U.S. GOVERNMENT PRINTING OFFICE

WASHINGTON : 

For sale by the Superintendent of Documents, U.S. Government Printing Office

Internet: bookstore.gpo.gov Phone: toll free (866) 512–1800; DC area (202) 512–1800

Fax: (202) 512–2104 Mail: Stop IDCC, Washington, DC 20402–0001

74–262 PDF 2012

HEALTHCARE CONSOLIDATION AND 

COMPETITION AFTER PPACA 

HEARING 

BEFORE THE

SUBCOMMITTEE ON 

INTELLECTUAL PROPERTY, 

COMPETITION, AND THE INTERNET 

OF THE

COMMITTEE ON THE JUDICIARY 

HOUSE OF REPRESENTATIVES 

ONE HUNDRED TWELFTH CONGRESS 

SECOND SESSION 

MAY 18, 2012 

Serial No. 112–121 

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 

LAMAR SMITH, Texas, Chairman 

F. JAMES SENSENBRENNER, JR., 

Wisconsin 

HOWARD COBLE, North Carolina 

ELTON GALLEGLY, California 

BOB GOODLATTE, Virginia 

DANIEL E. LUNGREN, California 

STEVE CHABOT, Ohio 

DARRELL E. ISSA, California 

MIKE PENCE, Indiana 

J. RANDY FORBES, Virginia 

STEVE KING, Iowa 

TRENT FRANKS, Arizona 

LOUIE GOHMERT, Texas 

JIM JORDAN, Ohio 

TED POE, Texas 

JASON CHAFFETZ, Utah 

TIM GRIFFIN, Arkansas 

TOM MARINO, Pennsylvania 

TREY GOWDY, South Carolina 

DENNIS ROSS, Florida 

SANDY ADAMS, Florida 

BEN QUAYLE, Arizona 

MARK AMODEI, Nevada 

JOHN CONYERS, JR., Michigan 

HOWARD L. BERMAN, California 

JERROLD NADLER, New York 

ROBERT C. ‘‘BOBBY’’ SCOTT, Virginia 

MELVIN L. WATT, North Carolina 

ZOE LOFGREN, California 

SHEILA JACKSON LEE, Texas 

MAXINE WATERS, California 

STEVE COHEN, Tennessee 

HENRY C. ‘‘HANK’’ JOHNSON, JR., 

Georgia 

PEDRO R. PIERLUISI, Puerto Rico 

MIKE QUIGLEY, Illinois 

JUDY CHU, California 

TED DEUTCH, Florida 

LINDA T. SA ́ NCHEZ, California 

JARED POLIS, Colorado 

RICHARD HERTLING, Staff Director and Chief Counsel 

PERRY APELBAUM, Minority Staff Director and Chief Counsel 

SUBCOMMITTEE ON INTELLECTUAL PROPERTY, COMPETITION, AND THE INTERNET

BOB GOODLATTE, Virginia, Chairman 

BEN QUAYLE, Arizona, Vice-Chairman 

F. JAMES SENSENBRENNER, JR., 

Wisconsin 

HOWARD COBLE, North Carolina 

STEVE CHABOT, Ohio 

DARRELL E. ISSA, California 

MIKE PENCE, Indiana 

JIM JORDAN, Ohio 

TED POE, Texas 

JASON CHAFFETZ, Utah 

TIM GRIFFIN, Arkansas 

TOM MARINO, Pennsylvania 

SANDY ADAMS, Florida 

MARK AMODEI, Nevada 

MELVIN L. WATT, North Carolina 

JOHN CONYERS, JR., Michigan 

HOWARD L. BERMAN, California 

JUDY CHU, California 

TED DEUTCH, Florida 

LINDA T. SA ́ NCHEZ, California 

JERROLD NADLER, New York 

ZOE LOFGREN, California 

SHEILA JACKSON LEE, Texas 

MAXINE WATERS, California 

HENRY C. ‘‘HANK’’ JOHNSON, JR., 

Georgia 

BLAINE MERRITT, Chief Counsel 

STEPHANIE MOORE, Minority Counsel 

(III) 

C O N T E N T S 

MAY 18, 2012 

Page 

OPENING STATEMENTS 

Honorable Melvin L. Watt, a Representative in Congress from the State 

of North Carolina, and Ranking Member, Subcommittee on Intellectual 

Property, Competition, and the Internet ............................................................ 1 

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

of Michigan, and Ranking Member, Committee on the Judiciary, and Member, Subcommittee on Intellectual Property, Competition, and the Internet . 6 

Honorable Lamar Smith, a Representative in Congress from the State of 

Texas, and Chairman, Committee on the Judiciary ......................................... 7 

WITNESSES 

Edmund F. Haislmaier, Senior Research Fellow, Center for Health Policy 

Studies, The Heritage Foundation 

Oral Testimony ..................................................................................................... 9 

Prepared Statement ............................................................................................. 10 

Thomas L. Greaney, Chester A. Myers Professor of Law, Co-Director, Center 

for Health Law Studies, Saint Louis University School of Law 

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

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

Scott Gottlieb, M.D., Clinical Assistant Professor, New York University, Resident Fellow, American Enterprise Institute 

Oral Testimony ..................................................................................................... 79 

Prepared Statement ............................................................................................. 80 

LETTERS, STATEMENTS, ETC., SUBMITTED FOR THE HEARING 

Prepared Statement of the Honorable Melvin L. Watt, a Representative in 

Congress from the State of North Carolina, and Ranking Member, Subcommittee on Intellectual Property, Competition, and the Internet ............... 3 

Prepared Statement of the Honorable Lamar Smith, a Representative in 

Congress from the State of Texas, and Chairman, Committee on the Judiciary ......................................................................................................................... 5 

APPENDIX 

MATERIAL SUBMITTED FOR THE HEARING RECORD

Prepared Statement of the Honorable Bob Goodlatte, a Representative in 

Congress from the State of Virginia, and Chairman, Subcommittee on Intellectual Property, Competition, and the Internet ............................................... 89 

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

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

on the Judiciary, and Member, Subcommittee on Intellectual Property, 

Competition, and the Internet ............................................................................ 90 

Prepared Statement of the Honorable Howard Coble, a Representative in 

Congress from the State of North Carolina, and Member, Subcommittee 

on Intellectual Property, Competition, and the Internet .................................. 91 

Material submitted by the Honorable Melvin L. Watt, a Representative in 

Congress from the State of North Carolina, and Ranking Member, Subcommittee on Intellectual Property, Competition, and the Internet ............... 92 

Page

IV 

Prepared Statement of The Academy Advisors ..................................................... 199 

Prepared Statement of Joel C. White, Executive Director, Coalition for Affordable Health Coverage ........................................................................................... 202 

Prepared Statement of the American Medical Group Association (AMGA) ....... 208 

Prepared Statement of the Association of American Medical Colleges ............... 210 

Prepared Statement of the American Hospital Association ................................. 211 

(1) 

HEALTHCARE CONSOLIDATION AND 

COMPETITION AFTER PPACA 

FRIDAY, MAY 18, 2012 

HOUSE OF REPRESENTATIVES, SUBCOMMITTEE ON INTELLECTUAL PROPERTY, COMPETITION, AND THE INTERNET, COMMITTEE ON THE JUDICIARY, Washington, DC. 

The Subcommittee met, pursuant to call, at 11:15 a.m., in room 

2141, Rayburn House Office Building, the Honorable Bob Goodlatte 

(Chairman of the Subcommittee) presiding. 

Present: Representatives Goodlatte, Smith, Coble, Adams, Watt, 

Conyers, Chu, and Johnson. 

Staff Present: (Majority) Holt Lackey, Counsel; Olivia Lee, Clerk; 

(Minority) Stephanie Moore, Subcommittee Chief Counsel. 

Mr. GOODLATTE. Good morning. The Subcommittee will come to 

order. 

I want to begin by apologizing for being late getting here and the 

votes delaying us even further. But I will dispense with my opening statement and incorporate some of those remarks perhaps later 

when we get to the questioning so we can get right to the testimony of the witnesses. 

But first I want to recognize the gentleman from North Carolina, 

whose son is getting married this weekend. And our full congratulations to him and his family. And it is now my pleasure to recognize him for his opening statement. 

Mr. WATT. Thank you, Mr. Chairman. 

And I would dispense with my opening statement, but I am a little unhappy with the title to this hearing. It is like the newspaper 

headline. Maybe the content of the hearing itself will be about 

something substantive, but I am a little concerned about the title 

that we put on it. So let me just say a few things. 

Consolidation in health care is of utmost importance to me and 

to my constituents, both in the provider and insurance markets. In 

North Carolina, a recent investigation by the News and Observer, 

the Raleigh newspaper, the statewide newspaper, and the Charlotte Observer, the second statewide newspaper, revealed that hospital consolidation has led to huge profits and market dominance 

for UNC Hospitals, Duke University Health System, and, to a lesser extent, Wake Medical Center. 

Hospital prices for patients have soared, while charity services 

have declined or pale in comparison to the hospital systems’ profit 

margins. According to these news reports, the profits are poured 

2 

into fancy facilities, generous compensation packages for executives, and advanced technology that experts say don’t always translate into superior health outcomes for patients. And reserves in the 

billions have been set aside for future purchases, which, according 

to the investigation, has solidified the market power of these 

merged entities. 

Another side effect of hospital concentration and consolidation is 

increased bargaining power with insurance providers, because the 

hospitals are so big they are in a position to negotiate higher reimbursement rates. In North Carolina, Blue Cross has 75 percent of 

the health insurance market. It reports that its cost per hospital 

admission surged by almost 40 percent in 3 years, between 2007 

and 2010, but the costs are passed on in higher premiums to customers, individuals and businesses alike. 

In fact, earlier this month, a prominent attorney filed a class action antitrust lawsuit against Blue Cross Blue Shield of North 

Carolina, charging that noncompetition practices among its affiliates blocks rival insurers, resulting in accumulation of market 

power which they exert to demand discounts with hospitals. The 

Department of Justice is also reportedly investigating whether 

Blue Cross plans in North Carolina raise health insurance premiums by cutting deals with hospitals to stifle its competitors from 

negotiating better rates. 

So, Mr. Chairman, there is much to examine in the area of 

healthcare consolidation and competition, but to link examination 

of these issues to the Affordable Care Act threatens to unnecessarily politicize a crisis that is gripping our communities across the 

country. And to do so when a decision from the Supreme Court on 

the constitutionality of the healthcare reform law is expected next 

month seems misguided and not befitting to the bipartisanship 

that has characterized this Subcommittee in particular. 

I guess the good news for the Obama administration is that even 

some of those in Congress who oppose the individual mandate and 

hope that it will be invalidated as unconstitutional believe that the 

government’s severability argument is sound and that the remainder of the law will survive. 

The fact of the matter is that hospital consolidation began long 

before the Affordable Care Act. The market muscle of insurers, including healthcare insurers, has been made possible in part due to 

the McCarran-Ferguson exemption from antitrust laws, which, of 

course, was in place long before healthcare reform. The trend in 

hospitals merging with other hospitals, hospitals acquiring physician practices, physicians banding together, and, more recently, 

plans buying physician practices, has been under way for some 

time and is not unique to North Carolina. And, as of 2007, in 21 

States, one insurance carrier controls more than half of the market. 

The Affordable Care Act, which I supported, will make dramatic 

changes in health insurance and health care to be phased in between 2010 and 2018. It is expected to expand health insurance to 

32 million more Americans. And the medical loss ratio, which requires health insurers to spend a specified percentage of their premiums on payment for medical services or on activities that improve healthcare quality—something which apparently some of my 

colleagues find to be a radical idea—is designed to ensure that 

3 

*The material referred to is available in the Appendix. 

health insurance premium dollars are not consumed by salaries, 

marketing, and overhead. 

Providing more Americans with better-quality insurance is a step 

in the right direction, and ensuring that health insurance premiums serve that purpose rather than making executives rich is 

equally important. 

So, Mr. Chairman, I have a lot more on my chest. I guess to expedite getting to the witnesses so that maybe we can talk about the 

consolidation issue, I will put the rest of my statement in the 

record. 

But I just—I am not happy, because we have tried to connect a 

subject here with something that I don’t think is really related to 

it. We have a problem. We ought to try to solve it, but we ought 

to try to do it without being partisan about this. That is the policy 

we have followed in this Subcommittee in the past, and I hope we 

will get back to it after this hearing. 

With that, Mr. Chairman, I ask unanimous consent to put into 

the record a copy of the State of North Carolina report that was 

generated by the North Carolina director of economic research, 

North Carolina Hospital Association, which reflects some of the 

things that I referenced, and a copy of Professor Greaney’s article 

that he cites in his testimony. I ask unanimous consent that those 

two things be put in the record.* 

And I yield back the balance of my time. 

Mr. GOODLATTE. Without objection, the gentleman’s request that 

the documents cited be put in the record will be granted. 

[The prepared statement of Mr. Watt follows:] 

Prepared Statement of the Honorable Melvin L. Watt, a Representative in 

Congress from the State of North Carolina, and Ranking Member, Subcommittee on Intellectual Property, Competition, and the Internet 

Thank you, Chairman Goodlatte. 

Consolidation in health care is of utmost importance to me and to my constituents, both in the provider and insurance markets. In North Carolina, a recent investigation by ‘‘The News and Observer’’ and ‘‘The Charlotte Observer’’ revealed that 

hospital consolidation has led to huge profits and market dominance for UNC Hospitals, Duke University Health System, and to a lesser extent WakeMed. Hospital 

prices for patients have soared while charity services have declined or pale in comparison to the hospital systems profit margins. According to these news reports, 

profits are poured into fancy facilities, generous compensation packages for executives, and advanced technology that experts say don’t always translate into superior 

health outcomes for patients and reserves in the billions have been set-aside for future purchases, which according to the investigation, has solidified the market 

power of these merged entities. 

Another side-effect of hospital concentration and consolidation is increased bargaining power with insurance providers. Because the hospitals are so big, they are 

in a position to negotiate higher reimbursement rates. In North Carolina, Blue 

Cross has 75% of the health insurance market. It reports that it’s cost per hospital 

admission surged by almost 40 per cent in a three year period, between 2007 and 

2010. But the costs are passed on in higher premiums to customers—individuals 

and businesses alike. 

In fact, earlier this month prominent attorney David Boies filed a class action 

antitrust lawsuit against Blue Cross and Blue Shield of North Carolina charging 

that the non-competition practice among its affiliates blocks rival insurers, resulting 

in an accumulation of market power which they exert to demand discounts with hospitals. The Department of Justice is also reportedly investigating whether Blue 

Cross plans in North Carolina raise health insurance premiums by cutting deals 

with hospitals that stifle its competitors from negotiating better rates. 

4 

So, Mr. Chairman, there is much to examine in the area of health care consolidation and competition. But to link examination of these issues to the Affordable Care 

Act threatens to unnecessarily politicize a crisis that is gripping our communities 

across the country. And to do so when a decision from the Supreme Court on the 

constitutionality of the health reform law is expected next month seems misguided 

and is not befitting of the bipartisanship that has characterized this Subcommittee. 

I guess the good news for the Obama Administration is that even some of those in 

Congress who oppose the individual mandate and hope that it will be invalidated 

as constitutional believe that the government’s severability argument is sound and 

that the remainder of the law will survive. 

The fact of the matter is that hospital consolidation began long before the Affordable Care Act. The market muscle of insurers, including health care insurers, has 

been made possible in part due to the McCarran-Ferguson exemption from the antitrust laws which, of course, was in place long before health care reform. The trend 

in hospitals merging with other hospitals, hospitals acquiring physician practices, 

physicians banding together and more recently, plans buying physician practices, 

has been underway for some time and is not unique to North Carolina. And, as of 

2007, in 21 states, one insurance carrier controls more than half the market. 

The Affordable Care Act, which I supported, will make dramatic changes in health 

insurance and health care to be phased in between 2010 and 2018. It is expected 

to expand health insurance to 32 million more Americans and the medical loss ratio 

which requires health insurers to spend a specified percentage of their premiums 

on payment for medical services or on activities that improve health care quality 

(which some find a radical idea), is designed to ensure that health insurance premium dollars are not consumed by salaries, marketing and overhead. Providing 

more Americans with better quality insurance is a step in the right direction and 

insuring that health insurance premiums serve that purpose rather than making executives rich is equally important. Critics argue that the MLR will drive insurers 

out of the market, but our antitrust laws protect competition, not competitors. 

Although the reports of hospital consolidation in North Carolina are alarming, 

there are benefits to consolidation in health care markets including better integration of care and improved quality and accountability. The downside occurs when the 

consolidated entity becomes so large, squeezes out competition, and can dictate 

unjustifiably high rates from insurers. Equally problematic is when merged entities 

become so entrenched they are impossible to undo. Some critics maintain that the 

Accountable Care Organizations authorized by the health reform law will lead to 

greater consolidation. But again, despite my concerns about consolidation in my 

home state, not all consolidation is anticompetitive. Health providers are encouraged to form Accountable Care Organizations in order to deliver integrated, efficient 

and seamless services to patients. The Accountable Care Organizations are intended 

to eliminate duplication of services and coordinate patient care. 

But the enforcement agencies are prepared to provide robust examination of Accountable Care Organizations. In October 2011, the FTC and DOJ issued a joint 

‘‘Statement of Antitrust Enforcement Policy Regarding Accountable Care Organizations Participating in the Medicare Shared Savings Program.’’ The statement acknowledges that ‘‘under certain conditions ACOs could reduce competition and harm 

consumers through higher prices or lower quality of care,’’ and lays out the roadmap 

the agencies will follow in assessing whether a formed ACO or one that seeks guidance pre-establishment is likely to operate consistent with antitrust law and policy. 

Mr. Chairman, the legislative process leading to the passage of the Affordable 

Care Act was protracted and often ugly, and certainly did not produce a perfect law. 

And the trends toward consolidation are legitimate areas of inquiry. But an examination of whether the Affordable Care Act, in its embryonic stages, is driving consolidation among health care providers and insurance companies is misleading, premature and inconsistent with the bipartisan way in which we have sought to operate this Subcommittee. 

I hope that our panel will provide us with meaningful input on a problem that 

has plagued our healthcare system for decades and not be misled by the partisan, 

political headline and title the Republicans have chosen to put on this hearing. 

I yield back. 

Mr. GOODLATTE. And, similarly, the opening statement of the 

Chairman of the full Committee, Chairman Smith, will also be 

made part of the record. 

[The prepared statement of Mr. Smith follows:] 

5 

Prepared Statement of the Honorable Lamar Smith, a Representative in 

Congress from the State of Texas, and Chairman, Committee on the Judiciary 

I am proud of the work that the Judiciary Committee has done to protect Americans’ rights from being threatened by the Obama administration’s so-called Affordable Care Act. 

This Committee has helped expose the unprecedented and unconstitutional individual mandate, which requires every American to buy health insurance. This Committee also has worked to protect Americans’ religious liberty from Obamacare mandates that would violate their faith. 

I signed Amicus briefs with the Supreme Court urging them to recognize that the 

Act is unconstitutional and to strike down the entire law. And I have joined my Republican colleagues in voting 26 times to defund all or part of Obamacare. 

Setting the constitutional concerns aside, today’s hearing focuses on a different 

sort of problem with Obamacare. The law is not only unconstitutional, but it also 

scrambles the economics of America’s health care system in a way that reduces competition. And when competition is reduced, higher prices, less innovation, and lower 

quality care follows. 

Obamacare is not just bad policy, it is bad economics as well. 

We know that centralized, top-down, government run systems do not work as well 

as competitive markets. In a government run system, businesses respond mostly to 

government mandates. In a free market system, businesses respond mostly to the 

needs and wants of their customers. 

But Obamacare places government decision making over free market competition. 

Under Obamacare, the government not only tells Americans that they have to buy 

health insurance; it also tells them what that insurance must cover. 

Rather than leaving medical professionals free to care for patients as they see 

best, and compete with each other to offer better care, the new law buries doctors 

under a mountain of regulatory paperwork. 

I expect the testimony at today’s hearing will demonstrate how the Administration’s regulatory approach reduces competition and leads to higher medical costs 

and lower quality care. 

The first victim of Obamacare’s regulations will be the small, independent and innovative insurance companies and health care providers. 

The new law already stifles the ability of smaller, more innovative insurance companies and medical practices to offer innovative business models that might improve 

on current practices. 

The second victim of Obamacare will be competition as these small businesses either go out of business, consolidate into larger businesses, or are never started at 

all. 

The ultimate victim will be the American people who will receive higher cost, 

lower quality care. And to add insult to injury, taxpayers are the ones who are 

forced to foot the bill. 

Competition and innovation benefit patients. Overregulation benefits only the 

largest incumbent companies and the status quo. 

During the debate over Obamacare, Jeffrey Flier, Dean of Harvard Medical 

School, wrote that it: 

‘‘would undermine any potential for real innovation in insurance and the 

provision of care. It would do so by overregulating the health-care system 

in the service of special interests such as insurance companies, hospitals, 

professional organizations and pharmaceutical companies, rather than the 

patients who should be our primary concern.’’ 

Accordingly, Dr. Flier gave the bill ‘‘a failing grade.’’ I agree. 

Obamacare violates both the Constitution and common sense. Unfortunately, if it 

is not declared unconstitutional, repealed, or modified, the worst is yet to come. 

Ideally, Obamacare would be repealed and replaced with a system that promotes 

competition, innovation and the best interests of the American people. 

Mr. GOODLATTE. Before we turn to the Ranking Member, Mr. 

Conyers, I do want to respond to the gentleman. I think it is important that we examine the effects of the general competitive state 

of the healthcare industry as well as the competitive effects of a 

very important new law, which, as you know, is controversial, is 

6 

being reviewed by the Supreme Court, but as of now is in the process of being implemented. And we should examine the competitive 

effects of that law on the general state of competition in the 

healthcare industry. 

And I now am pleased to turn to the gentleman from Michigan, 

the Ranking Member of the Judiciary Committee, Mr. Conyers. 

Mr. CONYERS. Thank you, Chairman Goodlatte. 

I won’t be able to get all of this off my chest either, so I will just 

try to make a couple points. 

To begin with, the hearing might be considered premature because the forces promoting hospital consolidation have all been 

going on long before the Affordable Care Act that is called 

demeaningly by some ‘‘ObamaCare,’’ but I call it ObamaCare because it is the first health bill named after a President in my memory. It is a little early for this. 

Secondly, the DOJ, the Trade Commission, State attorneys general across the country have made attempts to challenge hospital 

and insurance consolidation, which, as Mr. Watt has indicated, has 

been going on for decades. This is not new stuff. 

And frequently I think we have to concede—and I am doing a 

further study on it—that the Federal system, the DOJ, has not 

been up on it; they haven’t been suing as much as it seems to me 

that they could. And the Federal Court system seems not to be proconsumer, and sometimes they seem to be even anticompetitive. 

Now, I am going to develop that out over the fall, and maybe we 

can come back to this again. 

And then the examination of the State exchanges in the Obama 

health bill, still under court scrutiny, will compete with existing insurers. And these exchanges may allow for innovators to enter the 

market, but the fact of the matter is, they don’t come into effect 

until 2014. So that is why there is going to be a little bit of theory 

involved in this. 

And I would just close by letting our colleagues know that I have 

reintroduced a bill that ends the huge antitrust exemption made in 

1945, which was even before I got to the Congress, about exempting insurance companies from the antitrust provisions. I have done 

this before in other Congresses, and guess what? In 2010, on a recorded vote of 406–19, my ending the exemption passed. 

And so I would just close by summarizing one of our witnesses’ 

assertions, that the Affordable Care Act in fact depends on and 

promotes competition in provider and insurance markets and that 

competitive bargaining between payers and providers and a 

healthy rivalry are good ways to drive prices down and keep them 

at levels that best serve the public. 

So I thank you for allowing these opening comments, sir. 

Mr. GOODLATTE. And we thank you for those opening comments. 

Briefly in response, before I turn to the Chairman of the Judiciary Committee, who has now arrived, I do want to say that, while 

the main portion, if you will, of the ACA does not take effect until 

2014, numerous portions of it are already in effect, already operating, and they have had already identifiable impacts on the 

healthcare industry. Mergers, for example, among healthcare providers have increased by 50 percent since the passage of the ACA. 

7 

And we will turn to our experts in a moment to hear their views 

on what may be the cause of that. 

But first let’s recognize the Chairman of the Committee, the gentleman from Texas, Mr. Smith, whose statement is in the record 

but now will be exemplified. 

Mr. SMITH. Thank you, Mr. Chairman. 

Mr. Chairman, I am proud of the work that the Judiciary Committee has done to protect Americans’ rights from being threatened 

by the Obama administration’s so-called Affordable Care Act. This 

Committee has helped expose the unprecedented and, to me, unconstitutional individual mandate, which requires every American 

to buy health insurance. This Committee also has worked to protect Americans’ religious liberty from ObamaCare mandates that 

would violate their faith. 

I signed Amicus briefs with the Supreme Court urging them to 

recognize that the Act is unconstitutional and to strike down the 

entire law. And I have joined my Republican colleagues in voting 

26 times to defund all or part of ObamaCare. 

Setting the constitutional concerns aside, today’s hearing concentrates on a different sort of problem with ObamaCare. The law 

is not only unconstitutional, but it also scrambles the economics of 

America’s healthcare system in a way that reduces competition. 

And when competition is reduced, higher prices, less innovation, 

and lower-quality care inevitably follows. 

ObamaCare is not just bad policy, it is bad economics as well. We 

know that centralized, top-down, government-run systems do not 

work as well as competitive markets. In a government-run system, 

businesses respond mostly to government mandates. In a free market system, businesses respond mostly to the needs and wants of 

their customers. 

But ObamaCare places government decision-making above free 

market competition. Under ObamaCare, the government not only 

tells Americans that they have to buy health insurance, it also tells 

them what that insurance must cover. Rather than leaving medical 

professionals free to care for patients as they see best and compete 

with each other to offer better care, the new law buries doctors 

under a mountain of regulatory paperwork. 

I expect the testimony at today’s hearing will demonstrate how 

the Administration’s regulatory approach reduces competition and 

leads to higher medical costs and lower-quality care. The first victim of ObamaCare’s regulations will be the small, independent, and 

innovative insurance companies and healthcare providers. The new 

law already stifles the ability of smaller, more innovative insurance 

companies and medical practices to offer innovative business models that might improve on current practices. The second victim of 

ObamaCare will be competition, as these small businesses either go 

out of business, consolidate into larger businesses, or are never 

started at all. The ultimate victims will be the American people, 

who will receive higher-cost, lower-quality care. And to add insult 

to injury, taxpayers are the ones who are forced to foot the bill. 

Competition and innovation benefits patients. Overregulation 

benefits only the largest incumbent companies and the status quo. 

During the debate over ObamaCare, Jeffrey Flier, Dean of Harvard Medical School, wrote that it, quote, ‘‘would undermine any 

8 

potential for real innovation in insurance and the provision of care. 

It would do so by overregulating the healthcare system in the service of special interests, such as insurance companies, hospitals, professional organizations, and pharmaceutical companies, rather than 

the patients, who should be our primary concern,’’ end quote. Accordingly, Dr. Flier gave the bill ‘‘a failing grade,’’ and I agree. 

ObamaCare violates both the Constitution and common sense. 

Unfortunately, if it is not declared unconstitutional, repealed, or 

modified, the worst is yet to come. Ideally, ObamaCare would be 

replaced with a system that promotes competition, innovation, and 

the best interests of the American people. 

Thank you, Mr. Chairman. I yield back. 

Mr. CONYERS. Chairman Goodlatte, might I be permitted to—— 

Mr. GOODLATTE. Thank you, Mr. Chairman. 

And the Chair recognizes the gentleman from Michigan. 

Mr. CONYERS. Just a 1-minute response to my friend, the full 

Committee Chair, Mr. Smith, who rarely—— 

Mr. GOODLATTE. Without objection, we will dispense with regular 

order, since I dispensed with it for myself, and give the gentleman 

a minute. 

Mr. CONYERS. Your fairness is greatly appreciated. 

All I wanted to do as the author for a number of years of the universal single-payer healthcare bill, which I want you to know has 

shaped my attitudes about this subject that we are in, I want to 

just send a memo to our full Committee Chair pointing out what 

I would like to consider inadvertent errors of fact that he might 

want to take note of and maybe even reply back to me in writing, 

as well. 

And I thank the Chair for allowing that intervention. 

Mr. GOODLATTE. I thank the gentleman. 

And we now can turn to our very distinguished panel of witnesses today. Each witness’ written statements will be entered into 

the record in its entirety. 

I ask that each witness summarize their testimony in 5 minutes 

or less. To help you stay within that time, there is a timing light 

on your table. When the light switches from green to yellow, you 

will have 1 minute to conclude your testimony. When the light 

turns red, it signals the witness’ 5 minutes have expired. 

And as is the custom with this Committee, before I introduce our 

witnesses, I would like them to stand and be sworn. 

[Witnesses sworn.] 

Mr. GOODLATTE. Thank you very much. 

Our first witness is—you are going to have to help me—Mr. 

Haislmaier? Okay. Our first witness is Edmund Haislmaier, who is 

a Senior Research Fellow with The Heritage Foundation Center of 

Health Policy Studies and a member of the Board of Directors of 

the National Center for Public Policy Research. Earlier in his career, Mr. Haislmaier was the director of healthcare policy for 

Pfizer, Incorporated. 

Our second witness is Thomas L. Greaney, who is the co-director 

of the Center for Health Law Studies and the Chester A. Myers 

Professor of Law at Saint Louis University School of Law. He is 

also an associate professor of hospital and healthcare administration at the St. Louis University School of Public Health. 

9 

Our third witness is Dr. Scott Gottlieb, who is a clinical assistant 

professor at New York University School of Medicine and a resident fellow at the American Enterprise Institute. Dr. Gottlieb has 

served in various capacities at the Food and Drug Administration 

and as a senior policy advisor at the Centers for Medicare and 

Medicaid Services. 

And we will turn first to Mr. Haislmaier. 

TESTIMONY OF EDMUND F. HAISLMAIER, SENIOR RESEARCH 

FELLOW, CENTER FOR HEALTH POLICY STUDIES, THE HERITAGE FOUNDATION 

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

Committee, for inviting me to testify. You have my written testimony. I will just in the few minutes briefly summarize some of the 

high points of that. 

You asked me to speak on the subject of health insurance markets, as opposed to my colleagues who will be speaking more about 

the provider markets. The area of health insurance is where I have 

spent more of my work. 

Essentially, what I lay out in the testimony is that there are indeed a number of provisions in the PPACA that will, in my view, 

lead to reduced competition and some consolidation in the insurance market. As noted, some of those have not yet taken effect, 

while some of those have already taken effect. 

Essentially, I can see the market unfolding in a way that reduces 

competition and increases consolidation because of the provisions 

that, first of all, standardize coverage; secondly, increase premiums; third, raise barriers to market entry for new competitors; 

and, fourth, encourage industry consolidation. 

I have identified for you in the testimony five specific provisions 

in this legislation that will not only result in standardization of 

coverage—and that was intentional by the authors—but will also 

result, to some degree or another, in increased costs. 

The point is simply that when you standardize a product, you 

make it more like a commodity, and you force competition away 

from product differentiation and into simply competing on price. 

And the tendency in that market is to see a consolidation in the 

market into a few large firms. And for other policy reasons, I think 

Congress deliberately chose in the PPACA to provide this kind of 

level of increased standardization in this legislation, so it is not 

that surprising that you would see that result. 

My point on cost is simply that, as the costs of the standardized 

package increases, the interest in holding down costs by reducing 

coverage or reducing payments for those things that are not required will also increase. And I point out that this is, in fact, a dynamic that played out while the legislation was being considered, 

with respect to preventive services such as mammography screening. 

So, for a number of reasons, I see that the market will become 

increasingly commoditized. Again, some of that was deliberate and 

intentional. I think it will go beyond the level that was intended. 

But that dynamic has been set in place. 

The other point that I make in here is that the minimum loss 

ratio regulations have a number of effects that could be deemed 

10 

anticompetitive. The first is that they create a barrier to market 

entry for new carriers. It makes it much more difficult to finance 

a new startup health insurer under this, and I do not expect to see 

new ones come into the market as a result. 

Secondly, the various standardizations of products and also the 

minimum loss ratio regulation is, in my estimation, going to lead 

to companies for whom they have multiple lines of insurance getting out of the health insurance business and selling it off. We have 

already seen some of that occur in the market. 

And, finally, that system will favor for-profit insurers at the expense of not-for-profit insurers, because for-profit insurers can raise 

the capital to engage in expansion and acquisition of rivals, whereas nonprofits won’t. And so I would envision that that would result 

in additional reductions in competition. 

There are a couple of other provisions also that I see having an 

effect. One is the Multi-State Plan provisions that were put in the 

legislation, which will, again, favor national health insurers over 

regional ones, and the insurer rate review provisions. 

In closing, let me point out that what this has collectively unleashed is a dynamic that treats health insurance like a regulated 

public utility. And, therefore, an insurer really has the choice of do 

you want to stay in that market, in which case you want to become 

a big insurer so that you can resist being pushed around by the 

regulators, or do you want to simply get out of that market. And 

that is, I think, the business decision that insurers will face. 

Two final points. One is that I do not see this consolidation really 

taking effect until after the industry has more certainty following 

the Court’s ruling and following the elections. Right now, it is being 

done in bits and pieces, so I would not expect to see any big mergers until they have more certainty as to what the landscape looks 

like. So that probably wouldn’t happen for a year or 2. 

And then, finally, I would simply point out that sometimes 

McCarran-Ferguson is inaccurately described. It is not that insurers are exempt from antitrust; it is that the division between Federal and State is defined there. 

Thank you, Mr. Chairman. I think my time has expired. 

Mr. GOODLATTE. It has. I hate to cut people short, but we are facing votes, and we want to give both Professor Greaney and Dr. 

Gottlieb the ability to give their testimony. 

[The prepared statement of Mr. Haislmaier follows:] 

Prepared Statement of Edmund F. Haislmaier, Senior Research Fellow, 

Center for Health Studies, The Heritage Foundation 

Mr. Chairman and members of the Committee, thank you for inviting me to testify on the subject of ‘‘Health Care Consolidation and Competition after PPACA.’’ 

My name is Edmund F. Haislmaier. I am Senior Research Fellow in Health Policy 

at The Heritage Foundation. The views I express in this testimony are my own, and 

should not be construed as representing any official position of The Heritage Foundation. 

My testimony today focuses on how I expect competition and consolidation to play 

out in the health insurance sector under the new rules and regulations established 

in the Patient Protection and Affordable Care Act (PPACA). 

The PPACA significantly expands, both in scope and in detail, the federal regulation of commercial health insurers. A number of its provisions are likely, over time, 

to reduce competition in that sector. The reduction in competition will result from 

provisions in the PPACA that standardize coverage, increase premiums, raise barriers to market entry, and encourage industry consolidation. 

11 

1Federal Register, Vol. 75, No. 137, July 19, 2010, p. 41738. 

2Federal Register, Vol. 75, No. 123, June 28, 2010, p. 37191. 

3Total enrollment in plans granted waivers is 4,039,774. Lists of those waiver recipients, with 

enrollment figures, can be found at Annual Limits Policy: Protecting Consumers, Maintaining 

Options, and Building a Bridge to 2014, U.S. Department of Health and Human Services, at 

http://cciio.cms.gov/resources/files/approvedlapplicationslforlwaiver.html. 

STANDARDIZING COVERAGE

The first set of relevant provisions are those that have the effect of standardizing 

health insurance coverage. 

When government imposes regulations that standardize a product, producers of 

the item are, obviously, less able to compete on the basis of product differentiation. 

The product becomes more of a commodity and competition among suppliers becomes focused mainly on price. Other factors, such as convenience or brand identity, 

may enable some producers to charge marginally higher prices, but even that pricing power is fairly limited in a commoditized market. 

At least five provisions of the PPACA will intentionally standardize health insurance to varying degrees: 

1. Section 1302 instructs the Department of Health and Human Services (HHS) 

to set, and periodically update, an ‘‘essential health benefits package’’ of minimum health insurance coverage requirements. 

2. Section 1302 also limits deductibles for employer plans in the small-group 

market and limits total enrollee cost-sharing for all health plans to the levels 

specified in the tax code for qualified High Deductible Health Savings Account plans. 

3. Section 1201(4) requires all individual and small group health insurance 

policies to provide coverage for the essential health benefits package. 

4. Section 1001(5) requires health insurers and employer plans to cover numerous preventive services with no enrollee cost-sharing. 

5. Section 1001(5) prohibits health insurers and employer plans from setting 

annual or lifetime coverage limits ‘‘on the dollar value of benefits.’’ 

In a commodity market where competition is focused principally on price, firms 

that are able to reduce their costs through economies of scale can generally offer 

better prices and thus gain market share at the expense of their competitors. As 

a result, markets for commodities tend to be dominated by a few, large firms. Those 

firms achieve their dominant size by either under-pricing smaller rivals or acquiring 

competitors. The provisions of the PPACA that standardize and commoditize coverage are likely to drive a similar dynamic in the health insurance market. Furthermore, because these are new, federal standards, the effects will be national in scope. 

Even carriers that have long been dominant in a particular state or region will find 

it harder to maintain their position and keep larger, national players at bay. 

INCREASING COVERAGE COSTS

The above provisions will not only standardize coverage, but in many cases will 

increase coverage costs as well. For example: 

• The Administration conducted an economic analysis of the effects of their regulations implementing the PPACA’s preventive services coverage requirement. They concluded that, ‘‘The Departments estimate that premiums will 

increase by approximately 1.5 percent on average for enrollees in non-grandfathered plans. This estimate assumes that any changes in insurance benefits 

will be directly passed on to the consumer in the form of changes in premiums.’’ 1

• In its regulations implementing the PPACA’s provision that prohibits plans 

imposing annual limits on the dollar value of benefits after 2014, and sets 

minimum annual limits for prior years, HHS established a waiver process for 

years before 2014, ‘‘if compliance with these interim final regulations would 

result in a significant decrease in access to benefits or a significant increase 

in premiums.’’ 2 HHS has granted temporary waivers of the annual limits provision to plans with a total of over 4 million enrollees.3 Thus, when the complete prohibition on annual limits takes effect in 2014, at least 4 million individuals will be priced out of their current coverage, and it is likely that this 

provision will increase premiums for millions more. 

12 

4 New Section 2713(a)(5) of the Public Health Service Act (42 U.S. Code § 300gg-13(a)(5)) as 

added by PL 111–148 § 1001(5). 5 New § 2718 of the Public Health Service Act (42 U.S. Code § 300gg–18) as added by PL 111– 

148 § 1001(5) and then amended by § 10101(f). 

• Congress instructed HHS to define and periodically update an ‘‘essential 

health benefits package.’’ HHS has not yet proposed regulations specifying the 

initial design of the essential health benefits package and has only issued 

‘‘bulletins’’ outlining the approaches that it is considering. Given that the 

statute requires coverage for some categories of benefits not typically included 

in most current health plans—such as ‘‘habilitative’’ services—it is likely that 

the eventual package of required benefits will increase premiums. 

The significance of these increased costs is that they generate a dynamic for further plan standardization. The more expensive the required coverage becomes the 

more insurers will look to keep premiums in check by limiting or cutting benefits 

that are not required. Indeed, State governments have behaved exactly this way in 

managing their Medicaid programs. As the cost to states of paying for mandatory 

Medicaid benefits has increased, states have responded by limiting or discontinuing 

optional Medicaid benefits. 

Similarly, it was fear of this same dynamic occurring that led Congress to amend 

the PPACA provision requiring coverage of preventive services so as to overrule the 

US Preventive Services Task Force’s recommendation on breast cancer screening. At 

that time the USPSTF had just revised its recommendation on breast cancer screening from starting at age 40 to starting at age 50. Breast cancer groups were concerned that making coverage mandatory at age 50 would induce plans to no longer 

pay for screening for women between the ages of 40 and 50. Congress responded 

by amending the PPACA to require coverage of breast cancer screening using the 

prior recommendation of age 40.4

The foregoing example also illustrates another effect of the benefit mandates in 

the PPACA. Over time there is likely to be ever more detailed standardization of 

health insurance coverage as provider and patient groups lobby HHS and Congress 

to expand coverage requirements, while insurers and employers, looking to control 

rising plan costs, seek greater regulatory certainty with respect to the limits they 

may impose on required benefits. 

Thus, by giving HHS authority that is both broad and discretionary to define 

what constitutes ‘‘essential benefits,’’ Congress set in motion a dynamic that will result in increasing standardization of health insurance coverage. That increasing 

standardization shrinks the scope for competition among insurers and is likely to 

result in industry consolidation, as the regulated product becomes more of an undifferentiated commodity. 

THE ‘‘MINIMUM LOSS RATIO’’ REGULATION

Another provision of the PPACA that will likely have a major effect in reducing 

insurer competition and driving consolidation within the health insurance industry 

is the so-called ‘‘minimum loss ratio’’ (MLR) regulation. 5 This provision established, 

effective January 1, 2011, new federal rules governing how health insurers spend 

premium dollars. These rules are commonly referred to as ‘‘minimum loss ratio’’ regulations—meaning that they specify the minimum share of premium income that an 

insurer must spend on claims costs and ‘‘activities that improve health care quality.’’ 

The minimum levels are set in the PPACA at 85 percent for large group plans 

and 80 percent for small group and individual plans. The PPACA further stipulates 

that if an insurer spends less than the required minimum in a given year, then the 

insurer must refund the difference to policyholders. Thus, for example, if an insurer 

is required to spend 80 percent of premium income on claims costs for a particular 

product but only spends 75 percent, the insurer is required to rebate five percent 

of the premium collected to policyholders. 

NEW BARRIER TO MARKET ENTRY

One of the effects of the minimum loss ratio regulations is that they create a barrier to market entry for new carriers. As with many start-up companies, a substantial initial capital investment is required to create a new insurer. That investment 

is needed to fund initial marketing and sales efforts to attract paying customers, 

and to build-out the operational and administrative infrastructure for billing customers, paying claims, etc. Similar to other new businesses, a new insurer initially 

operates at a loss until it achieves enough ‘‘scale’’—that is, it acquires enough customers—that revenues exceed expenses, and it become profitable. 

13 

6Michael Schwartz, ‘‘Startup health insurer shutting,’’ Richmond BizSense, June 4, 2010, 

at: http://www.richmondbizsense.com/2010/06/04/startup-health-insurer-shutting and Michael 

Schwartz, ‘‘With healthcare reform looming, nHealth was losing millions,’’ Richmond BizSense, 

June 11, 2010, at: http://www.richmondbizsense.com/2010/06/11/with-healthcare-reform-loomingnhealth-was-losing-millions/. 7Principal Financial Group, ‘‘The Principal Financial Group to Exit Medical Insurance Business,’’ press release, September 30, 2010, at: http://phx.corporate-ir.net/phoenix.zhtml?c= 

125598&p=irol-newsArticle&ID=1477633&highlight=. 

The MLR regulations effectively constrain the amount, and delay the timing, of 

any excess premium revenues that a start-up health insurer could plan to either reinvest in growing its business (say, through additional marketing) or repaying its 

initial investors. Thus, the MLR regulations push further into the future a new company’s projected ‘‘break-even’’ point, and may also necessitate additional start-up 

capital beyond what was previously projected. 

Of course, it is uncertain whether a particular start-up insurer would succeed, 

even without having to deal with the constraints imposed by the MLR regulations. 

However, what is certain is that imposing the new MLR regulations raises the bar 

for an ‘‘in-process’’ start-up, and increases the risk and initial capital requirements 

for an ‘‘in-planning’’ start-up venture. 

In at least one reported case investors decided to terminate an ‘‘in-process’’ startup health insurer, at least in part, due to the effects of the new MLR regulations 

on its business plan.6 What is unknowable are how many attempts to create new 

health insurers that were still in the planning stage were simply abandoned once 

investors determined that the added burden of complying with the new minimum 

loss ratio regulations make it too expensive or too risky to go forward. 

MARKET CONSOLIDATION

A number of established companies that currently provide health insurance can 

also be expected to exit the market over the next several years. The ones most likely 

to leave are those with multiple lines of coverage, for which offering health insurance is just part of their larger business. In general, the minimum loss ratio regulations will make offering health insurance less profitable while, as previously noted, 

the benefit requirements will also make it more of a commodity business. Companies offering multiple lines of insurance will be inclined to discontinue, or sell to 

competitors, their health plans and focus instead on the other lines of insurance 

that they offer—such as life, auto, property, or liability coverage—or on non-insurance business opportunities. 

The smaller the company, or the smaller the share of a company’s total business 

represented by health insurance, the more likely it is that the company will exit the 

post-PPACA health insurance market. 

For example, on September 30, 2010, Principal Financial Group, Inc. announced 

that it was exiting the major medical health insurance market and transferring its 

existing book of business to UnitedHealth Group.7 Principal will instead focus on 

its other lines of business, which include managing retirement and investment 

plans, and offering life, disability, dental and vision insurance products (none of 

which are subject to the PPACA’s new federal insurance regulations). 

To be sure, such business decisions are often the product of multiple considerations, but the MLR provisions in the PPACA will certainly discourage companies 

with other options from continuing to offer health plans. 

FAVORING FOR-PROFIT INSURERS

Still another unintended consequence of the minimum loss ratio regulations is 

that they will increase the competitive advantage of for-profit insurers over their 

non-profit rivals. Because the MLR requirement constrains the share of premium 

income that an insurer can ‘‘retain,’’ it limits an insurer’s ability to accumulate the 

capital needed to expand, either through increased marketing and sales efforts or 

by purchasing business from other carriers. Non-profit insurers have no other source 

of investment capital beyond whatever excess premium income they can accumulate 

after paying claims costs and administrative expenses. However, for-profit insurers 

can finance their capital needs by issuing equity shares. Since the proceeds of a 

share offering are not premium income, the MLR restrictions do not apply. 

Thus, the minimum loss ratio regulation is likely to not only spur increased consolidation in the health insurance industry, but to also drive that consolidation toward a market dominated by a few, very large, for-profit, insurers. It is easy to envision large, for profit health insurers applying the same ‘‘roll-up’’ strategy of raising 

capital through equity offerings and then using the proceeds to buy smaller competiVerDate Aug 31 2005 14:34 Sep 07, 2012 Jkt 000000 PO 00000 Frm 00017 Fmt 6633 Sfmt 6621 H:\WORK\IP\051812\74262.000 HJUD1 PsN: DOUGA
14 

8Letter of Health and Human Services Secretary Kathleen Sebelius to Karen Ignagni, President and CEO of America’s Health Insurance Plans, September 9, 2010. 9Sara Rosenbaum, J.D., A ‘‘Broader Regulatory Scheme’’—The Constitutionality of Health Care 

Reform, New England Journal of Medicine, 10.1056/NEJMp1010850, October 27, 2010, at 

NEJM.org. 

tors that has been successfully applied in other sectors. Such an outcome is probably 

not something that the authors of the PPACA either intended or envisioned. 

MULTI-STATE PLANS

Another provision in the PPACA that favors large, national health insurers over 

smaller or regional ones is the requirement in Section 1334 that the Office of Personnel Management directly contract with a select number of insurers to offer 

‘‘multi-state’’ plans. Section 1334 sets a four year schedule for offering multi-state 

plans in all the states, and specifies that multi-state plans are ‘‘deemed to be certified by an Exchange’’ as qualified plans. That deeming provision gives the multistate plans a guarantee of access to the subsidized coverage market, while their 

competitors have no such guarantee. 

RATE REVIEW

The insurer rate review provisions in Section 1003 of the PPACA offer yet another 

reason for smaller carriers to exit the health insurance market and big carriers to 

get bigger. While Congress did not give HHS authority to deny insurer rate increases, HHS has shown that it is willing to use its new rate review powers to 

‘‘name and shame’’ insurers if they significantly increase premiums. Secretary 

Sebelius has also threatened to deny uncooperative insurers access to the federally 

subsidized exchange markets that are scheduled to open in 2014.8

The logical business strategy for surviving in that kind of a market is for a carrier 

to become big enough that it can retain some level of pricing power in the face of 

persistent government attempts to impose price regulations. Becoming ‘‘too big’’ or 

‘‘too important’’ to fail will be the best strategy for a company seeking to protect 

itself against the threat that government price regulation could make its business 

unprofitable. 

COMBINED EFFECTS

Collectively, these regulations mean that the PPACA has unleashed a market dynamic that will drive toward greater consolidation in the health insurance industry, 

eventually resulting in fewer and larger carriers dominating the market—with a 

consequent reduction in choice and competition for consumers. How this new market 

dynamic will likely play out can be seen from past experience in other sectors where 

‘‘consolidators’’—such as Staples and Office Depot—built market-dominating firms 

through a strategy of raising investment capital and then deploying it to acquire 

small and mid-sized competitors. Indeed, a prominent supporter of the PPACA explicitly, and correctly, wrote that the legislation ‘‘fundamentally transforms health 

insurance’’ into ‘‘a regulated industry . . . that, in its restructured form, will therefore take on certain characteristics of a public utility.’’ 9

What was left unsaid is that the characteristics of public utility economics are 

markets dominated by a few large firms, with low rates of return and captive customers, in which the firms’ pricing power is constrained by government regulation, 

but government’s exercise of regulatory power is constrained by the need to keep 

the remaining firms profitable to avoid the widespread social and economic dislocation that would occur should they be driven out of existence. In essence, this is a 

prescription for achieving market equilibrium through an economic ‘‘mutually assured destruction’’ stand off—with little or no remaining consumer choice or product 

innovation. 

Mr. Chairman, this concludes my prepared testimony. I thank you and the rest 

of the Committee for inviting me to testify before you on this issue. I will be happy 

to answer any questions that you or members of the Committee may have. 

Mr. GOODLATTE. Professor Greaney, welcome. You might want to 

turn that microphone on and pull it close to you. 

15 

TESTIMONY OF THOMAS L. GREANEY, CHESTER A. MYERS 

PROFESSOR OF LAW, CO-DIRECTOR, CENTER FOR HEALTH 

LAW STUDIES, SAINT LOUIS UNIVERSITY SCHOOL OF LAW 

Mr. GREANEY. Thank you, Chairman Goodlatte, 

Ranking Member Watt, Committee Ranking Member Conyers. It 

is an honor to be here to address this important subject. 

Issues involving competition, healthcare concentration, and antitrust have been the center of my research and teaching for the last 

24 years. Before that, I had a career at the Justice Department, 

Antitrust Division, working on healthcare competition issues. 

Let me summarize my testimony with five key points. 

First of all, the Affordable Care Act depends on and promotes 

competition in provider and payer markets. 

Secondly, hospital market concentration is the product of merger 

waves that have been going on for 20 years. And they were sort 

of fomented by erroneous court decisions, lax antitrust enforcement, and they were exacerbated by government policies that limited entry and restricted competition. 

The third point is that there is both good consolidation and bad 

consolidation. Problematic consolidation occurs principally among 

horizontal combinations of hospitals forming monopolies and getting dominant systems, as well as on the insurance side. By contrast, vertical combinations between hospitals and physicians can 

reduce fragmentation and help fix the problems of the system and 

encourage more competition. 

The Affordable Care Act, I believe, encourages the pro-competitive consolidations. And I think it is erroneous to claim that it is 

somehow responsible for anticompetitive consolidations when the 

consolidations that are going on are designed precisely to avoid the 

competitive benefits of competition that the act sponsors. 

Finally, there has been a big resurgence, I think, in antitrust enforcement in recent years, and that is all for the good. Going forward, I think the FTC and DOJ are committed to holding the line 

on consolidations, and that is the good news. That is not to say 

that consolidation isn’t a problem. There is concentration out there, 

and we may reach the point at some point where some regulation 

is needed to deal with dominance, because the market may not. 

Just to go through each of those points briefly, I mentioned that 

the Affordable Care Act depends on and promotes competition. 

Many ask, well, why do you need government involvement to make 

healthcare markets more competitive? And the answer I point out 

in my testimony is, there is what I call the witch’s broth of history: 

provider dominance, ill-conceived payment systems and regulatory 

policies, and, most importantly, market imperfections that make 

health care different and make it sometimes less serving of the 

consumer interest. 

And we find ourselves with the worst of both worlds. We have 

fragmentation on the one hand. We have doctors operating in silos, 

unconnected to specialists, not communicating and not integrating 

their care. On the other hand, we have concentration in pockets of 

dominant hospitals and some dominant physician groups. 

Let me just point out, I summarize this in my testimony, but the 

Affordable Care Act tackles this in various ways. The health insurVerDate Aug 31 2005 14:34 Sep 07, 2012 Jkt 000000 PO 00000 Frm 00019 Fmt 6633 Sfmt 6601 H:\WORK\IP\051812\74262.000 HJUD1 PsN: DOUGA
16 

ance exchanges are perhaps the most important pro-competitive instrument that is out there. 

Secondly, don’t forget that Medicare payment reform has an important effect on competition in private markets. And that happens 

because Medicare delivery reform can promote competitive markets. Many of the changes contained in the Affordable Care Act 

contain innovations such as value-based purchasing. And remember, private payers often follow the lead of Medicare, and I think 

the organizational changes coming out of the Affordable Care Act, 

particularly with accountable care organizations, are going to promote the kind of integration that serves competition. 

A couple of points briefly on concentration. It is a problem for 

competition, but it is not just a problem for the Affordable Care 

Act. It is a problem for those who would rely on laissez faire proposals, who rely on health savings accounts. It is a problem for the 

Wyden plan that is going to rely on competition in Medicare markets. 

There was a merger wave, as Chairman Watt mentioned, but it 

occurred in the mid-1990’s, and that is when the great bulk of consolidation occurred. It had disastrous results for the American public. Prices went up 5 to 40 percent after mergers. The Massachusetts attorney general just did a report a year ago that summarizes 

the price increases that flow from market dominance. 

There is some good news on the antitrust enforcement side. The 

FTC, DOJ are moving aggressively on hospital mergers and market 

dominance, especially where we see the dominant payers confronting the dominant hospitals. That is a big problem. And I think 

there is a glimmer of hope in the potential coming out of affordable 

care organizations that can promote some competition, can induce 

some additional competition. 

That is not to say we have solved the problem. And my testimony 

goes on to discuss some pro-competitive things that can be done, 

including lessening barriers to entry, such as certificate-of-need 

laws, perhaps loosening up the opportunities for physician-controlled hospitals. 

Mr. GOODLATTE. Thank you, Professor Greaney. 

[The prepared statement of Mr. Greaney follows:] 

17 


TLG-1.eps
18 


TLG-2.eps
19 


TLG-3.eps
20 


TLG-4.eps
21 


TLG-5.eps
22 


TLG-6.eps
23 


TLG-7.eps
24 


TLG-8.eps
25 


TLG-9.eps
26 


TLG-10.eps
27 


TLG-11.eps
28 

ATTACHMENT 


TLG-12.eps
29 


TLG-13.eps
30 


TLG-14.eps
31 


TLG-15.eps
32 


TLG-16.eps
33 


TLG-17.eps
34 


TLG-18.eps
35 


TLG-19.eps
36 


TLG-20.eps
37 


TLG-21.eps
38 


TLG-22.eps
39 


TLG-23.eps
40 


TLG-24.eps
41 


TLG-25.eps
42 


TLG-26.eps
43 


TLG-27.eps
44 


TLG-28.eps
45 


TLG-29.eps
46 


TLG-30.eps
47 


TLG-31.eps
48 


TLG-32.eps
49 


TLG-33.eps
50 


TLG-34.eps
51 


TLG-35.eps
52 


TLG-36.eps
53 


TLG-37.eps
54 


TLG-38.eps
55 


TLG-39.eps
56 


TLG-40.eps
57 


TLG-41.eps
58 


TLG-42.eps
59 


TLG-43.eps
60 


TLG-44.eps
61 


TLG-45.eps
62 


TLG-46.eps
63 


TLG-47.eps
64 


TLG-48.eps
65 


TLG-49.eps
66 


TLG-50.eps
67 


TLG-51.eps
68 


TLG-52.eps
69 


TLG-53.eps
70 


TLG-54.eps
71 


TLG-55.eps
72 


TLG-56.eps
73 


TLG-57.eps
74 


TLG-58.eps
75 


TLG-59.eps
76 


TLG-60.eps
77 


TLG-61.eps
78 

Mr. GOODLATTE. I hate to cut you off, as well. We are going to 

turn to Dr. Gottlieb. 

To let the Members know, the Ranking Member and I have been 

talking, and we understand that Professor Greaney needs to be out 

of here not too long after 1 o’clock. This vote series is going to run 


TLG-62.eps
79 

for probably at least an hour. So it is our intention after Dr. Gottlieb testifies to adjourn the hearing. 

And we will submit lots of questions from any Member who wishes to have questions submitted—and I certainly have a lot of questions; I am sure the Ranking Member does, as well—to all of you 

to respond in writing. We apologize for the brevity of this, but I 

think it is not going to resurface later this afternoon on a day when 

Members are leaving. 

So, Dr. Gottlieb, welcome. 

TESTIMONY OF SCOTT GOTTLIEB, M.D., CLINICAL ASSISTANT 

PROFESSOR, NEW YORK UNIVERSITY, RESIDENT FELLOW, 

AMERICAN ENTERPRISE INSTITUTE 

Dr. GOTTLIEB. Thanks, Mr. Chairman. 

Mr. Chairman, Mr. Ranking Member, and Members of the Subcommittee, I appreciate the opportunity to testify here today. 

By next year, about two-thirds of American physicians will be 

working as salaried employees. This trend was been under way for 

years, as has been noted, but it is accelerating. And provisions in 

the Patient Protection and Affordable Care Act are responsible for 

some of these combinations. The largest portion of these newly salaried physicians are being directly employed by hospitals or hospital-owned medical practices. According to the Medical Group 

Management Association, almost two-thirds of the doctors who 

signed employment contracts in 2009 entered into arrangements 

with hospitals. This includes half of all doctors leaving residency 

training. 

It is not just hospitals; health plans are also looking to purchase 

providers to gain more control over utilization rates, and in turn 

costs, in an environment where they see their premiums capped 

and their utilization fixed by new mandates. These trends aren’t a 

consequence of natural market forces. It is the result of a deliberate policy set in motion by changes in the way health care is 

being reimbursed, in particular where doctors see flat or declining 

reimbursement levels and increasing costs. 

PPACA relies on layers of provisions designed to shift financial 

risk onto providers in a bid to move away from the fee-for-service 

reimbursement model that is blamed for excessive and, some argue, 

inappropriate use of healthcare services. By shifting financial risk 

on to providers, the law hastens this sort of consolidation. 

That consolidation is being hailed by many as a needed industrialization of the practice of medicine, a way to make the delivery 

of care more efficient and scalable. There is a premise that, once 

doctors become employed by larger groups and health systems, it 

will be easier to put in place measures to manage their use of medical services. There is also a perhaps excessive faith that consolidated networks will have the incentive, capital, and wherewithal to 

pursue measures that lead to better coordination of care. 

These arrangements have many champions, but they also carry 

significant uncertainty. First, there is evidence that, as doctors 

transition into becoming salaried employees of hospitals and health 

systems, their individual productivity generally declines. Concerns 

are also raised about the potential for consolidation to raise costs. 

There is evidence that constructs like ACOs can add to costs, as 

80 

*The views expressed in this testimony are those of the author alone and do not necessarily 

represent those of the American Enterprise Institute. i Clinical Transformation: Dramatic Changes as Physician Employment Grows, Accenture 

Health, 2011 ii Anne Mutti and Jeff Stensland. Provider consolidation and prices. Presentation before the 

Medicare Payment Advisory Committee. October 9, 2009 

some providers, particularly hospitals, gain market power to negotiate higher-than-competitive rates in the private market. Finally, 

the consolidation is leaving a great deal of uncertainty among providers about what is permissible and appropriate. This is distorting 

the business decisions that are being made. 

Historically, innovations in the delivery of health care, from the 

advent of the first HMO to the creation of long-term-care hospitals 

and home infusion to skilled nursing facilities, arose as the result 

of startup outfits, often backed by venture capital and headed by 

entrepreneurs who were in search of above-market rates of return 

on invested capital. 

But PPACA contains deliberate provisions aimed at regulating 

returns on invested capital, discouraging different forms of entrepreneurship. These provisions are, in many cases, the expression of 

a political philosophy. That philosophy views profits earned on the 

provision of care as money that should have been channeled instead to direct patient care. But the result is that these entrepreneurs are not pursuing new healthcare services ventures. Capital flowing to these endeavors has fallen sharply. 

The only way we are going to bend the healthcare cost curve is 

by introducing genuine innovations in how we provide medical 

care—new approaches that lower costs while providing more health 

care for each dollar that we spend. These innovations won’t appear 

as a result of the critical mass created through carefully orchestrated mergers. These ideas won’t be hatched inside CMS. Nor are 

these concepts likely to arise from new twists on old concepts like 

capitation. Instead, genuine innovation in the delivery of health 

care will arise the way it always has: from entrepreneurs who raise 

capital in search of profitable new ways to reengineer old systems, 

appealing to consumers by bringing them a better service at a 

lower price. 

Thank you, Mr. Chairman. 

Mr. GOODLATTE. Thank you. 

[The prepared statement of Dr. Gottlieb follows:] 

Prepared Statement of Scott Gottlieb, M.D., Resident Fellow, 

American Enterprise Institute* 

INTRODUCTION

Chairman Goodlatte, Ranking Member Watt, and Members of the Subcommittee, 

I appreciate the opportunity to testify here today. 

By next year, about two-thirds of American physicians will be working as salaried 

employees of large groups and hospitals. This movement has been underway for 

years. Over the last decade, the number of independent physicians was falling by 

about 2% a year. But these trends are now accelerating. Many observers point to 

provisions in the recently enacted Patient Protection and Affordability Act (PPACA) 

as a primary driver. Starting in 2013, the number of independent physicians will 

start declining by 5% a year according to a recent report by Accenture Health.i

The largest proportion of these newly salaried physicians are being directly employed by hospitals or hospital owned medical practices.ii Hospital physician employVerDate Aug 31 2005 14:34 Sep 07, 2012 Jkt 000000 PO 00000 Frm 00084 Fmt 6633 Sfmt 6621 H:\WORK\IP\051812\74262.000 HJUD1 PsN: DOUGA
81 

iii 2012 Edition of the American Hospital Association Statistics iv Haydn Bush. Hospital Statistics Chart Rise in Physician Employment. Hospital and Health 

Networks Daily, January 06, 2012 vKaren M. Cheung. 70% hospitals, health systems plan more physician employment. Fierce 

Healthcare, October 12, 2011 viScott Gottlieb. No, You Can’t Keep Your Health Plan. The Wall Street Journal, May 18, 

2010 viiMedical Group Management Association. Physician Placement Starting Salary Survey: 2010 

Report Based on 2009 Data. June 4, 2010 viiiSurvey by McKesson Practice Consulting and Modern Medicine, 2011 ix Rita Numerof. Massive Healthcare Consolidation in the PPACA Era, April 13, 2012 x Atul Gawande. The Cost Conundrum, What a Texas town can teach us about health care. 

The New Yorker, June 1, 2009 

ment rose 32% from 2000 to roughly 212,000 physicians in 2010. That means that 

hospitals directly employ about a quarter of all U.S. physicians.iii,iv

These realities are reflected in multiple surveys. Another report found 70% of national hospital and health systems plan to hire more physicians in the next three 

years. Meanwhile, two-thirds of hospitals reported that they are seeing more requests from independent physician groups seeking direct employment or collaboration with hospitals.v This is confirmed by a recent review of the open job searches 

held by one of the country’s largest physician-recruiting firms. It shows that nearly 

50% are for jobs in hospitals, up from about 25% five years ago.vi

According to the Medical Group Management Association, almost two-thirds of the 

doctors who signed employment contracts in 2009 entered into arrangements with 

hospitals. This includes half of all doctors’ leaving residency training.vii Surveys of 

physicians demonstrate that an increasing number of newly minted doctors prefer 

the salaried arrangements to the traditional private practice models. Recent survey 

data also shows that physicians believe the current employed trend will continue 

and be a preferred option for them.viii

It’s not only hospitals that are acquiring doctors. Health plans are also dipping 

their toes in the water, looking to purchase healthcare delivery organizations to gain 

more control over practices, utilization rates, and in turn costs. Toward the end of 

2011, United Health Group purchased Monarch, the largest physician group in Orange County California with 2300 members. As another example, Pennsylvaniabased insurer Highmark is teaming up with West Penn Allegheny Health System 

to compete with UPMC, the large, well-known medical center in Pittsburgh.ix

Investment bankers who work on mergers and acquisitions in the healthcare services industry privately concede that there is a lot of activity among health plans 

looking to acquire physician networks. So far, the large health plans have not been 

able to buy as many assets as the hospitals. For their part, the doctors seem to prefer to sell their practices to hospitals rather than the health plans. 

These trends aren’t a consequence of natural market forces. It’s the outgrowth of 

a deliberate industrial policy set in motion by changes in the way healthcare is 

being organized and reimbursed. These new arrangements have been hastened by 

PPACA. The law relies on layers of provisions designed to shift financial risk onto 

providers in a bid to move away from the fee-for-service reimbursement model that’s 

blamed for excessive, and some argue inappropriate use of healthcare services.x

PPACA contains deliberate constructs to industrialize healthcare by moving physicians into capitated arrangements and larger groups where reimbursement, utilization, and quality measures can be more tightly controlled. These arrangements have 

many champions, but also carry significant uncertainty. 

As I will discuss at the close of my testimony, the only sure way that we’re going 

to bend the cost curve is by coming up with fundamentally new ways to deliver 

healthcare services that improve efficiencies and enable us to get more medical care 

for each dollar we spend. These ideas are going to come forward the same way better ideas have always arisen—from start-ups backed by entrepreneurs, supported by 

investment capital, coming together in search of profits. Yet PPACA contains provisions that I fear tilt against these kinds of innovations. The legislation relies instead 

on arrangements that could serve to entrench existing players. 

Principal among these new arrangements is the creation of Accountable Care Organizations (ACOs). This concept envisions that providers will consolidate into networks that will, in turn, take charge for the medical care of defined populations of 

patients. An ACO will be able to share in some of the savings that they achieve by 

reducing utilization and improving outcomes for the patients assigned to it. Along 

with other forms of capitated payment arrangements (such as bundled payments 

and medical homes) the combined effect of the legislation’s payment reforms is to 

shift financial risk to providers. In the face of these changes, doctors are choosing 

to sell their medical practices rather than take on added uncertainty. 

82 

xiLawton Robert Burns and Ralph W. Muller. Hospital-Physician Collaboration: Landscape of 

Economic Integration and Impact on Clinical Integration. Milbank Quarterly 2008;86:375–434 xii Christopher D. Ittnera, David F. Larckerb, Mina Pizzinic. Performance-based compensation 

in member-owned firms: An examination of medical group practices, May 2007 xiiiWolinsky F, Marder W. Spending time with patients, the impact of organisational structure 

on medical practice. Medical Care 1982; 20(10):1051–9 xiv I S Kristiansen, K Holtedahl. Effect of the remuneration system on the general practitioner’s choice between surgery consultations and home visits. Journal of Epidemiology and 

Community Health 1993;47:481–484 doi:10.1136/jech.47.6.481 http://jech.bmj.com/content/47/6/ 

481.abstract?ijkey=286b3bd9c25afb8bb73203854199b0c2b49d86e0&keytype2=tflipsecsha xvGosden T, Forland F, Kristiansen IS, Sutton M, Leese B, Giuffrida A, Sergison M, Pedersen 

L. Impact of payment method on behavior of primary care physicians: a systematic review. Journal of Health Service Research Policy 2001 Jan;6(1):44–55 xviGosden T, Forland F, Kristiansen IS, Sutton M, Leese B, Giuffrida A, Sergison M, Pedersen 

L. Capitation, salary, fee-for-service and mixed systems of payment: effects on the behavior of 

primary care physicians. Cochrane Database Systematic Reviews 2000;(3):CD002215. xviiT. Gosden, L. Pedersen and D. Torgerson. How should we pay doctors? A systematic review 

of salary payments and their effect on doctor behavior. QJM 1999;92:47–55 xviiiGerald B. Hickson, William A. Altemeier, James M. Perrin. Physician Reimbursement by 

Salary or Fee-for-Service: Effect on Physician Practice Behavior in a Randomized Prospective 

Study. Pediatrics 1987;80:344–350 

Many industry experts are asking whether the current trend to employ physicians 

is sustainable or just a revisiting of what occurred in the 1990s, when hospitals 

were employing physicians in response to managed care, growing competition, and 

pressure to aggregate market share. The 1990s mergers were mostly defensive gestures aimed at thwarting competition from expanding, for-profit hospital chains. 

This time things may be different, and in many ways the same. 

This time, there may be no turning back from these arrangements. Doctors who 

enter into these new salaried appointments may find themselves hard pressed to 

unwind these relationships, even should the terms change and these affiliations no 

longer appear financially attractive or personally rewarding. 

The current consolidation is being hailed in some quarters as a needed industrialization of the practice of medicine—a way to make the delivery of medical care more 

efficient and scalable. There is a premise that once doctors become employed by 

larger groups and health systems, it will be easier to put in place measures to manage doctors’ use of medical services in ways that can improve efficiencies and lower 

costs. There’s also a perhaps excessive faith that larger, consolidated networks of 

providers will have the incentive, capital, and wherewithal to pursue management 

and technology improvements that lead to better coordination of care. There is plenty of reason to be skeptical of these assumptions. 

IMPACT OF CONSOLIDATION ON CLINICAL PRODUCTIVITY

First, there’s evidence that as doctors transition into becoming salaried employees 

of hospitals and health systems, their individual productivity (in terms of metrics 

such as volume and intensity of care delivered) generally declines outright, or is unfavorably impacted by these arrangements in other, more subtle ways.xi,xii,xiii,xiv,xv

It’s important to note that studies that have examined this question contain many 

limitations. This is because of the inherent difficulty in studying the impacts of different payment systems.xvi It’s hard to look at controlled experiments that address 

questions of how doctors respond to different payment systems. 

It’s also true that data shows some offsetting economic impacts to these drops in 

productivity. For example, physicians’ use of services such as diagnostic tests and 

procedures also shows corresponding decline when doctors move into salaried arrangements. The totality of the data suggests, however, that the reduction in costs 

generated by the salaried schemes (typically as a result of the delivery of fewer tests 

and treatments) may be partially, if not completely offset by the lower intensity of 

work (productivity) that physicians achieve under these arrangements.xvii

While it’s generally hard to isolate the impact of payment structure on productivity, a number of studies have attempted to assess these impacts. In one study 

researchers used a resident continuity clinic to compare prospectively the impact of 

salary versus fee-for-service reimbursement on physician practice behavior. This 

model allowed randomization of physicians into salary and fee-for-service groups 

and separation of the effects of reimbursement from patient behavior.xviii

The authors found that physicians reimbursed by fee-for-services (FFS) scheduled 

more visits per patient than salaried physicians (3.69 visits versus 2.83 visits, P < 

.01) and saw their patients more often (2.70 visits versus 2.21 visits, P < .05) during 

the 9-month study. Fee-for-service physicians also provided better continuity of care 

than salaried physicians by attending a larger percentage of all visits made by their 

83 

xixGerald B. Hickson, William A. Altemeier, James M. Perrin. Physician Reimbursement by 

Salary or Fee-for-Service: Effect on Physician Practice Behavior in a Randomized Prospective 

Study. Pediatrics 1987;80:344–350 xxT. Gosden, L. Pedersen and D. Torgerson. How should we pay doctors? A systematic review 

of salary payments and their effect on doctor behavior. QJM 1999;92:47–55 xxiThese must have groups are generally providers that health plans need to include in networks to be attractive to employers and consumers in a local market. xxiiGinsburg PB. Wide variation in hospital and physician payment rates evidence of provider 

market power. Res Briefs 2010 Nov;(16):1–11 xxiii Berenson RA, Ginsburg PB, Christianson JB, Yee T. The growing power of some providers 

to win steep payment increases from insurers suggests policy remedies may be needed. Health 

Affairs 2012 May;31(5):973–81 xxiv Richard M. Scheffler, Stephen M. Shortell, Gail R. Wilensky. Accountable Care Organizations and Antitrust Restructuring the Health Care Market. Journal of the American Medical 

Association 2012;307(14):1493–1494. doi:10.1001/jama.2012.451. http://eresources.library.mssm. 

edu:11635/article.aspx?doi=10.1001/jama.2012.451 xxv Berenson RA, Ginsburg PB, Kemper N. Unchecked provider clout in California foreshadows 

challenges to health reform. Health Affairs 2010 Apr;29(4):699–705 xxvi Jeff Goldsmith. Accountable Care Organizations: The Case for Flexible Partnerships Between health Plans and Providers. Health Affairs, January 2011 vol. 30 no. 1 32–40 

patients (86.6% of visits versus 78.3% of visits, P < .05), and by encouraging fewer 

emergency visits per enrolled patient (0.12 visits versus 0.22 visits, P < .01).xix

Another review article surveyed the available literature examining how salaried 

arrangements impact physician productivity. It drew similar conclusions. The article 

found that salary payment reduces activity compared with fee for service. Capitation 

appeared to have a similar but more subdued effect. The authors concluded that ‘‘if 

cost containment is a key policy aim of government then salaried payment systems 

are more likely to achieve this compared with FFS and possibly more effective than 

capitation systems. However, cost containment by itself may be inefficient if it results in the provision of sub-optimal care.’’ xx

This data raises a fundamental choice: If the goal is reduce spending by driving 

down utilization then the salaried arrangements might provide a more direct means 

of imposing top-down controls. If the goal is to reduce costs by increasing productivity then the salaried arrangements might thwart these types of outcomes. 

CONSOLIDATION CAN DRIVE UP HEALTHCARE COSTS

Concerns have also been raised about the potential for consolidation to drive up 

costs. If constructs such as ACOs end up fostering more market concentration 

among providers, they have they could merely shift costs to payors. ‘‘Must-have’’ xxi

hospitals and physician groups can exert considerable market power to demand 

higher rates from insurers. There is plenty of empiric evidence demonstrating that 

these arrangements can add to costs. Studies of pricing have shown that some providers, particularly hospitals, can gain significant market power to negotiate higherthan-competitive prices as they gain this sort of local market share.xxii

While a full discussion of these economic issues is beyond the scope of my testimony today, we need to carefully consider the potential impact from the arrangements that are being encouraged under PPACA. It has been observed that exclusive 

relationships, particularly those involving highly sought after or high-quality specialist physicians and hospitals, could give a consolidated network such as an ACO 

undue leverage.xxiii Exclusivity may also promote increased internal referrals within 

the network, which could magnify the effects of increased market power.xxiv In the 

past, antitrust policy has generally proved ineffective in curbing provider strategies 

that capitalize on gains in market power to win higher payments.xxv For these reasons, we should be especially mindful of the potential risks of encouraging a rapid 

evolution toward these consolidated relationships. 

While observers are pointing to other entities that might form ACOs (large multispecialty medical groups, venture capital backed services companies) the bottom line 

remains that hospitals are likely to dominate the formation of these new arrangements. There are two principal reasons. First, the largest avoidable costs are related 

to hospitalizations. Second, in many communities, the hospital is the only organized 

delivery system able to access capital and execute on the model.xxvi

The hospitals also have an ulterior motive. It’s still unclear if ACOs will be profitable, successful enterprises. But for a hospital to succeed with the model, it need 

not succeed in lowering costs. If the process of forming an ACO lets a hospital consolidate local providers, the hospital will wins even if the ACO fails to succeed. 

Physicians, for their part, are being driven to these arrangements by changes in 

the landscape that sees their practice costs rising, their reimbursement falling, 

while the financial risk they need to bear under PPACA increases through more 

capitated arrangements. Seeing costs rise amidst shrinking revenue, doctors are 

84 

xxvii Employers express anti-trust and cost-shifting concerns on ACOs. America’s Health Insurance Plans Coverage. June 3, 2011. http://www.ahipcoverage.com/2011/06/03/employers-expressanti-trust-and-cost-shifting-concerns-on-acos. Accessed October 2012 xxviiiFederal Trade Commission, Department of Justice. Statement of antitrust enforcement 

policy regarding accountable care organizations participating in the Medicare shared savings 

program. Federal Register 2011;76(209):67026–67032 xxix Remarks of J. Thomas Rosch. Accountable Care Organizations: What Exactly Are We Getting? Commissioner, Federal Trade Commission, before the ABA Section of Antitrust Law Fall 

Forum, Washington, DC. November 17, 2011. http://www.ftc.gov/speeches/rosch/111117fall 

forumspeech.pdf xxx Robert A Breneson, Paul B. Ginsbur, Nicole Kemper. Unchecked provider clout in California foreshadows challenges to health reform. Health Affairs 2010;29:699 xxxiFederal Trade Commission, Department of Justice, Antitrust Division. Proposed Statement 

of Antitrust Enforcement Policy Regarding Accountable Care Organizations Participating in the 

Medicare Shared Savings Program. Federal Register Vol. 76, No. 75. Tuesday, April 19, 2011 xxxii Remarks of J. Thomas Rosch. Accountable Care Organizations: What Exactly Are We Getting? Commissioner, Federal Trade Commission, before the ABA Section of Antitrust Law Fall 

Forum, Washington, DC. November 17, 2011. http://www.ftc.gov/speeches/rosch/111117fall 

forumspeech.pdf xxxiiiGaynor M. Why don’t courts treat hospitals like tanks for liquefied gases? Some reflections on health care antitrust enforcement. Journal of Health, Politics, Policy and the Law 2006 

Jun;31(3):497–510 

finding the prospect of trading in their businesses for a salaried position at a hospital attractive. 

The concern that ACOs and other consolidated networks could serve to increase 

healthcare costs have already been raised among a diverse group of observers, including employers,xxvii the Federal Trade Commission (FTC)xxviii, as well as policymakers. For example, it has been suggested that the schemes may exacerbate cost 

shifting to commercially insured patients by ACOs looking to qualify for the Medicare cost-reduction bonuses.xxix This cost shifting may be enabled by the ACOs new 

market power. One study showed that this is what happened in California as independent practice associations flourished there.xxx

For their part, some hospitals and other dominant providers in local markets have 

long sought to concentrate their power. They have been checked in these efforts by 

legal uncertainty and anti-trust concerns. We need to be careful that the urge toward creation of ACOs and other entities capable of bearing risk not be used to provide a guise to enable consolidation that is fundamentally unattractive. The widespread political appeal of ACOs should not be allowed to influence how the FTC and 

Justice Department interpret their responsibilities in these areas.xxxi

Otherwise, we could end up with the worst of both outcomes: consolidated providers that reduce efficiencies and raise costs, without any offsetting benefits from 

the (still largely untested) ACO model.xxxii In part, the nod toward hospitals to be 

the consolidators and the entities that stand up ACOs should heighten these concerns. Hospitals are an industry with some unique attributes, but it’s been said that 

nothing about the specifics of the health care industry suggests that the unregulated 

use of market power in this industry is socially beneficial.xxxiii

PPACA LEAVES CONSIDERABLE UNCERTAINTY AMONG PROVIDERS

Finally, the consolidation is leaving a great deal of uncertainty among providers 

about what is permissible and appropriate and, as a business matter, what physicians should be doing. This is distorting the kinds of business decisions that get 

made. Many of the mergers are being driven merely out of a desire to gain market 

share rather than pursue efficiencies because providers don’t trust that the business 

arrangements will be legally or financially sustainable in the long run. 

In part, this uncertainty is heightened by the fact that when it comes to concepts 

like ACOs, that much of these basic ideas have been tried before, without success. 

Among the sweeping changes of the Balanced Budget Act (BBA) of 1997 was a 

provision enabling providers to contract directly with Medicare through the formation of a provider-sponsored organization (PSO). This provision was part of a package that created a new Medicare Part C, giving beneficiaries the choice to elect to 

receive benefits through the traditional fee-for-service Medicare or through enrollment in a ‘‘Medicare Choice’’ plan that took financial risk, and was eligible to offer 

health insurance or health benefits coverage. 

A PSO was widely defined as a managed care contracting and delivery organization that accepted full risk for beneficiary lives. The PSO received a fixed monthly 

payment to provide care for Medicare beneficiaries. PSOs could be developed as forprofit or not-for-profit entities of which at least 51% must be owned and governed 

85 

xxxivStephen C. Gleason, Jacque J. Sokolov, and Christine Henshaw. Provider Sponsored Organizations: A Golden Opportunity in Medicare Managed Care Physicians and other providers 

will soon have a chance to bypass the middleman and compete in managed Medicare. Family 

Practice Management 1998 Mar;5(3):34–45 xxxv Judith R. Peres. PSOs offering new partnership potential; provider service organizations: 

a possible gateway to 21st-century long-term care—Forecast ‘98. February 1998 xxxvi Jeff Goldsmith. Accountable Care Organizations: The Case for Flexible Partnerships Between health Plans and Providers. Health Affairs, January 2011 vol. 30 no. 1 32–40 xxxvii Jeff Goldsmith. Accountable Care Organizations: The Case for Flexible Partnerships Between health Plans and Providers. Health Affairs, January 2011 vol. 30 no. 1 32–40 xxxviii Vogt WB, Town R. How has hospital consolidation affected the price and quality of hospital services. Princeton (NJ): Robert Wood Johnson Foundation; 2006. Research Synthesis Report No. 9 xxxix Berenson RA, Ginsburg PB, Kemper N. Unchecked provider clout in California foreshadows challenges to health reform. Health Affairs. 2010;29(4):699–705 xl Anne Mutti and Jeff Stensland. Provider consolidation and prices. Presentation before the 

Medicare Payment Advisory Committee. October 9, 2009 

by health care providers (physicians, hospitals or allied health professionals).xxxiv As 

a practical matter, these PSOs were structured similarly to how the ACOs are being 

conceptualized. The two concepts also aimed at achieving some of the same goals 

in terms of giving providers an incentive to better coordinate care, and to introduce 

other efficiencies and controls to reduce the use of services deemed wasteful.xxxv

Yet the Provider Sponsored Organizations failed badly. The reasons that these entities couldn’t succeed seem to mirror some potential shortcomings in the ACO 

model. This history only heightens the uncertainty in the provider community 

around not only whether the consolidated entities now being created will be legally 

permissible, but also whether they are sustainable and whether the government will 

continue to partner with these new organizations once the current fashion fades. 

Most of the PSOs had inadequate resources to finance their risk and weak management. They lacked the capacity to introduce cost-saving innovations in how they 

coordinated and delivered care, and manage the use of services. A few of these ventures survived, evolved, and went on to have success, most failed badly.xxxvi Some 

of the successful ventures include the Geisinger Health System in Pennsylvania and 

Intermountain Health Care in Utah. But most of these PSO ventures failed. 

The very changes to the Medicare reimbursement schedule that’s driving doctors 

toward consolidation, only serve to underscore how uncertain the entire landscape 

is and, at times, how variable, if not predictable, Medicare can be when it comes 

to entering into business relationships with providers and provider-let entities. 

As the Part B reimbursement schedule is dramatically reduced for many procedures such as cardiology and radiology, doctors and hospitals see an advantage to 

moving these services under the Part A billing scheme, which has remained comparatively intact. The magnitude of the cuts to certain Part B procedures is adding 

to provider concerns that they cannot rely on their Medicare-based revenue models. 

The resulting effort to link up with hospitals, and move from the Part B to Part 

A billing scheme, is a temporary arbitrage, to be sure. It’s another reason why the 

consolidation that looks attractive now to the hospitals may be unwieldy and 

unsustainable once the Medicare payment schedule catches up with these new realities. It’s another reason why the consolidation that is taking place in the provider 

community may fall far short of its hoped for effects of improving efficiencies, driving greater coordination of care, and ultimately lowering costs. And it’s another reason why there is so much uncertainty about the long-term structures. 

For their part, the hospitals are experiencing economic loses as they acquire medical practices—another reason providers are engaging in these relationships on 

shaky ground. The losses stem in part because reimbursement levels don’t leave 

much room for operating profits. It is also a function of the fact that the hospitals 

have been focused on acquiring specialty practices like cardiology and surgical specialties, which require the payment of larger, longer-term employment contracts. 

The losses that hospitals experience in acquiring practices are likely to exceed the 

potential gain sharing that they stand to earn under PPACA for operating under 

new shared savings arrangements created by PPACA.xxxvii This, of course, begs the 

question as to whether hospitals will merely shift the costs onto payors once they 

gain sufficient local market concentration. There is ample evidence, from past experience, to demonstrate this can be precisely what happens.xxxviii,xxxix,xl

Finally, providers also need to face the prospect that whatever relationships they 

enter into now may be hard to unwind should the legal or reimbursement environment change with respect to concepts like ACOs and the consolidation taking place 

today around hospitals. In the late 1990s, when physicians sold their practices to 

practice management companies (such as Medpartners and PhyCor) many of these 

companies eventually failed. Once these outfits folded, doctors were able to unwind 

86 

xli American Medical Group Association. 2011 Medical Group Compensation and Financial Survey Finds Continued Financial Losses in Most Regions, Average Increase in Physician Compensation at 2.4%. August 16, 2011 xlii Jeff Goldsmith. Accountable Care Organizations: The Case for Flexible Partnerships Between health Plans and Providers. Health Affairs, January 2011 vol. 30 no. 1 32–40 xliii Chris van Gorder and Eric Topol. Embracing the Future. Modern healthcare, May 14, 

2012. 24 

the relationships that they had with these firms and go back to the individual practices. Today’s current round of consolidation may not end as well. 

Hospitals will realize that these relationships are not financially sustainable 

owing to declining hospital reimbursement, an inevitable equalization between the 

Part A and Part B payment schemes, and the high cost of owning and managing 

physicians. Physicians will have a hard time going back to their old arrangements. 

In many cases, they simply won’t have the capital to regain their prior medical practices. 

A 2011 survey by the American Medical Group Association, looking at the operating margins of large, often multi-specialty medical groups, would suggest that 

running a large group of physicians (whether they are employed by an independent 

multi-specialty group or a hospital) isn’t profitable in today’s payment environment. 

This financial analysis only serves to underscore these points, and the reason to be 

uncertain about the new arrangements that are taking shape in today’s market. 

The cost of practicing medicine continues to rise while reimbursement rates remain largely flat, or decline slightly over time. As a result, the survey of operating 

margins of large medical groups shows that most groups are operating at a loss. The 

northeast has some of the worst performing groups. According to the survey, groups 

in this region are operating at an average loss of around $10,000 per physician.xli

There is a possibility that, through pursuit of policy constructs that aim to consolidate providers into larger networks, we end up with the worst of both worlds: 

A Medicare policy failure that drives private-sector costs higher.xlii

DOES CONSOLIDATION LEAVE A ROLE FOR ENTREPRENEURSHIP?

In the end, PPACA’s most significant challenge to organizational change in how 

providers are structured and services delivered is the legislation’s relationship to innovation and entrepreneurship in this space. In my opinion, the modest rewards offered to accountable care organizations, through gain sharing, may not be enough 

to incentivize these groups to make meaningful investments in costly new systems 

and infrastructure that lead to genuine improvements in the coordination of care. 

As a result, the entities taking advantage of the opportunity set may be those who 

have other motives. They will be the existing market participants who stand to gain 

through the ability to consolidate providers and gain local market power. 

Historically, innovations in the delivery of healthcare—from the advent of the first 

HMO to creation of long term care hospitals and home infusion (to name just several)—arose as the result of start-up outfits, often backed by venture capital, and 

headed by entrepreneurs who were in search of above market returns on invested 

capital. Under the existing rules, this often meant that new arrangements sought 

to earn profits by moving patients from higher cost settings of care to lower cost 

settings and capturing some of the money they saved the system in that process.xliii

But PPACA contains deliberate provisions aimed at regulating returns on invested capital; discouraging different forms of entrepreneurship. These provisions 

are, in many cases, the expression of a political philosophy that guides a number 

of provisions in PPACA. That philosophy views profits earned on the provision of 

care as money that should have been channeled instead into direct patient care. 

The result is that entrepreneurs are not pursuing new health services ventures. 

Capital flowing to these endeavors has fallen sharply. The lack of incentive for entrepreneurs further entrenches existing players, meaning that tools that could help 

better coordinate care (for example, healthcare information technology) is only 

adopted through outright subsidies to existing providers, rather than through the 

creation of new approaches to replace an existing way of delivering care. 

I work with investors who support entrepreneurs creating some of these new 

ideas. I have also served as a consultant to, and board member, of firms working 

on entrepreneurial healthcare services start-ups. I worry that PPACA advances a 

number of provisions that tilt too much against these entrepreneurs. The combined 

effect of these policies will serve to potentially freeze out disruptive new models. 

There are other legacy practices that create impediments to innovation, entrepreneurship, and genuine change in the delivery of healthcare services. For example, 

existing laws restrict innovative ways to provide primary care (PPACA merely restricts how we pay for it). We could develop entities that make better use of skilled 

87 

nurses and other non-physicians providers to reach into homes, workplaces and 

communities to provide early care more efficiently and cheaply. 

This would cause ‘‘prevention’’ to rise rather than having PPACA make ‘‘prevention’’ free without addressing the fact that people often don’t see doctors because it’s 

inconvenient. Such efforts would require changes in laws that empower certain providers over others and create barriers to more flexible approaches to delivering care. 

In the past, physicians have been resistant to extending more responsibility to nonphysician providers. I expect this resistance to diminish as the incentives change 

under new payment schemes. Under capitated schemes, there’s more incentive to 

move patients from costly hospitals and offices and (where appropriate) into lower 

costs settings and providers. Under these arrangements, doctors may be keener to 

share increasing responsibilities with other providers. 

CONCLUSION

In a well functioning market that creates proper incentives for innovation in delivery of healthcare, consumers would have a closer relationship to the insurance 

product that they carry and their purchase of routine healthcare. In a well functioning market, the insurance product would be portable across employers and 

states, and would enable multi-year contracts, guaranteed-renewable products, and 

other elements similar to the way consumers buy life insurance today. 

Such a market would provide cash vouchers to individuals priced out of the system because of their economic or medical circumstances. Under the current scheme, 

where health insurance products are tightly regulated, where government agencies 

and not consumers choose what is covered, and where profits are punished, it leaves 

little room for entrepreneurship in how healthcare services are delivered. 

Yet the only way we’re going to bend the healthcare cost curve is by introducing 

genuine innovations in how we provide medical care—new approaches that lower 

costs while providing more healthcare for each dollar that we spend. These innovations won’t arise as a result of the critical mass created through carefully orchestrated mergers. These ideas won’t be incubated inside CMS. 

Nor are these concepts likely to arise from new twists on old concepts like capitation and PSOs. Instead, genuine innovation in the delivery of healthcare is going 

to come about the way it always has—from entrepreneurs who raise capital in 

search of profitable new ways to re-engineer old systems, appealing to consumers 

by bringing them a better service at a more affordable price. PPACA tries to engineer its own new constructs, while pursuing provisions that could crowd out entrepreneurs from developing their own ideas. We could end up with neither. 

Mr. GOODLATTE. I would like to thank our witnesses again. 

Apologize again for the brevity of this hearing, but we will enlarge 

it in writing and we will submit lots of questions to you. 

Without objection, all Members will have 5 legislative days to 

submit to the Chair additional written questions for the witnesses, 

which we will forward and ask the witnesses to respond as promptly as they can so that their answers may be made a part of the 

record. 

Without objection, all Members will have 5 legislative days to 

submit any additional materials for inclusion in the record. 

And, with that, I again thank the witnesses, and this hearing is 

adjourned. 

[Whereupon, at 11:55 a.m., the Subcommittee was adjourned.] 

(89) 

A P P E N D I X 

MATERIAL SUBMITTED FOR THE HEARING RECORD

Prepared Statement of the Honorable Bob Goodlatte, a Representative in 

Congress from the State of Virginia, and Chairman, Subcommittee on Intellectual Property, Competition, and the Internet 

Good morning, and welcome to this hearing of the Subcommittee on Intellectual 

Property, Competition and the Internet. 

Today’s hearing does not examine the competitive effects of a specific merger or 

business practice. Instead, it examines the general competitive state of the health 

care industry, and specifically the competitive effects of a law, the Patient Protection and Affordable Care Act, commonly known as the ACA or Obamacare. 

The centralized, regulatory approach that the ACA takes to the health care market creates deep tension with the free market, competition based approach embodied 

in the antitrust laws. Indeed, I believe that the ACA has and will continue to substantially lessen competition to the detriment of health care consumers. 

Instead of encouraging businesses to offer innovative and competing products and 

allowing consumers to steer the market, the ACA imposes a top-down, one size fits 

all model throughout the health care industry. 

The ACA prevents health care competitors and consumers from entering certain 

transactions that they should be allowed to enter in a competitive market. It also 

forces them to enter transactions they may not have entered in a free market. 

Instead of the choices that a competitive market offers consumers, the ACA offers 

mandates. 

Troubling symptoms are already emerging of the ACA’s anticompetitive effects. 

Mergers among health care providers have increased by 50 percent since passage 

of the ACA. Small medical practices and clinics have been forced to consolidate because they have been unable to remain independent while weathering the regulatory costs and burdens of the ACA. 

Specific provisions in the ACA encourage consolidation and collaboration among 

larger competing health care providers. 

We know that many health care mergers and integrations are likely pro-competitive—each transaction must be judged on its own merits. 

Integrated health care delivery models can be efficient and can realize cost savings. Independent health care delivery models can also offer great treatment advantages. What we should avoid is government policies that distort competition in the 

market and artificially eliminate competition. 

A freer market will invariably choose between models more efficiently than the 

federal government can. Market driven consolidation benefits patients more than 

regulation driven consolidation. 

The consternation that the law has caused to both health care providers and the 

federal antitrust enforcement agencies about how to treat the ACA’s new Accountable Care Organizations highlights the tensions between the ACA’s purposes and 

the antitrust laws. 

Another symptom of the ACA’s anticompetitive effects can be seen in the consolidating and increasingly undifferentiated insurance markets. This is a result of the 

ACA’s mandates about what health plans must cover and how they may spend their 

90 

revenues. We are already seeing the emergence of a new order in which a shrinking 

number of health insurers offer a highly standardized product at increasing prices. 

That the ACA would force all Americans to buy this product highlights how far 

from a competitive free market the Act would take us. 

Antitrust economics are clear. If we raise barriers to entry, preclude product differentiation, dictate how competitors spend their revenue, mandate an increase in 

demand, and consolidate the market, we are likely to see anticompetitive results. 

The health care market has not been a perfectly competitive market even before 

the ACA. But instead of increasing competition, the ACA injects more artificial, government-imposed incentives into this market which lead us further away from competition and toward higher costs, lower quality care, and less innovation. 

f 

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

in Congress from the State of Michigan, and Ranking Member, Committee on the Judiciary, and Member, Subcommittee on Intellectual 

Property, Competition, and the Internet 

Thank you, Chairman Goodlatte, for holding this hearing on health care consolidation. It might surprise the Chairman to hear that I agree with him: Obamacare 

raises serious questions about competition in the healthcare industry. But not because the law promotes consolidation. 

The real question is whether Obamacare can be implemented in a way that will 

halt consolidation and anti-competitive practices that have plagued the healthcare 

industry for more than 30 years. 

Because the Administration and the States are still in the development phases 

and the major pieces of the law don’t come into effect until 2014, we have the opportunity now to influence how Obamacare can be used to increase competition, quality, and access to care. 

To begin with, the forces promoting hospital consolidation, allowing for insurance price distortion, and raising the overall cost of healthcare costs were in place 

long before President Obama signed the Affordable Care Act into law. 

Some on the other side have suggested that Obamacare has caused healthcare 

consolidation. Besides the fact that the major provisions of the law affecting competition, the insurance exchanges and accountable care organizations, will not come 

into effect until 2014, this conjecture categorically ignores more than thirty years 

of recent history. 

Hospital mergers have been on the rise for more than 20 years, and, unfortunately, the version of Healthcare Reform that became law lacked the protections 

that House Democrats pushed to prevent the anti-competitive consolidation we are 

discussing today. 

Increased market concentration, deregulation, blanket antitrust exemptions, and 

scant antitrust enforcement against healthcare insurance companies have prevented 

meaningful competition from taking place across the industry for decades. 

Our privatized healthcare system, by its nature, creates an innate tension between increasing profits for shareholders on the one hand and increasing healthcare 

access and quality on the other. 

This is precisely why our country needs a single-payer system, the implementation of Obamacare presents our country with a unique opportunity to turn the tide. 

We will hear from the detractors of healthcare reform that Medical Loss Ratios 

(MLRs) and the standards governing Accountable Care Organizations (ACOs) are 

promoting consolidation. But the fact is that the Department of Health and Human 

Services and Center for Medicare and Medicaid Studies are only in the nascent 

stages of implementing the Affordable Care Act. No general conclusions can be 

drawn because most of the regulations are still at the drawing board. 

Second, the Justice Department, the Federal Trade Commission, and state Attorneys General from across the country have made attempts to challenge hospital and 

insurance consolidation with very limited success for decades. 

91 

Overly broad antitrust exemptions, namely the McCarran-Ferguson Act of 1945, 

and an anti-competition judicial bench have allowed healthcare corporations to run 

roughshod over consumers and care-givers. 

Most of the country’s health insurance markets are disproportionately dominated 

by only a handful of powerful players. The Justice Department, for example, has finally taken action against Blue Cross Blue Shield of Michigan because of its dominance and conduct in the state. 

Recent cases at the Justice Department and FTC are promising—including suits 

to block hospital mergers in Illinois, Virginia, and Georgia by the FTC and cases 

against insurers and actions by the DOJ against insurers in Michigan, Montana, 

and other states. Our federal antitrust enforcement has been on the whole, however, 

insufficient. Most markets are dominated by one or two plans, and the exchanges 

therefore offer an opportunity to encourage insurance companies to enter markets. 

The barriers to entry to starting new insurance companies or entering new markets are extremely high, and these market concentrations have pushed hospitals to 

claim the need to merge in order to effectively negotiate with the major insurance 

plans. 

Our regulating and enforcement agencies must prevent incumbent, dominant insurers from hampering competition through exclusionary or collusive conduct as the 

exchanges and Accountable Care Organizations ramp up. 

Third, major opportunities lie with how plans within the state exchanges will 

compete with existing insurers, and whether the exchanges will allow for new and 

innovative players to enter the market. I am weary of the early murmurs that regulators might give rubber stamps to existing, dominant players to exert undue influence in the new markets. 

Simply allowing the entrenched players to continue business as usual under the 

guise of participating in the exchanges will not be acceptable. 

The exchanges must promote transparent plans, subject to public scrutiny, that 

focus on the health outcomes of patients instead of stock dividends and executive 

windfalls. Moreover, we need vigorous use of the prosecutorial powers by our federal 

antitrust enforcement authorities, the Justice Department and FTC. 

It is for all of these reasons that I re-introduced a McCarran-Ferguson reform 

measure this morning that will roll-back the antitrust exemptions for health insurers and medical malpractice insurers. 

As all of us on the dias are concerned about competition in health care, and because a similar version of this legislation passed during the last Congress with more 

than 400 votes, I would welcome the Majority’s assistance in bringing this measure 

to the Floor again. 

The time is ripe to finally change this marketplace with pro-competition and proconsumer actions by the federal health and antitrust agencies. 

f 

Prepared Statement of the Honorable Howard Coble, a Representative in 

Congress from the State of North Carolina, and Member, Subcommittee 

on Intellectual Property, Competition, and the Internet 

We have the greatest healthcare delivery system in the world but I also think 

that it is facing some very difficult challenges. 

In particular, how will the Patient Protection and Affordable Care Act (PPCA) effect availability and quality, both of which are very complicated concepts. 

In our district, consolidation has not driven costs—in fact it has helped hold costs 

down and keep remote points or service up and running for many of our rural constituents. 

Mergers and acquisitions have been their life-ring and I am deeply concerned that 

if the PPCA results in limited options for providers to merge or pool resources, 

health care costs will increase and points of service will start to disappear. 

f 

92 

Material submitted by the Honorable Melvin L. Watt, a Representative in 

Congress from the State of North Carolina, and Ranking Member, Subcommittee on Intellectual Property, Competition, and the Internet 


74262A-1.eps
93 


74262A-2.eps
94 


74262A-3.eps
95 


74262A-4.eps
96 


74262A-5.eps
97 


74262A-6.eps
98 


74262A-7.eps
99 


74262A-8.eps
100 


74262A-9.eps
101 


74262A-10.eps
102 


74262A-11.eps
103 


74262A-12.eps
104 


74262A-13.eps
105 


74262A-14.eps
106 


74262A-15.eps
107 


74262A-16.eps
108 


74262A-17.eps
109 


74262A-18.eps
110 


74262A-19.eps
111 


74262A-20.eps
112 


74262A-21.eps
113 


74262A-22.eps
114 


74262A-23.eps
115 


74262A-24.eps
116 


74262A-25.eps
117 


74262A-26.eps
118 


74262A-27.eps
119 


74262A-28.eps
120 


74262A-29.eps
121 


74262A-30.eps
122 


74262A-31.eps
123 


74262A-32.eps
124 


74262A-33.eps
125 


74262A-34.eps
126 


74262A-35.eps
127 


74262A-36.eps
128 


74262A-37.eps
129 


74262A-38.eps
130 


74262A-39.eps
131 


74262A-40.eps
132 


74262A-41.eps
133 


74262A-42.eps
134 


74262A-43.eps
135 


74262A-44.eps
136 


74262A-45.eps
137 


74262A-46.eps
138 


74262A-47.eps
139 


74262A-48.eps
140 


74262A-49.eps
141 


74262A-50.eps
142 


74262A-51.eps
143 


74262A-52.eps
144 


74262A-53.eps
145 


74262A-54.eps
146 


74262A-55.eps
147 


74262A-56.eps
148 


74262A-57.eps
149 


74262A-58.eps
150 


74262A-59.eps
151 


74262A-60.eps
152 


74262A-61.eps
153 


74262A-62.eps
154 


74262A-63.eps
155 


74262A-64.eps
156 


74262A-65.eps
157 


74262A-66.eps
158 


74262A-67.eps
159 


74262A-68.eps
160 


74262A-69.eps
161 


74262A-70.eps
162 


74262A-71.eps
163 


74262B.eps
164 


74262B-1.eps
165 


74262B-2.eps
166 


74262B-3.eps
167 


74262B-4.eps
168 


74262B-5.eps
169 


74262B-6.eps
170 


74262B-7.eps
171 


74262B-8.eps
172 


74262B-9.eps
173 


74262B-10.eps
174 


74262B-11.eps
175 


74262B-12.eps
176 


74262B-13.eps
177 


74262B-14.eps
178 


74262B-15.eps
179 


74262B-16.eps
180 


74262B-17.eps
181 


74262B-18.eps
182 


74262B-19.eps
183 


74262B-20.eps
184 


74262B-21.eps
185 


74262B-22.eps
186 


74262B-23.eps
187 


74262B-24.eps
188 


74262B-25.eps
189 


74262B-26.eps
190 


74262B-27.eps
191 


74262B-28.eps
192 


74262B-29.eps
193 


74262B-30.eps
194 


74262B-31.eps
195 


74262B-32.eps
196 


74262B-33.eps
197 


74262B-34.eps
198 

f 


74262B-35.eps
199 


74262C-1.eps
200 


74262C-2.eps
201 

f 


74262C-3.eps
202 


74262D-1.eps
203 


74262D-2.eps
204 


74262D-3.eps
205 


74262D-4.eps
206 


74262D-5.eps
207 

f 


74262D-6.eps
208 


74262E-1.eps
209 

f 


74262E-2.eps
210 

f 


74262F.eps
211 


74262G-1.eps
212 


74262G-2.eps
213 


74262G-3.eps
214 


74262G-4.eps
215 

ATTACHMENT 


74262G-5.eps
216 


74262G-6.eps
217 


74262G-7.eps
218 


74262G-8.eps
219 


74262G-9.eps
220 


74262G-10.eps
221 


74262G-11.eps
222 

Æ 


74262G-12.eps