Health plans' dominance: More muscle in more markets
■ The latest AMA study on insurers' market share shows that it's greater than ever -- and that it's time to take steps to change that.
Posted April 4, 2005.
The American Medical Association's Private Sector Advocacy group periodically studies health plan market concentration to determine what metropolitan areas and states might be problem markets because of the dominance of a few insurers. The AMA's latest findings are neither surprising nor reassuring: The chips are stacked against physicians in pretty much every market in the country, now more than ever.
In fact, in the four years the AMA has released its annual report, "Competition in Health Insurance: A Comprehensive Study of U.S. Markets," health plan market concentration has continually grown worse, as measured by the Dept. of Justice's own scale.
Of the 92 metropolitan areas in 21 states studied, 93%, or 86, would be considered "highly concentrated" HMO/PPO markets using Justice Dept. guidelines, according to the 2004 version of the report, released in February. Of the 27 other states where reliable metropolitan-level data were not available, the result was the same -- 93%, or 25, of those states would be considered "highly concentrated" in the HMO/PPO market. (Alaska and Mississippi were not included in the study because data were not available.)
For PPOs alone, the metropolitan and state data reveal that fully 100% of them would be considered "highly concentrated." That's a first for the AMA study.
Keep in mind that these numbers are only as of Jan. 1, 2003. They don't even take into account last year's multibillion-dollar health plan megamergers: Anthem and WellPoint Health Networks, and UnitedHealth Group and Oxford Health Plans. But they do reflect the bulk of the 400 mergers between 1995 and 2003 involving health insurers and managed care organizations, few of which drew substantial Justice Dept. scrutiny.
So it's clear that practically anywhere you practice medicine, you're dominated by one or two major health plans. It's difficult to get negotiating leverage, what with the AMA reporting that 59.6% of physicians are in practices of four doctors or fewer. Meanwhile, there have been plenty of examples where physicians, even in larger groups, have found that they have little clout in negotiating contract terms. Yet, amazingly, the Justice Dept. has focused more on physicians, not health plans, when it comes to antitrust issues in health care negotiations.
Health care plans have worked long and hard to get to this point and can be intimidating not only to patients and physicians but also to one another. The barrier to entry for a new plan in a local market has been extremely high for a long time. In one of the Dept. of Justice's few challenges to a merger -- Aetna's 1998 purchase of Prudential's health operations -- the department noted that "effective new entry ... in Houston or Dallas takes two to three years and costs approximately $50 million."
The Justice Dept. forced Aetna to sell the Prudential operations in those cities, which it did, for $420 million -- to BlueCross BlueShield of Texas, which has 40% of the state's HMO/PPO market. Not exactly a victory for market diversification.
All of this makes it abundantly clear that there needs to be a re-examination of what the AMA study calls "the legal landscape that has resulted in unfettered consolidation of health insurers." Without that re-examination, it's likely that in short order the AMA's numbers will show that every market in the country will be dominated by firmly entrenched health plans. Bad news for patients and their physicians if they don't like it when one of those plans flexes its muscle.