Reduced Insurance Competition Bodes Ill for Patients

Too few insurance companies control too much of the market in too many communities across the country, according to the AMA.

The medical group bases its claim on a newly released analysis of insurance company concentration in 48 states and 70 metropolitan areas titled, “Competition in Health Insurance: A Comprehensive Study of U.S. Markets.”

The study measured market concentration using the Herfindahl-Hirshman Index (HHI) of Competition, which is an instrument used by the Federal Trade Commission and the U.S. Department of Justice to evaluate the impact of proposed mergers and acquisitions on competition in markets. Markets that score highly on the HHI index (greater than 1800) are considered “highly concentrated,” and the government will not approve mergers and acquisitions in those areas if doing so results in an increase in the index score.

The study found that in the combined HMO/PPO market, more than three-quarters of the metropolitan areas studied fell in the “highly concentrated” range. In the HMO product market, 90 percent of the metropolitan areas were highly concentrated, while in the PPO product market, all of the metropolitan areas are considered highly concentrated.

In addition, the report stated that a number of markets include insurers that have shares in excess of 40 percent and 50 percent in all product areas, and in 89 percent of the highly concentrated markets there is at least one insurer with a market share in excess of 30 percent.

The AMA believes this translates into too much power for too few insurance companies. “The study shows the increasing concentration and the potential for monopsony power of the health insurance companies so that they dictate the terms of the contract,” AMA President-elect Donald J. Palmisano, M.D., told Psychiatric News.

Palmisano, a surgeon in New Orleans, said that “to our knowledge” the Federal Trade Commission has never investigated the practices of insurance companies. But he said the Justice Department has publicly stated its intention to apply greater scrutiny to the insurance industry. “We believe this landmark research provides a solid basis for that investigation,” he said.

When asked to state specifically how concentration of dominant insurers in a community affects the practice of medicine, Palmisano replied that there is little room for physicians to challenge policies set by companies that have no incentive to change or negotiate when they already control as much as a third of the market.

“If an insurance company says this is the way it will be done, physicians are at a great loss when they try to [express opposition],” he said. “The current antitrust laws make them suspect if they get together and voice their joint concerns to the insurers.”

The AMA report is the second edition of a study first released in November 2001 and paints a portrait of an industry metastasizing in power as it shrinks in the number of companies offering a competitive product. The new report stated, for instance, that “health insurers experienced a 25 percent increase in profits between 2000 and 2001” following a period of “unprecedented consolidation of the health insurance industry in the late 1990s.” More than “350 mergers involving health insurers and managed care organizations” occurred between 1995 and 2000.

“There were sightings of the T. rex before,” said Palmisano, “and now we have a giant footprint.”

Kevin Geraci, M.D., an internist and president of the Academy of Medicine of Cleveland, said that the AMA report conforms to the experience of physicians working in the community.

“It doesn’t tell them anything they haven’t already found out,” he said. “Insurance companies can control what patients have available to them because of their financial interests. If I want to refer a patient to a psychiatrist, I do not have the privilege. The insurance company will require the patient to call a mental health line and receive a referral to someone on its panel it deems appropriate.”

He added, “To me this is almost a breach of medical ethics. If someone is well known to a physician, it is the physician who should be able to make that decision, particularly with such a sensitive issue as a psychiatric referral.”

The AMA report noted that Cleveland earned an HHI score of 1791, with one insurer—Medical Mutual—holding 30 percent of the market.

It appears that in some areas of the country, however, insurance company consolidation is not the only factor at work. Geraci noted that in Cleveland, for instance, an issue that is overlapping and complicating insurance consolidation is the fact that the area is dominated by two principal hospital systems—University Hospitals of Cleveland and the Cleveland Clinic Health System—that own and operate many of the surrounding community hospitals.

Both of those systems are aligned with competing insurers, and physicians contracted with one system may not be able to refer patients to specialists at another or to specialists on the competing insurer’s panel, and may not have admitting privileges at hospitals owned by the competing system.

Mohit Ghose, a spokesperson for the American Association of Health Plans (AAHP), characterized the AMA report as a political ploy to revive attention to legislation granting physicians an exemption from antitrust laws.

“We don’t believe that letting one of the highest paid professions in the country unionize will do anything for the quality or cost of health care,” he told Psychiatric News. “Health plans come to the table and negotiate in good faith. For competing physicians to negotiate on a collective basis is not the right direction for health care in this country.”

Ghose said insurance companies typically offer several product lines that are negotiated separately. And regarding the threat of federal scrutiny, he said, “For years the FTC and the Department of Justice have had oversight of mergers in the health insurance market. AAHP has been quite confident of that level of oversight, and we have worked with the agencies on such issues. In the last few years, most of the Department of Justice oversight has tended to focus on mergers of hospitals and physician groups.”

Ghose agreed the report plays into a popular perception of insurance companies as powerful and profiteering. “We believe we should pull back the curtain,” he said. “Hospitals are demanding 30 percent to 40 percent increases in their rates each year, and physicians and physician groups demand higher and higher year-to-year increases.

“It’s a finger-pointing game,” he continued. “All facets of the health care system need to be working together rather than pointing fingers if we want to improve quality and cost of care. When it comes to quality, health plans are the only entities that publicly report quality data. Physicians and physician groups never have. If we want to improve quality, let’s have disclosure and transparency throughout the system.”

Information on how to obtain the report is posted at www.ama-assn.org/ama/pub/category/9573.html. ▪