc body of literature documents the existence, scope and effects of market concentration. 

One well-regarded compilation of the numerous studies on this issue spells lmt the link 

between hospital market concentration and escalating costs of health insurance: hospital 

consolidation in the 1990s raised overa II inpatient prices by at least 5%, and by 40% or more 

when merging hospitals were located close to one another." Another important study, 

undertaken by the Massachusetts Attorney General, documents the effects of "provider 

leverage" on health care costs and insurance premiums, notably finding prices for health 

services are uncorrc1ated with quality, complexity, proportion of government patients, or 

academic status bllt instead are positively correlated with provider market power.' A leading 

economist summarized the impetus to merge with riva Is in the face of pressure from payers to 

compete: 

I have asked many providers why they wanted to merge. Although publicly they all 

invoked the synergies mantra, virtually everyone stated privately that the main reason 

for lncrging \-vas to avoid c01l1petiti011 and/or obtain 111arket power.s 

Provider concentration has a double effect-one in commercial markets, the second on 

government payers, especially Medicare. The most obvious effect, as described above, is to 

increase dominant providers' ability to command higher prices and resist efforts to limit 

unnecessary procedures. A second effect, often overlooked, is the cost-elevating impact of 

provider market concentration upon government payers. Examining the effect of hospital 

concentration on Medicare payments, the Medicare Payment Advisory Commission (MedPAC) 

has found that high hospital margins on private-payer patients tend to induce more 

constrllCtion and higher hospital costs and that, "when non-Medicare margins are high, 

hospitals face less preSSllTe to constrain costs, [and] costs rise."" These factors, MedPAC 

observes, explain the counterintuitive phenomenon that hospital Medicare margins tend to be 

low:i:o markets in which concentration is highest, while margins are higher in more 

competitively structured markets. 

5 See e.g, Cory S. Capp~ cl al., The 5,'i/ent ."fajority Fallacy o.fthe PlzinKa-Trogarfy C1'iteria:.1 Critique and .;Ve)v 

Approach roAllalyzillg Hospital Jlergers (Nat'l Bure.nu ofEcon. Research, Working Paper No. 8216, 2001). 

uvailahle aJ http://v,,-wv.;.nber.org/papers/wR216 

(i VOGT & TO\VN, supra note 3 

- MA,%ACHL ~J::,:rrs ATTORl\J:,Y Ci-ENER,\L .tXAl\Ul\ATlON OF UL\LTH C\RE COST TRJ:,l\D~ ,\ND COST DRIVbRS 

PURSUAKT TO G.1. c. 118G. § 6Y,(D) (2010). available al: http://wwwmass.gov/ago/docs/healthcare/201O-hcctdrull.pdr. Compare \\ilh the 2011 and 2013 LLpdatc~, a\'ailahlc al htlp:!!ww\\'.ma~s.gov!ago!doc~!hca1Lhcarcl2()11-

hcctd.pdf and http://www.mass.gov/anf/docs/hpc/ag-presentation.pdf. respecti\"ely 

8 [)AV]]) ])IL,\"\OVi"" '["Hi", ECONOlvllC I-:VOJ,{ITION OF J\\1ERICAN HL:"ITH CARE: FRO[\1 MARCLS V'/EIHY To 

M:\K,\GED CARE 122 (2000) 

Mi",))ICA..RE PAY\1ENT A))VISORY CO\-1\t"N, REPORT ]"0 THi", COI\CJRhSS: [\WROVINCJ INCENTIVb}'; IN THE Mi",))ICA..Rb: 

PROGR:\M xiv (2009). available at http://www.medpac .gov/documents/mar09 _entirereport.pdf 

5 
102 

The key point to be derived from the past twenty years of experience with hospital 

consolidation is that, if not checked by vigilant antitrust enforcement, it can tmdermine the 

benefits that competition offers. FllTther, mergers tI,at concentrate local markets have largely 

been driven by a desire to gain bargaining leverage. (It is important to note of course that not 

all consolidation is harmful: many hospital mergers do not affect local markets as they 

substitute a stronger, more efficient owner not currently competing in the market or they 

involve relatively small competitors in the same market.) In sum, it w(mld be highly misleading 

to suggest that the Affordable Care Act is somehow responsible for a new wave of attempted 

anticompetitive provider mergers, when in fact those mergers are an effort to avoid the very procompetitive policies the new puts in place. 

Turning to the payer side, health insurance markets have a long history of consolidation 

and increasing concentration in the individual and small group market, where, according to 

some data, two firms have greater than fifty percent of the market in twenty-two states, and one 

firm has more than fifty percent in seventeen stateslO The results in these markets appear to 

confirm wllat economic tlleory predicts: higher premiums for consumers and higll profits for 

the insural1ce industry. SU1TIlnarizing studies indicating that private insurance revenue 

increased even faster than medical costs; economists at the Urban Institute concluded that "the 

market power of insurers meant that they were not only able to pass on health care costs to 

purchasers but to increase profitability at the same time."11 While some studies question the 

extent of insurers' exercise of market power, bilateral market power is unlikely to serve 

consumer interests. Finally, experience suggests that entry into concentrated insurance markets 

is far from easy and may be unlikely to occur in markets with few insurers. A recent study by 

the Antitrust Division of the Department of Justice found that entry in such insurance markets 

was impeded by the difficulty of securing provider contracts.'2 Congress addressed the 

problem in several ways: cncollTaging formation of new competition via nonprofit insurance 

cooperatives and multi-state health plans. Although the proposal to include a pllblic option 

plan in every market was rejected, by improving insurance markets, reducing risks of adverse 

selection, and establishing health insurance exchanges, the ACA took steps designed to induce 

de novo entry into concentrated insurance markets. 

10 KAREK D,\VENPORT & SOKIA SEKHAR. CTR. FOR A\f. PROGRESS, Insurance l\1arkef Concentration Creates Fewer 

Choices: A TJ)()k af Heahh Cure lompelifioTJ in fhe .)'iafes (Nov. 5, 20(9), uvailahle al 

http //v"'\,,,\-\ .mneric<lllprogress.org/wp-conknl/uploadslissues/2009/111pd1!he(Jlth _competition_II 09.pdf 

11 JOIT'\HOLATIAK & LINDA BUT} .. mERfl, URnA'l" TNST., HEa..I.TII POLICY CTR., CAN a.. PlTnLIC TNSlTRA'TCT, PI.AN 

l:'-lCREASJ:, Co.rvlPJ:,Tl'llON l\.l\U LO\'"·/J:,R THE Co~ns Or llE,\LTH CARE R.EFORt ... f? 3 (2008), available at 

http Ilwm\.urbml.orglUploadedPDI'/411762_public_insurance.pdf 

12 The Depm1ment of Justice· s study concluded 

[T]he biggest obstacle to an insurer's entry or expansion in the small- or Imd-si7ed-employer market is 

'j<..:ale. New insurers C(Jilll0t compele wilh in<..:umbenls for enrollees \vithout provider dis<":Olmls, bUl they 

cannot negotIate for dIscounts v.'1thout a large number of enrollees. ThIS circulanty problem makes entry 

risky and dilTicull. helping to secure the position or c:\isting in<..:LLmhcnts 

Christine A. VaIlley, Assistant Atry Gen., AntitlUst Div., U.S. Dep·t of Justice, RC'marks as PrC'paredjor fhe 

.'/merican Hal' //ssociation i. '/meriCGllllealth I.awyers. '/ssociatiml. '/ntitrust and Ilealthcare Conference, May 24, 

2010, amilable at http://www.justice.gov/atr/public/speeches/258898.pdf 
103 

The Resurgence of Antitrust Enforcement 

In recent years the Federal Trade Commission, the Antitrust Division, and a number of 

State Attorneys General have stepped up antitrust enforcement. The federal antitrust agencies' 

cases, along with competition advocacy in the legislative and regulatory arenas, have focused 

on (1) stopping anticompetitive mergers, (2) challenging the exercise of market power by 

dominant providers and insurers, (3) urging legislators to reject or remove barriers to 

competition or legislative exemptions from the antitmst laws, and (4) attacking competitor 

collusion, most notably between manufacturers of branded pharmaceuticals and generic 

entrants and provider collusion in managed care negotiations. In addition, state attomeys 

general and private litigants have brought a number of important antitrust cases principally in 

the merger area.13 

These cases and legislative comments constibJte a significant and necessary step toward 

protecting the competitive policies that lmdergird tl,e Affordable Care Act. Tn ti,e merger area, 

for example, the FTC has challenged four highly concentrative hospital mergers in the last three 

years. '" Further, in an important case decided last year, the Supreme Court overturned the 

lower court's interpretation of the state action doctrine which it found erroneously shielded a 

hospital merger to monopoly. 15 Notably, the FTC and state attorneys general have also 

investigated and challenged mergers of physician practices and acquisitions of physician 

practices by hospitals 16 The Department of Justice challenged, and settled by consent decree 

requiring divestitures, a merger of health insurers that would reduce competition in Medicare 

Advantage contracting" and forced another health plan to abandon its plan to acqllire its 

11 Bec[luse my testimony today focuses on provider and payor competltioll, I am omitting what is undoubtedly the 

most significant antitrust enforcement effort 1TI health care: the challenge to pay-foT-deiay agreements in the 

phul1n<lceuli<..:al seclor. The Supreme COlU-r s de<..:ision in FTC v. Actavis, Inc. ef af.. deafed the way for fUlure 

challenges to the agreements that dIVIde markets for phannaceuhcal products, an actHTty that IS estImated to mvolve 

costs of $3.5 billion pL'f year. 570 U.S. _ (2013) 

I' In IheMalLeroIOSfHealthcare SYstem. and Rockford Health System, No. 111-0102. f.I.C. Docket No. 9349. 

(F.T.C. April 13, 2012) (di~mis~ed upon merger ahandonment), availahle at htlp:l/\v\\,\v. rlc.gov/o~/adjpro/d9349/ 

120413rocktordorderpdf; In the Matter of Pro Medica IIealth System, Inc., No. 111-0IG7, F.T.C. Docket No. 934G 

(F.T.C. March 28, 20 [2) (pctition for rcvicyv on f11c \vith 6th CIrcuit, No. [2-3104), availahle aJ http://YHV\v.ftc.gov/ 

os/adjpro/d93461l20328promedicabrillopinion.pdf: in the .Hatter afReading llealth System and Surgicallnstitnte of 

Reading. No. 121-0155. f.I.C. Docket No. 9353 (f.I.C. Dec. 7.2012) (dismissed upon acquisition abandonment). 

available at hllp://\.\ w\v.flc.gov/04adjpro/d9353/121116readingsurgicalcmpLpdf; FTC v. Phoebe Putney Health 

SYstem, Inc., 568 U. S (2013) 

15 id. (holding lhat because Georgia has nol clearly articulated and alTinl1atih;I~· expressed a policy allowing hospital 

authorities to make acquisitions that substantially reduce competition, state-action immunity does not apply) 

lG 5,'ee Complaint fOfPenllanenl TnjLLllction, FTC and Slate orTdaho, Plainliffs, v. Sl. LLLke's Heallh Sy~te11l, Ltd. 

and Saltzer Medical Group, P.A.. No.1: 12-cv-005GO-BLW-REB (D. Idaho March 12,2013); Press Release, FTC 

nureau of Competition Director Richard Feinstein, feinstein Statement on Providence Health & Services' 

Abundonment of its Plan lo Acquire Spok.une Cardiology and lleurt Clinics Norlhwest (April ~(2011), 

http Ilwmdlc.gov/opa/2011l04/proYldence.shtm. See alsa In the Matter aIRel1m,n Health, No. 111-0101. fTC 

Docket No. C-4366 (".T.e. Dec. 4, 2(12) (setlled hy consent agreemenl), availahle athttp://vl''ww.fle.gov/os/ 

caselist/IIIOI 0 IIl21204renownhealthdo.pdf. 

Ii ()rdLf, lJnited Slates v. Humana Inc. and Arcadian Managemenl Services, Inc., No 1: 12-cv-00464-RHV'/ (I)'I).C 

March 28. 2012), available at http://www.justice.gov/atr/cases/f291400/29148G.pdf 

7 
104 

leading riva]18 Together these cases should send a strong signal that consolidations will be 

closely scrutinized. 

A second series of cases involve challenges to the actions of donunant providers or 

dominant payers. These cases represent a marked departure from the posture of the agencies 

over the last two decades in which £he government agencies have rarely taken on cases of 

monopolization or abuse of dominant position. The conduct at issue involves a variety of 

"exclusionary" actions: vertical arrangements that foreclose rivals without significant efficiency 

justifications. For example, the Antitrust Division challenged a dominant insurer's insistence on 

"most favored nations" clauses from contracting hospitals that severely disadvantaged rival 

insurers." This case was disnUssed after the Michigan legislature essentially agreed £hat MFNs 

were harmful to competition and prohibited their use in health care contracts.20 In another case, 

settled by consent decree, the Division challenged a ncar-monopoly hospital's demands for 

exclusi011ary discOllnts -&0111 insurers.21 

Preserving the Potentially Pro-competitive Effects of I1ccountable Care Organizations 

Of the many important innovations contained in the Affordable Care Act, the Medicare 

Shared Savings Program (MSSP), which promotes the development of accountable care 

organizations, has undoubtedly garnered the most attention. The ACO strategy takes direct 

aim at the twin problems of the health care system: fragmented delivery and payments that 

reward volume rather than performance. Because they will be accountable for the full range of 

care needed by beneficiaries, ACOs need to establish integrated networks of providers £hat can 

monitor quality and provide seamless, cost-effective care. The Affordable Care Act explicitly 

encourages Medicare ACOs to also serve the commercially-insured sector and self-funded 

employers. 

From the standpoint of competition policy, ACOs offer an important opportunity for 

providers to align in entities capable of delivering care that consumers (employers, insurers and 

individuals) can compare and negotiate with to get £he best bargain in price and quality. Thus 

both provider integration and rivalry are key to the success of the concept. CMS, the FTC and 

the Department of Justice have worked closely together to establish guidelines22 that will help 

18 Press Release, U.S. Dep't of Justice, Dlue Cross Dlue Shield of Michigan and Phvsicians Health Plan of MidMichigan Ahandon Merger Plans (Mar. X, 2UlU), hllp:l/www.justicc.go\!alr/puhlidpn:ss_fckascs/2010/25f:.259.pdt' 

19 Complaint, United States v. Dlue Cross Dlue Shield of Michigan, No.2: 10-14155-DPH-MKM (ED. Mich. Oct 

1 X, 201 0), availahle at hltp:!!vy'w\V justicc.go\)atr/cascs/f263200!263235.pdL See als() Press Release, lJ.S. nerd or Justree, Justice Depmtment Files Antitmst LaWslut Against Blue Cross Blue Shield of Miclugan (Oct. 18,2010). 

http I/v.,\\'\\-jllstlce. gov/atrlpuhlic/press_releases/20 [0/256259. pdf 

~() Press Release, supra note 18. /)'cc also Stipu13ted Motion and Brief to Dismiss \vithout Prejudice, United States v 

Glue Cross Glue Silleid of Michigall, No. 2:10-14 I 55-DPH-MKM (ED. Mich. March 25, 20 I j), availahle al 

http Ilv,,'\>../\-\.j llstice.gov/atrlcases/1295100/295119.pdf 

21 FinalJLLdgmcnL lJniled Slate~ v. lJnitcd Regional Heallh Care System, No. 7:11-cv-00030-0 (N.D. Tex. Sep 29. 

2012), available at http://\v\v'w.justice.gov/atr/cases/unitedregional.html 

22 Final Slatemenl or Antitrust Enron.,:clllenl Policy R.egarding AccOLLlltah1c Care Organil'.ation~ Participating in the 

Medicare Shared Savings Program, 76 Fed. Reg. 67,026 (October 28, 2011) 

8 
105 

providers assess the antitrust boundaries when forming ACOs. By some estimates there are 

over 488 ACOs operating in alISO states, over 250 of which are participating in the Medicare 

Shared Savings and Pioneer programs." 

Several procompetitive aspects of the agencies' regulations and policy statements should 

be noted. First, the MSSP allows ACOs considerable flexibility in the way they organize 

themselves. ACOs may be formed by joint ventures among providers and exclusive contracting 

is permitted only to the extent it does not impair competition. Exceptions are established for 

rural providers that recognize the special competitive circumstances they face. Dominant 

providers are constrained to some extent and cautioned about specific practices that interfere 

with payers' ability to engage in competitive contracting. Finally, CMS will gather data and 

monitor carefully the performance of participating ACOs. 

There are, to be sure, legitimate concerns that ACOs may form in a manner that allows 

providers to aggregate market power that can be exercised over private health plans and 

employers. At the same time, ACOs offer a distinct opportunity to increase the competitiveness 

(and hence the quality and cost-effectiveness) of the delivery system. The antitrust agencies and 

CMS appear to have set out a framework capable of monitoring the competitive implications of 

ACOs as they develop. 

I1ddressing the Provider Concentmtion Problern 

While the antitrust agencies' efforts to promote and protect competition in health care 

markets is commendable, it is also the case that antitrust law has little to say about monopolies 

lawfully acquired, or in the case of consummated mergers, entities that arc impractical to 

sllccessfully unwind. Given the Iligh level of concentration in many hospital markets and a 

growing number of physician specialty markets, it is particularly important to encourage other 

measures that promote competition. Pro-active, pro-competition governmental interventions 

may be needed. 

Although there is no single "silver bullet" to solve the problem posed by extant provider 

concentratioll, there are a l1l11nber of steps that reduce the 111arket pl1\.Ver exercised ill such 

markets.'" To begin with, laws that impose barriers to entry should be amended or repealed. 

For example, hospital concentration may be lowered in some states by eliminating governmentimposed barriers to entry such as Certificate of Need laws. Likewise, although some 

restrictions on physician-controlled hospitals arc desirable to prevent their "cherry picking" 

patients, current law unnecessarily impedes their development. In addition, allowing middlelevel professionals, such as nurse practitioners and physician assistants to practice within the 

Z1 LEAVITTP :illTNERS. GROWTH !L,D DrSPERsro'C OF ACCOUKTABLE CARE ORGAKIZATIO'CS: AUGUST 20 13 UPD,LTE 

(20 I J), availahle af http://leavittpartners.com/\vl)-content/upioacis/20 1 :vmVGrmvth-and-Disperson-of-ACOsAugust-20131.pill' 

~-1 Several organizatlOlls have begun looking at \vays to address the provider monopoly problem. See e.g._ 

C,.\'l ALl'S'!' FOR PA Y\'1E"\ r REFORlv1, PRO\' []),"J{ MARK,",T POW,",R i"\l THE lJ.S. HE,.\LTH CARE 1"\1])\ IS J"RY: !\SSESS["\(J 

ITS l.\tPACT AND LOOKING .'\HEAD (2012), availab/t> at hUp:llwww.catalYLL:paYlllL:ntn::foID1.org/imagc8/doculTICnt8! 

Market]ower.pdf 

9 
106 

full scope of their professional license lmder state law may increase the number and viability of 

new organizational arrangements such as medical homes and accolmtable care organizations 

that may be able to exert pressure on dominant providers." Because Medicare payment policies 

strongly influence the methodologies adopted by private payors, encouraging and accelerating 

the myriad efforts at reimbursement reform currently underway would help insure that 

dominant providers adopt quality-improving, cost-effective practices. Finally, as a general 

matter federal and state legislatures should stoutly resist pleas for immlmity or special 

protections from competition laws; there is a strong consenSllS, based on ti,e nation's 

experience, that such exemptions harm consumer welfare.'" 

A second means of dealing with provider concentration is to use the full measure of 

authority under the antitrust laws to challenge the abuse of market power by dominant 

hospitals, physician groups and pharmaceutical companies. Among the important issues on the 

antitrust agenda are resisting claims of "State Action" where the state legislation does not 

follow the Supreme Court's requirement that the defense is available only where state law truly 

endorses anticompetitive condllct and the state actively supervises the effects on conSllmers. 

Other steps might include retrospective cllallenges to recent mergers where divestiture is 

feasible. Further, following some path-breaking smolarship by Professors Havighurst and 

Richman, antitrust law may be deployed to charge dominant hospitals with illegal tying or 

blmdling, so as to force them to compete on the services that they do not monopolize." 

Finally, it may be possible to strengthen private market participants' ability to negotiate 

with dominant providers through governmental actions. For example, commercial insllfers are 

currently engaged in testing a variety of devices, such as using tiered networks, reference 

pricing, and value pricing to incentivize patients to moose more cost-effective providers, 

equipment, and service options. However, dominant providers have insisted on contractual 

terms (e.g., so-called "anti-tiering" clauses) to block such arrangements. AlthOllgh antitrust law 

might in some instances prohibit such agreements, more direct, regulatory prohibitions would 

provide mllch-needed protections more efficiently. And as discussed earlier, states might 

follow Michigan's example in outlawing most favored nations agreements that have been 

shown to reduce price competition in both the hospital and insurance sectors. The expertise 

and leverage of agencies regulating insurers might also be called upon. For example, state 

~5 The fTC staff has addressed the issue of expanding the opportunity of complementary providers to compete in 

~ch::rallcU(.;rs to slalL: lcgislalun::s. See e.g, Lcllcr from FTC Stalr, to the HOll. 'lh::rcsa Vv'. Conroy, Conn. Sl<ll(; 

Rep. (March 19,2013) (on file \vith author) (suppOliing proposed legislation to remove certain restrictions on 

advanced practice rcgi~lcrcd nurses· ahilily to pradicc wilhin lheir scope o['practicc), availahle at 

http Ilwww.f\c.gov/os/20l3/03/l303l9aprnconrov.pdf 

:::G A~ the nonpartisan AnlilrLLsl Modcmi/ation Commission has explained, antilrust e,emplions "should he 

recognized [IS a decision to sacrifice competition and consumer ,velfare" that benefits small, concentrated interest 

groups ,,,hile imposing costs broadly upon con~umers at large. AKTITRlTSTMonf.RKJ7ATJO, CO\ff\.(" Rr.PORT A>.rD 

H . .EC01Hvll:J\D,\TIONS 350 (2007), available at hUp://govinfo.library .unt.edu/mnc/n:,:porl_reconm1endalionl 

amc _final_report. pdf 

Clark C IIavighurst & Barak D. Richman, The Provider MOllopo~v Problem in Health Care, 89 Or. 1. Rev 847 

(20ll) 

10 
107 

health inSllTanCe exchanges or state regulators might require unbundling of hospital services, as 

suggested by Professors Havighurst and Richman. For its part, CMS should carefully review 

the performance of ACOs, and where appropriate, decline renewal of contracts if market power 

has been exercised over private payers. Likewise, regulations and payment policies that favor 

ACOs controlled by primary care providers rather than dominant hospitals could serve to 

reduce the impact of the latter's market power. 

It should be remembered that the foregoing options are designed to address the 

provider monopoly problem while preserving the market paradigm on which health care 

reform Cllrrently rests. A last resort, should other options fail, would be to invoke regulatory 

authority to curb excessive pricing, such as requiring all payer rate controls or empowering 

insurance commissioners to place caps on excessively expensive provider contracts. 

Conclusion 

A core concern of the Affordable Care Act is promoting competition in health care. 

Responses to the law such as anticompetitive mergers and cartel activity should be understood 

as efforts to avoid the discipline the new market realities will impose. Vigorous enforcement of 

the antitrust laws is essential to dealing with those problems, but at the same time the law is of 

limited help in dealing with extant market power. Legislators and regulators should be alcrt to 

opportunities to improve the prospects for entry and increased competitive opporhmities where 

monopoly power is present. 

11 
108 

Mr. BACHUS. Thank you. 

Mr. Balto? 

TESTIMONY OF DAVID BALTO, 

LAW OFFICES OF DAVID BALTO 

Mr. BALTO. Thank you, Chairman Bachus and the other Members of the Committee. I am David Balto. I am the former Policy 

Director of the Federal Trade Commission. I am a public interest 

antitrust attorney. 

I have a simple message. Does the Affordable Care Act matter 

to consumers? You bet it does. In 2 weeks, health insurance exchanges will be formed. Very few people would contest the competitive problems in the health insurance market. Those exchanges will 

offer consumers the ability to do one-stop shopping and will lead 

to greater competition between health insurance in markets in 

which there is barely enough competition as it is. 

Does the act matter? The act provides that when health insurers 

companies increase rates too much, the Secretary of HHS can just 

say no. And she did last year, and she forced them to return over 

$1.2 billion to over 6.8 million consumers. That is over $1.2 billion 

in excessive rate increases by insurance companies. 

Now, my testimony is like the other people’s testimony, focusing 

on the problems in the health care market. Five key points. 

First, there is increased consolidation, but as other people have 

said, there are lots of reason for that consolidation, not just the Affordable Care Act. It existed before the Affordable Care Act passed. 

Second, there is a tension between the Affordable Care Act and 

some of the past antitrust enforcement. To be honest, as a past 

antitrust enforcer, antitrust enforcers like atomistic health care 

providers. They prefer to see lots and lots of competition. But recent scholarship has really shown us how an atomistic health care 

market, especially on the provider side, leads to increased health 

care costs. That is why the Affordable Care Act incents greater integration, and that integration is positive. 

Third, antitrust enforcement is going in the right direction. I applaud my co-panelist, Sharis Pozen, who as the Deputy Assistant 

Attorney General of the Antitrust Division helped revitalize health 

insurance antitrust enforcement, stopping anticompetitive mergers 

where there had been barely any enforcement before. 

Fourth, is antitrust enforcement enough? No, it is not. Antitrust 

provides a limited tool. What we really need to look for, as Congress did in the Affordable Care Act, are increased means of regulation. What should enforcers do? Well, what they should not do is 

approve otherwise anticompetitive mergers because they think they 

will fulfill the mission of the Affordable Care Act. That is what the 

FTC did when it approved the merger of Express Scripts and 

Medco, two of the three largest PBMs. That is making a deal with 

the devil. They thought that would lead to greater bargaining 

power that would hold down drug costs, but what it is leading to 

today is consumers having less choice and having to pay more and 

community pharmacies suffering a great deal. 

Now, let me just touch on two small issues here. 

First, rural antitrust. Whenever antitrust cops look at a rural 

market, they see somebody with a big market share and they think 
109 

it is time to take out their antitrust guns. That is a mistake. The 

antitrust authorities have to recognize the unique characteristics of 

rural markets and the need for rural hospitals and doctors to be 

able to effectively collaborate. And when the antitrust standard is 

set up too high, when they prevent those folks from being able to 

collaborate, those hospitals in those small towns have no choice— 

they have no choice—but to sell out to the big hospital system in 

the major metropolitan area. 

Second, the advocacy by antitrust enforcement agencies. The 

antitrust enforcement agencies, rather than trying to welcome 

State regulation, oftentimes oppose State regulation. I provide two 

examples where the antitrust folks said, no, consumer choice would 

not work here. I mean, Professor Greaney just talked about transparency. I can show you four letters where the FTC opposes transparency when it comes to pharmacy benefit managers. Fortunately, 

oftentimes, including in your States, the State legislatures pay the 

FTC no heed. But if the FTC is not going to take more aggressive 

enforcement actions here, the least they should do is not try to stop 

States from being able to effectively regulate. 

I have five suggestions at the end. 

First, the FTC and DOJ need to focus on payers. That is insurance companies, PBM’s, and also group purchasing organizations. 

That is where there are chronic competitive problems. These markets are overly concentrated. 

Second, the FTC, in looking at these markets, should use its 

power under section 5 of the FTC Act to go after unfair trade practices and unfair methods of competition that are not technical violations of the antitrust law. 

Third, everybody applauds the FTC’s retrospective study of hospital mergers. We should do the same for health insurance. There 

was just a study issued earlier this year that looked at the UnitedSierra merger in Nevada that found that consumers are paying 13 

percent more in premiums because the Justice Department approved that merger. We need more of those studies to figure out 

where we need to have greater health insurance antitrust enforcement. 

Fourth, the enforcement agencies need to recognize it is not the 

PBM who is the consumer. It is not the insurance company that 

is the consumer. It is you and me are the consumer. Too often, like 

in the Express Scripts-Medco merger, the FTC approves things 

thinking that the PBM is really the consumer and not looking at 

the ultimate consumer. 

Finally, we have a problem which is in 2 weeks the insurance exchanges go live, and we do not have a national consumer protection 

cop on health insurance. The FTC says the McCarran-Ferguson Act 

prevents them from being a health insurance cop. I think they are 

wrong. But to the extent they might not be wrong and McCarranFerguson prevents them from protecting consumers from egregious 

practices by health insurance companies, it is time to repeal the 

McCarran-Ferguson Act, as suggested by Congressman Conyers. 

Thank you for the opportunity testify, and I welcome your questions. 

[The prepared statement of Mr. Balto follows:] 
110 

Statement of David Balto 

Before House Judiciary Committee, Subcommittee on 

Regulatory Reform, Commercial and Antitrust Law, 

Hearing on 

"The Patient Protection and Affordable Care Act, 

Consolidation and the Consequent Impact on Competition in 

Healthcare" 

September 19, 2013 

David Balto 

1325 G Street NW 

Suite 500 

Washington, DC 20005 

202-789-5424 
111 

Statement of David Balto' 

Before Honse Judiciary Committee Subcommittee on Regulatory Reform, Commercial and 

Antitrust Law, Heariug on 

"The Patient Protection and Affordable Care Act, Consolidation and the Consequent 

Impact on Competition in Healthcare" 

September 19, 2013 

Chairman Bachus, Vice-Chairman Farenthold and Ranking Member Cohen and other 

members of the committee, T appreciate the opportunity to come before you today and testify 

about healthcare industry consolidation. As a former antitrust enforcement official and someone 

who represents everyday consumers and health care providers T know that highly concentrated 

healthcare markets, especially health insurance markets, can result in escalating healthcare costs 

for the average consumer, a higher number of uninsured Americans, an epidemic of deceptive 

and fraudulent conduct, and supracompetitive profits. A recent survey I authored for the Robert 

Woods Johnson Foundation documented the economic evidence of increased consolidation and 

its effects in all healthcare markets 2 

Today's hearing seems to pose the question of whether the Atl'ordable Care Act (ACA) 

leads to greater consolidation and potential competitive problems. 

• Although there is increased consolidation among healthcare providers that is due to a 

wide variety offactors including the need to achieve greater efficiencies, respond to 

the increasing demands for integrated care, achieve greater quality of health care, and 

deal with excess capacity and weakened financial status. The trend of increased 

hospital consolidation in particular existed even before the enactment of the ACA and 

the ACA did not significantly increase the demand for consolidation. 

• There clearly is a tension between the goals of the ACA and the traditional approach 

to healthcare antitrust enforcement. The ACA recognizes the extreme costs of fee for 

service healthcare and the unintended costs of a lack of integration in health care 

delivery (known as the "silo effect"). The ACA also recognizes the lack of 

competition in health insurance markets. The ACA attempts to deal with both of 

these issues by (I) encouraging collaboration and integration through the creation of 

Accountable Care Organizations (ACOs) and (2) attempting to spur health insurance 

competition through the creation of health insurance exchanges, the creation of health 

insurance cooperatives, and the establishment of rules to assure most of health 

insurance expenditures result in the delivery of healthcare. 

1 I run fonner policy director of the Federal Trade Commission and was actively involved in several hcalthcarc 

enforcement matters and revisions of the 1996 FTCIDOJ Statements of Antitrust Enforcement Policy in Health 

Care. I represent consumer and paLlenL groups, phamlacles, healthcare prO\·iders and insurers 011 vanoLLs competition 

issues. This testimony represents solely my vie\Ys. 

2 David Balto and James Kovacs, Consolidation in Hcalthcarc Markets: A Rcvic\" of the Literature (January 2013), 

available aI, hllp-iidcanlilmstiaw.comiasselsicontentidocllmentsi2013/ba!tokovacs _ hcalthcarcconsolidationj anl3 .pdf. 
112 

• On the other hand traditional antitrust enforcement appears to be at odds with some of 

these etTorts. Some past antitrust enforcement has treated integration with 

unnecessary skepticism. Some of this skepticism should be appropriate when there is 

a significant threat of the exercise of market power. But in many cases in the past 

decade the FTC has imposed unwarranted burdens on collaborations that could 

improve integration and the delivery of health care. 

• Fortunately, the current enforcers have strengthened the efforts at restoring 

competition through focused enforcement actions against provider and insurance 

consolidation. The agencies should continue to prevent problematic consolidation 

and aggressively pursue anti competitive conduct by dominant firms. But antitrust 

enforcement is an extraordinarily limited tool. It typically cannot unravel market 

power that has been lawfully acquired. 

• But often regulation is necessary to respond to markets that do not function 

etTectively. The antitrust enforcers must work more proactively to assist state and 

federal enforcers in developing efforts to reb'lllate payor and provider market power. 

Unfortunately, the agencies have expressed an unhealthy skepticism to state 

healthcare regulation in the past and that approach should change. 

• Finally, the ACA and the need to control health care costs should not be the basis for 

approving an otherwise problematic merger among healthcare payors. Parties may 

arb'lle that the ACA forces them to merge in order to gain bargaining leverage. These 

arguments should be treated skeptically. This could have been part of the reason the 

FTC mistakenly approved the merger of two of the three largest phannacy benefit 

managers - ESI and Medco. 

A single example of the profound impact the Affordable Care Act is having on 

controlling healthcare costs is the rate review provisions. Last week HHS announced the rate 

review provisions of the ACA saved an estimated $1.2 billion on health insurance premiums in 

2012 for 6.8 million policyholders..' While increased transparency to hold health insurers 

accountable for increasing premiums is most welcomed, as described below, the importance for 

coordination between legislators and antitrust agencies to address competitive problems in 

healthcare markets cannot be overstated. 

My testimony today highlights how the combination of the ACA and renewed antitrust 

enforcement are grappling with competitive problems in healthcare markets. It focuses on health 

insurance concentration and then turns to concentration among healthcare providers. It addresses 

how the Affordable Care Act and state reb'lllation offer the potential to significantly spur 

healthcare competition and closes with several recommendations to strengthen healthcare 

antitrust enforcement. 

Adapting the Antitrust Paradigm: Focusing on Health Insurance Consolidation 

The first priority of antitrust enforcers should be to prevent further consolidation of 

health insurance markets. Lax enforcement has led to a very poorly functioning health insurance 

market. Few markets are as concentrated, opaque, and as conducive to deceptive and 

1 US Dept. of Health and H1m}",}" Services' Rate Review AnIUm! Report (September 2013), available at 

http://aspc.hhs.gov Ihcalthlrcports120 !3/acaannualrcpOltiratcrcvicw _ rpt.cflll. 

2 
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anti competitive conduct. Congress has recognized time and again that these markets lack 

sufficient competition and transparency, so 1 will highlight why the lack of competition and 

effective transparency in health insurance markets is so problematic. 

There are three necessary components of a functioning market: choice, transparency, and 

a lack of conflicts of interest 4 Consumers need meaningful alternatives to force competitors to 

vie for their loyalty by offering lower prices and better services. Transparency is necessary for 

consumers to evaluate products carefully, to make informed choices, and to secure the full range 

of services they desire. Only where these three elements are present can we expect free market 

forces to lead to the best products, with the greatest services at the lowest cost. Where these 

factors are absent, consumers suffer from higher prices, less service, and less choice. 

Any reasonable assessment would conclude that adequate choice and transparency are 

clearly lacking from today's health insurance markets. Study after study has found that health 

insurance markets are overly consolidated: a report by Health Care for America Now found that 

in 39 states two firms control at least 50 percent of the market and in nine states a single firm 

controls at least 75 percent of the market. A 2012 AMA study found over 90 percent of385 

metropolitan areas, representing all 50 states and the District of Columbia were "highly 

concentrated." In 89 percent of markets, one insurer had a commercial share of 30 percent or 

greater. Industry advocates claim that many markets have several competitors. But the reality is 

these small players are not a competitive constraint on the dominant firms, but just follow the 

lead of the price increases of the larger firms. 

When it enacted the ACA Congress heard from scores of consumers about the harms 

from this dysfunctional market. The number of uninsured patients has skyrocketed: more than 48 

million Americans are uninsured, and according to The Commonwealth Fund, as many as 84 

million Americans, nearly half of all working-age adults went without health insurance for a time 

last year or had such high out-of-pocket expenses relative to their income that they were 

considered under-insured. Since 2003, premiums have increased 80 percent, nearly three times as 

fast as the average wages and inflation. Healthcare costs are a substantial cause of three out of 

five personal bankruptcies. At the same time from 2000 to 2007, the 10 largest publicly-traded 

health insurance companies increased their annual profits 428 percent, from $2.4 billion to $12.9 

billion, with private insurance revenue increasing even faster than medical costs. 

Empirical economic studies have also documented the harm from health insurance 

mergers. A recent study documented how consolidation in various Texas markets led to higher 

premiums of about 7 percent. 5 The study also found that the increase in concentration led to 

lower premiums paid to healthcare providers, and contributed to the substitution of nurses for 

doctors in many markets. Consumers sutTer not only from higher premiums but reductions in 

service. 

4 Testimony of David A. Balto. "The Effects of Regulatory Neglect on Health Care Consumers" before the Senate 

Committee on Commerce, Science and Transportation, Subcommittee on ConSLLlller Protection, Product Sarety and 

Insurance on Competition in the Health Care Marketplace (July 16, 2009). 

~ David Balto and James Kovacs, Consolidation in Hcalthcarc Markets: A Rcvic\" of the Literature (January 2013), 

available at, http-iidcantitmstlaw.comiassetsicontentidocnmentsi2013Ibaltokovacs _ healthcareconsolidationj anl3 .pdf. 
114 

A more recent study addresses the impact of the merger of UnitedHealth Group and 

Sierra Health Services, two of the three largest insurers in Nevada that was approved by the DOJ 

in 2008. The study found that the merger led to the exercise of market power - premiums for 

small businesses increased by over 13 percent after the merger compared to a control group6 

Revitalized Health Insurance Antitrust Enforcement 

The prior administration failed to challenge any mergers or anticompetitive conduct by 

health insurers during the entirety of its tenure,7 but under President Obama we have seen a 

revitalization of health insurance antitrust enforcement. 

Fflforcement Actions Against Health Insurers 

The record on past enforcement in health insurer mergers was stark. In the past 

administration there was a tsunami of mergers, leading to further concentration in the industry. 

There were no competition or consumer-protection enforcement actions against health insurers in 

the last administration, despite the fact that anti competitive and abusive conduct plagued some 

health insurance markets. There were more than 400 mergers and the DO] required the 

restructuring of just two of those mergers. 

The tide changed in 2010 when the Department of Justice challenged Blue Cross Blue 

Shield of Michigan's proposed acquisition of Physicians Health Plan of Mid-Michigan The 

Department determined that this acquisition would result in BCBS controlling nearly 90 percent 

of the market for commercial Michigan health insurers. It further concluded that this acquisition 

would result "in higher prices, fewer choices, and a reduction in the quality of commercial health 

insurance plans purchased by Lansing area residents and their employers."" As a result of this 

concentration and likely anti competitive results, the DO] announced its intention to enjoin the 

merger and the deal was abandoned. This was the first time the DOJ threatened to go to court to 

block a merger and their willingness to litigate made a difference. 

The DO] continues to carefully evaluate insurance mergers. In November 201 I, the DO] 

required the divestiture of New West Health Services' commercial health insurance business 

when it attempted to enter an agreement with Blue Cross Blue Shield Montana for the provision 

of health insurance services for 5 of the 6 hospital owners ofN ew West. Additionally, in March 

2012, the DO] required a divestiture to protect competition in Medicare Advantage contracting." 

The proposed merger between Humana and Arcadian Management Services threatened to 

substantially decrease competition in 45 counties across five states, and the combined company 

'Gumdalo. Enmlons and Kane, 'The Price Effects of a Large Merger of Health Insurers' A Case Study of 

UnitedHealth-Sierra" Health Management. Policy and Innovation I (3) 16-35 (2013). 

~ I have testified in the past about the mistaken enforcement priorities under the Bush administration and have listed 

the misguided actions taken against groups of hcalthcarc providers, typically slllall and l1lrally located, with 110 

si.gnificanL impact 011 COllSLLlllers. Please refer to my testimony, --The Need fOT a Ne\v Antitrust Paradigm in Health 

Care" for more additional information. 

:< DOl Press Release, Blue Cross Blue Shield ofAfichigan and Physictans Health Plan oj~\1id-~'lichigan Abandon 

Merger Pians, Mmch 8,2010, available at, http"liwww.justice.goviatripublicipressJeleasesI20101256259.htm 

"United States v. Humana Inc. and Arcadian Management Services, No. 12-cv-~M (D.D.C. March 28,2012). 

4 
115 

would have controlled 100 percent of the Medicare Advantage market in at least five geographic 

regions. 

Equally pernicious can be practices by dominant insurers that limit the ability of other 

insurers to enter or expand in the market. One such practice is a Most Favored Nation clause 

(MFN), which requires the seller of a service to provide the best price to a buyer Generally 

these can be procompetitive, but when used by a dominant insurer they can forestall entry. An 

MFN requires a hospital to provide an insurer its best price, and can prevent other health insurers 

from entering into the market. These provisions escalated prices and increased entry barriers in 

the commercial insurance market. The DO] sued Blue Cross of Michigan for its aggressive use 

ofMFNs. lO According to the complaint, Blue Cross used MFN provisions or similar clauses in 

its contracts with at least 70 of Michigan's 131 general acute-care hospitals, including many 

major hospitals in the state. The complaint alleges that the MFNs require a hospital either to 

charge Blue Cross no more than it charges Blue Cross's competitors, or to charge the competitors 

more than it charges Blue Cross, in some cases between 30 percent and 40 percent. Tn addition, 

the complaint alleges that Blue Cross threatened to cut payments to 45 rural Michigan hospitals 

by up to 16 percent if they refused to agree to the MFN provisions. 

These agreements raised prices for commercial health insurance; restricted competition 

among health insurer providers; restricted choice by Michigan hospitals; and, ultimatel y led to 

less hospital services available. Blue Cross lost on its motion to dismiss the case as the court 

concluded that the government sutliciently alleged plausible markets, anticompetitive effects, 

and a legal theory of harm 

In March 2013 the Michigan legislature, recognizing the harmful effects on consumers 

and competition in the healthcare marketplace, passed laws prohibiting the use ofMFNs by 

insurers, health maintenance organizations, and nonprofit healthcare corporations in contracts 

with providers. As a result the DO] dismissed its case. 

F:nforcement Actions Against Healthcare Providers 

Much of the focus oftoday's hearing is on concerns about market power by healthcare 

providers - both hospitals and doctors. Although it is easy to generalize concerns, these 

concerns should be put in perspective. 

• Both the FTC and DO] devote considerable resources to healthcare and 

investigate dozens of provider mergers, joint ventures, and other alliances each 

year. 

• As to doctors - there have been no enforcement actions brought against mergers 

by physician groups or exclusionary practices by physician groups. Antitrust 

enforcement in the healthcare industry prior to the Obama administration focused 

almost entirely on doctors and on the narrow issue of whether these physician 

groups were sufficiently integrated to jointly negotiate. I have testified before this 

Committee that these were misplaced enforcement priorities, since there was little 

Wu.s. v. Blue Cross Blue Shield o/Michigan, Case No. 1O-cv-l~155 (E.D. Mich. 2010). 

5 
116 

evidence this conduct harmed competitionll None of the cases against doctors 

demonstrated - or even attempted to demonstrate - market power. There has 

never been a case challenging a physician group merger. In fact, the last case 

brought that alleged exclusionary conduct by a group of physicians was in 1994. 

This does not mean this area is free from competitive problems, but to date 

physician group mergers have not appeared to violate the law 

• As to hospitals - there has been significant consolidation. The FTC and states 

have appropriately challenged some potentially harmful mergers. But much of 

this consolidation is justifiable and can be procompetitive. No one can dispute 

there has been significant overcapacity in hospitals and a tremendous need for 

consolidation. Moreover, scores of hospitals are in a weakened financial state and 

consolidation is necessary to keep the hospitals operating, serving the community, 

and preserving jobs. Finally, hospital merger consolidation can lead to improved 

services and increased quality of care. 

Ultimately there must be a prudent balance that recognizes the potential efficiencies of 

consolidation in a measured fashion and weighs those efficiencies against potential 

anticompetitive effects. 

Enforcement Actions Against Hospitals 

Emblematic of this measured approach is the FTC's challenge to the merger of 

ProMedica and St. Luke's Hospital, the first and third largest hospitals in Toledo, Ohio.'2 The 

FTC alleged that the merger will increase concentration and raise prices in acute-care inpatient 

services and inpatient obstetrical services. However, the complaint also focused on the loss of 

quality competition, alleging that competition betvlieen the two hospitals had "spurred both 

parties to increase quality of care" and that these elements would be lost after the acquisition. 

The focus on both price and quality competition show that the FTC recognizes the need to 

evaluate both price and quality competition. Ultimately, the FTC secured a preliminary 

inj unction against the merger in US. District Court in Ohio, and last year the FTC ordered 

ProMedica to divest St Luke's HospitaL ProMedica filed an appeal of the Commission's 

decision to the US District Court of Appeals for the Sixth Circuit, which is currently pending. 

More recently, the FTC secured an injunction blocking the proposed merger between 

OFS Healthcare System and Rockford Health System. The FTC alleged that the combination of 

the dominant health systems would result in signitlcant concentration the market for general 

acute care services in Rockford, illinois. This combination would have given the merged entity 

greater leverage to increase costs and decrease quality, convenience and the breadth of services 

provided to local residents. 13 The court enjoined the merger and OSF abandoned the transaction. 

11 Testimony of David A. Balto, -'The Need for a New Antitmst Paradigm in Health Care" before the House 

JudicialY COlllmittee, Subcommittee on Comts and Competition Policy 011 AntitlUst La\vs and their Effects on 

Health Care PrO\·iders, IllsLLrers, and Patients (July 10,20(9). 

12 In the Matter (~fProMedico Heolth System, Inc., FTC Docket No. 9346 (Morch 28. 2012) ovoiloble ot 

www.ftc.gov/os/adjpro/d9346/12032Spromcdicabrillopinion.pdf 

11 In the Matter ofOSF Heolthcme System ond Rockford Heolth System, FTC Docket No. 9349 (Nov. 17,2011) 

available at www.ftc.gov/os/adjpro/d9349/IIIIISrockfordcmptpdf 

6 
117 

One of the most challenging areas is where a significant hospital acquires a significant 

physician practice. Since the hospital and physicians are not direct competitors the acquisition is 

vertical and it traditionally is more difficult to challenge vertical mergers. Most recently, the 

FTC sued St. Luke's Health System to enjoin its acquisition of Idaho's largest independent, 

multi -specialty physician practice group, Saltzer Medical Group. The acquisition would give it 

the market power to demand higher rates for healthcare services provided by primary care 

physicians in Nampa, Idaho and surrounding areas, ultimately leading to higher costs for 

healthcare consumers. 14 

Last year, the FTC sued Renown Health a large hospital system for its acquisition of two 

competing cardiology practices. The acquisition would have allowed Renown to employ 88 

percent of the cardiologists in the Reno area. Renown resolved the competitive concerns by 

agreeing to release ten cardiologists from the non-compete covenant Renown required each 

physician to sign. 

Similarly, in 2009, the FTC ordered the Carilion Clinic of Roanoke, VA, to separate from 

two recently acquired competing outpatient imaging and surgical clinics. Carilion is the 

dominant hospital system in the market and these outpatient clinics would have posed a 

significant threat to its dominance in outpatient imaging and surgical services, leading to higher 

premiums, and the risk of reduced coverage for these needed services. The FTC's willingness to 

undo an already consummated merger is further demonstration of the administration's 

commitment to combating concentration in the industry. 

Like with health insurers, the Obama administration has ramped up enforcement against 

anticompetitive conduct by hospitals, and that effort has continued since the enactment of the 

ACA. Again, antitrust cannot undo concentration but it can prevent practices that create barriers 

to competition that would threaten that dominance. In United Re{fional, the Department brought 

a Section 2 case against a Wichita, Texas hospital system that allegedly holds 90 percent market 

share in the market for inpatient hospital services, and 65 percent market share in the market for 

outpatient surgical services sold to commercial insurers. This was the first case brought by 

Justice or the FTC against anti competitive conduct by a provider alleged to have significant 

market power in more than 17 years. This market power means that United Regional is a "must 

have" hospital for commercial insurers in the Wichita, Texas region. 15 

The complaint alleged that United Regional willfully maintained its monopoly power by 

employing anti competitive exclusionary contracts with health insurers. The contracts were 

relatively simple: health insurers are penalized as much as 27 percent if they contracted with 

competing hospitals. The contracts defined competitors through geographical limitations, but 

they all encompassed the primary competing facilities. The DOJ alleged that the monopolymaintaining contracts had the anticompetitive results of delaying and preventing the expansion of 

competitors; limiting competition over price; and reduced quality for healthcare services. The 

DO] ultimately entered into a consent decree with United Regional that prohibits the hospital 

"FTC v. St. Luke's Health Svstem. et aI., No. 12-cv-5GO (D. Idaho). 

1 ~ United ,)'tates afAmerica and ,')'tate a/Texas v. ·United Regional Healthcare ')~Lwtel1l, Complaint, Feb. 25, 201 L 

available at http://wwwjusticc.gov/atI!cascs/f267600/267651.pdf. 

7 
118 

from entering into contracts that improperly inhibit commercial health insurers from contracting 

with United Regional's competitors. 

The Affordable Care Act and Opportunities for Increased Competition 

The healthcare reform debate challenged the underpinnings of the antitrust paradigm in 

healthcare that has generally characterized the past decade. As I have discussed in past 

testimony, that paradigm was deeply skeptical of integration by healthcare providers, particularly 

of efforts by physicians to collaborate. The debate over the enactment of the ACA scrutinized 

this model, however, and shed light on the opposing conception that increased provider 

integration could actually lead to more etlicient, higher quality care. Insutlicient integration, the 

debate clearly demonstrated, contributes to the "silo" problem between the various levels of 

healthcare delivery and is a central impediment of containing healthcare costs and improving 

quality. 

The AfTordable Care Act otTers a number of tools to increase competition in healthcare 

markets. As I mentioned in my introduction the ACA has already had a significant impact on 

health insurance costs - etTectively reducing premiums by over $1.2 billion in 2012. 

Let me highlight a few other tools. First, in 2014, competition among insurance 

companies will be spurred as insurers will compete for business on a level and transparent 

playing field in health insurance exchanges. Second, the new cooperatives created under the 

ACA will also help make health insurance markets more competitive. The provisions of the 

AtTordable Care Act aimed at better educating consumers of their options in health insurance 

further promote competition among health insurers. The Consumer Assistance Program of the 

Center for Consumer Information and Insurance Oversight, for example, is charged with 

providing the necessary resources for educating consumers about healthcare decisions and will 

surely foster greater competition among health insurers by creating better-infonned consumers. 

Finally, the ACA promotes the development of ACOs which should spur greater, more 

integrated and etlicient competition. 

Under the ACA, physicians, hospitals, and other healthcare providers are encouraged to 

reduce cost by, among other things forming ACOs. Hundreds of ACOs have been formed While 

ACOs involve collaboration among competitors, which has frequently raised antitrust concerns, 

skepticism of integration provider groups can be misguided. Though, as I have mentioned, the 

agencies appear to have dedicated the vast majority of enforcement resources to the question of 

integration of physician-negotiating groups, the most difficult issue the agencies must grapple 

with in the formation of these ACOs is market power, not integration 

What should be the response of enforcers to the concerns of provider market power in the 

context of ACOs? 

First, to the extent the concern is over ACO competition, it is critical that the agencies 

broaden the standards for integration, in evaluating proposed ACOs. Ifhospitals dominate some 

markets, it is even more important that the agencies provide a clear path for physician -sponsored 

ACOs to be formed. The agencies should permit ACOs to qualify based on clinical integration, 

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not just financial integration. The standards adopted by the agencies for ACOs provide progress 

in this area. Antitrust standards should enhance the opportunities for physician-sponsored ACOs 

that would provide competitive alternatives in ACO markets. 

Second, the FTC should focus its enforcement resources on market power by hospitals 

and specialized physician groups. The FTC has done an admirable job in reviving hospitalmerger enforcement in the past several years. Recent cases, such as the Toledo hospital merger 

have demonstrated the importance of antitrust enforcement in preventing the creation or the 

improper preservation of market power. 

The agencies clearly need to focus greater attention in those situations where specialized 

physician groups may possess market power. The DOJ and the FTC have generally overlooked 

this area-the most recent enforcement action against a group of physicians for exercising 

market power was 1994. In that case, the FTC challenged joint ventures by two groups of 

pulmonologists that harmed the home oxygen-equipment market by bringing to~ether more than 

60 percent of the pulmonologists who could make referrals for this equipment. 1 This type of 

referral power by large groups of specialists can raise prices for many procedures. It is 

interesting to observe that the case was brought under Section 5 of the Federal Trade 

Commission Act, which declares illegal "unfair methods of competition." The agencies should 

use their full range of powers induding the FTC's unique authority under Section 5. 

The Need for Increased Regulation 

Antitrust enforcement is an important solution but a limited one. The DOJ and the FTC 

have limited resources. Antitrust enforcement rarely, if ever, can be used to "deconcentrate" a 

market. Rather, antitrust enforcement can simply prevent further concentration through merger 

enforcement under the Clayton Act, and can prevent firms in an already concentrated industry 

from acting anticompetitively through enforcement of the Sherman Act or the FTC Act. While 

traditional antitrust enforcement should absolutely remain part of the solution, we must also look 

to legislative fixes and innovative market reforms like ACOs to address the potential exercise of 

market power. Regulation may be the most effective approach to problems antitrust cannot 

address. There are several examples worth considering. 

One of the most effective forms of regulation has been state regulation of rate setting. 

When in use by states, there is significant empirical evidence that rate setting helped slow 

aggregate total hospital spending in states such as New Jersey, New York, and Washington 17 

While many states have since abandoned a more forceful reb'Ulatory approach, some states are 

16 In the Alatter oflfome Oxygen & .Hedical r.quipmcllt Co., et aI, l1X. F.T.C. 661 (1994) (challenge LLllder Sectl011 5 

to joint venture of 13 competing pulmonologists in California who formed a joint venture involved in the supply of 

home oxygen and other related medical equipment, ,,,hich consisted of 60 percent of the pulmonologists in the 

rc1c'vant geographic area. Because the venture included such a high percentage of the pulmonologists in the area, the 

FTC alleged, it allo\vcd the specialists to gaiulllarkct pm.vcr ovcr thc provision of 0:\.1'gcn to paticnts in thcir homcs, 

and created a barrier against others \vho might offer that service (i.e., through patient referrals by the O\\-nerpulmonologists and the resulting inability of another 0:\.1;gen supplier to obtain referrals from pulmonologists). 

therebv reducing competition and risking higher consumer prices). 

l' SOl~ers, White, & Ginsburg, "Addressing Hospital Pricing Leverage tluough Regulation: State Rate Setting." 

POLICY A'IALYSIS 1,2 (2012). 

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continuing to maintain or beginning to create a sufficient reb'Ulatory scheme that will enable 

healthcare efficiencies, while also controlling costs. 

The model state continues to be Maryland. Through the Health Services Cost Review 

Commission CHSCRC"), the state has continually "bucked" the trend of substantial increases in 

hospital rates. In fact, according to the 2012 report, the difference between hospital costs and 

charges actually paid in Maryland stands at a national low of only 27 percent compared to a 

national average of 212 percent markup for services. 18 Furthermore, while many people have 

argued that the HSCRC and their price controls and macro-style regulation would lead to a lower 

standard of care, Maryland's healthcare continues to thrive. Maryland continues to pace the 

nation as one of the top states for both quality and access to care. 19 

Tn Massachusetts, the state whose health care system represented the model for the ACA, 

began an aggressive regulatory approach to combat higher healthcare prices, through the passage 

of the Health Cost Containment Bill. Enacted in August of 2012, the law is proj ected to save 

Massachusetts nearly $200 billion dollars over fifteen years. The state will achieve these savings 

through setting healthcare cost benchmarks, reforming Medicaid, establishing ACOs, medical 

malpractice reform, and other initiati ves including expanding consumer protections and patient 

access20 

Given their expertise and understanding, states are better situated to deal with local 

market power and exclusionary conduct in insurance and provider markets. The success of states 

thus far demonstrates their capability to regulate local healthcare markets. The federal agencies 

should tlnd constructive ways to advise states on their efforts to regulate. 

Unfortunately the antitrust enforcement agencies typically see regulation as an anathema 

and often oppose state efforts at healthcare regulation. In particular, when states have attempted 

to deal with anti competiti ve practices or the market power of insurers or pharmacy benetlt 

managers (PBM) the FTC has traditionally opposed these efforts For example, the FTC 

opposed the enactment of a statute to facilitate the development of rural health cooperatives in 

2009 21 And it opposed the enactment oflegislation to prevent mandatory drug mail order 

programs in New York in 2011 22 In both case the state legislatures rejected the FTC staff advice 

and enacted the legislation. From the prospective of these legislatures the real consumer is the 

patient and not the for profit financial intermediary2' 

18 The Maryland Health Services Cost Rcvic\" COlllmissioll, "Report to the GOVCillOI Fiscal Y car 2012_" available at 

http://,,,,,,,,\-.hscTc.state.md.us/documents/H SC R C _ Po l1cy DOCLLmentsReports/ Annual Reports/Go\ ernorsReport2() 12-

MD-HSCRCpdf. 

19 Agencv for Healthcare Research and Quality, ""2012 National Healthcare Quality Report:' available at 

hllp:llwww.ahrq.gov/research/flndings/nhqrdr/nhqr 12120 12nhqr.pdf. 

20 See Health Care Payment Refollll C.Quference Committee Report (2012). available at 

http://W\li\li.l11:1 5S. gov! governor/agenda/henlthcare/cost -contaimnent/sUlllll1:1fY -health-care-payment -reformconfcrcncc-colllmittcc-Icport.pdf. 

21 See letter from Federal Trade Commission to Rep. Tom Emmer (March 2009), available at 

hl.!.Jr:'/v" v\<\\. nco ~9fll/ad~ocacvjV09(1)(n . pdf. 

22 See leiter from the Federal Trade Commission to Hon. James L. Seward (August 8, 2011). available at 

http://,,Y1Y"iy.ftc.gOyios/2011/08:'1 I0808hC'aHhcarccommcnl pdf. 

21 I represented some of the proponents of both of these laws. See David Balto, FTC v. Lake Wobegoll, Hospitals 

and Health Networks (April 1, 2011), available at 

10 
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The Special Problems of Rural Markets 

Antitrust enforcement must be sensitive to the unique aspects of every market. In 

health care there are numerous underserved markets, especially in rural areas. Rural health care 

creates unique problems because rural areas are sparsely populated, often low income, and have 

a higher portion of consumers on public assistance. In addition, it is difficult to attract doctors 

and keep hospitals operating in rural markets. That is why there are numerous government 

programs to support rural healthcare, such as critical access hospital programs. 

Unfortunately, the antitrust enforcers have not always recognized the complex challenges 

of rural markets. Rural markets typically have very few competitors so the typical antitrust rules 

of thumb would probably find almost any kind of merger or collaboration illegal. For example, 

in the early 1990s the FTC challenged a merger of two small hospitals in Ukiah California a 

community of less than 20,000. (This challenge led to a Congressional inquiry). In 2009, the 

FTC opposed an effort by the Minnesota legislature to facilitate the development of rural health 

cooperatives, a provision that was enacted into law. The agencies have recognized concerns, 

however, in their guidance on ACOs and rural hospital mergers. 

The FTC is currently challenging an acquisition of a multi-specialty physician group in 

Nampa, Idaho a town of about 80,000 by St. Luke's Health System a major health system in 

Boise. The FTC alleges that the acquisition will enable St. Luke's to increase prices to health 

plans and employers. In addition, the FTC alleges the acquisition will reduce the potential the 

formation of alternative networks. 

Like any vertical acquisition (a merger not involving direct competitors) there are 

potential efficiencies from this type of arrangement, including better integration between hospital 

and physicians. These efficiencies may be particularly important in rural areas such as Nampa 

and may lead to provision of higher quality services. These are challenging issues and the FTC 

challenge is about to go to trial. 

There can be sound reasons to believe this type of acquisition will improve patient care 

and help fu1t111 some of the goals of the ACA. This type of integrated model has succeeded in 

other markets, helping to lower costs. Secondly, this type of acquisition can facilitate a shift in 

the market from a "fce-far-service" model to a value based metric for compensation. These 

issues deserve serious consideration in this case and similar acquisitions. 

Recommendations 

Ultimately, concerns with healthcare industry consolidation need to be focused on strong 

consumer protection and the balanced antitrust enforcement paradigm I have described. Below 

are some recommendations for building a solid structure for competition and consumer 

htlp://\n'l"";. hhnma!l,.comihlmm .. 'lg/jspiarticlecilspbv.jsp?dct}?atJFllI-Il\A.-fAG! Al1icle/d3ta;'O'~A.PR20 11 /O~ 1 J fJHN 0 

lltbox&doma.in=HHN1lLi.G; see also letter from David Balto to Hon. Andrew Cuomo regarding support for 

assembly bill 5502-B to eliminate llmlldatOlY m1il order pharnmcv services (October 17,2011), available at 

http://w"Ww.pbmwatch.com/uploads/8/2!7 /8/82 7820S/ny -ammo-letter -cuomo .pdf. 

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protection enforcement that is supportive of efforts at reform, while protecting competition in 

healthcare markets. 

1. Increase coordination among government health and antitrust agencies. A 

vast majority of healthcare expenditures are in government programs and 

maintaining competition in these programs is vital for controlling costs. The 

DOJ and the FTC need to work with HHS and CMS to ensure that taxpayers 

are receiving the full benefits of the most efficient, lowest cost services. 

2. The administration must marshal its competition and consumer protection 

enforcement resources to focus on anticompetitive, egregious, and 

deceptive conduct by insurers, and other intermediaries such as PBMs. The 

structure of the health insurance market is broken and the evidence strongly 

suggests a pervasive pattern of deceptive and egregious practices. Health 

insurance markets are extremely concentrated, and the complexity of insurance 

products and opaque nature of their practices make these markets a fertile 

medium for anti competitive and deceptive conduct. 

,'. Reinvigorated enforcement against anticompetitive conduct by health 

insurers and providers. The FTC should scrutinize anticompetitive conduct 

and use its powers under Section 5 of the FTC Act. Section 5 of the FTC Act 

can attack practices which are not technical violations of the traditional antitrust 

laws, the Sherman and Clayton Acts. Thus the FTC can use that power under 

Section 5 to address practices which may not be technical violations of the 

federal antitrust laws, but still may be harmful to consumers. 

4. Conduct a retrospective study of health insurer mergers. The FTC or the DOJ 

should conduct a study of consummated health insurer mergers. One of the 

signitlcant accomplishments of the Bush administration was a retrospective 

study of consummated hospital mergers by the Federal Trade Commission. 

This study led to an important enforcement action in Evanston, Illinois, which 

helped to clarify the legal standards and economic analytical tools for 

addressing hospital mergers. A similar study of consummated health insurance 

mergers would help to clarify the appropriate legal standards for health 

insurance mergers and identify mergers that have harmed competition. 

5. Recognize that the insurer does not represent the consumer. Although 

insurers do help to control cost, they are not the consumer. The consumer is the 

individual who ultimately receives benetlts from the plan. It is becoming 

increasingly clear that insurers do not act in the interest of the ultimate 

beneficiary. They are not the proxy for the consumer interest, but rather exploit 

the lack of competition, transparency, and the opportunity for deception to 

maximize protits. 

6. Clarify the jurisdiction of the FTC to bring enforcement actions against 

health insurers. Some may suggest that the FTC lacks jurisdiction over health 

insurance. I urge Congress to ask the FTC to clarify their position on this issue. 

Is the claim of no jurisdiction the law or simpl y an urban legend? As I 

understand it, there is a limitation in Section 6 of the FTC Act that prevents the 

FTC from performing studies of the insurance industry without seeking prior 

Congressional approvaL This provision does not prevent the FTC from bringing 

12 
123 

either competition or consumer protection enforcement actions. There may be 

arguments that the McCarran-Ferguson Act limits jurisdiction, but that 

exemption is limited to rate making activity In addition, some people might 

argue that the FTC's ability to attack anticompetitive conduct by nonprofit 

insurance companies might be limited under the FTC Act. The solution to this 

problem is simple, straightforward and critical. If the FTC lacks jurisdiction in 

any respect to bring meaningful competition and consumer protection 

enforcement actions against health insurers, Congress must act immediately to 

provide that jurisdiction. There is no reason why health insurance should be 

immunized from the Federal Trade Commission Act. 

7. Congress should repeal the McCarran-Ferguson Act, exempting insurers 

from the full range of federal antitrust laws. Eliminating the exemption will 

make it clear that the Justice Department can bring antitrust cases and the 

Federal Trade Commission can bring consumer protection cases against health 

insurers. Repeal of this exemption would improve competition and is necessary 

for the type of substantial antitrust enforcement that is long overdue in health 

insurance markets.>4 

24 Testimony of David A. Balto. "Protecting ConslIDlers and Promoting Health Insurance Competition" before the 

House Judiciary Conunittcc SUbCOllUllittcc on Courts and Competition Policy on H.R. 3596, the "Health Insurance 

Industry Antitrust Enforcement Act of 2009" (October 8, 2009). 

13 
124 

Mr. BACHUS. Thank you, and I think it is very thorough testimony by all the panelists. I very much appreciate it. That is a tremendous amount of information to try to absorb and analyze. 

At this time, I will recognize the gentleman from Pennsylvania, 

Tom Marino, for questions. 

Mr. MARINO. Thank you, Chairman. 

Good afternoon, panel. Thank you for being here. 

I am going to try and stay focused on the antitrust aspect of this, 

even though I do oppose most of what Obamacare has to offer, 

which I think is very little at this point. 

But, Mr. Balto, you talked about rural hospitals. I come from 

Pennsylvania, the 10th congressional district, very rural, largest 

geographic district in the State of Pennsylvania. I visited all of my 

hospitals since I have been in Congress, being elected and taking 

office in 2011, numerous times. And one of the biggest complaints 

that I hear from the administrators is the cost of administration 

and not being able to provide the services because they are in a 

rural area with escalating costs. 

Are you saying that—and I think you touched a little bit on the 

fact that rural hospitals are a different type of animal. Am I correct 

in that? Please go ahead. 

Mr. BALTO. Yes. First of all, many rural hospitals are critical access care hospitals. 

Mr. MARINO. Yes. 

Mr. BALTO. We are trying to preserve them. Because of the limited population, it is hard for them to attract doctors, and they 

have a very high cost structure. 

Mr. MARINO. So are we talking about two sets of rules then pertaining to Obamacare and rural hospitals versus metropolitan hospitals? 

Mr. BALTO. So the agencies had to come up with the antitrust 

standards for affordable care organizations. They came up with a 

special provision for rural ACOs to try to provide them a little 

more leeway to form ACOS, recognizing that any ACO would probably appear to have market power. I do not think that went far 

enough, and I do not think we see enough development so far of 

rural ACOs. 

Mr. MARINO. Professor Greaney, you talked about—I wish I had 

an hour to discuss this with each of you. I took so many notes during your input. 

You talked about more regulation. Did I understand that properly? You think we need more regulation by the Federal Government when it comes to health care. 

Mr. GREANEY. I am talking about State and Federal regulation 

that would really do away with pre-existing legislation and other 

regulations that block entry, such as certificate of need and so 

forth. But at the same time, for those markets in which there are 

dominant provider markets, there really is not a good competitive 

solution to ensure price competition simply because there is not 

any price competition. 

Mr. MARINO. But how do you do that in a situation concerning 

hospitals? It is very complex. They have to cover a multitude of 

needs that walk through the door. They certainly have to have— 

it is a great deal of paperwork involved as it is now. That appears 
125 

to me—and I am told by the administrators that their paperwork 

is increasing. Their costs are going up. And then factor in the aspect of what hospitals are not paid because when people come in, 

at least in Pennsylvania and I am sure across the country, you provide care for people who are injured even though they cannot pay 

for it. So how does all that factor into when you were saying we 

need more competition? Because does it not make companies run 

more lean? 

Mr. GREANEY. Well, first of all, let me mention that much of 

what the Affordable Care Act tries to do is remove those burdens 

of uncompensated care that they are providing through Medicaid 

expansion and other means. 

Mr. MARINO. I understand that. I mean, that opens up a whole 

other can of worms as to who is going to pay for this. But aside 

from that—and I will let you finish here in a minute. I just want 

to throw out this other thought. Are you saying that regardless if 

it is a government entity controlling a hospital or it is a private 

hospital, that overlapping services, if they are eliminated, are not 

going to lower the cost of health care? 

Mr. GREANEY. I think the issue that we are addressing today is 

dominant hospitals that have achieved market power such that 

they can charge monopoly prices. And the question is whether antitrust can do anything about that. And I am afraid the answer is 

very little or nothing. 

So the question for regulators such as insurance commissioners 

or certain States might be to put some kind of benchmark or caps 

on provider pricing. That is a regulatory option, but frankly that 

is one of the few tools they have. 

On the other hand, other measures such as ACO’s and patientcentered medical homes, might provide some pressure from the 

ground up to reduce over-prescribing and excess costs. 

Mr. MARINO. I see my time has expired. I will close with saying 

this. I get constant calls in my office from businesses, large and 

small, and from individuals as to say what do I do about my health 

care now. And we go a step further. We try to touch base with HHS 

and ask the questions, not pertaining to antitrust, but just services, 

and we get no answers. The answer we get is we do not know at 

this point. So that is one of my biggest problems with Obamacare. 

It is very clear that businesses are now saying to their employees 

we are going to have to take your family off the health care program or you are going to have to pay more into it or we may eliminate it. Whereas I admit antitrust is a big factor, it is a project of 

mine watching antitrust issues concerning particularly the pharmaceuticals, as you discussed—and you and I know about that a 

little bit. But there are many other issues concerning this. 

I yield back and thank you, gentlemen. 

Mr. BACHUS. Thank you. 

Mr. Smith? No questions? Okay. Thank you. 

Let me ask you this. Professor Richman, you and Professor 

Greaney have said you agree on certain things that could be done 

to increase competition. Have the other panelists—are they aware 

of what they have proposed? Is there any awareness of some of the 

things they have proposed? Maybe you ought to comment on some 

of the things they have proposed. 
126 

Mr. JOSEPH MILLER. Thanks for the question. 

I would like to start with the idea that everybody here seems to 

agree on that antitrust does not have a big role to play once a provider has aggregated market power. Historically that has been 

true. The FTC has tried it in the Evanston case. That case was 

something like 7 years from the beginning of the investigation until 

the litigation ended in a settlement. So it is not a solution that is 

going to get to the whole problem, but I do not want to let the moment pass without saying antitrust laws still have jurisdiction and 

if there is the right case, the agencies can go back and look at a 

consummated merger. 

In terms of the other proposals, we have not taken a position. I 

think they are all worthy of further study and debate. There are 

some that are relatively obvious to be in favor of, allowing practitioners to practice to the top of their licenses, lowering regulatory 

barriers to entry for competitors, and those sorts of things. There 

is a lot that has been suggested that is worth discussing. 

Mr. BACHUS. Mr. Miller or Mr. Balto or Ms. Pozen? 

Mr. THOMAS MILLER. Sure. Full disclosure, since I edited and 

published a study by Professor Richman, I would agree with many 

of his prescribed remedies. 

Let me just say as a preliminary, though, you know, there is a 

tendency when you talk to folks in antitrust—it is the old hammer 

and nail situation. They have a certain set of tools they can normally apply, and therefore, they find problems to which they can 

apply their remedy. In the area of hospital mergers, one of the reasons why the problem is not large anymore is hospitals have run 

out of targets. They are about as consolidated as they can be, and 

there are not many more opportunities to consolidate although 

there have been some rollbacks recently. 

We need to focus a little bit more on a different type of regulatory barrier to entry, which is the simple cost and burden of complying with regulation keeps the new entrants out of the field. You 

know, we think we are doing so many wonderful things with regulation, but we might be closing out and foreclosing the opportunity 

for someone to enter that business in a less conventional mean. It 

is not just scale. It is the ability to have the lawyers and compliance experts to get in the door. Health insurance is a hard area 

to get into to begin with. It is hard to start up new hospitals. We 

raised the bar even higher by the thickening web of what it takes 

to actually be a going concern in that regard. 

On the remedies, I think they are all worth exploring to the extent that they improve market entry and also facilitate market 

exit. 

I think the unbundling issue is a little harder to parse. I think 

it is promising. We have not figured out exactly where the thresholds are for where it could be applied. There was a lot of bad antitrust law in the past which over-exaggerated the degree to which 

you can leverage market power from one area to another. That 

may, though, be applicable in the case in which Professor Richman 

is talking about. We would have to go in and have to probe that 

a little bit further as to what is a workable way to actually carry 

that out. 
127 

Again, we keep forgetting that transparency can go a long way. 

The folks in Massachusetts who talked so much about the terrible 

consolidation and all the anticompetitive practices, when they finally got to the end of the line, they had to say, you know, it is 

not just a matter of more exotic payment and integration. We have 

to be able to find a way to measure this stuff and make it transparent to the people who are actually paying for it, and that is 

where you will get the real push-back from the true consumers and 

purchasers in this area. 

Mr. BACHUS. Ms. Pozen and then Mr. Balto. 

Ms. POZEN. If I could, I just wanted to refocus a bit on this issue 

of consolidation in hospitals. As I mentioned in my testimony and 

it is further elaborated on in the written testimony—and we actually can provide a study from 2007 to 2013 in terms of the number 

of hospital mergers. We actually calculated the number in the 

United States and found that number to be at 12 percent of the 

total number of hospitals. So this notion of consolidation and undue 

consolidation through mergers and acquisition—I think the study 

that the AHA commissioned from the Center on Healthcare Economics and Policy really rebuts that notion. 

I think, secondly, there has been a lot of discussion about 

retrospectives, and I really commend the Committee to think long 

and hard before it would advocate retrospectives in the hospital industry. Those were done previously. I think those who participated 

in that, the hospitals and the millions and millions of dollars that 

they had to pay to be reviewed by the antitrust agencies many 

years, as Mr. Miller mentioned after the mergers had occurred, 

would dispute the effectiveness of those retrospectives. Those that 

were actually involved in it like my former mentor and Commissioner Tom Leary who was at the commission at the time, wrote 

afterwards that he did not think those should ever be undertaken 

again, that they were not worthwhile. 

And I would add, as I mentioned in my testimony, you have the 

hospital industry going through tremendous change, these models 

of delivery, as I mentioned, and the drive toward efficiency and 

value. To undertake a retrospective and divert a hospital from its 

mission to serve patients to respond to a Government inquiry I 

think one should think twice before advocating that. 

Mr. BACHUS. Mr. Balto? 

Mr. BALTO. Thank you. 

You know, I just want to make an observation. From time to 

time I represent small town hospitals. I also sue hospitals actually 

for antitrust violations. We have all mentioned price. None of us 

have mentioned service. And I think that everybody has to be cautious about the extent that perhaps increases in reimbursement 

rates lead to improved service and how that goes into the balance. 

Now, as to the question of remedies, remember what Professor 

Richman is talking about is improving life for the insurance companies. The insurance companies will be able to—will not be paying 

as much to hospitals. Does that matter to the consumer? It depends 

if the insurance market is competitive and it results in lower premiums. But right now insurance markets are not particularly competitive. To the extent, as Professor Richman observes, that insur-
128 

ance exacerbates the problems of provider market power, I think 

having monopoly insurance makes those problems much worse. 

As to the two suggestions Professor Richman has, look, there is 

a more efficient answer than antitrust enforcement. The DOJ 

brought a big case to challenge a single most favored nations provision, and that is it. The case ended when the State passes legislation. Could it have been better for the DOJ to issue a guideline 

saying most favored nations provisions are illegal? Would it have 

been better instead of going to court for the DOJ to go to State legislatures and try to get them to pass similar legislation? Sometimes 

there are more effective ways than antitrust enforcement. 

As to Professor Richman’s approach on bundling arrangements, 

I think that is certainly worth exploring. By the way, those bundling arrangements are clearly a problem when we look at the 

pharmaceutical industry where pharmacy benefit managers effectively force consumers to buy specialty drugs, very expensive drugs 

for people with chronic conditions, from the PBM’s own specialty 

pharmacy. Every one of the problems that Professor Richman has 

identified there is in spades when you look at pharmacy benefit 

managers. 

Mr. GREANEY. I want to drill in one more point about regulations. I alluded to the fact that there are important changes underway right now with respect to Medicare payment both the physicians and hospitals. And I think it is important for Congress to 

support some of the recommendations coming out of CMS and, 

most importantly, out of Medpac. 

One great example is the fact that some of the physician acquisition by hospitals is motivated by the fact that the hospitals can 

charge a higher fee for the very same services that were provided 

independently in the doctor’s office, and that certainly is an incentive, a very perverse incentive, for acquisition. 

So I think Congress should pay attention to what Medpac and 

others are saying, and I think the reforms that are underway, partially spurred by the Affordable Care Act, are very important. They 

are looking at retooling how we pay doctors because we have a fairly absurd system. 

And by the way, Medicare payment policy is followed by private 

payers in many, many instances. So the fact that we pay physicians based on inputs of their costs rather than outcomes and their 

value is a complete distortion, and the fact that private payers follow that model is important. So Medicare reform is very important 

in driving both efficiency and competition in the private market. 

Mr. RICHMAN. If I could just add two small points. Actually both 

of them relate to what my fellow panelists have already said. 

Professor Greaney points to one feature which is really endemic 

throughout the industry, which is how providers and insurers alike 

seek to exploit different loopholes in the reimbursement system. 

And to a large degree, this is the market model that most providers 

have assembled. And I think it, to one degree, was why Congressman Marino has observed in his district and districts throughout 

America—why the administrative costs of running hospitals are so 

high. It is because they respond to these different incentives both 

with public payers and private payers. The whole market model is 
129 

one designed to capture a market and extract maximum dollars 

from payers. 

There is an alternative business model, which really has not 

been pursued a whole lot among providers, and that is to really 

pursue efficiency or value-based models. It is one reason why business education is so critical to encourage both providers and administrators to really pursue. It really involves a very different 

kind of economic model. 

That also speaks to one very interesting dynamic that we heard 

both from Ms. Pozen and Mr. Joe Miller. Mr. Chairman, you observed in the beginning you were hoping to hear from all sides, and 

what is funny about that conversation you hear out of AHA and 

AHIP is sometimes you are hearing both sides of what really is the 

same coin. The insurers often lament consolidation among the providers and use that as a justification to consolidate themselves. 

Providers lament big insurance companies and use that as a justification for their own consolidation. 

And the end of this kabuki dance—this kabuki dance really has 

gotten us to a large degree in this mess that we are in, but the end 

of it is culminated in exactly the litigation that Mr. Balto described 

in Michigan where essentially you had one dominant provider, one 

dominant insurer, and they were in cahoots with each other. That 

is what these contractual provisions, the MFN clauses, the antisteering clauses, really are. It is the dominant insurer saying to the 

dominant provider we will make sure there are no entries, and the 

dominant providers saying the same to the insurer. That is where 

this dance is ending. If either we do not figure out ways not just 

to address market power but really—and it involves a combination 

of cooperation among market players and regulators to figure out 

a way to revitalize competition in this industry. 

Mr. BACHUS. Thank you. That is an excellent point. And any 

input that you can give the Committee, any proposals that some of 

you even maybe come together and cooperate with some of this because I see a lot of agreement on certain points that are made. 

At this time, the Ranking Member of the Committee has waited 

patiently for several hours and observed, heard all this testimony, 

and he has now got some questions. 

Mr. COHEN. That is my story and I am sticking to it. 

Thank you, Mr. Chair. I was on the floor on SNAP and some 

other things trying to preserve food for hungry children and veterans and people without opportunities otherwise to have a meal. 

So I thought that was more important. But I am here, and this is 

very important too. 

First, I would like to ask Ms. Pozen a question because I am real 

concerned about these States that have not decided to expand their 

Medicaid programs. What will the impact of not expanding Medicaid programs be on hospital revenues and hospital existence in 

the States around the country and particularly if you know about 

Tennessee? But in general, will this be harmful to hospitals? 

Ms. POZEN. I think when you think about what has been going 

on in, as I mentioned, this transformation of health care and the 

idea of the Government payer and those getting into States so that 

actually there is access to care and that care can be provided, I can 

only imagine the hospitals in that situation and how they would re-
130 

spond to it. Again, the Affordable Care Act from the AHA’s standpoint is about access to care and coordination of care. So without 

that, I think we will continue to see this fragmented health care 

system. 

Mr. COHEN. In the State of Tennessee, I think we have not decided to expand our Medicaid. Our Governor there has a problem 

with his Senate, which is catching up. It is at about 1956 I think 

right now. So it takes time to catch up to the current situation. 

And I think $500 million we may be giving up a year by not expanding. 

Is it true, as it has been suggested, that rural hospitals might 

have to close because of the failure? 

Ms. POZEN. I cannot speak specifically to Tennessee or the rural 

hospitals in Tennessee, but I do know, as has been mentioned 

today on this panel, that the rural hospitals do struggle, and these 

smaller hospitals need inputs and sometimes need a partner, as I 

mentioned in my testimony. So without adequate funding and inputs, certainly they could struggle. 

Mr. COHEN. And how about the public hospitals? We have the 

Med in Memphis and Nashville General and Erlanger and UTS 

hospital in Knoxville. Will the public hospitals in general, the ones 

that serve the people that otherwise do not have insurance—will 

they suffer greatly too? 

Ms. POZEN. Again, I think those hospitals have to be open for 

business and accept those that come and need care, as was mentioned by one of the Members earlier. And so that certainly affects 

how hospitals produce and serve if they are doing it for free. 

Mr. COHEN. Mr. Joseph Miller, I understand you represent the 

insurance industry? 

Mr. JOSEPH MILLER. Yes, sir. 

Mr. COHEN. Can you tell us how much money the industry paid 

back because of the Affordable Care Act which required that you 

only spend no more than 20 percent of your money on salaries and 

profits and advertising, that cost ratio? How much money did you 

all end up paying back to consumers for overpayment of insurance 

premiums because they did not come within that 80-20 differential? 

Mr. JOSEPH MILLER. I am sorry, Mr. Cohen. I do not have that 

figure in front of me. 

Mr. COHEN. But it would be a considerable amount of money, 

would it not? 

Mr. JOSEPH MILLER. I do not know what you mean by ‘‘considerable.’’ I think it went down from the first year to the second. 

Mr. COHEN. Yes, because you all were starting to bring your programs because you did want to have to be doing more than 80 percent, starting to conduct yourselves within the parameters of the 

law and looking better. 

What are some of the other reforms that have come upon the insurance? Can you all no longer have yearly caps on an individual’s 

insurance? Is that not allowed anymore? 

Mr. JOSEPH MILLER. Annual lifetime limits have been outlawed 

from the beginning of the ACA. That is right. 

Mr. COHEN. And you used to be able to not allow people with 

pre-existing conditions to get insurance. You cannot do that anymore, can you? 
131 

Mr. JOSEPH MILLER. Starting now, yes, in 2014 pre-existing condition exclusions are no longer permitted. 

Mr. COHEN. And children with pre-existing conditions—they have 

already been affected by that. So they are getting insurance. Right? 

Mr. JOSEPH MILLER. I am sorry. I did not hear you. 

Mr. COHEN. Children. 

Mr. JOSEPH MILLER. Children, yes. 

Mr. COHEN. And then parents—they used to not be able to keep 

their children on their insurance until they are aged 26. Can they 

do that now because of the Affordable Care Act? 

Mr. JOSEPH MILLER. Yes. Children up to the age of 26 are permitted to stay on their parents’ policies, some I think before the Affordable Care Act, but now it is required. 

Mr. COHEN. Mr. Balto, I guess you have probably had a chance 

to hear all the testimony. I apologize for trying to see that people 

did not starve to death in our country in the future years. 

Are those reforms good? I mean, is it a good thing that people 

who have pre-existing conditions can get insurance and that insurance companies cannot take over 20 percent of what they take in 

for profits and advertising and other overhead and that people do 

not have yearly caps and lifetime caps on their insurance? Is that 

really good for the people? 

Mr. BALTO. Yes. As a public interest attorney who often represents consumer groups, I absolutely think so. 

By the way, the number you were looking for was that last year HHS required the insurance industry to return over $12 billion to 

over 6.8 million consumers. 

Mr. COHEN. Can you say that again? 

Mr. BALTO. I did it twice when you were not here. 

Mr. COHEN. $12 billion to how many consumers? 

Mr. BALTO. Over 6.8 million consumers. 

Mr. COHEN. Did you say it? Mr. Miller must not have heard you. 

He did not commit that to memory, but I am sure he has got it 

down now. That is amazing. That is amazing. $12 billion was returned to American citizens and how many millions of people? 

Mr. BALTO. Over 6.8 million. 

Mr. COHEN. So they have already benefited from the Affordable 

Care Act because instead of just paying that to extra profits and 

advertising and overhead to the insurance companies, it came back 

to American citizens, and then they could spend that in the marketplace. And the ripple effect on that in the economy—wow, that 

is pretty strong. 

Mr. BALTO. Yes, it would be, and we hope that once the exchanges go live and there is an increase in competition between insurance companies, insurance rates should continue to stay stable 

or even decrease. 

Mr. COHEN. Professor Greaney, what do you think about all this? 

Mr. GREANEY. Well, I would make a couple points on the insurance reforms. When you think about it, what the Affordable Care 

Act has done is say to insurers what you used to do and you did 

it very well was find good risks by pre-existing conditions clauses 

and things like that. You did not manage care. You did not force 

providers to provide cost-effective, quality care. Taking that off the 

table, turns the tables on competition and says insurers are going 
132 

to have to compete to provide better care through the providers 

they contract with. And when you think about it, some of these 

things that were taken off the table are things I do not think anybody would bargain for, pre-existing conditions, lifetime limits, and 

things like that. It is okay for, I think, legislators to say there are 

certain things that are not going to be in insurance contracts. Let’s 

compete on quality and other matters. And that is what I think the 

Affordable Care Act did. 

By the way, we in Missouri have also declined to expand Medicaid, and my colleagues on the Saint Louis University Law School 

faculty have accumulated a lot of evidence about the net cost not 

only to the taxpayer of Missouri but to the government. It is going 

to cost the government more in pre-existing programs that it could 

have done away with. 

And finally, there is a health care issue in Medicaid expansion. 

We have actually calculated the number of probable, based on statistics, mortality rates that will occur in Missouri as a result of the 

lack of Medicaid expansion. People without health insurance will 

die in greater numbers. 

Mr. COHEN. Let me ask you something else. And I forgot about 

that, that under this program, the donut hole will be eliminated. 

Is that going to help people in Missouri? 

Mr. GREANEY. It sure will. I mean, the donut hole is one of the 

most oddball contraptions ever designed. It was a compromise in 

many ways, but it was very hard to make the case that that really 

improved rational shopping among consumers. 

You know, I think co-pays and deductibles are important and 

they can serve a purpose, but in many ways co-pays and 

deductibles can have a bad effect. And there is a lot of academic 

literature out there, studies, that show people making decisions 

under the pressure of economic constraints through co-pays and 

deductibles. They do change their behavior. Unfortunately, the 

studies also show they are just as likely to forgo unnecessary care 

as needed care. 

Mr. COHEN. Even for a small co-pay. 

Mr. GREANEY. Even for a small co-pay. In the Medicaid context, 

that is certainly true. Small co-pays can do—— 

Mr. COHEN. So like under this—— 

Mr. GREANEY. Co-pays can be targeted, however, Congressman. 

They could be targeted in areas where it makes sense and the consumer can make that tradeoff. It is no so clear the consumer can 

make that tradeoff when the doctor says you need an MRI. 

Mr. COHEN. In the Affordable Care Act, if you go in to your doctor and you should get a colonoscopy because you turned 50 or you 

have gone 10 or so years after that, there is no co-pay now. Is 

there? 

Mr. GREANEY. No. The Affordable Care Act rightly eliminated copays for preventative services. 

Mr. COHEN. And mammograms? 

Mr. GREANEY. And did exactly that for that very purpose. Those 

are the kind of decisions that should not be affected by the financial constraint because they are so important. 

Mr. COHEN. And then it costs more money later because if they 

develop this illness and it costs more money later. Preventative 
133 

care can save money in the long run. I am even more happy that 

I voted for the Affordable Care Act today than I ever was. Thank 

you. This has been a great hearing and I appreciate your testimony. 

Mr. MARINO [presiding]. I think that we have time, if you have 

time, to have another round. I have a couple of questions I would 

like to zero in on. 

Like my good friend here, I have to go down and vote against 

SNAP because of all those who do not want to work and want the 

government to keep them at a cost that is just doubling and tripling. But be that as it may, we still have a good relationship. 

Mr. COHEN. We do. 

Mr. MARINO. Mr. Balto, I am a little confused on the figures that 

you threw out now, and I think my colleague says that based on 

what you said, that $12 billion has been paid back to individuals, 

and in your testimony you said $1.2 billion. Can you help me out? 

Mr. BALTO. I misstated it. Thank you, Congressman. It is $1.2 

billion. 

Mr. MARINO. Okay. It is still a lot of money. So maybe we can 

take that $1.2 billion and put it into Medicare where the President 

took out $500 billion and moved it over to Medicaid, which would 

help our seniors. So we both have a cause here. 

Mr. Thomas Miller, can you please—I am going to throw this 

thought out. I have rural hospitals and municipal hospitals that 

tell me that the 80-20 setup is not working for them, and that is 

one of the reasons they just cannot afford to keep operating under 

the premise. Now, I am a capitalist. I believe the market will determine what prices are. I have a daughter with a pre-existing condition which is causing me a problem now because of Obamacare. 

And what do we do when the hospital says we are going to go out 

of business if we do not merge with a larger entity? 

Mr. THOMAS MILLER. Well, given your premises, I mean, there 

are situations in which small hospitals do not have capacity to be 

effective, efficient operators. That is an issue for the particular case 

as to what the economics look like. So I cannot give you an automatic reaction to it on that alone. And we certainly do have some 

small hospitals that have been in that situation, and they have 

been rolled up into larger chains. I am not quite sure what else you 

are asking beyond that. 

Mr. MARINO. Well, they are still in existence. The point I am getting to, particularly in my district, is these smaller hospitals are 

still in existence even though they have merged. And so someone 

does not have to go 50 miles away from their home to get to a hospital. If it were not for the merger, it would be a 30 or 40 or 50 

mile trip to get to a hospital even for emergency purposes. Now, 

we do have EMT’s and people that can sustain life, but it is quite 

a distance to travel. 

Mr. THOMAS MILLER. Well, we are certainly looking toward improvements in the ability, whether you want to talk about telemedicine. We have had employers literally paying their folks to 

travel further to centers of excellence. So there is a shaking out on 

that as to what is a more efficient economic operation, although we 

know that patients have an underlying natural bias to want to be 
134 

close to home when they look for a hospital, and that has shown 

up in most referral patterns. 

Mr. MARINO. There are parts of Obamacare that I had been promoting even before I came to Congress—I was in government and 

I was a prosecutor for years—simply because of my daughter’s condition. But given the fact that it appears at this point—let’s forget 

about the antitrust side of this for a moment and the merging— 

that there are going to be a fair number of hospitals that will go 

out of business. Particularly in my area, we are going to have a 

problem obtaining qualified nurses and physicians to come into 

those areas. So how do we compensate for that if the merger is 

characterized as being just this dangerous monster that is going to 

increase the cost of health care, which Obamacare is doing? I 

mean, the insurance companies, the health care providers are telling me about this. 

Mr. THOMAS MILLER. Well, I am not assuming up front that necessarily those mergers are bad or dangerous under the circumstances that you have described. The flip side of this is that we 

have tried this for years in many areas to try to chase after it with 

additional subsidies. That has diminishing returns over time, and 

it turns out we run out of subsidized money and then we have done 

some other sets of distortions. 

So what we are really thinking about is a different type of health 

delivery system landscape in which the people who need services 

can find them in other means if it turns out the existing institutions cannot serve them as well as they would like to in an economic manner. The more we can break down some barriers to having those type of transformations occur, the better off we will be 

in getting to that resorting. 

Mr. MARINO. I apologize for walking out and coming back. I had 

another Committee hearing going on and we were doing a markup 

and I had to vote. 

But as I was coming in, did I hear a conversation concerning 

payment based on outcome? Would anyone like to explain that to 

me? Because it seems a little strange when you say ‘‘payment 

based on outcome.’’ I am not being facetious, but I am going to exaggerate a point here. 

A patient goes in the hospital. Everything is fine. The surgery 

went well. And then for some reason, the patient passes away. So 

what do you do based on that outcome? 

Mr. RICHMAN. The measurement of health outcomes is a very 

complicated science, but it is a science that is getting very good. 

And there are certain things that are easy to measure, certain preventable outcomes like infection rates that are easily prevented, 

and unnecessary readmissions is another. And the approach among 

payers, private payers and also Medicare, is to increasingly try to 

put pressure on providers to avoid avoidable adverse outcomes like 

infection rates. And the result actually has been a reduction in certain rates. 

And it is a bit of an embarrassment that American hospitals still 

boast higher infection rates and other avoidable problems than our 

colleagues in other OECD nations. It is not because American physicians or American hospitals are worse than other hospitals, but 

I think it is because the payment system really does not incentivize 
135 

them to look for avoidable measures that are costly ultimately to 

Medicare and also to insurance subscribers. 

Mr. MARINO. Thank you. 

Ms. Pozen, please. 

Ms. POZEN. Could I add a little bit to that as well? 

Mr. MARINO. Yes, please. 

Ms. POZEN. Because I do think one of the things, to address some 

of the issues that we have been talking about—and we have talked 

a little bit about accountable care organizations or what we call in 

antitrust clinical integration and this notion of allowing the providers actually to work together to coordinate their care for a given 

patient so that when a patient comes in, that group of physicians 

knows here is my checklist based on what I know is likely that I 

can apply. It is easier for the hospitals and physicians to establish 

those not only because they are serving that population, but also 

everyone that comes in is insured either commercially or from a 

private payer and you do not want to have different checklists. 

So I would say having the provider community own this issue in 

a sense and owning it through the creation of accountable care organizations that have proper integration and have these kinds of 

protocols established can help in a large part to end again this 

fragmentation of health care to provide the kind of efficiency and 

quality care that I think we as Americans hope for. 

Mr. MARINO. Mr. Greaney? 

Mr. GREANEY. Chairman, I once heard a CEO of a major system—it may have been the Mayo system—say it does not pay to 

be good. An example would be readmissions. If you have a lot of 

readmissions that are preventable as a hospital, you get paid twice. 

If you do not, you only get paid once. That is sort of a simple outcome measure but it is one. 

Medicare is looking at value-based purchasing, as it calls it. And 

again, it would be facilities that have measurable bad outcomes 

like infectious disease rates, et cetera because none of us want to 

pay for something we did not get. And I think that is just a sensible way of doing business, and I think private payers are going 

in that direction as well. 

Again, remember, Medicare payment is the tail that wags the 

dog or vice versa in that the way Medicare pays often leads the 

way for private payers. So what these reforms are doing in Medicare are changing the way payment is made and delivery occurs. 

Mr. MARINO. Thank you. I think we need to develop a hybrid 

here. 

Mr. THOMAS MILLER. If I could just say, most of our quality 

measurement in the past and even currently has tended to be process measures. We think if you do something, it will create a good 

result. There are efforts—and they need to be pushed further—to 

begin to move toward actually measuring what matters to people 

which is their outcomes. Now, sometimes it may be an intermediate marker. It might be a lab test. There are the no-brainers, 

which is how to eliminate the infections and the readmissions, but 

that is not a large enough scale. 

I think there has been some progress under the law in CMS in 

trying to make more available the wider database, particularly 

Medicare data, to make that more accessible for other folks to 
136 

begin to analyze that and come up with something. But it is a matter of probabilities. It is not certainties. We have two competing 

views which is if we just tell you what to do in a certain manner, 

good things will occur as opposed to saying why don’t we actually 

see whether or not you are producing something that works. There 

might be some ways to get there. And that is the difference in 

terms of those two approaches to measurement. 

Mr. MARINO. Thank you. 

The Chair now recognizes Congressman Cohen. 

Mr. COHEN. Thank you, sir. I appreciate it. Mr. Balto, you obviously missed a decimal. Was it $1.2 billion 

that has been paid back to red-blooded, hardworking, good American citizens? 

Mr. BALTO. Yes. 

Mr. COHEN. And how many millions of people was that? 

Mr. BALTO. 6.8 million. 

Mr. COHEN. That number has not changed. 6.8 million people got refunds. That is great. That is $1.2 billion with a ‘‘B’’ monies paid 

back. How many million? 

Mr. BACHUS. I thought he said 8 billion. 

Mr. COHEN. Are you Johnny Manziel? [Laughter.] 

So, Professor Greaney, let me ask you a question. You are an 

antitrust expert. Right? 

Mr. GREANEY. I have been toiling in that vineyard for a lot of 

years. 

Mr. COHEN. And you know something about mergers. Apparently 

this has been going in some of the hospital industry. 

Mr. GREANEY. Yes. 

Mr. COHEN. Hasn’t this been going on for a long time? 

Mr. GREANEY. Yes. I left the Antitrust Division in 1987, and 

there were challenges then. And what happened going back was a 

series of several cases which I think a lot of economic studies now 

prove were wrongheaded. Courts defined very large markets, allowed mergers to go through. And then the enforcers got cold feet 

and stopped bringing merger cases involving hospitals. What that 

precipitated was a real wave of hospital mergers in the 1990’s and 

early 2000’s. So it was a bringing together of both questionable 

precedents and a lack of willingness to go forward. 

Mr. Balto said we have had retrospective studies and others that 

I think have changed matters, and right now the FTC is pursuing 

a number of important merger cases with greater success. 

Mr. COHEN. And so those mergers started, you say, in the 1980’s 

and the early 1990’s? 

Mr. GREANEY. The challenges to the mergers did, yes. And there 

were rampant mergers in the 1990’s, yes. 

Mr. COHEN. That was before Barack Obama was even a State 

Senator. 

Mr. GREANEY. That is correct. 

Mr. COHEN. It is amazing. 

And there have been a lot of mergers in the airline industry, has 

there not? 

Mr. GREANEY. There have. 

Mr. COHEN. And in the supermarket industry? 

Mr. GREANEY. I believe so, yes. 
137 

Mr. COHEN. And department stores. 

Mr. GREANEY. Yes. 

Mr. COHEN. So there is nothing unique about hospitals per se in 

a way. I mean, hospitals, airlines, grocery stores, department 

stores—mergers have been commonplace in America in all areas 

independent of the fact that Barack Obama was even around or 

that the Affordable Care Act was passed because the Affordable 

Care Act had nothing to do with Northwest and Delta getting together or Macy’s buying out Goldsmith’s in Memphis and I do not 

know who they bought in St. Louis. Do you still have a regular 

home department store in St. Louis? 

Mr. GREANEY. We do. We have several department stores left, 

but there have been mergers there as well. 

Mr. COHEN. And Schnucks came to Memphis and then they 

‘‘schnucked’’ us out and sold to Kroger’s who has turned out to be 

a good group. 

Mr. GREANEY. Well, we had an interesting FTC case involving 

the Schnuck’s merger in St. Louis that did not turn out so well. 

Mr. COHEN. And all that had nothing to do with the Affordable 

Care Act, did it? 

Mr. GREANEY. It did not. What I think has precipitated some of 

these mergers is the attempt to sort of gain ground by preemptively merging so they do not have to face competition. 

Mr. COHEN. And Mr. Miller, the insurance Mr. Miller, I just 

want to make sure you did not get $12 billion in your mind. You 

got $1.2 billion. 

Mr. JOSEPH MILLER. Yes. We are checking on the number. 

I do want to address the point you are making on the medical 

loss ratio. 

Mr. COHEN. Yes, sir. 

Mr. JOSEPH MILLER. It does nothing to address the issue that we 

are talking about in this hearing, the underlying cost of care. 

Mr. COHEN. It has a lot to do with the bill, though, the Affordable Care Act, and that is what this is all about. In this House that 

I serve in the 113th Congress, 40 times there has been an attempt 

to repeal Obamacare, and now there is a possibility of shutting 

down the Government, which John Roberts upheld as the law that 

the Congress passed and the Senate passed and the President 

signed. And the President is not going to sign any kind of repeal 

bill and the Senate is not going to see it. And that is what this is 

about. 

Mr. JOSEPH MILLER. Yes, as far as that goes, AHIP tries to stay 

out of politics. 

Mr. COHEN. Good move. 

Mr. JOSEPH MILLER. But I did want to talk just for a minute 

about the MLR. Everything that health plans do to add value is penalized under the MLR. Formation of high-value networks, care coordination, coordination of medical homes, population health management, and most fraud deterrence expenditures are penalized. 

They are on the wrong side of the ratio. And so things that we 

could be doing to help hold down costs were deterred under the 

MLR. 

Mr. COHEN. Mr. Balto, do you have a response to that? 
138 

Mr. BALTO. Look, I think the Affordable Care Act appropriately 

looked at insurance company operations. I did not recite all the testimony delivered in the last Congress about problems in the health 

insurance market. There were very serious problems, you know, escalating premiums, a huge number of uninsured. It was appropriate to go and look at what was going on and impose certain 

types of regulation. Those regulations—hopefully 5 or 6 years from 

now we will not need those regulations because the exchanges will 

have made the market more robustly competitive and there will not 

be this kind of padding that is going on. 

I do want to go back to your question, does the Affordable Care 

Act cause the problems in the market. I just want to caution here. 

Insurance companies and PBMs will knock on the FTC’s door and 

say please let us merge. You need us to get bigger because the drug 

companies are getting bigger or the hospitals are getting bigger. 

Going and creating some bigger entity to try to bargain with another big entity always harms consumers. It ends up costing consumers. 

Mr. COHEN. Thank you, sir. 

And I yield back the balance of my time. 

Mr. MARINO. Thank you. 

The Chair recognizes the Chairman of the full Committee, Congressman Goodlatte. 

Mr. GOODLATTE. Thank you, Mr. Chairman, and I want to thank 

you and Chairman Bachus for holding this hearing. 

And I just want to ask Thomas Miller if—we have had some discussion here about the fact that consolidation takes place in the 

natural order of things and in other industries for other reasons. 

But I would like to come back to whether you think that 

Obamacare by itself has the prospect of more consolidation because 

of this new health care law and why that would be. 

Mr. THOMAS MILLER. I do. I think that there is less opportunity 

for further consolidation in the hospital industry in light of what 

has already occurred. But certainly we are seeing, in terms of the 

integration and consolidation—we are not sure whether it is true 

clinical integration, which is the outstanding question in a lot of 

the ACO’s. But in general, among physicians and other medical 

practitioners, they are selling out and being bought up, saying I 

have got to have some shelter in the larger organization. 

Now, we have got limited evidence on what the ACO’s are really 

producing. We had the early results from the pioneer ACO’s where 

it is a little hard to find many cost savings coming from the early 

going. This is in keeping with many of the previous demonstration 

projects or other pilots that CMS has done in this field. We got a 

lot of promises of efficiencies in integration, but the actual delivery 

indicates a little bit more of a mixed record. We are not sure who 

is really running the show. What we do know is that consumers 

often are not asked whether they want to participate in the ACO. 

So it is more for the other parties about it. 

There is a longer-term dynamic. I think it is early to say what 

is happening in the health exchanges. I was just looking at a study 

by McKinsey last night suggesting there are two different types of 

reactions between whether or not the exchanges are being run by 

the States, which are a little more enthusiastic in recruiting a lot 
139 

of insurers to participate initially, as opposed to the default federally run exchanges or even the partnerships where there is less 

participation. The big insurers are staying out in year one more so 

than what have been predicted. We are getting a lot of the Medicaid insurers trying to leverage up and provide Medicaid-like products with more limited networks and lower reimbursement as a 

way to be the low-cost bidders in the exchanges. So I think it is 

hard to say where those exchanges are going to be a couple of years 

from now, but in all likelihood, as we have seen before, the folks 

who get the market share early tend to hold onto it and there is 

going to be less switching in subsequent years. 

So the story of this widespread, competitive dynamic with everyone having every choice in the world—I would suggest you take a 

look at the New England Journal of Medicine article by Henry 

Aaron and Kevin Lucia suggesting this is just the beginning. We 

really want to clamp down on this stuff and be much tighter in 

terms of what we are going to allow with more active purchasing. 

Those tools are there under the ACA, and I think if they can get 

out of the initial bumpy road, extremely bumpy road, of implementation, we may see a different face as to how those exchanges are 

actually run. 

Mr. GOODLATTE. And in terms of pricing of health care and 

health insurance, more Government subsidies, it would seem to me, 

are likely to not result in better price control but actually greater 

demand not being readily met, resulting in higher prices for health 

care. 

Mr. THOMAS MILLER. The Government is good at usually increasing demand. It is a little harder at increasing supply. That is why 

I certainly think some of the proposals here to expand in more creative ways supply, such as eliminating some of the barriers to 

entry by other types of providers of health care services, will be 

necessary. But we are going to run out of enough physicians. 

Let me just allude briefly. You know, Medicaid expansion. Speaking of Tennessee, I think they already had their experience with a 

large expansion in terms of what happened to their health care 

market. So sometimes you can invite a lot of people in the front 

door and end up wrecking your system because you cannot actually 

handle the capacity of what seem to be those demands. 

Mr. GOODLATTE. And you may price other people out of the market. Is that not a possibility? Are we seeing a reaction from a number of fronts that the fact that the Government is going to standardize the health insurance policies, that that is going to have an 

upward force on pricing that is going to cause some employers to 

push their employees into the exchanges? It is going to cause others to only hire part-time employees, others to not grow their business above 50 employees. Young people who are going to have to 

pay higher rates because of the community rating that is involved 

here are going to get priced out of the market. I think a case could 

be made that there may be as many people losing health insurance 

as there are gaining health insurance from the new Government 

subsidies and expansion of Medicaid, pushing people from a place 

where they have earned health care through their own work into 

a place where they are dependent on Government for providing it. 

Is that a good competitive environment? 
140 

Mr. THOMAS MILLER. Well, we are having pseudo prices as opposed to real prices. So people react to whatever they see in front 

of them. Certainly the record in terms of the posted premiums and 

the analyses as to what these exchanges are going to offer—they 

are all over the lot. People are actually somewhat guessing because 

they do not know who is going to enroll, whether the exchange is 

going to work as well, whether you are only going to get the higher 

risks and what people are going to be willing to pay for it. We do 

not have the answer to that, but there is enough reason for alarm. 

And one of the better indicators is what State and local governments are doing. They are getting out of the insurance business. 

They are cutting back on their full-time workers. They are the folks 

who are most squeezed on their budgets, as other budgets may be 

squeezed in the future. And normally in that environment, what 

you were promised does not end up getting delivered. It turns out 

it is a lot less, and it starts looking a lot more like Medicaid, which 

has already got enough problems in its current size without trying 

to put it up on steroids. 

Mr. GOODLATTE. And I noted last week that IBM, one of the largest and most successful corporations in American history, announced that they were going to put all of their retirees, 110,000 

of them, into the exchanges. Is it possible that we are going to find 

that many businesses find the cost-benefit analysis here says it is 

cheaper to put into the exchanges than it is to continue to provide 

ever-rising costs of health insurance and that the exchanges are 

going to wind up with more people than intended and the penalty 

that employers and individuals are—or was it a tax? I cannot remember what the Supreme Court said. Oh, actually they said it 

was both a penalty and a tax. 

Mr. THOMAS MILLER. That is right. 

Mr. GOODLATTE. But whatever it is, it is highly likely that it is 

not going to be enough money to pay for all because, after all, that 

is why they made the rational decision to be put into the exchange 

or go into exchange because it was cheaper to do that than to provide for this ever-increasing cost of insurance. Aren’t the taxpayers 

going to get slammed with—— 

Mr. THOMAS MILLER. Well, we know the taxpayer is the ultimate 

default payer in most of these arrangements. 

Mr. GOODLATTE. Yes, absolutely. 

Mr. THOMAS MILLER. Of course, we do not know whether we are 

going to have an employer mandate. We will just have to guess on 

that for another year or so. You do not know what law you have 

until you actually try it out in the field, the same way the individual mandate may or may not have much strength behind it in 

terms of its impacts as to what its results will be. 

What we have got is a different type of insurance and health care 

market in a lot of turmoil. Employers might want to dump their 

employees into it if they know it works. They have to see if there 

is any water in the pool. So we are going to have a very precarious 

ride over the next year or 2, and we can spin all our theories as 

to whether it will be better or worse. But we do not know. We are 

taking a pretty large leap. 

Mr. GOODLATTE. Thank you very much. 
141 

And by the way, Mr. Chairman, a hospital in a rural area in the 

congressional district right next to mine announced just last week 

that they are closing, and the number one reason they are closing 

is the uncertainty caused by the economic environment and they 

listed Obamacare as their number one concern. 

So I thank you very much, and I yield back. 

Mr. MARINO. Chairman, do you have an opening statement you 

would like to submit into the record? 

Mr. GOODLATTE. I will do that as well. Yes, thank you. 

[The prepared statement of Mr. Goodlatte follows:] 
142 

Statement of Judiciary Committee Chairman Bob Goodlatte 

Subcommittee on Regulatory Reform, Commercial and Antitrust Law 

Hearing on "the Patient Protection and the Affordable Care Act, 

Consolidation, and the Consequent Impact on Competition in Health Care" 

Thursday, September 19, 2013 at 1 :00 p. m. 

Last year, as Chairman of the Subcommittee on 

Intellectual Property, Competition, and the Internet, I 

conducted a hearing to examine the competitive 

impact of Obamacare and to express my concerns 

with Obamacare's disruptive impacts on the health 

care marketplace. My concerns with Obamacare have 

not abated since that time. In fact, they have only 

been heightened. 

Without question, the enactment of Obamacare 

has prompted increased consolidation in the health 

care industry. In the year following Obamacare's 

passage, hospital mergers jumped up by 45 percent 

and have continued to increase year after year, with 
143 

105 mergers occurring last year compared with only 

53 in 2009. 

This trend is unlikely to slow as Obamacare 

continues to be implemented. Indeed, a recent 

financial report predicts that up to an additional 1 ,000 

health care facilities may change hands by 2020. 

The mere presence of consolidation is not by 

itself troubling, as there is nothing inherently wrong 

with merger activity or the formation of large 

companies. Each transaction should be reviewed on 

its own merits to determine whether it will yield procompetitive benefits. 

The concerns that I raised last year, and continue 

to hold this year, focus on the displacement of the will 

of the market by the judgment of the federal 

2 
144 

government. Obamacare was enacted in a climate of 

high density in the health care marketplace, and, 

rather than dismantle barriers to competition, the law 

only intensified the trend of consolidation. 

One of the principal tenets of economics is that 

competition can lead to lower prices, enhanced 

product variety, greater innovation, and downward 

pressure on costs. As markets consolidate, there is a 

risk of reduced competition resulting in the 

contraction of the related benefits. 

Accordingly, it is vitally important that antitrust 

laws are properly and consistently enforced to 

prevent anticompetitive consolidation and conduct, 

and that laws that promote these activities are subject 

to strict and ongoing scrutiny. Continuous and 

3 
145 

vigilant oversight, such as at today's hearing, will help 

to ensure that health care markets operate freely and 

competitively in order to provide consumers with 

premier and affordable health care. 

I am pleased that the Chairman has continued to 

focus on this very important issue, and I look forward 

to the testimony of all of our witnesses. Thank you 

Mr. Chairman, and I yield back the balance of my time. 

### 

4 
146 

Mr. COHEN. And I would like, with consent, to introduce my 

opening statement for the record. 

Mr. MARINO. Without objection. 

[The prepared statement of Mr. Cohen follows:] 

Prepared Statement of the Honorable Steve Cohen, a Representative in 

Congress from the State of Tennessee, and Ranking Member, Subcommittee on Regulatory Reform, Commercial and Antitrust Law 

I thank Chairman Bachus for holding today’s hearing on the impact of the Patient 

Protection and Affordable Care Act on consolidation and competition in the health 

care industry. I hope that we can have a serious discussion on the important antitrust issues before us today. 

As all of our witnesses have outlined in their written statements, consolidation 

in the health care industry has been going on for some time, long before the ACA’s 

enactment. In both the hospital and insurance sectors, we have seen substantial 

consolidation. 

With respect to the hospital sector, we have seen numerous studies suggesting 

that such consolidation among providers may have resulted in increased prices, although some challenge that conclusion. 

We have seen far fewer studies done on the substantial consolidation in health 

insurance markets, though the effects of such consolidation have been highly detrimental for consumers. 

According to a May 30, 2013 memorandum released by the Obama Administration, in 2012, the individual insurance market was dominated by one or two different insurance companies in most states. 

In 11 states, the largest two issuers covered 85% or more of the individual market. In 29 states, one insurer covered more than 50% of all enrollees in the individual insurance market, and in 46 states and the District of Columbia, two insurers covered more than half of all enrollees. 

At least one recent study has shown that such concentration among health insurers has caused average premiums to rise by 7%, or about $4 billion. 

Lax antitrust enforcement during the Bush Administration against health insurance companies was part of the problem. As David Balto, one of our witnesses, has 

noted, during the previous Administration ‘‘there were more than 400 health insurance mergers brought before the DOJ, only two of which required restructuring.’’ 

While I am heartened to see that the enforcement agencies have stepped up efforts to stop anti-competitive mergers in the last few years, such efforts may not 

be able to entirely undo the harmful effects of already consummated mergers. 

In recognition of this fact, the ACA takes a number of measures to improve consumer choices and the quality of health care. 

Most prominently, the ACA requires the establishment of Health Insurance Exchanges or Marketplaces. These Marketplaces will serve to foster competition by facilitating the offering and purchasing of health insurance by pairing a large and stable risk pool with a number of health plans competing for their business, whether 

on price or coverage or both. 

The ACA also prohibits certain anticompetitive practices by health insurers, including cherry-picking only the youngest and healthiest policyholders and keeping 

a disproportionate amount of revenue from premiums for profit rather than using 

it for policyholders’ health care-related issues. 

The ACA also recognizes that not all coordination or integration among health 

care providers is bad. In fact, as most of our witnesses appear to acknowledge, such 

integration and coordination can be procompetitive. 

For instance, the ACA encourages the formation of Accountable Care Organizations. This is because our current health care delivery system is fragmented and our 

health payment system incentivizes quantity over quality. If structured properly, 

ACO’s can overcome these problems by encouraging health care providers to share 

relevant information with each other that can result in more efficiency, better quality care, and cost savings. 

To the extent that the premise of this hearing is that the ACA will encourage 

anticompetitive consolidation, I note that two different Commissioners of the Federal Trade Commission have noted in recent public remarks that there is no inherent conflict between the ACA and antitrust law. 

Commissioner Julie Brill—a Democrat—noted that the argument that ‘‘the ACA 

encourages providers to ‘consolidate’ whereas the antitrust laws require that providers ‘compete’ is mistaken. The ACA requires providers to create entities that co-
147 

ordinate the provision of patient care services. The ACA neither requires nor encourages providers to merge or otherwise consolidate.’’ 

Similarly, just last Friday, Commissioner Maureen Ohlhausen—a Republican— 

stated that ‘‘the antitrust laws and the [ACA] are simply not at odds. The goals of 

the Act include fostering greater efficiencies for patients—that is, higher quality at 

lower cost—through increased coordination of care, while FTC challenges to anticompetitive consolidations of hospitals or providers serve to protect competition that 

creates efficiencies and benefits patients.’’ 

I hope we keep all of these points in mind as we consider the discussion before 

us today. 

Mr. MARINO. Chairman Bachus? 

Mr. BACHUS. Let me just make a comment first of all and then 

I am going to ask a question. 

Anytime we talk about competition, we have to talk about new 

businesses, new starts because ultimately most competition comes 

from new ventures or new companies. Traditionally in this country, 

it has generated probably two-thirds of the growth of our job market. So we are all, I think, very concerned that we do not do anything to restrain new companies, small businesses. 

And in that regard, the Small Business Administration, others 

have taken a look at the cost of Federal regulations, whether you 

say good regulations, bad regulations, or so-so regulations. The 

number that the Small Business Administration comes up with is 

that Federal regulations alone absorb 14 percent of our gross domestic product, or we could say our economy. That is one way of 

saying our economy. 14 percent. That is not taxes. That is not 

health care. That is Federal regulation. That is not State and local 

ordinances. And that figure is outdated because we have had 25 

percent more regulations added since that time primarily in the Affordable Health Care Act, Dodd-Frank, and climate control legislation, and increased EPA, the lion’s share. 

So whether we say the Affordable Health Care Act is a good 

thing or a bad thing, it increases regulation. There are good regulations. There are regulations that protect us, our safety, our health. 

So this is not a diatribe against all regulations. 

And jobs I think is something that unite all of us. We want better jobs. We want more jobs for our children and our grandchildren. 

It is affecting our deficit. It is affecting our debt. It is affecting our 

ability to finance government. It is affecting our ability—a weak 

economy—our ability to pay for our elder care and health care. It 

is one reason there is a discussion on the floor today about the 

level of food stamps. 

And we have been having hearings in this Committee where if 

you can increase the gross national product or grow the economy, 

you take it from 2 percent to 4 percent, you can add enough jobs 

to where you are creating close to a million jobs every month. And 

economically it would be a boon for this country. If you take that 

14 percent figure and you try to get out of that one out of seven, 

just cut the cost by one-seventh, you pick up as much as 2 percent 

in gross national product because regulations tie up capital, they 

divert some of the workforce into complying. And obviously, you 

have got capital plus the workforce or population, whatever, and 

innovation and productivity. And anytime that you are complying 

with certain regulations, it reduces productivity. 
148 

Every President has said—and this is President Bush, President 

Clinton, President Obama—we need to get rid of some of the Federal regulations. Not all of them. There are some outstanding ones, 

some good ones. But none of these Presidents have done that. 

Every President has added pretty much the same number of regulations, although when these regulations from really the two biggest pieces of legislation in the last 30 or 40 years—it is going to 

increase tremendously. 

So I would just say we all ought to be committed to better jobs, 

more jobs, higher paying jobs. And one thing we ought to look at, 

which President Obama has made two speeches on, is let’s look at 

our regulations and let’s eliminate some. And I do not think we 

have eliminated any of them in years. 

My one question is certificate of need. I seem to hear a pretty 

much consensus that certificate of need boards are not a good 

thing, that they inhibit competition and they drive up the cost of 

health care. Is that basically the consensus? Can I have a show of 

hands that believe they are not a good thing? 

Mr. RICHMAN. That they are not a good thing? 

Mr. BACHUS. Not a good thing. 

We have one in Alabama. I truly believe it is not beneficial. So 

I do see some agreement here. And that is something for States to 

address as we look for savings. 

So thank you very much for the hearing today, and I will yield 

back to the Chairman. 

Mr. MARINO. Thank you, Chairman. 

This concludes today’s hearing, and I want to thank our witnesses. It was a good, lively discussion. I actually wish we had 

more time. 

I want to thank the people in the audience for sitting through 

this and listening to this exchange. 

And without objection, all Members will have 5 legislative days 

to submit additional written questions for the witnesses or additional materials for the record. 

This hearing is adjourned. 

[Whereupon, at 3:05 p.m., the Subcommittee was adjourned.] 
(149) 

A P P E N D I X 

MATERIAL SUBMITTED FOR THE HEARING RECORD

Prepared Statement of the Honorable John Conyers, Jr., a Representative 

in Congress from the State of Michigan, Ranking Member, Committee on 

the Judiciary, and Member, Subcommittee on Regulatory Reform, Commercial and Antitrust Law 

The Affordable Care Act makes critical reforms to our Nation’s health care system 

and will help millions of uninsured Americans to gain access to affordable health 

insurance. 

Today’s hearing considers the impact the Act may have on competition in the 

health care industry among both health care providers and health insurance companies. 

My principal objective is to ensure that consumers will be the primary beneficiaries of these reforms through lower prices and better health insurance coverage. 

To begin with, I share with my friends across the aisle concerns about the detrimental effects that consolidation in the health insurance market can have on our 

ability to achieve this objective. 

But let us be clear. Consolidation in the health insurance market has been occurring at least since the 1990’s. 

A major reason why this has occurred is that the health insurance industry has 

enjoyed almost complete immunity from the antitrust laws through the McCarranFerguson Act of 1945. 

Thanks to this exemption, insurers have been allowed to run roughshod over consumers and care-givers. 

That is why I introduced H.R. 99, the ‘‘Health Insurance Industry Antitrust Enforcement Act of 2013,’’ on the very first day of the 113th Congress. 

My legislation would repeal the McCarran-Ferguson antitrust exemption for 

health insurance companies with respect to price-fixing, bid-rigging, or market allocations, the worst kinds of anti-competitive conduct. 

This legislation should enjoy broad bipartisan support based on the fact that the 

House passed a similar bill during the 111th Congress with more than 400 votes. 

Accordingly, I would very much welcome the Majority’s assistance in bringing this 

measure to the Floor again. 

The problem is compounded by the fact that although most of the Nation’s 

health insurance markets are disproportionately dominated by only a handful of 

powerful players, enforcement actions challenging consolidation in the health insurance market were rare until only recently. 

The Justice Department, for example, has finally taken action against Blue Cross 

Blue Shield of Michigan because of its dominance and conduct in my home state. 

In addition, the Department has recently brought actions against insurers in 

other states. 

Federal antitrust enforcement, however, has been, on the whole, insufficient. Most 

markets are dominated by one or two plans. 

Our regulating and enforcement agencies must continue to enhance their efforts 

to prevent incumbent, dominant insurers from hampering competition through exclusionary or collusive conduct. 
150 

I believe, however, that the Affordable Care Act’s provisions for Health Insurance Marketplaces will encourage new insurance companies to enter this industry. 

The barriers to entry to starting new insurance companies or entering new markets are extremely high, and these market concentrations, in turn, have pushed hospitals to claim the need to merge in order to effectively negotiate with the major 

insurance plans. 

These Marketplaces will help foster competition with existing insurers and potentially allow for new and innovative players to enter the market. 

Just this past Tuesday, the Department of Health and Human Services released 

a report showing that about 6.4 million Americans who are eligible to buy health 

insurance through the new Marketplaces will be able to obtain health insurance for 

less than $100 a month in premiums thanks to tax subsidies. 

And, according to HHS, health insurance premiums will be 20% lower in 2014 

than initial estimates suggested thanks to these new Marketplaces. 

The quality of insurance plans offered through the Marketplaces will also be better for consumers, as the Affordable Care Act requires these plans to provide certain 

minimum coverage. 

And, the Act prohibits insurance companies from cherry-picking only the youngest 

and healthiest individuals to sell policies to, among many other reforms. 

Some have suggested that the Act may further promote healthcare consolidation, 

particularly through its encouragement of the establishment of accountable care organizations and minimum loss ratios, among other things. 

They ignore the fact that these features have the potential to be pro-consumer, 

providing better health care quality and efficiency. Moreover, given that they will 

not come into effect until 2014, the conjecture about their anti-competitive effects 

is premature. 

More broadly, our privatized healthcare system, by its nature, creates an innate 

tension between increasing shareholder profits, on the one hand, and improving access to quality health care, on the other. 

This is precisely why our Nation ultimately needs a single-payer system. 

Basic economics would suggest that with fewer market participants, the incumbent firms will eventually end up exercising market power with no countervailing 

benefits for consumers. 

The ultimate question in antitrust, however, is whether conduct results in net 

harm to consumers. To the extent that conduct results in net benefits to consumers, 

it should not run afoul of the antitrust laws. 

So the real challenge is whether the Act will be implemented in a way that will 

mitigate some of the negative effects of consolidation in the health insurance and 

provider markets while also maximizing the pro-consumer benefits of greater integration and coordination among providers. 

Because implementation of the Act is still in its early phases, and because major 

pieces of the law will not come into full effect until 2014, we have the opportunity 

now to influence how it is implemented to increase competition, quality, and access 

to care. 

f 
151 

Questions for the Record from Chairman Spencer Bachus 

for the Hearing on "The Patient Protection and Affordable Care Act, Consolidation, and 

the Consequent Impact on Competition in Health Cal'e" 

September 19, 2013 

Questions for AHA Witness Shans Pozcn 

1. You state that there may be a concentration within the health insurance marketplace. 

Why do you believe that Lo be the case, and what impact does that have on rate 

negotiations between hospitals and insurers? 

The American Medical Association reports annually on concentration in the health 

insurance industry. It's 2013 update reported "71 percent of the 386 MSAs studied were 

highly concentrated (HHI>2,500) based on the DOJIFfC Horizontal Merger 

Guidelines ... [a 1 single insurer's share was at least 50 percent in 41 percent of the 

MSAs." Such unprecedented monopsony power (the ability to reduce and maintain input 

prices and retard innovation) adversely impacts consumers and providers. For hospitals, 

the impact is often to stifle beneficial innovation and force them to accept rates below 

competitive levels, which has adverse impacts on consumers with respect to access, 

development and implementation of innovative methods to improve the coordination and 

quality of care. A 2012 report from Moody's stated "[i]n most markets dominated by 

larger payors, hospital commcrcial reimbursement rates are lower than average." 

2. You state that the insurance industry is engaged in acquisitions involving hospitals and 

physician practices. Should we be concerned with those types of transactions? 

Yes. Those transactions should get the sanle level of scrutiny as other in the healthcare 

field. Despite some assertions that insurers can act as reasonable proxies for consumers, 

insurers and consumers often have competing interests with regard to the delivery of 

health care. As aptly illustrated by the healthcare "triple aim" public and private 

reimbursement incentivcs for the hospital field are calibrated to measure and reward 

quality and efficieney for care or individuals and the community at large. Thosc same 

incentives are not routinely present for large commercial health insurcrs. 
152 

3. There are often criticisms levied at hospital mergers and transactions. Tn yOUT testimony 

you cite to some examples of positive results from certain merger transactions. Can you 

provide us with examples of hospital mergers after which the end results were improved 

efficiencies and higher quality of care delivered to patients? 

The report I referenced in my testimony, "How Hospital Mergers and Acquisitions 

Benefit Communities" contains numerous examples of how mergers and acquisitions 

henefltted the community. For many hospitals involved in such a transaction, the 

infusion of capitaimade the ditference between being viable and closing its doors or 

drastically reducing services, T att.ach that report here. 

4. Your testimony points to a recent rise in health insurance premiums that are, as you state, 

"more than double that of underlying health costs." What, in your view, is driving the 

recent increase in health insurance premiums? 

The AMA report referenced above, links pervasive concentration in the health insurance 

industry with higher premiums. It cites several studies, including two that examined 

specific transactions - Aetna and Prudential and UnitedHealth and Sierra Health Services 

- and concluded that increased concentration was positively associated with market 

power and higher prices. 

5, Do you think there is a potential for competitive harms to result from the formation of 

Accountable Care Organizations? How can we ensure that ACOs do not result in only 

increased market share without the benefit of improved quality of health care? And, to 

the extent that does occur, would there be any way easily to undo the formed ACO? 

ACOs promise significant innovation in the coordinated delivery of health care services 

to a population and are widely viewed as a procompetitive innovation. The Department 

of Justice's Antitrust Division and the Fcderal Trade Commission issued speeitlc 

guidance for ACO:;, it states ltJoday's guidance will help health care providers form 

procompetitive ACOs that benefit both Medicare benefIciaries and patients with private 

health insurance while protecting health care consumers from higher prices and lower 

quality. http://www .ftc. gov/news-events/press-releases/20 1111 O/federal-tradecommission-department-justice-issue-final-statement 

Question for the Record from 

Representative Doug Collins 

6. The health care industry is currently experiencing many changes and hospitals are getting 

hit with many new and very costly regulatory requirements, such as health information 

technology, and quality improvement and value-based purchasing programs. While these 

programs are important, do you think this may spur hospital realignment to help ensure 

that these programs are able to achieve their intended goals? 

There are a number of public and private forces that are spurring realignment. The 

document attached "Hospitals" The Changing Landscape is Good for Patients & Health 

Care" delves into those forces in greater detail. 
How HospItJJI Morgors and Acquisitions Benefit Communities 

IJpda18d Study by the Center lor Healthcare Economics and Policy 

Hospital AosocitItion. 

M""" 1IwI, h .. -. _ Ind ..... _ Ind aequIa/Ilona '- miI .... dir>g. WhaI!he factII sI'IOW '" ilia! <fflII the 

pas! si>c years. hospitalS 1\8118 >9Sj)Or'Ided 10 private _ IIfId Ir'lCfItltivM 10 pttMOe higher quaity and more eIflcifItlI hea/III 

cano by. _ stmlagias. pMnemg with <>II'ws. SomeIimeslhose par\IKlfSt1IpI invoI'vad !TIGf98I'!I with CO' acqulsllions "'_ -. The ""etWt1eirT"Ong majooily 01 those trnnsaction!I In procompeIjlM> and lIMy """""" the twin goals 01 higIw qualify and """'" aIIO<dabIe health car.. 

FlCtI: /'lean,. I. tr1onNCtlorIs heve 10 bit 10 u.. F-.al Trade Cornmlulon end 11'11 o.pa_ of Justic ... 

AntItrust 0MsIan (DOJ) lor actUtIny. E ..... for !hoM _ do not ...... to be .....,n.d, IypIcooIy t..c.UM they ............ 

transecIlons, FTC, OOJ and 11'1, *,-Ie Attorneys GenIraI ...... 1M oppootun/ty to ofterI dol H 

tt. tr8nUC1Ion .. _ .... a. 

Filets: HoIp/t8I rnarQU ... o.ttomlning 1M 1m,*" of eny ...... MCIIon btogl ... by looking lor ott. 

... . 

no. c.nre, for H" /rIw;,,. f<--", I/1d f>oik,y(Certer) .....oertook • COOlipoeheoosl .. study 10 del...,...,. ;..st how many transactions 

Ihe<e h/we been since 2007 and hOw many t"OspitaIs ..........., in a local _ foIowlng those transadions 10 provIdo 0pIi0ns lor l>1li_ in 

need of hospiUII c.e. 

The Center _ !he impacl 01 these lr1InS8oCIions by Metropolitan St8tisticaI Area. wIIich is a nJgion with a relatively 

high density • ns oore and close eccnomk: lies 1IYctJgI1cuIlhe ....... 

FIICte.: s.rw- 2007 ....:I J_ 2013, only • hetion 01 1M ho$piteI tItkI, 5071>of;p11a1. 0< eboo.rt 12% 01 eommunity ...... 

....... lIMn irr;oIwd In • nnuc:1Ion trnereer or KquIs/tIon}. 

_

The have bee'> modest: lhe .. etage runber 01 hospital a;:QUi'ed In. transaction ... !:Ie'- ' ·2 . 

• OIlllOSe IuSj>iIaIS Iha! IlIIv. been Involved In 8 tranSaction, Mlbuf 22 h.w1o oc:cunwO' In __ "'..,.. ,,,.,. w..-. """" 1h8 .. 5 

1to'I'IU".Th;II means !here WM pIen\y 01 hospitals 18ft lolowing lhe Il'\Ii"ISaCIioo 10 "'*'UIIn. compe\itMI . 

• looking """'" cIosSy 81 hospitats i"duded Mltin !lis goup 01 22. the stories ebout now the Inrosaction beneliHed the commu'IiIy are 

• -, 9 oI !he transactions lnvoIvecl SInaI hospitals wiI!I SO or 1_ beds; the type 01 !hal oIIen stnoggle wiIhout a larger partner 

to "'-'PI"'Y _iaI capital or specialized expertise. 

E: F" T ,- .111 CGHOUl .... 

Center for Healthca

Economics and Poli
154 
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21. 
I Overview 

The Center for Healthcare Ecooomics and Policy rCenler"), II separate business unit in the Economics Practice 

FTt Consulting, Inc.: was commissioned by \lle American Hospital Association to conduct a study 01 mergers a

acquisitions over lhe 6 year period of 2007-2012 ("How Hospital Mergers and Acquisitions Benefit Communities"), a

to update the study for the first half of 2013 (June 2013). The study uses informatioo from: 

Irving Levin Associates, 111(;., induding The Hospilal Acqu;SiliOtl Report 2012-2013 

... Modem Heal\hcare. Hospira/ Mergers endAcquisirions Reports. 2007-2012 

.. American Hospital Association, Heallhcare OuickOisc, 2008, 2010, 2011 

.. American Hospital Association, Annual Sutvey Database, 2012 .. Center for Healthcare Economics and Policy, proprietary research 

The updated study was conducted using the same methodology and data sources as the 2007-2012 study. 

the first haH 01 2013, there were 31 transactions involving 55 acquired hospitals. 22 01 these transaCtionS involved 

single acquired hospital. There were 19 transactions that did not irlYoIve an overlap MSA. Of lhose with an overl

MSA (12 transactions). ooly 2 were in MSAs with 5 or fewer competitors at the time 01 the transaction. 

-This updated study was cooducted by Margaret E. Guerin-Calvert, President and Senior Managing Director. Sen

COnsultant. Eliot Davila. and Coosultants Russell Keathley and Benjamin Spulber. 

Iii::: F T t' .111 eo.'."'. " 

C.nt ... lor Heallhc . .. Economic. a
I Number of Transactions and Hospitals Involved in Them Per Year 2007-June 2013 

Acguired Hos2ila ls 

Numberof Total Average Nunver of Hos pitals 

Year Transactions HosE:itals Per Transaction 

Total 348 607 1.7 

2007 45 III 2.5 2008 46 52 1.1 2009 36 61 1.7 2010 49 90 1.8 

2011 69 107 1.6 

2012 72 131 1.8 

... _ ... _ ..... _._ .......... ......... ..... _ ..... _._ .. _ .......... . ............... _ ............................ 

2013 31 55 1.8 

> From 2007 to 2012, there were 317 transactions,' with an additional 31 transactions 

in the first half of 2013, for a total of 348 transactions involving 607 acquired hospitals 

> The average number of acquired hospitals per transaction was between 1 and 2 

'One additiona/lrans/lclion is Included for 2012 in this update. 

No/!1: Repor/ud transactions exclude acquisitions by privata equity firms orphysician 

groups. V()rT;c;allranseclions. abandoned transactions and other non-hospital-lo-hospilal Iii::: FT.' .111 eo. '."'. " 

I tranSSf:tions. Pending tranSSf:tions 8ra included. I C.nt ... lor Heo llhco .. Economic . o
I Frequency of Transactions by Number of Acquired Hospitals 2007-June 2013 

. , "''1.1, «1 1t •• .-,.I Ol A<q_l"d IIMpI .. I, _ J "''1.1 ..... 1I.'pl,." UA ... . I ..... lI .. p;,., •• ! ... .... M q.I,<d 110",1,.1, 

" "

-------------------------------------------

" !-I-----------

- !-I---------

" " 

" 

" 

,., , .. ,- 1010 lill lOU lOll 

> The majority of transactions between 2007 and 2013 involved a single acquired hosp

Iii::: FT.' .111 eo.'."'. " 

C.nt ... lor Heallhc . .. Economic. a
I Proportion of All Transactions with an Overlap in One or More MSA'; 2007-June 2013 

" % 

- • " 

" % "". 

-

H% .'" 

-

'" " % ':" -

. ,. . -. . - .... It .. .... I'" .... If .. . .•.. .. "",,""" __ 11" .,. ...... ' ioo.)(l4 .,. ... _ .,' .. ', ',..._,)(", ,. .... _100,1(7) 1 ....... '-.H.II1 ........... ) 

} An MSA overlap occurs when both parties in a transaction operate a hospital in the sam

MSA 

). The proportion of transactions that resulted in at least 1 MSA overlap fell fro

approximately 60% in 2007 and 2008 to less than 40% in both 2012 and the first half 

2013 

"Note: The term 'MSA ' denotes either 8 metro- or 8 micropolitan slatistical area 

Iii::: F T I" .111 eo. '."'. " 

C.nt ... lor Heallhc ... Economic . a
I Percentage of MSA' Overtaps Occurring in MSAs with More than 4 Competitors (176 MSA Overlaps in 166 Transactions); 2007-June 2013 

100% ,-------------------------------------------------------------

goo!. tl ----------------, 

••• 

, .. 

, .. 

31)01. 

w. 

0% 

Mon:lhan 10 Mon:Than 9 M.",1han 8 M"",'Than7 More Than 6 M<nnunS Mo",1han4 

:".",be. 0/ Con>.,..!;, ... 

More than 91% of the overlaps were in MSAs with more than 4 competitors 

"Note: The term 'MSA ' denotes either 8 metro- or 8 micropolitan slatistical area 

Iii::: FT .' .111 eo.'."' •• 

C.nt ... lor Heallhc . .. Economic . a
I Percentage of MSA' Overtaps Occurring in MSAs with More than 5 Competitors (176 MSA Overlaps in 166 Transactions); 2007-June 2013 

"'% 

?O°'\' 

.,.. 

"'% 

30% 

,,% 

,,% 

.% 

Mon: Than 10 Mott Than 9 M"", 1113. M M"",Than 7 Mon: Th.., 6 MoreTban S 

,"i un,bt. ul . .... nd<n( Camp.,ito .. 

Almost 90% of the overlaps were in MSAs with more than 5 competitors 

"Note: The term 'MSA ' denotes either 8 metro- or 8 micropolitan slatistical area 

Iii::: F T " .111 eo.'."'. " 

C.nt ... lor Heallhc ... Economic. a
I Overlap MSAs' with 5 or Fewer Competitors (22 MSAs): MSA Population and Count of Overlaps; 2007-June 2013 

"

,--------------------------------------------

'" '" t-I----

• • 

Average populillion for 22 overlaps in MSAs 

with 5 or fewer competitors Is 182,231 

, 

• 

<100.000 100.000-200.000 200,000-300,000 J.OO,OOO-400.ooo 

22 MSA overlaps occurred in MSAs with 5 or fewer competitors 

);:. 17 of these 22 MSAs had populations of less than 200, 000 

Iii::: FT.' .111 eo.'."'. . 

"Note: The term 'MSA ' denotes either 8 metro- or 8 micropolitan statistical area C.nt ... lor Heallhc . .. Economic . a
I Distribution of Acquired Hospital Size in the 22 Overlap MSAs;' 2007-June 2013 

• MSAs with 5 or .'cwu O}mprtilon • with More than 5 

45% TI--------------------------------------------------------------

35% 30"1. 

15"1. 

!O% 

15"1. 

10"1. 

5"1. 0"1'. 

O.o5G D. d. 51 to ISO 11«1. IS. 10 25G O,d. Z5 1 toSOO lkd. 501'0 1,000 _ . 1,000+ 0 .... 

Iii::: F T " .111 <0"."'" 

"Note: The term 'MSA ' denotes either 8 metro- or 8 micropolitan slatistical area C.nt ... lor Heallhc . .. Economic. a
I Distribution of 22 MSA Overlaps by State and Year 

Stale Year '\c(luircl- -I10SP e 

20 13 354 

Qorgia lOt I 41 

Louisiana 2008 171 

Michigan 2007 181 

North Carolina 2008 2S 

20 13 ]81 

Ohio 2010 2S 

Oklahonu 20 12 45 

]'clllls;tlvania 2007 200 

South Carolina 2007 41 

Tennessee 2012 118 

Texas 2007 50 

2009 120 

VifKi.nia 20Q.!'L 135 

West V'!.I::illia 2010 194 Wisconsin 20 1 I 25 

1m FT.' 

eo. '."' •• 

C.nt ... lor Heallhc . .. Economic . a
165 

Hospitals: The Changing Landscape 

is Good for Patients & Health Care 

H= 

AmerIcan HospItal AssocIation. 

H05pital.s: Care Integration '01' the Right RU5011.5 

Coming on the ~s 01 the ~ession. hospital merger! 

acquisition activity began 10 accelerate. Hospitals began 

acquiring other IIospitaIs and hiri"9 medical staff in an 

eIf()1 to provide the leadership needed to reImn a silood 

health care sl'Slem that nearly eve!)'OIlII fnrn Willie of 

Medicine to the Medicare Payment hIvisory Commission 

(Me\!PAq has singled 00\ as one of lIle main culprits in 

highef COSI, iowef qual ity health care. 

Both \ICMlmment and the private sec\()( are Cfeating in· 

=~\'eS that are 00.;11\1 hospilills toward one another arid 

toward their medical stiffs with new global and fixed 

payments: new incootiYes for meetirlg quality. efficierq. 

aild patient satisfaction goals (arid penalties lor failing to 

do $0): and rescinding payments lor certain readmissions. 

_ ~ ond SIIndwd & 1'tIOI'. ~ ...... fVIn;iII 

_tor 1IOqjIaIs, ~;, Ia'ge I*t 1l1IIe!ct1llJl 

·~_il'Wllty.~aperio<lll_ 

nnstw..-.. _8le'lf!f'/"""""11_.,,,....,.. bei'o<I~""'dIqed-' 

"~_"""""'~~eliri!rllies.efI9IIfIe 

"~""''''''~''*''''*''''''' bellefpoioedll ... t>....p,g-.,..· ~"be 

~.~"""'"""'2!Jll 

Meeting tIlese myriad challenges requires buildiflg a 

continuum of care ilia! indooes healtl1ier.leaoer hospitals 

and closely aligned medical statI. "The"""l0 __ oosts",,*~'" 

~"",,,"bolhol<o\'_in~"'COIIIIIOI<iaI 

~~Ii;Iroori' 

.....IIo:IoXt"' _ Fcm11:120Il 

1o adIieYe these....mhy p~ ~ may be !he mIy 

~, as decar:!es ok! reglJlatory barriets (3'Ii«<Q 

IIospiIaIs iMld docIo's fnrn ¥oQI'\cilg dosety togeIhef to inprove 

care and reduce costs I.IIIess !hey are I.nIeI' the same cw.nerst»p l.ITbreIa. ~ demc:tIslratOl prqects in 

New.loo;ey, fo"~, show o;are and ca;t lnprowmenl:; 

Imn dooer ~tioo, yet !he banie!s remain, 

"Wtblllieoe~"""", " .... cor*-lD_becIUIt 

oIlhe~_ , ..... Ior~Cfto:Mllllinl1ionlD 

...... 1IeI'¥icesl\al1lO'e_1ogeIIIe< Qrsifr(llyID_ 

...... ~..."cmncCllnHonl: 

fbrt2012 

Hospitals: A.ntitrust Watchdogs PreoVlHlt A.nticOinpetitivfI MflrgflN 

HospiIaIs have been ull(ler the watchful eyes ci the !e(leraI 

antitrusl alllh<wities for decades. When the Fe<IeraI TrOOe 

COmmissioo (FTq belie'Ies a hospital me'(Ief threalenS 

Ihe ageJICY has JlOI hesit31ed to step L\l. 

The FTC alone inYllSligaled a dolen compje1ed hospital 

mergers and cf1anenged or lIuealened 10 challenge al ~ast 

thai many pioposed mergers In 'ecent years, 

New care models. like accountable care organillilioos 

(ACOs), win con~oue 10 get the FTC's closest scrutiny. In 

,esconse 10 a qooslioo about ACOs, the FTC's now 1(nOOr 

chilifTll<lnSilid: 

'we're Il3I goinQ to roIO>1if 1JII(J!1a, rk8IJ IJII(J_ ,'«01 _.......-licn· 

NO( so lor irlsurance companies, Over the past decade. 

no merger between major i<lSllrance companies has been 

COOIplelely rejected 111 the fedoflll antitrust authorities. 

Indeed, iIS well documented annually by the Americiln 

Medi(;al Assoo:;ialioo and observed 111 others; 

"(IJt awavs !hal o:nsoIidaIicn lias resdIecI il!he possesOOl 

and e>ertise ci ~ i1surer mo:n:pjy~ ... i1stead ci 

passi1g illY beoofits ci coosdida1D:1 Sld1 15 kMef IlflJllUns 

frtm e!fi:ioocy ~ 00 D!XIlSlJll6'S .. _ [TJIe majtltyci ~ 

m,r;n:;e I!IaI\<eIs il!he I.kIited Slates ill! h9'tJ~,. 

-CQml1t li/icll io/it8lrl _ 2012 

"fIarfi _ ~ _!he past_-,en 

~OI'iIfng,...te<"'oUo.I~f<t!hePll""" "WI.-_ <IOri'Ia1ed c>! Ia"ge ~ ~ 

arrwnettiaI_ .. tes ... _IIWl_.' ~2!J12 

Some payers tend 10 blame hOSpital mergers for high 

ioslJ!<lllCe premiums. rwo ecooomic coosulting firms 

e~amined charges that hospital mefgool in tile 1990s 

dn:M) up prioIl$. They Silid: 

"There Is no valid empirical basis for Ithal] coocfusiorl." 

~fltJ/iqA$$«:Ol"'lnJf_~~2003. 

That is S1011rue lod<1y, _Conti ..... 
166 

Hasprt"I,' The ChangIng u,nd.cap" Con • ......,.;! I, Good fo< Pat",nto & Health Care 

Hospitals: ConSloimer Pret.r.nc. Matt..-, 

like firms in Il'IIl!Y oilier sector 01 our economy, hospitals 

are rIO! an the same. Some IlospitaIs with high -level ar more costly services. like !)urn ()I' high-levellrauma units 

or other t;ghly Specialiled care, ha-e higher costs and may 

charge higher prices. These may also be the -ery hospitals 

tllat CU'lSUme!5 most want to go to when they are seriously 

ill or badly injured, 

Purldils often C(IIlfuse sud1 C(lIlSI,II11er preferenws with 

market power - they are wrong to do so. 

"f¥enItolFTC~1tiaI 1ot ~ 

priCel ltt _necessatynorsuth:::ienllO_ 

, .. _-" -FTC -"'II "-2009 

Hospitals wnpe\e to be the best arid invest Ihe 

resourms needed to maintain coosumer trust and loyalty. 

~u.-.2()ro 

In a llIdio inlefview. small rosiness 0WIlen; in California 

saicllhey were willing to pay mOfe If)' the hospitals rne;r 

employees believed were the best 

-KOEO._20. 20IO 

Hospitals; PricfI Growth is at Historic Lows 

Despite renewed mllfger activity, the growth in 

spending on hospital care is al historic 1Dws. 

....J.Jt¥umlQr2 

It is «llhospital prices thai are (!riving the rise In 

insurance premiums. The growth in insurance costs from 

2010 to 2011 was more IMII aooble that 01 the undertyi"9 

health care costs. induding Ilosp4tals, Ffool 2011 to 2012. 

premiums began to reflect the lower spending Qmwth, but 

s@outpaCedabyneartyt4'!1" 

Percoot Cllallge in Premium Levets I'S. National 

Spending on Health CiNe, 2<110 to 2011 and 2011 to 2<112 

... 

cr.... .. Pt........ (Jwo,po,,~ __ c., 

s..... n..~ f ... _..; __ ..; ~"""Tn.>oI.~ __ .. ~Dtto_ ~" , ...,"""" ___ " 11225 .............. __ ._ 

..,.,,""'"'""--Expono1O 

~" . .-.... "--~ 

.... ---~ 

---- -Growth in Medicare spending peJ beneficiary hit 

lIislofic lows durirlg the 2010 to 2<112 period, -HHS __ :IOt3 

Insurance COIllpanies are expecle!l to drive hospital rate 

increases even lower, according 10 Moody's, "continuing a 

multi-year tre<ld." 

"[lJIo opporlJMios II po _ .... 1OgIw fJI/:S Irnm 

~pa,ors'"'QUicI<t1~--.' 

-.I/ooo:IJ'~_Fa<:es:1012 

"""'eq:oe(I:~ paye.-s lO rtmaiI~~;, 

negotiatilg -. _ raIo5 WIifI!o:Ii\Iibb;, 2012 ' 

--MoI!tIy's:lOt2 

l.II1tik,e other health care sectors, study afte< stlldy has 

shown that hOSpital prices are ditectly related to tile cost 

of C3rir.g roc patients. Funds needed to hire and retain 

doctors, OOrse5 and oilier medical and support staff willl 

tile right QualifiC3tions and training are tile single largest 

cost for hospitals - lIley account for \WQ·lIlitds of total 

expenses. 

About two-thirds of hospital costs go to tI1e wages and 

benefits of caregivers and oilier sliff. 

=~~~~~~'" 16.9'!\, 

_:IiS ___ ~_.-... ""'CM5 

_...,....s...-1PPS1_ ....... """' ..... 2OOi 01 Conti~ 
167 

f 

Hosprtal., The Changing liIndocap" Conn ....... I. Good f"r P"t",nto 8. Health Ca'" 

Hospitals: InVHting in Technology and Upgraded Faciliti.s 

OIlIer significant llO.I~a)'S for hospitals in\'OlVe IT. Every 

hospital is e>peCted 10 meet new standards tor haYing and 

using electronic medical records for its patients or face 

penaHies ir12015. 

Meeting that requirement safely will cost as mucll as $SO 

million for a midsize hospitaJ. 

Mood\'~ IisII; 'l,~ __ c:apIaI JtIaIIng III pIMt 

~lIfIIjlTmtems·.oneollhe~_b'iI$ 

~_b~il2012. 

-Moody~a:1I2 

Getting and maJ.:jog this rIeW technology woo1< lor patienl$ 

and meeMg new and /ar·reachiog go.enunent and private -

sec\(I" requirements (COO1iog iTom elllf)loyers and pa)'ers) 

is a major investment for all hospitals. FO)' cash-strapped 

hospitals ~ may be beyond their reach without metging 

with another hospital tI1at can provide those rulXls. 

These same hOSpitals may 001 be able to borrow to do so 

because 01 depreciatioo rules. 

·.........-I'IooPIaIsI!nIIID_.....-mIIgins,~ 

1I'"I'.,.,1~1orIc_ .... <:ash 1D1IIgiIIze_~_' 

~~2!1'2 

Doctors must meet similar reQuiremenlS. yet regulatory 

barTie!s make that difJicuK or impossible to do so ill 

collalKntioo w~h a hospiIal without beiog in its employ. 

-_in IT sysII!mS ..... indicoII!d IS VIe mosI inIIorWII ..... 

oIcapi1a1~: 

Hospitals: Essential Capital is in Short Supply 

There is no doubt that limited access 10 capital for IT and 

OIlIer ill'leStmenlS es.sential to providing high-quality care 

31iower costs is driving mergers. 

"llIecl!anginoj_..,.,.OIIng~hasleolmosi. 

1'IospiIais~~" .. ¥IlJoIiIiiaJiooesiflcU:lilQlT.~ 

1iigm>!III.~~~ f!lOlllies~~<*icaI 

""""'" poinIIIln tho............,. " 

CapOta l mar1<ets for noc-for-prolit hOSjlitals have still not 

My reulYered from the recent fioaocial mektiowo. Three 

temporary feder.!l finarlCing options th3t tlelped ease 

the cn:d~cruJlCh el!Pired in 2010. For many hospitals, 

particularly those with lower bond ratiflgS, the best 

arid perIIaps only strategy to remainiJlll viable in their 

community is meo"ging with aJ1O\her hospital that has the 

financial resources ~ lacks 

".<o::esstlthoQl(lilaln'lolrlltlShaslleOOnlemondil'li::Dtb"SI"I'IaIer 

~_ ... _hosIliIais.4'imgIho_b""""YtI_. 

-

The M

" 

ichigan Attorney Geoeral recently approved a 

hospital deal ciliJlll access to capital as its prinwy benefit. 

The Nj said th3t lack 01 capital made ~ impOSSible for the 

Itospital to "perform necessary reooYatioos. improyeme!lts. 

arid elCpansim 01 its aging structures and equipment .. • 

The (leal, the AG said. "offers hope th3t the (lXIIOOluMyj will 

conti~ 10 be ~I serve\! ." for a long ~me 10 come." 

Hospitals: Need to be Healthy to Provide the Most Value 

"OfIfIho~restIa(Ii1gAmerican~.noneiJ 

_t IO'IIbnIIhIn tho SIifI_ QUe." 

-~~f'lff>mfJp2rJll 

Ouality ootcomes, affOf(labilil)'. (!lid patient satistlclion 

are rapidly I)e(:omiog the touchstooes employers. payers, 

government aocI, roost importantly. patients expect aoo 

demand. Meeting these challooge5 requOres reshaping 

the IIi:)$pitaI field, sometimes through meo"gers, alliances, 

partnerships or 0Ihef innovative relati(Wlships. 

This transformation win require time. patiencl! and eapOtai 

investment 10 build a continuum 01 care that aooommrxIates 

21 st l;tmlury teocmoklgy and standards 01 mediCal care. 

When mergers are oeeded to help finaocially. geographically 

or otheIwise challenged 00spi!a1s al'Oid "dasure. 

bank/uplL"y. oc payment d(llaLl:!," or to become strmger 

arid more effic;ent 10 meet current challenges and fuHili 

community oeeds. thaI should be a welcome ~nt 

Relerencesavailable at www.8h~,org, updated 12112 

C ApriI20t3 Am<lfica1 Hospi1at Assoda1ioo 
168 

f 

Questions for the Record from 

Chairman Spencer Bachus 

for the Hearing on "The Patient Protection and Affordable Care Act, Consolidation, and 

the Consequent Impact on Competition in Health Care" 

September 19,2013 

Questions for Joseph Miller 

1. While it may be too early to tell, do you think that there is any risk that certain consumers 

will be paying higher premiums as a result of the insurance exchanges implemented 

under the PPACA, and what would be the cause or causes of any such increasery 

A: Some consumers will likely pay higher premiums in the exchanges as a result of the 

ACA's requirement to purchase a richer benefit package than they were buying in 

previous years, additional ACA taxes such as the premium tax, and rating band 

compression. In addition, health plans will need to adjust for a potentially unbalanced 

risk pool in 2015 and beyond. 

2. In your view, are there any additional factors that the antitrust enforcement agencies 

should take into consideration when reviewing a proposed health care industry 

transaction, or factors that should be weighed more heavily relative to other 

considerationsry 

A: Consumer welfare is the touchstone of antitrust enforcement. As explained by 

Professors Richman and Greaney during the hearing, provider market power has resulted 

in signiiicant consumer harm and warrants continued scrutiny by the agencies. 

Questions for the Record from 

Representative Doug Collins 

3. Studies have shown that there are high barriers to entry into many health insurance 

markets, which enables health insurers to exercise significant market power over 

providers. As hospitals and other providers seek to align for a variety of reasons, is it 

possible that hospital realignment is the market balancing itself out? Do you think 

realignment may necessary in order to achieve a more value-based payment and delivery 

structure? 

A: Health plans have been in the forefront of the trend toward value-based payment 

systems and applaud eiforts to reduce the unintended consequences of the fee-for-service 

system. This has occurred in spite of the challenging environment created by the large 

aggregation of market power by hospitals that has been well documented in numerous 

sources. Anticompetitive provider mergers lead to higher prices and other consumer 

harms and, as noted in the court's recent decision in FTC v. St. hike's Health System, the 

move to value-based payments and quality improvement can be achieved in ways that 

don't involve this heavy cost. Thus consumers and antitrust enforcers don't need to 

accept the false choice of provider competition or quality improvement. Both are 

possible and health plans are committed to do their part in continuing the movement 

towards higher value, improved quality, and lower cost care for consumers. 
169 

Questions for the Record from 

Chairman Spencer Bachus 

for the Hearing on "The Patient Protection and Affordable Care Act, Consolidation, and 

the Consequent Impact on Competition in Health Care" 

September 19,2013 

Questions for Barak Richman 

1. In your view, were the healthcare markets consolidated in 2010 when the PPACA 

was signed into law? 

Yes, by 2010, the vast majority - approximately 80% -- of Metropolitan Statistical Areas 

contained hospital markets that were deemed to be "highly concentrated," defined by having 

HHT indexes of greater than 2500. Merger activity continues, however, as hospitals continue to 

acquire other hospitals and physician practices and continue to expand their monopoly power. 

In short, yes, healthcare markets were highly concentrated in 2010, but they continue to become 

more concentrated 

2. Since the PPACA may not offer competitive solutions to a consolidated marketplace, 

what are some pro-competitive policies that Congress should consider? 

First, Congress should support the Federal Trade Commission and the Justice Department's 

Antitrust Division in their efforts to preserve and expand competition in health care markets. 

Some policymakers believe, for example, that PPACA has given CMS and other officials in 

HHS full authority to implement PPACA and especially, to promote the creation of Accountable 

Care Organizations (ACOs). PPACA, in my view, did not limit the FTC's role in formulating 

our national health care policy, and I hope Congress supports the FTC's efforts to intervene in 

and police the healthcare sector as it tries to adapt to a changing political and market 

environment. 

Second, and relatedly, Congress should resist any temptations to otTer antitrust immunities to 

healthcare providers. Some healthcare providers - specifically, hospitals in Georgia who 

attempted to merge, and dentists in North Carolina who have tried to exclude less costly 

competitors - have claimed that they are immune from the antitrust laws. Congress in the past 

has otTered antitrust immunity to certain market actors, and it is possible that the health care 

sector might seek additional protection from Congress. I urge Congress to resist limiting - and 

perhaps to expand - antitrust scrutiny to the healthcare sector. 
170 

Third, Congress has the capacity to promote competition in assorted healthcare markets. For 

example, Congress could bring more scrutiny to-and perhaps prohibit-state Certificate of 

Needs (CON) laws. In addition, Congress could take measures to promote interstate competition 

among healthcare providers. Currently, state licensure laws and other administrative hurdles 

prevent providers trom one state from competing with providers in another. Congress could 

revisit this body oflocall y-oriented and locall y-controlled regulations that prevent meaningful 

competition from expanding across state lines and, perhaps, facilitating a national geographic 

market for healthcare services. Finally, Congress could take seriously the opportunities 

presented by telemedicine and create a regulatory framework more amenable to its potential 

Rules on reimbursements, licensure, and other regulations prevent entrepreneurial providers from 

using cost-effective technologies to meet the needs of distant patients. 

3. During the hearing, there was some consensus among the panelists regarding 

productive steps that could be taken to achieve a more competitive heaIthcare 

marketplace. In your view, in what areas do yon believe there might be consensus 

to promote increased competition in the heaIthcare marketplace? 

The ideas that received consensus at the committee hearing-from Mr. Balto, Mr. Tom Miller, 

Mr. Joe Miller, and Prof. Greaney-are embedded in work coauthored by myself and Clark 

Havighurst, in The Provider-Mollopoly Problem ill Health Care, Oregon Law Review, vol. 89 

(20 II). See http://papers.ssm.com/so13/papers.ctrn')abstract id-1407163 The article's 

underlying idea is to use antitrust law to police provider monopolies. This idea has garnered 

additional attraction because our merger policies have failed to prevent the formation of provider 

monopolies, and thus we now need to prevent monopolies from inflicting undue economic harm 

on patients and insureds 

Three specific ideas are proffered in that article: 

I. Continued Scrutiny over Provider Acquisitions Including ACO Fonllation 

First, reflected in my answer to Question #2 above, the Federal Trade Commission and 

the Department of Justice's Antitrust Division should be dogged in scrutinizing current 

and future acquisitions and mergers within the health care sector, including proposed 

Accountable Care Organizations. This includes vertical acquisitions, such as when 

hospitals acquire physician practices or other outpatient services. These vertical 

acquisitions can secure a monopolist's dominance and enable it to extract supracompetitive prices in ancillary markets. The Federal Trade Commission, for example, 

deserves credit for recently blocking such an acquisition in Idaho (see FTC v. St. Lukes 

Health System, (District ofTdaho, Case No. I: 13-cv-00 I 16-BLW). 
171 

2. Requiring Unbundling of Monopolized Services 

Second, provider monopolists should be subject to anti-tying claims under the Sherman 

Act and the Clayton Act. We specitically propose that hospitals and other providers with 

market power should be required to unbundle, at a purchaser's request, their monopolized 

services from their services that are subject to market competition. This would allow 

health plans and self-insured companies to adopt purchasing policies that would 

encourage more price shopping among patients, encourage entry from providers who 

might bring competitive pressures on incumbent monopolists, and prevent monopolists 

from driving out competitors who remain in ancillary service markets 

,). Challenging Anticompetitive Terms in Insurer-Provider Contracts 

Third, provider monopolists should be prevented, under Section 2 of The Sherman Act, 

from including certain provisions in their contracts with insurers. These include 

Price-protection, payment parity, or "most:finJored nation" (MrN) clauses. 

These provisions deter insurers from sending patients to alternative, less costly 

providers because payors, under MFN clauses, are required to pay all providers 

the same amount. 

"Anti-Steering" Clauses. These provisions prohibit insurers and other payors 

from directing their subscribers to alternative, less-costly providers. These 

provisions allow the monopolist to continue charging its inflated price and deters 

entry. 

Other exclusive payment arrangements. Although "integration" between insurers 

and providers has been encouraged by some, chiefl y as an etl'ort to counteract 

fragmentation in the delivery system, many financial arrangements between 

insurers and providers do little more than secure each other's market dominance. 

The antitrust agencies should scrutinize intimate financial dealings between 

dominant providers and insurers, especially when those insurers also occupy 

dominant market positions. 

This is not a comprehensive list of actions that Congress and the antitrust agencies can take, but 

it is the list of measures that received consensus at the committee hearing, from both Democratic 

and Republican witnesses. 

4. Given the level of consolidation in the health care marketplace, and the legal and 

practical difficulties you point to in your testimony of reversing that consolidation, 

what role should the antitrust enforcement agencies play going forward? 

Primarily, see my response to Question #3. The list of consensus items should give the agencies 

meaningful ammunition to address both detrimental acquisitions and detrimental conduct by 

provider monopolists. 
172 

f 

5. Are there particular actions being taken by health care market participants that 

should be closely scrutinized by the antitrust enforcement agencies? 

There should be continued antitrust scrutiny of provider acquisitions on all levels. Currently, 

within-market horizontal hospital acquisitions-that is, when one hospital acquires another 

nearby hospital-meet the highest antitrust scrutiny. These acquisitions cause the most obvious 

and most conventional kind of anti competitive harm. However, most of America's local hospital 

markets are already highly concentrated, and thus there are few remaining opportunities for 

dominant providers to acquire additional hospitals within the same local market. Thus, even if 

these acquisitions meet the highest antitrust scrutiny, there are relatively few opportunities in 

which they can take place. 

However, there remain two alternative kinds of acquisitions that, although they meet less 

antitrust scrutiny than within-market horizontal hospital mergers, can cause enonnous 

anticompetitive hann and deserve the enforcement agencies' attention. The first is horizontal 

hospital acquisitions that involve separate geographic markets. For example, when Tenet 

Healthcare Corp. acquired Vanguard Health System (a $4.3 billion acquisition), the acquisition 

met little antitrust opposition because the two hospital chains competed in very few common 

local markets. However, such hospital chain mergers can have significant consequences on an 

emerging inter-regional marketplace. They also will give providers negotiation leverage over 

insurers that operate nationally, such that market dominance in one geographic market could be 

leveraged into additional monopoly profits in another. In short, horizontal mergers oflarge 

chains of hospitals deserve additional antitrust scrutiny even when such mergers do not impact 

local hospital markets though conventional mechanisms. 

The second is vertical hospital acquisitions, such as when hospitals acquire physician practices. 

As T noted in response to Question #3, the FTC deserves praise for blocking such a vertical 

merger in Idaho (see FTC v. St. Lukes Health System, (District of Idaho, Case No.1: 13-cv00116-BLW). The court, in granting the FTC's request for an injunction, expressed concern that 

the acquisition would create additional market power in outpatient services - in other words, the 

court was concerned about the horizontal elements of this acquisition. But significant economic 

harm can result from the vertical elements of such an acquisition. For example, a hospital 

monopolist can use a vertical acquisition to enshrine its monopoly position, especially if 

outpatient services can serve as a substitute for some inpatient services. Even for services that 

only hospitals can provide, such a vertical merger will prevent outpatient physicians from 

shopping among hospitals on behalf of their patients. Tn addition, a monopolist hospital can use 

its network of outpatient services to serve as a funnel for increased inpatient admissions, thus 

undermining any potential benefits of coordination and integration. 

In sum, conventional policy suggests that mergers should be challenged whenever there are 

horizontal acquisitions within a common geographic market. As applied to health sector 

acquisitions, this has meant that mergers of nearby hospitals receive antitrust scrutiny from the 

enforcement agencies. But given the dynamics of hospital-insurer negotiations and 

reimbursement policies, our enforcement agencies should also heavily scrutinize acquisitions 

among hospital that operate in ditferent geographic markets and acquisitions outpatient services 

by hospitals. 
173 

Questions for the Record from 

Chairman Spencer Bachus 

for the Hearing on "The Patient Protection and Affordable Care Act, Consolidation, and 

the Consequent Impact on Competition in Health Care" 

September 19,2013 

Questions for Thomas Miller 

1. While there was some consolidation in the health care industry that pre-dates the PPACA, 

do you think the prospect of the new health care law and its enactment caused industry 

participants to consolidate further? 

The trend toward further consolidation has continued, but, at least initially, it has 

generally changed more in terms of consolidation across various health sectors than 

within any single sector. There is not one single, simple consolidation trend throughout 

all sectors of the health care industry. The increase in vertical consolidation has been 

greatest in the magnitude of physician practices that continue to be acquired and 

consolidated within hospital-based contractual arrangements. Hospital sector 

consolidation per se has not increased much above its peak that took place primarily 

during the previous pre-PPACA decade. Insurer consolidation within the individual 

market segment is likely to increase - not in the first year of full PPACA exchange 

implementation - but over the next few years, as smaller "outside market" insurers either 

exit or are acquired by larger insurers and recent start-up insurers competing in the new 

exchanges fail to reach critical mass or achieve a sustainable place within that newly 

evolving market. 

Over time, the ACA's heavy regulatory burdens, complexities, and other barriers 

to new entry will tend to entrench a handful oflarger insurers who are best at coping with 

them. Early experience in most of the new exchange markets for individual coverage 

already indicate that the previous dominant insurer retains the same or larger market 

share (with a few exceptions). 

2. Since the PPACA may not offer competitive solutions to a consolidated marketplace, 

what are some pro-competitive policies that Congress should consider? 

The most important pro-competitive policy would involve reversing the primary direction 

of PPACA policies, which tend to insist on greater standardization driven by political 

goals (centralized reb 'Illation, income redistribution, off-budget spending through 

mandates), rather than pro-competitive choices made by patients and other private payers 

facing more transparent market-based prices. Deregulating the insurance choices 

available to consumers in the new health exchanges is a necessary first step. Within the 

realm of health competition policy per se, better solutions to marketplace consolidation 

that pre-dates the PP ACA as well as the further consolidation triggered by it include: 

Curbing abuses of State action immunity, challenging anti competitive terms in insurance 

provider contracts, requiring unbundling of monopolized health care services, promoting 
174 

f 

inter-regional competition in health care services, removing or limiting regulatory 

barriers to entry by new health sector competitors, and empowering consumers and 

private purchasers with better access to information tools and resources. 

3. Is there a risk that, due to the standardizing provisions of the PP ACA, the insurance 

market will shift to a commodity-based marketplace, and, as a result, we might see an 

incentive for further consolidation to achieve economies of scale~ 

Yes, that is both a serious risk and an unfortunately all-too-clear goal of the PPACA, 

which aims to shift insurers' competition to the basic premiums they charge for packages 

of insurance benefits that ditJer only in their relative proportions of cost sharing. In such 

a commoditized market framed by essential benetits packages, minimum loss ratios, 

adjusted community rating, guaranteed issue, and individual purchase mandates, the most 

"successful" insurers are likely to be those that can keep their administrative expenses 

lower than other competitors. That is a recipe for a business emphasis on chasing after 

real and imagined economies of scale, rather than fundamentally serving the different 

preferences and needs of various types of consumers and purchasers more effecti vel y 

with more differentiated and targeted products. 

4. You state that ACOs may give rise to certain antitrust and competitive concerns Why do 

you believe that to be the case~ 

Although the ACO reb'lliations, rules, and practices are likely to continue to evolve 

further over time (in order to find better configurations that start to workl), their initial 

bias has remained toward encouraging hospital-centric configurations that are likely to 

increase opportunities for horizontal AND vertical consolidation, and augment market 

power, in the health care sector. The initial ACO structures remain relatively opaque and 

resistant to ex ante patient choice To reach their baseline-cost-reduction targets, they 

are biased to reward size and scale much more than any promised, but thus far elusive or 

non-scalable innovative efficiencies in care delivery. The ACOs also provide strong 

temptations for larger consolidated entities to increase their market power while shifting 

costs across the Medicare and below-65 private-market segments. 

5. Do you think that the enactment of the PPACA has raised barriers to entry in either the 

hospital or insurance market? 

The PPACA has raised barriers to entry primarily by increasing the upfront "entry" fee to 

comply with its mounting burden of regulation. Compliance costs essentially raise the 

capital requirements for start-ups and smaller competitors, disproportionate to their likely 

revenue. Larger incumbent organizations have a "comparative" advantage in spreading 

those costs across a broader base, having access to more in-house administrative 

personnel, and utilizing a wider network of political and lobbying resources. 
175 

Response of Professor Thomas L. Greaney 

Questions for the Record from Raukiug Member Steve Cohen 

Hearing on "The Patient Protection and Affordable Care Act, Consolidation, and the 

Consequent Impact on Competition" 

Honse of Representatives Committee on the Jndiciary 

Below are my responses to the questions posed in connection with my testimony before the 

Subcommittee on Regulatory Refonn, Commercial and Antitrust Law on September 19, 2013 

1. I view the gro\\th of ACOs as a potentially important pro-competitive force in health care. The 

reforms encouraging development of ACOs, patient-centered medical homes, and other integrated 

delivery systems enacted under the Affordable Care Act (ACA) serve to encourage fragmented 

providers to coordinate their services and compete more effectively. To the extent that some 

consolidations go beyond pro-competitive integration and create monopolies or oligopolies, the 

problem is one that exists throughout the economy: some firms are willing to "'test the envelope" 

and try to acquire market power. It is therefore misleading to attribute causation to the ACO 

concept. 

2. Again. the fact that some hospitals and specialty physician practices have undertaken or 

attempted to undertake anti competitive mergers in response to the ACA, should not in any way 

be deemed to be afemir of the ACA or its design. Indeed as I stated in my testimony, such 

mergers are an effort to thwart the pro-competitive objectives of the law and the market-based 

health care system that every administration has supported for the last thirty years. 

3. Mr. Miller's statement overlooks the fact that integration is critical to achieve the benefits of 

better quality and more vigorous competition. Entities such as ACOs, HMOs and provider 

networks will only be incentivized to improve care at affordable prices if they co-ordinate their 

practices, share infonnation, and produce data that evidences better outcomes. That way 

"'consumers" (employers. payers, and patients) can evaluate performance and compare 

alternatives. Thus it seems to me that the statement creates a false dichotomy. 

4. It is a textbook economic principle that standardization of products or services will improve 

competitive outcomes where consumers face complex offerings with multiple features that make 

it impossible to compare one with another. That phenomenon is certainly the case with respect to 

health insurance otTerings. Extraordinary variations in the amount and methods for calculating 

co-pays, deductibles, annual and lifetime limits, benefits, and exclusions make price comparisons 

impossibly difficult for even the most sophisticated buyer. including most employers. A large 

literature describing the inadequacies of the individual insurance market that existed before 

passage ofthe ACA contirms these observations. Thus standardization is an essential part of 

competitive refonn. Finally, there is no necessary correlation bet\veen SOlne standardization and 

consolidation. With product standardization. insurers face greater incentives to compete on the 
176 

f 

quality and outcomes of their provider networks as well as their own customer services such as 

appcals proccsscs-things conSLUncrs rcally care about. 

5. I find it hard to understand how the ACA can be faulted from a competition-oriented perspective 

for the myriad efforts it undertakes to tix our broken and inefficient reimbursement system. One 

would be hard pressed to find a health policy cxpcrt or economist who would challcngc the 

wisdom ofthc ACA's movcment toward bLUldlcd paymcnts, valuc based purchasing, and global 

payments to integrated provider units like ACOs and patient centered medical homes. Obviously. 

new regulations arc required to change paymcnt arrangements but gencralizcd complaints about 

"rcgulatory burdens" ignore thc fact that a system that moves away from fcc for servicc payment 

and eliminates payers' incentives to pursue good risks by medical underwriting substantially 

reduces costs and paperwork throughout the system. 

6. I could not disagree morc. A thcme that I have stresscd throughout my acadcmic carcer and in 

many ofthe publications listed on my e.v. is that market imperfections drive the inefficiencies 

and high costs of our system. Me. Miller's statement might have validity ifhe concedes that 

some govclllment regulations (encouraged mld promoted by health industry players) reinforce 

those market imperfections. 

7. I completely agree that the state action imnumity doctrine needs to be narrowed in that, as 

constllled in some cases, it permits anti-competitive collusion. Recent decisions including the 

Suprcme Court's opinion in the Phoebe Putney case last ycar and the Fourth Circui!"s dccision in 

North Carolina Board of Dental Exmniners v. FTC illustrate that there is a growing consensus 

that the doctrine' s application should be limited. 

8. I would urge tirst that Congress assure that the federal antitrust enforcement agencies, the 

Antitrust Division ofthe Department of Justice and the Federal Trade Commission. receive both 

adequate funding and effective oversight so as to assure vigorous enforcement of the law in the 

health care industry. Because most health care issues involve local markets. it also would be 

cxtremely helpful if Congrcss could dcvelop a mechanism to help state Attollleys Gencral fund 

their oversight of state and federal antitrust law, as well as the development of pro-{Oompetitive 

policies by their state insurance regulators and health exchanges. Finally, 1 would urge Congress 

to mmldatc sharing of infollllation bctwccn CMS mld the mltitrust cnforcemcnt agencies. 

Disclosurcs should include detailed data rcgarding quality mld cost perfonnance of providers mld 

ACOs and other networks serving beneticiaries of Medicare. Medicaid and other federal 

progrmllS. hl addition, I would recommcnd legislation cnabling CMS to rcquire prc-authorization 

by thc mltitrust ageneics for rcnewals of certification of participation in progrmllS such as thc 

Medicare Shared Savings Program based on the agencies' assessment of market po\ver issues. 
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Questions for the Record from 

Congressman Doug Collins 

for the Hearing on "The Patient Protection and Affordable Care Act, Consolidation, and 

the Consequent Impact on Competition in Health Care" 

September 19,2013 

Questions for David Balto 

lodependent and community pharmacies playa vital role in Northeast Georgia and 

across the nation. And they are being crippled by burdensome regulations and unfair and 

often abusive PBM practices. 

Yet in recent years, the FTC has not brought any enforcement actions against PBMs for 

anti competitive, deceptive, or egregious conduct, and when states have attempted to 

regulate to product consumers from these practices, the FTC has consistently sided with 

the PBMs. Given the lack of FTC involvement and enforcement in PBM mergers, and the 

FTCs general opposition to any state regulation of PBMs, they seem to enjoy a de facto 

antitrust exemption. 

My constituents are very concerned, as am I, that the way PPACA treats PBMs will 

further harm independent and community pharmacies and further restrict consumer 

choice in the healthcare industry. 

What steps, if any, Congress should take to ensure that independent phannacies and 

PBMs are able to compete on a level playing tield in the post-PP ACA healthcare market? 

2 In recent years, the FTC has engaged in several regulatory and judicial actions to prevent 

anti-competitive provider consolidation, including a us. Supreme Court case that sided 

with the FTC on a hospital merger in my home state of Georgia. What are some ways 

that Congress could better equip the FTC with the tools necessary to examine mergers 

and acquisitions that may be anti competitive and anticonsumer? 

Questions for the Record from 

Ranking Member Steve Cohen 

Some have suggested that the ACA has prompted a recent wave of mergers among 

hospitals and other providers. What is your response? 

Tom Miller says that etforts to better integrate and coordinate health care delivery "risks coming 

into conflict with pro-competition policies favoring greater price transparency, improved quality 

reporting, and lower prices" How do you respond? 

4 Regarding the Health Insurance Marketplaces set up under the ACA, Tom Miller says 

that they are structured to gravitate towards more standardized insurance plans, which 
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ultimately will encourage greater consolidation and less competition in health insurance 

markets. How do you respond? 

Tom Miller suggests that the ACA's "reimbursement schemes and regulatory burdens are 

more likely to entrench large, existing players in health care markets than to encourage 

start-up innovators." How do you respond? 

6 What do you think of Tom Miller's suggestion that the state action immunity doctrine 

"needs to be tightened"" 

7 What can Congress do to strengthen antitrust enforcement in health care" 

How can the FTC strengthen its health care antitrust enforcement? 

9 There is some concern about potential concentration in the pharmacy benefit manager 

market. What should the FTC do about problems in the PBM market? 

10. One expert report examining group purchasing organizations (GPO's) - organizations that 

contract to buy medical equipment and supplies for hospitals, but are paid by the hospital 

suppliers and medical device manufacturers - suggested that GPOs cause hospitals, and 

ultimately payers such as individuals, the government and insurers, to overpay for 

medical devices. The report concluded that approximately $25 billion in private 

healthcare expenditures, and $ 11.5 billion in federal health care spending, could be saved 

annually if GPOs were paid by hospitals instead of suppliers. Do you think the fact that 

GPOs are paid by suppliers creates a contlict of interest for GPOs? Do you agree there 

could be savings to payers and the health care system if the payment structure were 

changed" 

Answers by David Balto 

1. This question is tremendously appropriate because of the lack of sound 

enforcement against PBM over the past several years. As you've noted the lack of FTC 

enforcement effectively gives the PBMs a de facto antitrust exemption. Tn addition PBMs are 

the least regulated segment of the healthcare market. 

There are a number of steps Congress can take to help insure independent pharmacies can 

compete on a level playing field. First Congress should enact an antitrust exemption so that 

pharmacies can collectively negotiate with PBMs. H.R. 1188, Preserving Our Hometown 

Independent Pharmacies Act of2013, would provide a limited exemption for community 

pharmacies allowing them to band together to negotiate better contractual terms from PBMs 

have testified in the past that bills such as H.R. 1188 would both improve patient access and the 

level of services received by patients Too often PBMs are able to coerce patients into very 

narrow selective networks. 

Second, Congress should continue with oversight function and carefully monitor the 

FTC's lack of antitrust enforcement in the PBM market. The FTC made a serious error when it 
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failed to challenge the Express ScriptslMedco merger. The FTC can go back and review mergers 

that have been approved in the past and the Congress shouldn't encourage the FTC to review the 

Express ScriptslMedco merger. 

Third, Congress should encourage the CMS to reform the practice of preferred networks 

under Part D. CMS has proposed reforms to these two provisions in Part D and Congress should 

encourage CMS to adopt the proposed regulations. 

2. The FTC has appropriately and carefully examined mergers and acquisitions in 

the healthcare industry. One unfortunate gap however, is its jurisdiction over health insurers. 

Congress could help strengthen healthcare enforcement generally by eliminating the antitrust 

exemptions for health insurers under the McCarran-Ferb'llson Act. As noted in my testimony the 

FTC seems to believe that the McCarran-Ferguson Act prevents it from bringing enforcement 

action against health insurers. That's an unfortunate gap in the law and Congress should 

eliminate that gap by repealing the antitrust exemption for health insurers 

3. There is little evidence that the ACA has prompted the recent wave of mergers 

among hospitals and other providers. There are many reasons for hospital and provider 

consolidation including achieving economies of scale, better coordination of services and 

providing a more integrated approach. Much of the learning that led to the enactment of the 

ACA suggested that healthcare was being inefficiently provided because of the lack of 

coordination between hospitals and providers to the extent that this type of consolidation 

improves that type of integration that certainly can be a benefit and help lower overall healthcare 

costs. 

Mr. Miller's suggestion that coordinated healthcare delivery could be in conflict with 

pro-competition policies is simply mistaken. Integration and coordination are not inconsistent 

with greater price transparency, improved quality reporting and lower prices. Indeed, effective 

integration and coordination can lead to each ofthese pro-competitive results. 

4. Mr. Miller is incorrect that the way Health Insurance Market Places are set up 

would lead to standardized insurance plans. Under the ACA, products offered to consumers in 

the Health Insurance Market Place must guarantee a minimum level of benefits. This 

"standardized" benefits package insures that consumers will all receive an appropriate level of 

benefits. Competition in the Health Insurance Market Place occurs when consumers choose 

trom one offour levels ofplans--bronze, silver, gold, or platinum. Each level has a different 

cost-sharing mechanism in the form of premiums and deductibles. Insurance companies provide 

plans across numerous levels competing for consumers by otfering different products and 

benefits above and beyond the minimum requirements. Much like other aggregate sales 

web sites, the Health Insurance Market Places provide greater information to consumers who will 

be able to readily compare ditferent insurance options. With "standardized" baseline benetits 

established by the law, insurance companies will have to compete via cost, innovations, and 

enhanced benefits leading to increased competition and quality 

5. There is little evidence that the ACA's reimbursement schemes and regulatory 

burdens will entrench large existing players in healthcare markets. Many of the reforms in the 
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