Healthcare merger mania strikes again in Boston

October 7, 2019

It should never be assumed that a major corporate entity in healthcare is motivated by the need to create lower costs or be price transparent for patients.

Another day, another merger in healthcare.  This time, the second and third-largest insurers in Massachusetts, Harvard Pilgrim Health Plan and Tufts Health Plan, seek to combine forces to create a company serving several million patients in New England.  Merger mania has infected the American healthcare system, and Boston is its most recent epicenter.  The flag waved by many of those doing it is that consolidation helps patients.  In the Harvard Pilgrim-Tufts case, it is tempting to acknowledge that the possibility exists to pass reduced prices onto consumers from two insurance companies that combine into one.  After all, that is one less highly paid CEO, one less group of C-Suite executives and vice presidents of this or that running around, and potentially stronger negotiating leverage vis-a-vis equally monopolistic insurers, hospital systems, and physician groups. 

The urban legends that are propagated to support merging these and other companies, assertions that include creating lower prices for consumers, economies of scale opportunities, reduced administrative costs, and greater negotiating leverage for patients do not hold up when we look at the existing evidence.  That evidence shows that healthcare consolidation, whether it is providers like hospitals or financers like insurance companies, often leads to higher prices in the geographic markets in which they occur, particularly when those markets are highly concentrated, like the Boston area.

It should never be assumed that a major corporate entity in healthcare, whether it labels itself “for-profit” or “non-profit” is motivated by the need to create lower costs or be price transparent for patients.  This is what makes healthcare so frustrating.  After all, retailers like Amazon do see it as part of their business to deliver better price transparency.  Part of the healthcare industry’s problem is there is no major strategic reason at present for a business to be price transparent.  I read all the time about why patients do not really want to use pricing information, and that the average consumer cannot easily compare the “value” of what they are getting even when they see prices, be it for health insurance coverage or a gall bladder removal.  These realities are only potentially true to the extent that no one is educating patients on how various healthcare services or insurance products should be priced; no one is deciding on what a “fair” price is; and there is little comparison pricing for the same services or products. 

There is nothing about an insurance company merger, or a bigger insurance company with more market power, that de facto solves these problems for the patient.  What this particular healthcare merger is more about is what all of them are about these days-trying to protect one’s corporate self from other large competitors to preserve profit margins; extend the company brand; and grow market share by capturing patients into a “one-stop shop” buying and selling environment where they will be incentivized to keep all of their business within a single healthcare conglomerate.  These are key drivers of CVS’ acquisition of Aetna, Beth Israel’s merger with Lahey Clinic, heck, every recent merger and acquisition in healthcare.  These motives are reflective of cold-blooded retail thinking, now all the rage in our healthcare system.  Yet absent from the industry are the other components that true retail environments bring to the table, the ones that actually help consumers, such as the price transparency mentioned above, greater consumer choice, and sharper attention to customer wants, needs, and preferences. 

Boston healthcare today is in the same place as American healthcare.  We spend a lot and underperform for the size of the investment.  Hospitals, doctors, pharmacy chains, and insurance plans all say that they need to merge and get bigger and more powerful, because the other guy is doing it.  Yet, the availability of healthcare services grows scarcer, patients are paying more out-of-pocket, and administrative costs never seem to go down meaningfully, despite all this consolidation. 

What’s the answer?  It’s complex for sure, but here are some no-brainer policy principles to follow-stop reducing competition in healthcare marketplaces by letting the big get even bigger.  Do not buy into specious arguments about how a merger will lead to lower prices or higher quality for consumers without actually requiring those merging to provide a concrete, time-sensitive plan, with accountable metrics, for how specifically the merged company will do so.  For each merger approved, also find alternative ways to spur real competition by incentivizing disruptors who are not part of the status quo.  Most importantly, put more of what patients want into the policy discussions and regulatory process. 

For now, we need to dispense with this unfounded idea that mergers in healthcare are good for patients.  They are good for the companies doing them, and until further notice, that is about it.

Timothy Hoff, PhD is Professor of Management, Healthcare Systems, and Health Policy at Northeastern University in Boston, A Visiting Associate Fellow and Associate Scholar at Oxford University, and author of the book, “Next in Line:  Lowered Care Expectations in the Age of Retail- and Value-Based Health”, published by Oxford University Press.

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