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Mega-Mergers Among Health Insurers: Bad News for Hospitals

Insurer consolidation means reduced revenues for health care centers

With hospitals jockeying for the best negotiating position with rival insurers, the news that some of the biggest players in health care insurance are looking to merge with competitors is turning up the summer heat for health care leaders, according to an article on the HealthLeaders Media website. If these multi-billion dollar mergers go through, hospitals may lose much of their negotiating power.

After months of speculation, UnitedHealth Group Inc. and Anthem, Inc. (previously known as Wellpoint), the two largest insurers in the U.S. by revenue, have both made moves to acquire smaller health insurance companies. The Wall Street Journal reported on June 16 that in recent days, UnitedHealth made an overture to take over Aetna Inc., a deal estimated to be valued at $42 billion. The Journal also reported that in the past week, Anthem made a play for Cigna, trying to put together a deal that would bring Anthem closer in size to the current biggest player, UnitedHealth.

Although commercial insurers are not confirming the merger speculation, some health care leaders and industry observers say consolidation is likely –– and that’s bad news for hospitals, according to Robert Fuller, JD, former executive vice president and chief operating officer of Downey Regional Medical Center in Los Angeles.

Competition among insurers has encouraged cost-cutting innovations, such as narrow networks, new arrangements with physicians, and incentive payments for population management, but that encouragement may turn into something else when the companies merge, Fuller told HealthLeaders Media.

“If, as a hospital, you look up and all you see is gigantic UnitedHealth and gigantic Anthem, and no one else who might compete for your business, it's going to be blunt force applied to hospitals rather than trying to offer something attractive," he said. "The blunt-force size plus lack of choice is going to give you higher returns for the insurance companies, which means lower revenues for the hospitals."

Merger activity is heating up now because the insurers have become cash-rich, Fuller said. While hospital revenue is improving somewhat, the balance of power when negotiating with the merged companies will definitely be in favor of the insurers, Fuller predicted.

“If you follow the consolidation to its logical conclusion, you’re going to end up with two or three super players, and I think they would be able to dictate terms,” Fuller said. “That’s when the political question will arise, asking why we’re allowing all this profit to go to the insurers when they really aren't risk-bearing entities anymore. The whole model of health care has changed in the past 20 years to have the provider taking the risk.”

Providers’ choices will decrease steadily over the next several years, Fuller said, with many finding that where they might previously have been able to participate with several insurers to maximize the number of lives, they might soon only have one or two options. That will result in insurers adopting a “take it or leave it” approach with hospitals, which could mean the end of narrow networks and other components that benefit the hospital’s bottom line.

Another way “super insurers” might exercise their power is in the Medicare Advantage program, according to Bill Bithoney, MD, a managing director at BDO International consulting.

“Insurers who are dominant in the market could easily set quality standards for cost and process outcomes, and say if you don’t meet these, you’re excluded. That will be bad news for many hospitals,” Bithoney said. “They couldn't do that so easily a few years ago when the insurance marketplace was more varied. That ability to dictate performance has grown recently, and these big mergers would take that a great deal further.”

Source: HealthLeaders Media; June 18, 2015.


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