The longest running battle in medical care is heating up again. I refer, of course, to the struggle between insurers and physicians, hospitals, and pharmaceutical companies. In recent weeks, Aetna and Humana announced their intention to merge, as did Anthem and Cigna. If these mergers go through, the “big 5” health insurers will be down to the “big 3.”
Physicians and hospitals were not happy with the news. “Given the troubling trends in the health insurance market, the AMA believes federal and state regulators must take a hard look at proposed health insurer mergers,” said Steven J. Stack, MD, the group’s president, in a statement. Melinda Reid Hatton, senior vice president and general counsel at the American Hospital Association (AHA), said that these transactions “merit the closest scrutiny.”
For their part, the insurers argue that consolidation on their end is needed, among other reasons, to combat the growing size of medical groups and health care facilities.
Of course, this battle is just the latest in a long series of skirmishes, dating back decades. Utilization review was invented in the 1950s. Certificate of Need regulations came to prominence in the 1960s and 1970s. And who can forget the managed care era of the 1990s?
In the managed care era, excess capacity in the hospital industry allowed insurers to play off one hospital vs another and bargain for lower prices. (Insurers used the same tactic for lowering prices of pharmaceuticals by pitting close competitors against each other.) Hospitals responded to the price pressure by merging with possible competitors.
Insurers’ next move was to create tiered networks: high-priced physicians, hospitals, and pharmaceuticals would still be covered, but on less generous terms. This led to still more mergers of physician groups and hospitals. Some clinicians opted out of the system entirely, going out-of-network and making consumers pay all of the cost for seeing them.
And now it’s insurers who have the merger bug. The Aetna-Humana and Anthem-Cigna proposed mergers mirror those in the pharmacy benefits management industry.
Both sides—insurers and those who care for patients—claim to be looking out for the best interest of patients. But neither has truth fully on their side. When physicians and hospitals face less competition, medical prices rise. When insurers have fewer competitors, premiums charged to the companies offering employee health plans increase. Neither side’s interests are perfectly aligned with those of patients.
Of course, the health care system will never work perfectly. But continued fighting and higher costs is not a recipe for a well-functioning one.
It is possible that one side or the other will “win.” Clinicians and hospitals won the battle over managed care, and it took insurers a decade to recover. Indeed, insurers were out of the cost savings game for so long that government started to bypass them completely. The accountable care organization program in Medicare was in many ways a response to the view that the major insurers had not developed appropriate tools for cost management.
But physicians do not always win. In the 1990s, insurers significantly changed how people receive behavioral health services. Inpatient and outpatient psychotherapy were made difficult to obtain, and medications were encouraged instead. Sensing that outpatient care was too expensive, insurers kept the fees they paid to mental health professionals very low. Mental health care clinicians have never fully recovered.
That said, it seems unlikely that either insurers or clinicians and hospitals are poised for a major victory. What happens then?
One possibility is that state and federal governments will get even more involved in health care than they are already. Not surprisingly, the AMA and AHA have both petitioned antitrust authorities to closely examine the proposed health insurance mergers. The national trade association representing the health insurance industry, America’s Health Insurance Plans, did the same in recent hospital mergers.
But federal intervention need not end there. In response to concerns that insurer profits are too high, the federal government recently mandated limits on the ability of insurers to charge premiums in excess of what they pay out in claims. For their part, some states are enacting limits on what hospitals and doctors can charge patients in emergency settings, even when they are out of a patient’s health plan’s network. In the pharmaceutical industry, high prices for new drugs such as the hepatitis C medication Sovaldi have led to renewed calls for price limits on new drug launches. And states like Maryland, Massachusetts, and Oregon are pioneering policies to restrain the overall growth of medical spending.
Governments are not always well informed, and their execution leaves much to be desired. But in a choice between no government involvement with very high prices and imperfect government involvement with lower prices, people will look to government for answers.
Technology to the Rescue?
A second possibility is that technological changes may undercut the position of both physicians and insurers. Might an Internet-based resource do a better job at diagnosis than a physician? Can a smart phone replace the hospital imaging facility? Is Internet-based disease management better than insurer-run disease management? Famed cardiologist Eric Topol, MD, of the Scripps Research Institute in La Jolla, California, believes the answer is yes. In The Patient Will See You Now, Topol argues that a new wave of technology will disrupt an enormous part of medical care today.
Silicon Valley agrees. Health care venture capital is moving from its historic focus on pharmaceuticals and devices to a much greater emphasis on medical services. A lot of money is riding on the idea that disruptive innovation in medical care is just around the corner.
If this view is right—even half right—the effects would be bigger than any set of insurance mergers one could imagine. Formal medical care use would decline, excess capacity in physician and hospital services would drive down spending, and the rationale for many insurance company programs would disappear. The landscape of insurers, physicians, and hospitals would change tremendously.
Who Will Lead?
At the end of the day, the real fight is not over the Affordable Care Act, the latest information technology standards, or the burden of quality reporting. What we are witnessing is nothing less than a battle for control of medical care itself, driven by spiraling costs and the belief that we are not getting our money’s worth in a sector representing close to 20% of the economy. Will it be a system overseen by physicians, by insurers, or by organizations that dispense with them both?
About the author: David M. Cutler, PhD, is the Otto Eckstein Professor of Applied Economics in the Department of Economics and Kennedy School of Government at Harvard University and a member of the Institute of Medicine. He served on the Council of Economic Advisers and the National Economic Council during the Clinton Administration and was senior health care advisor to Barack Obama’s presidential campaign. He also was involved in the debate over the Massachusetts health reform legislation discussed here and is a Commissioner on the state’s Health Policy Commission. He is the author of the recently published The Quality Cure, and Your Money or Your Life(2004). He tweets at @cutler_econ.
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