Doctors and Plans Blame Each Other for Costs

Health plans and physicians pointed fingers at one another this week, with each side blaming the other for market consolidations that they both claim are driving healthcare costs.

However, impartial observers say both sides are to blame and consumers are bearing the cost.

The American Medical Association on Wednesday released the 2012 edition of Competition in Health Insurance: A Comprehensive Study of U.S. Markets. The physicians' association says the report shows widespread anticompetitive health insurance markets in most regions of the country for point-of-service plans, health maintenance organizations, and preferred provider organizations. The report details commercial health insurance market shares and market concentration levels for 385 metropolitan areas in 50 states and the District of Columbia.

"The broad scope of the new AMA analysis provides the most complete picture of the consolidation trend in health insurance markets," AMA President Jeremy A. Lazarus, MD, said in a media release. "The new data demonstrate that most areas of the country have a single health insurer with an anticompetitive share of the HMO, PPO, or POS market."

The release of the AMA report prompted a swift rebuttal from America's Health Insurance Plans. The health insurance industry's lobbying arm published a statement on its website Wednesday that called the study's methodology "fatally flawed" and laid the blame for rising healthcare costs on provider consolidations.

"Families and employers in every state have multiple choices of both insurance plans and types of coverage. Moreover, research clearly demonstrates that provider consolidation—not concentration of health plan markets—is driving up healthcare costs for consumers and employers," AHIP said in the statement.

Mark Pauly, a healthcare economist at the Wharton School at the University of Pennsylvania, says both sides are correct. "Insurance markets aren't very competitive and healthcare services markets, particularly hospital markets, are not very competitive," he says.

"It's like two devils pointing the finger at each other from the point of an economist interested in competition, but they are both right. In economics, we have a name for the situation where you have a monopolist buyer and a monopolist seller. It's called bilateral bargaining, and consumers are left in the middle. So it's doubly bad for consumers."

That sentiment was echoed by Anthony Wright, executive director of Health Access California, a consumer advocacy coalition.

"This is one of those rare cases where I agree with both sides, just probably not the way either of them wants," Wright says. "Clearly, provider consolidation does have an impact on healthcare costs, but so does the consolidation in the health insurance market. That is true at the insurer level and the provider level. When a provider has such a huge foothold in a given market, then every insurer to do business in that area has to contract with that provider and they are in a privileged position to demand a higher reimbursement, which is reflected in cost."

"At the same time, if there are only a couple of prevalent insurers in a market, like Kaiser and Blue Cross and Blue Shield in California, there is not the robust competition to bring down prices. You need to look at other means of looking at rates, including more vigorous rate review and regulation."

On the health plan side, Pauly says the dominance of the insurance markets has existed since World War II, while the consolidations on the provider side are more recent phenomena.

"There has been a tendency more worrisome to economists that hospitals have been consolidating. That has been more of a change," he says. "The insurance market has been bad but it is not getting worse. But the provider market is getting worse, and on top of hospitals consolidating in many cases, now large physician groups like the orthopedic surgeons are organized into a few large groups that probably also aren't as competitive as they would be if they were individual doctors that insurers could play off of one another."

Pauly says the best solution would be to break up the monopolies, but that probably isn't going to happen. "The next solution, which is probably where we are more likely to go, is to control or regulate the monopoly," he says. "The rules in the Affordable Care Act about minimum medical loss ratios are an attempt to get insurer profits and excess profits down by regulation. Medicare is big enough that it can push doctors and hospitals around, and the hope is that these new health insurance exchanges will somehow convert a whole bunch of insurance midgets into a giant that will somehow be able to deal more effectively with healthcare providers."

The AMA study found:

• A significant absence of health insurer competition in 70% of the metropolitan areas it studied. These markets are rated "highly concentrated," based on the 2010 Horizontal Merger Guidelines issued by the U.S. Department of Justice and Federal Trade Commission.

• In 67% of the metropolitan areas studied, at least one health insurer had an HMO market share of 50% or greater.

• In 68% of the metropolitan areas, at least one health insurer had a PPO market share of 50% or greater.

• In 68% of the metropolitan areas, at least one health insurer had a POS market share of 50% or greater.

• The top 10 states with the least competitive commercial health insurance markets are (in order):  Alabama, Hawaii, Michigan, Delaware Alaska, North Dakota, South Carolina, Rhode Island, Wyoming, and Nebraska.

"It appears that consolidation has resulted in the possession and exercise of health insurer monopoly power," the study says. AMA says those monopolies have increased premiums, watered down benefits, and increased insurers' profitability, which the physicians' association says demonstrates that highly concentrated markets harm patients and physicians.

Pauly says he'd be more sympathetic to the complaints of physicians if they "are willing to break up some of their doctor market power as a quid pro quo."

"Of the two kinds of non-competitiveness, I'm more worried on the non-competitiveness on the seller of services side than on the insurers' side, because insurers can be replaced fairly easily," he says. "There is nothing special about a Blue plan other than some consumer loyalty to the trade name. But there is something special about your own doctor, and hospitals are not so easily interchangeable."

Wright believes the AMA study and the AHIP response inadvertently say more about what is wrong with healthcare delivery than the two sides' accusations and counter-charges about monopolistic practices.

"The sad part is that our healthcare costs are more dictated by the healthcare market than they are the actual delivery and quality of care," he says. "Healthcare prices and healthcare premiums are much more a function of the providers' and insurers' relative market positions than they are about the cost of providing care of the quality of the care provided. Under our current healthcare system, that is what dictates our prices more than cost and quality, which are the things that people would presume would dictate the costs."