Vertical consolidation in healthcare has been a hot-button topic of late as regulators eye strategies to bring down healthcare costs.
But do these massive "payvider" firms do more harm than good? The jury is still out, according to a panel of experts hosted by the Brookings Institution. The panelists highlighted both the risks of vertical integration between payers and providers as well as the potential positives of these relationships.
For example, there are multiple factors in the calculus of why these deals take place from both sides, said Robert Tyler Braun, Ph.D., assistant professor of population health sciences at Weill Cornell Medical College.
Braun said that polling providers finds independent medical groups and physicians facing significant hurdles to keeping the doors open in the current healthcare environment. Hospitals are consolidating, too, and that gives them a stronger position to negotiate reimbursement with insurers.
Smaller, independent physician groups also struggle to recruit and retain doctors and nurses when they're up against the bigger provider organizations. The cash that a large payer can bring to the table can help them in this arena and support the transition to value-based care, Braun said.
Insurance companies are also less in the market to flip an asset, he said, which can make them more attractive than a private equity firm deal. Using UnitedHealth Group and its Optum division as an example, that's a company that made its first provider acquisition in 2007 and has yet to sell off physician groups, he said.
"Insurers might be a better suitable teammate because they have better alignment," Braun said. "Both the medical group and the payer benefit as patient outcomes improve."
There are also different perspectives on these deals between age groups for physicians, he said. Older doctors who are at the end of their careers see the opportunity to sell the practice to an insurer as a security move as they retire, while younger physicians have trained within the corporatized system and are more accustomed to it as a model.
Doctors in the middle group are the most "conflicted," Braun said, as they're used to having greater independence as opposed to younger counterparts but aren't quite at the point in their careers where they're thinking about retirement.
While these smaller provider organizations can see the benefits of becoming a part of a major payer organization—or, at a lower level, partnering closely with them—there are concerns that allowing this level of consolidation to go unchecked could significantly stymie competition across the country.
Martin Gaynor, Ph.D., the E.J. Barone professor of economics and health policy at Carnegie Mellon University, said that if the biggest players continue to grow, it could reach a point where the only way to compete in certain markets is to match them for size.
That's a prospect that would prevent new entrants or smaller, innovative players from chipping away at their reach, he said. It would also allow the largest firms to essentially divvy up markets to avoid competing too often with one another, as most metropolitan areas would not be large enough to support multiple massive conglomerates.
"How many markets in the United States can support effective competition between entities like this?" Gaynor said.
Gaynor added that while there are potential positives for the providers that are acquired by giants like UnitedHealth, it's important to consider that these companies are not necessarily motivated by kindness and generosity. They have a profit motive in the mix, too.
Antitrust regulators have tried to step into deals that would lead to greater vertical consolidation in these large corporations, with mixed success. The Department of Justice (DOJ) sued to block UnitedHealth's acquisition of Change Healthcare, though that deal was allowed to move forward, for example.
Aditi Mehta, Ph.D., economics director of enforcement in the DOJ's Antitrust Division, said the agency has multiple ways to examine vertical deals in healthcare and decide whether to intervene. Vertical deals, however, don't fit as neatly into the long-term existing frameworks that courts use to examine mergers.
For instance, the DOJ successfully blocked two horizontal mergers in the insurance space close to a decade ago, preventing Aetna from merging with Humana and Cigna from merging with Anthem, now Elevance Health. As those were horizontal deals, though, it was simpler to examine them through the "standard antitrust toolkit," examining market shares, simulating the mergers' effects and more.
For a vertical deal, the DOJ and the Federal Trade Commission's 2023 merger guidelines do offer some insight on how they'll be analyzed. Mehta said DOJ investigators will examine whether a merged payer-provider firm could lead the company to raise rates for payer competitors or to more extreme steps like fully excluding certain payers from networks.
In addition, the team also spends time with the providers to understand more of their side of the story.
"We look for the motivation of the deal," Mehta said. "But I will say, just because the reason the provider is selling their group is well-intentioned and not anticompetitive, that doesn't mean we will not be looking for potential anticompetitive effects."
"But it is important to understand the motivation of the deal and understand what the players in the market think is going to happen," she said.