Aetna's $37B Humana Acquisition Has Providers Wary

Market consolidation by health insurers is raising the specter of anti-competitive behavior and fears of patient harm among physicians, hospitals, and health systems.

Aetna's $37 billion acquisition of Humana Inc. and the broader consolidation in the health insurance industry is making providers antsy.

Under the deal announced last Friday, Aetna said the combined company would cover more than 33 million people, and would vie with Anthem to be the nation's second-largest health insurance company, with annual operating revenues of approximately $115 billion.

News of the Aetna/Humana merger came one day after Centene announced that it would buy HealthNet for $6.3 billion. In addition, Anthem and Cigna are reportedly in merger discussions which, if completed, would make that combined company the second-largest in the nation.

Payer consolidation has long been a source of concern for providers. American Medical Association President Steven J. Stack, MD, says AMA analyses of health insurance markets that predate the Aetna/Humana merger show that many markets across the country are dominated by one or two insurers.

Mega-Mergers Among Health Insurers Bode Ill for Hospitals

"Seventeen states have a single health insurer with a commercial market share of 50% or more," Stacks says. "The dominant market power of big health insurers increases the risk of anti-competitive behavior that harms patients as health insurers substitute corporate policy over good clinical decisions."

Robert L. Wergin, MD, president of the American Academy of Family Physicians, and the owner of Milford (NE) Family Practice, says the "onesie and twosie" and other smaller practices such as his would be hit hard by an even more consolidated payer sector.

"You see what size does. It's like the bully on the playground," Wergin says. "If you are a bully, you aren't going to take on a big healthcare system. You'll take on Milford Family Practice and beat the crap out of me. You're not going to take on the University of Nebraska Medical Center because they have lawyers on retainer and they swing back."

The American Hospital Association wants a robust government review of the Aetna acquisition.

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"It's difficult to determine how anti-competitive any further consolidation will be in the already consolidated insurance industry without knowing the details of any proposed deal," says Alicia Mitchell, AHA's senior vice president of communications. "However, any potential deal of this magnitude needs rigorous scrutiny. That's why the AHA will call upon the [Department of Justice] and Congress to exercise a significant level of scrutiny over this potential deal."

Pot v. Kettle?
Suzanne F. Delbanco, executive director of the Catalyst for Payment Reform, says the consolidation among insurers is a response to a number of market forces "including the unprecedented consolidation among healthcare providers that has been occurring over the past five to 10 years."

"It's important in a market to try to balance the negotiating of the buy side and the supply side, but I worry on both sides that these mergers will not at the end of the day serve the interests of consumers or patients," Delbanco says.

Regardless of who's consolidating, Delbanco says consumers will bear the cost.

"The schemes here are remarkably similar," she says. "They all argue, whether hospitals or insurers, that with all the changes in the healthcare system brought about by the Affordable Care Act and other trends, that the only way they can succeed at providing high-quality affordable care is to get larger."

"Unfortunately, at least on the provider side where we have a fair amount of research and evidence, prices always go up as a result of consolidation and there is no evidence that quality gets better. In fact, there is a little bit of evidence that it gets worse."

"On the insurers' side, there is some evidence that in markets where insurers have strong market share they are able to get better prices for the consumer, but ultimately if there is no need to compete in that space the question is will they bother."

Delbanco says that efficiencies gained with the merger of Aetna and Humana could come at a cost.

"There will be a diminishing incentive to innovate," she says. "I worry for the large employers and for individual consumers. If there aren't choices it is going to be very hard to inspire insures to innovate around how they are paying for care or creating contracts for providers to deliver care and what impetus they feel to make their business be patient-centered."

Chip Kahn, CEO and president of the Federation of American Hospitals, says hospital consolidation and payer consolidation are not two sides of the same coin.

"Let's separate the issues," he says. "On the insurers' side there are limited combinations because the big classic commercial companies that 25 years ago formed the bigger part of commercial industry are narrowed down now to a handful—basically, Aetna, Humana, Cigna, Anthem, and United. There are some smaller companies, but those tend to be niche players or HMOs in certain markets. It terms of the big companies, we are getting close to whatever the end of that process is."

"At the hospital level, it is still so much market-to-market so it's hard to talk about hospitals generally," he says. "The biggest hospital company is HCA, but they're no more than a few percentage points of what happens nationally. You don't have the same kind of organizations nationally with the size and breadth of these insurance companies on the provider side at all."

Leemore S. Dafny, a professor of management & strategy and the Herman Smith Research Professor in Hospital and Health Services at the Kellogg School of Management at Northwestern University, says Aetna's decision to acquire Humana makes perfect sense.

 "Insurers don't want to be left out of the opportunity to potentially snatch someone up because they figure that either scale is going to reduce their cost, or increase their market power, or both. And why not go for it, if there is an opening," she says.

Dafny says it's hard to predict what will happen as the payer sector consolidates because every market is different.

"I have written papers that show that in commercial insurance markets, larger group markets, consolidation leads to increases in premiums," she says. "What happens in other markets, particularly with Medicare Advantage, is less studied. There, the competition is going to be a little more on quality which is everything from access to outcome measures."

Delbanco says she'll be interested in seeing what new players emerge as the traditional payers consolidate. "In every situation where a marketplace consolidates, what is fascinating is to see the new entrants that come into the space to stimulate more innovation," she says.

"For example, in the provider space you have massive growth of telehealth and retail and on-site clinics at workplaces, which maybe are not a direct response to consolidation, but which create lower-cost alternative sources of care than overpriced dominant systems. It will be fascinating to see what opportunities arise from these very big companies getting even bigger and they're not going to be as agile as newer upstarts."