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Our Take: Increasingly concentrated health insurance markets may be harming consumers, providers, AMA study suggests

Oct 19, 2020

An annual analysis by the American Medical Association (AMA) indicates that commercial health insurance markets in the U.S. are continuing to become more concentrated, to the potential detriment of consumers and providers.

The study analyzed market concentration in all 384 of the country’s metropolitan statistical areas (MSAs), the 50 states, and Washington, D.C. The Herfindahl-Hirschman Index (HHI) was used to compare levels of market concentration geographically, along with changes in market concentration from 2014 to 2019. The federal government considers markets with an HHI exceeding 2500 to be highly concentrated.

Not only was there an increase in the percentage of highly concentrated markets from 2014 to 2019 (71% to 74%) but also more than half (52%) of the markets that were already highly concentrated in 2014 became even more concentrated by 2019. Further, 25% of the markets that were not highly concentrated in 2014 met the HHI threshold for being highly concentrated by 2019.

In a press release, the AMA used the Elizabethtown-Fort Knox, Ky., MSA as an example of worsening market concentration. In 2014, the HHI for this market was 3534 — already well above the 2500 threshold for high concentration. By 2019, the market’s HHI had increased 1625 points to 5159. As the dominant insurer in that market, Anthem’s market share increased from 45% in 2014 to 70% by 2019.

The average MSA-level market had an HHI of 3473 in 2019 — almost 1000 points above the threshold for high concentration.

In the vast majority of MSA-level markets (92%), a single insurer had a market share of at least 30%. In nearly half of the MSA-level markets (48%), a single insurer had a market share of at least 50%.

Broken down by state, Alabama had the least competitive commercial health insurance markets, followed by Hawaii, Michigan, Delaware, and South Carolina. In Alabama, Blue Cross Blue Shield of Alabama’s statewide share of the market was 86%. Fourteen other states also had a single insurer with a statewide market share exceeding 50%.

Anthem had the highest market share in the most MSA-level markets (75 MSAs), followed by Health Care Service Corp. (43 MSAs) and UnitedHealth Group (28 MSAs).

Moreover, the study report suggested that when insurers exercise their market power in more highly concentrated markets, premiums are more expensive than in competitive markets, and payments to providers are below competitive levels. Additionally, the quantity of health insurance coverage provided is lower than in competitive markets.

“The AMA strongly encourages a dialogue among regulators, policymakers, lawmakers, and others about the need for a better, more open and competitive marketplace to benefit patients and the physicians who care for them,” said Dr. Susan Bailey, AMA president.

Our Take: In response to the AMA analysis, America’s Health Insurance Plans (AHIP) told a number of news outlets that competition among doctors and hospitals — not competition among health insurance providers — is the key to negotiating lower prices.

“That means hospital market consolidation is a key concern. Unfortunately, the AMA study failed to include this major factor in its analysis,” AHIP wrote in an email to HealthLeaders.

So basically, the AMA, which represents the medical industry, is saying that consolidation among health insurers is driving up costs, and AHIP, an organization that represents the health insurance industry, says provider consolidation is largely responsible for higher health care costs and increased premiums.

The finger pointing is to be expected. Nobody wants to take the blame for higher health care costs. And the truth of the matter is that both types of consolidation most likely contribute to higher prices, to some extent. As anyone learns in freshman economics, when there’s less competition, consumers pay higher prices.

On a related note, a study published online by the journal Health Services Research on May 16, 2019, evaluated the impact of both insurance concentration and hospital concentration on patient satisfaction. The results showed that insurance market concentration had a positive impact on patients’ experience of care, whereas hospital concentration had a negative impact.

“Moreover, insurance market consolidation is relatively more beneficial to patient experience when the hospital market is more concentrated, and hospital market consolidation is relatively more detrimental to patient experience when the hospital market is less concentrated. This suggests that when a hospital market is not concentrated, other hospitals exert enough competitive pressure that insurance concentration has no additional impact on quality, but when a hospital market is concentrated (and hence has fewer competitors), pressure by insurers becomes more important,” the study authors noted.

What else you need to know

Johnson & Johnson (J&J) and Eli Lilly both had COVID-19 trials paused early last week. J&J announced that it had temporarily paused dosing and enrollment in its vaccine candidate trials after a study participant developed an unexplained illness. Then on Tuesday, The New York Times reported that the National Institutes of Health said enrollment in a government-sponsored Phase III trial of Eli Lilly’s investigational antibody treatment bamlanivimab had been paused because of a potential safety concern. All of the study participants had been hospitalized with mild or moderate cases and had also received remdesivir. On Oct. 7, Lilly requested emergency use authorization from the FDA for its antibody treatment in patients with mild or moderate COVID-19. Lilly said other clinical trials of bamlanivimab are still underway. Independent data and safety monitoring boards are reviewing the study data and will report their findings to the appropriate government agencies before any of the trials are permitted to resume.

Separately, Reuters reported the same day the Lilly trial was paused that FDA inspectors had found “serious” quality control issues at a manufacturing plant in New Jersey that is ramping up to make bamlanivimab. The inspection took place in November, but news of the findings was not reported at the time. According to Reuters, Lilly said the findings “do not impact product quality or patient safety,” and the company has implemented a remediation plan.

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Allscripts is selling its care coordination software business, CarePort Health, to WellSky Corp. for $1.35 billion. Allscripts, a Chicago-based health care information technology company, said in a press statement that it has signed a definitive agreement and expects the transaction to close this quarter, pending regulatory approval and the satisfaction of other customary closing conditions. WellSky, based in Kansas, is a global health and community care technology company owned by private equity firms TPG Capital and Leonard Green & Partners. Allscript shares rose 55% last Tuesday on news of the sale.

Drugmaker Mallinckrodt filed for Chapter 11 bankruptcy last Monday. In a news release, the company said it had agreed to pay $1.6 billion to settle opioid-related litigation claims over the next several years as part of the restructuring process. It also agreed to pay $260 million over a seven-year period to resolve Medicaid rebate-related disputes with CMS over the company’s H.P. Acthar gel.

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