[Senate Hearing 109-882]
[From the U.S. Government Publishing Office]
S. Hrg. 109-882
EXAMINING COMPETITION IN GROUP HEALTH CARE
=======================================================================
HEARING
before the
COMMITTEE ON THE JUDICIARY
UNITED STATES SENATE
ONE HUNDRED NINTH CONGRESS
SECOND SESSION
__________
SEPTEMBER 6, 2006
__________
Serial No. J-109-106
__________
Printed for the use of the Committee on the Judiciary
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COMMITTEE ON THE JUDICIARY
ARLEN SPECTER, Pennsylvania, Chairman
ORRIN G. HATCH, Utah PATRICK J. LEAHY, Vermont
CHARLES E. GRASSLEY, Iowa EDWARD M. KENNEDY, Massachusetts
JON KYL, Arizona JOSEPH R. BIDEN, Jr., Delaware
MIKE DeWINE, Ohio HERBERT KOHL, Wisconsin
JEFF SESSIONS, Alabama DIANNE FEINSTEIN, California
LINDSEY O. GRAHAM, South Carolina RUSSELL D. FEINGOLD, Wisconsin
JOHN CORNYN, Texas CHARLES E. SCHUMER, New York
SAM BROWNBACK, Kansas RICHARD J. DURBIN, Illinois
TOM COBURN, Oklahoma
Michael O'Neill, Chief Counsel and Staff Director
Bruce A. Cohen, Democratic Chief Counsel and Staff Director
C O N T E N T S
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STATEMENTS OF COMMITTEE MEMBERS
Page
Coburn, Hon. Tom, a U.S. Senator from the State of Oklahoma...... 2
Durbin, Hon. Richard J., a U.S. Senator from the State of
Illinois....................................................... 16
Leahy, Hon. Patrick J., a U.S. Senator from the State of Vermont,
prepared statement............................................. 86
Specter, Hon. Arlen, a U.S. Senator from the State of
Pennsylvania................................................... 1
WITNESSES
Hyman, David A., Professor of Law and Medicine, Galowich-Huizenga
Faculty Scholar, College of Law, University of Illinois at
Urbana-Champaign, Champaign, Illinois.......................... 14
Kanwit, Stephanie W., Special Counsel, America's Health Insurance
Plans, Washington, D.C......................................... 13
Langston, Edward L., Chair-Elect, Board of Trustees, American
Medical Association, Chicago, Illinois......................... 11
McDonald, J. Bruce, Deputy Assistant Attorney General, Antitrust
Division, Department of Justice, Washington, D.C............... 5
Piasio, Mark A., President, Pennsylvania Medical Society,
Harrisburg, Pennsylvania....................................... 9
Wales, David P., Deputy Director, Bureau of Competition, Federal
Trade Commission, Washington, D.C.,............................ 7
QUESTIONS AND ANSWERS
Responses of David A. Hyman to questions submitted by Senators
Schumer and Specter............................................ 24
Responses of Stephanie W. Kanwit to questions submitted by
Senator Specter................................................ 28
Responses of Edward L. Langston to questions submitted by Senator
Specter........................................................ 37
Responses of J. Bruce McDonald to questions submitted by Senators
Schumer and Specter............................................ 41
Responses of Mark Piasio to questions submitted by Senator
Specter........................................................ 45
Responses of David P., Wales to questions submitted by Senators
Schumer and Specter............................................ 51
SUBMISSIONS FOR THE RECORD
Hyman, David A., Professor of Law and Medicine, Galowich-Huizenga
Faculty Scholar, College of Law, University of Illinois at
Urbana-Champaign, Champaign, Illinois, prepared statement...... 55
Kanwit, Stephanie W., Special Counsel, America's Health Insurance
Plans, Washington, D.C., prepared statement.................... 63
Langston, Edward L., Chair-Elect, Board of Trustees, American
Medical Association, Chicago, Illinois, prepared statement..... 74
McDonald, J. Bruce, Deputy Assistant Attorney General, Antitrust
Division, Department of Justice, Washington, D.C., prepared
statement...................................................... 88
Piasio, Mark A., President, Pennsylvania Medical Society,
Harrisburg, Pennsylvania, prepared statement................... 99
Wales, David P., Deputy Director, Bureau of Competition, Federal
Trade Commission, Washington, D.C., prepared statement......... 101
EXAMINING COMPETITION IN GROUP HEALTH CARE
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WEDNESDAY, SEPTEMBER 6, 2006
United States Senate,
Committee on the Judiciary,
Washington, DC
The Committee met, pursuant to notice, at 11:02 a.m., in
room 226, Dirksen Senate Office Building, Hon. Arlen Specter,
Chairman of the Committee, presiding.
Present: Senators Coburn and Durbin.
OPENING STATEMENT OF HON. ARLEN SPECTER, A U.S. SENATOR FROM
THE STATE OF PENNSYLVANIA
Chairman Specter. Good morning, ladies and gentlemen. The
Judiciary Committee will now proceed with our hearing on
Examining Competition in Group Health Care.
The concern has arisen because there has been concentration
of coverage by the health insurance industry and significant
issues as to what the doctors may do by way of joint action
without violating the antitrust laws.
We have seen a very substantial rise in health care costs.
Some contend that the absence of the ability of physicians to
negotiate with group health insurers is a significant factor
leading to that rise.
We have had a considerable number of requests for an
analysis by the Judiciary Committee on the antitrust aspects.
In 2004, I convened a hearing in Philadelphia on the issue of
the balance of negotiating power. This hearing of the full
Committee is being held to pursue those issues further.
Our first witness could sit on either side of the dais
today. Senator Tom Coburn has brought a level of expertise to
the Committee on medical issues. He is very heavily involved in
many, many of the complex questions which have come before the
committee, most particularly in the asbestos field.
Senator Coburn has had over 20 years of practicing medicine
in Muscogee, specializing in family medicine, obstetrics, and
the treatment of allergies. He has a medical degree from the
University of Oklahoma. He has served three terms in the House
of Representatives.
We welcome you, Senator Coburn, Dr. Coburn, Witness Coburn.
The floor is yours.
STATEMENT OF HON. TOM COBURN, A U.S. SENATOR FROM THE STATE OF
OKLAHOMA
Senator Coburn. Thank you, Mr. Chairman. I appreciate you
having this hearing. I am going to be rather brief this
morning.
First of all, I can strongly identify with the physicians
who are impacted by the market as we see it today and, I think,
some insight into the frustration that is out there.
I do not necessarily agree that the answer of collective
bargaining or forming is the answer to our health care
problems, and let me explain that. But let me, first, also say
how frustrating it is as a group of physicians to be in a box
in terms of what you can charge.
Over 50 percent of our practice was Medicaid and Medicare,
which means the remaining 50 percent is open to negotiation. Of
that, 80 percent of that is fixed price, based on the fact that
the only game in town is controlled by two or three groups of
insurers.
That is significant in terms of any pricing flexibility.
What you see as you look at physician practices, is rising
expenses and lower revenues. At the same time, we are seeing
health care costs go up, so something is wrong somewhere. Is
there really a market out there? I would question that there is
not really a market in health care in our country.
The second point I would make, is it not just about
pricing, because the implied pricing comes along with rules and
guidelines from the insurance companies that add significant
costs to the individual practice or group practice in terms of
following the rules and regulations, the permissions, the
approvals, and the time costs associated with meeting the
guidelines to be able to service a patient who is represented
by a certain insurance group or company.
But more generally, I think we are fixing the wrong
problem. I think we are tinkering around the edges with a
problem on health care in our country, and I think if we
continue to do it, we are going to get more of the same. It is
like a balloon; you push in somewhere and it gets a bigger
overall diameter because you pushed in somewhere. I do not
think we can fix that.
I think we ought to ask ourselves the question, why is it
that this Nation spends 16.2 percent of its GDP on health care,
and yet we are not significantly healthier than anybody else,
or countries that spend significantly less?
The average of the western world is less than 10 percent.
So we are spending 50 percent more than the rest of the world,
and yet we are not achieving a greater level of health care
than the rest of the world. Some of those are free market, some
of those are government controlled, and they control costs by
rationing. So, I do not believe that is the answer either.
But fixing the problem, is creating a real market for
health care. We have done it in every other area of our
country. Every other area that we are extremely successful in,
we have allowed the market to allocate resources.
When I am talking about a market, I am talking about a
transparent, consumer-driven health care market where every
person who is a consumer has skin in the game, where the tax
benefit, where everybody who has health insurance, it is their
health insurance, it is not their employer's, where they own
their health insurance and where they go, fixing it.
One of the things that I have noticed, is the specific case
where the Department of Justice utilizes a 30 percent rule in
terms of impact of group health insurance that did not really
fit. The reason it does not really fit is because most
practices have a large percentage of their income already fixed
through Medicare and Medicaid.
So if you look at 30 percent of the market, you
automatically cut out the 50 percent that the government
controls. What you are really talking about is 60 percent of
any individual physician's or group practices' income is
controlled if you use 30 percent. So, I think that rule is
erroneous. I saw the basis for how they came up with it.
I think the other important point that we miss, even though
we have this big problem in terms of balance in what we call a
market today, is the fact that there really is no leverage for
physicians in terms of quality.
All you have to do is go and look at who all the large
insurance groups contract with. They all say ``board
certified,'' but the bad physicians are getting paid the same
as the good physicians.
So we do not have a market that says we are going to reward
the best and we are going to disincentivize the worst. What we
have is a fixed-price oligopoly in the health insurance market
today that the physicians are frustrated with because they have
no pricing leverage.
So I understand and identify with it, but I do not think
fixing that problem by giving them more leverage in a false
market will solve our greater problem.
As you know, Mr. Chairman, I have talked a long time about
the unsustainability of our health care problems within the
Federal Government in terms of the demographic shifts of
Medicare and what is going to happen there, and in terms of the
shifts in terms of health risk, especially obesity and
diabetes, where we look at 2070 and 50 percent of every dollar
spent on health care by the government will be spent on
diabetes alone. I mean, this is a much larger problem. So, I am
going to maintain myself on the dais today to hear the
testimony.
But I think the more important question we ought to be
asked is, how do we convert this one out of every three dollars
that really is not given as health care to covering everybody
in the country and making sure we spend money on prevention,
and we truly create a transparent, consumer-driven health care
system where markets actually allocate the scarce resources,
where markets actually reward quality and punish poor quality,
where markets reward innovation and punish duplication and
waste? We do not have that.
Until we get that right in our country, working around the
edges by giving pricing power to physicians may solve some of
the short-term frustrations, but it will lead to increased
costs--there is no doubt in mind that it will--and we will not
solve the underlying problem that we have.
I would just make one point on that. And I am not picking
on this particular thing. I had my staff pull all of the 10(k)s
of all of the major insurers. It is interesting.
I am just going to use one, United Health Group. This is
their 10(k) for last year. Twenty-two percent of the dollars
that they took in did not go anywhere to help anybody get well.
Now, that is one out of five. The national average is one out
of three.
But here is a very profitable insurance company. If you
look at their 10(k), 22.5 percent of every dollar that they
took in did not go to help anybody to get well. And I am not
against profit. I am all for profits.
But the point is, we have this fixed system that is not
truly a market, and we are taking a lot of dollars out of the
market and we have 16.2 percent of our GDP that we are spending
on health care, and yet a third of that is not really going to
health care.
So, fixing the problem around the edges I do not believe
will ultimately solve the problem, and I am grateful that you
are having this hearing. I agree with a lot about what the AMA
says about this, and several others, but I do not think it is a
solution to the problem. I think it is another fix in a
bureaucratic maze that will relieve some tension, but will not
ultimately fix the problem.
With that, I will end my testimony.
Chairman Specter. Well, thank you, Senator Coburn.
Do you have any suggestion as to how we reward the good
physicians and treat the physicians who are not good, at a
lower end of the financial scale?
Senator Coburn. Yes, sir, I do. I believe a market will do
that, but you have to have transparency in it. You have to have
price transparency that the President has asked for in terms of
hospitals. There ought to be price transparency in terms of
doctors. There ought to be outcome transparency. It ought to be
weighted on the mix of patients that doctors see.
Performance ought to count in health care as much or more
than anywhere else that we see in our country. The problem with
a lot of the stuff that CMS is doing, is the best physicians
get, routinely, our toughest patients.
I will give you examples. When I have very complicated
obstetrical patients, the worst and the toughest I send to the
one I trust the most. Well, if you measure his outcomes, his
outcomes are going to be skewed because he has got all the
tough patients. So how we measure outcomes becomes important.
But if you have transparency in a market where you know
price and quality, and consumers get to choose rather than have
an advocate who controls for them on the basis of
profitability, not on the basis of quality--and as I said
earlier, most physicians who are signed up with these insurance
companies are board certified, but they are not all the best
and they are not all the worst.
But we have a system that rewards them each the same. We
ought to have a transparent system that says the best
physicians are going to make more and the worst physicians are
either going to get out or get better training.
Chairman Specter. Senator Coburn, in the written testimony
the AMA urges Congress to require health insurers to publicly
report additional enrollment and financial data. Do you think
such reporting requirements will be helpful?
Senator Coburn. Well, I am not sure that it would be
helpful or hurtful, because I do not think it solves the market
problem. You have got an agent for patients and you have got an
intermediary between the patient and the provider. Their goal
is not health care, it is profit.
I believe, whether they report that or not, what it ought
to come down to is, what are the outcomes of the patients that
are under their insurance? Do they fare better than under
another insurance company?
In other words, we ought to look at outcomes and price, not
enrollment. We ought to see what the outcomes are. We do that
in every other area except health care and education in this
country.
We are failing in education in K-12 in this country because
we do not allocate dollars based on outcome and quality. We
allocate dollars based on people. That is what we are trying to
do in health care. If we change it, the innovation will be
unbelievable, what will be happening with this excess amount of
our GDP. We will markedly improve health care and we will
markedly cut the cost.
Chairman Specter. Thank you very much, Senator Coburn.
There are quite a number of other items that you and I could
discuss, but we have some time constraints. After we scheduled
this hearing, the Majority Leader announced a vote at 12:00.
So, we are going to move to our second panel.
Senator Coburn. Thank you.
Chairman Specter. I would invite you to join us in your
customary seat on the dais.
We turn, first, to Deputy Assistant Attorney General Bruce
McDonald, who has a portfolio which includes regulated
industries. He was previously at Baker Botts, where he
practiced in the Antitrust Group, and before that he had
antitrust experience with Jones Day. He has a bachelor's degree
and a law degree with honors from the University of Texas.
Thank you for joining us, Mr. McDonald. We look forward to
your testimony.
We have the clock set at 5 minutes, which is our customary
time. We are going to have to stick very closely to the time
limits because we are going to have to conclude this hearing
shortly after 12:00 noon.
STATEMENT OF J. BRUCE MCDONALD, DEPUTY ASSISTANT ATTORNEY
GENERAL, ANTITRUST DIVISION, DEPARTMENT OF JUSTICE, WASHINGTON,
DC
Mr. McDonald. Mr. Chairman, Senator Coburn, thank you for
the invitation to testify.
Every American knows the importance of affordable health
care. For the DOJ Antitrust Division, that means working to
ensure that health care markets are able to respond to consumer
demand without interference from anticompetitive restraints. We
use both enforcement actions and competition advocacy to
protect and promote competition in health care markets.
Most of us rely on private health insurance to defray the
cost of health care, and most of us are members of a group
health plan. The group health care plan model involves
transactions among several parties.
Individuals and families receive health care coverage
through their employment or membership in an association. The
employer or association contracts with a group health plan, an
insurer, to provide coverage for the members of the group.
Physicians, pharmacists, nurses, hospitals, equipment
manufacturers, and other health care providers supply services
and products to the insureds and receive payment from the
insurer.
By joining together larger numbers of potential patients,
group health plans obtain services and products on behalf of
the subscribers at lower cost. Participating health care
providers offering good quality and competitive rates are able
to increase the number of patients they serve.
At any point in these arrangements, an anti- competitive
restraint can interfere with competitive access or supply,
ultimately harming consumers. If competing providers were to
conspire to charge artificially high prices, for example,
health plans could be forced to raise premiums or curtail
service, restricting patient access to affordable health care.
Similarly, if competing health plans were to conspire to
pay artificially low prices or engage in exclusionary conduct
designed to obtain or maintain market power, then providers
could be forced to curtail service or go out of business,
restricting patient access to affordable health care.
The Department has brought enforcement actions to enjoin
unlawful arrangements by, for example, insurance plans that
impose anticompetitive agreements on providers, or providers
that form group boycotts to obtain higher fees.
In addition to looking for anticompetitive conduct, the
Department examines proposed mergers among hospitals, health
plans, or provider groups that could reduce competition,
restrict access and consumer choice, and dampen healthy
incentives to provide quality health care at affordable prices.
The Department has brought actions to challenge mergers
that lessen competition in health care markets, including
mergers between insurance companies, and between medical
equipment manufacturers.
In a competition advocacy role, the Department provides
technical assistance advice to State regulators on how to avoid
regulations that undercut competitive markets.
In 2003, the DOJ and FTC held lengthy hearings on
competition in health care, after which we issued a report
describing our findings. Some of my fellow panelists testified
at those hearings. The report's recommendations reflect the
fundamental antitrust principal that consumer welfare is best
served by the operation of free and competitive markets.
Mr. Chairman, the Antitrust Division fully recognizes the
critical important of a competitive health care marketplace to
all Americans. We are committed to preserving competition in
this marketplace through appropriate antitrust enforcement, and
we will continue to monitor these markets closely.
Thank you for the opportunity to testify. I am happy to
answer any questions.
[The prepared statement of Mr. McDonald appears as a
submission for the record.]
Chairman Specter. Thank you very much, Mr. McDonald.
Our next witness is Mr. David Wales, Deputy Director of the
Federal Trade Commission's Bureau of Competition. Previously,
he was a partner of the Antitrust Group at Kedwalter,
Wickersham & Taft. He also served as counsel to the Assistant
Attorney General in the Antitrust Division of the Justice
Department. He has an undergraduate degree from Penn State and
a law degree from Syracuse.
Thank you for coming in today, Mr. Wales. The floor is
yours.
STATEMENT OF DAVID P. WALES, DEPUTY DIRECTOR, BUREAU OF
COMPETITION, FEDERAL TRADE COMMISSION, WASHINGTON, DC
Mr. Wales. Good morning, Mr. Chairman and Dr. Coburn. I
appreciate the opportunity to appear today to discuss some of
the Commission's activities to promote competition in health
care markets.
Let me first start by saying that my oral presentation
responses today are my own and do not necessarily reflect the
views of the Commission or of any Commissioner.
The FTC has long been actively involved in health care
markets and health care continues to be a high priority for the
Commission. The Agency's fundamental goal has not changed: to
ensure that health care markets operate competitively.
As in the past, the Agency will bring enforcement actions
where necessary to stop activities that harm consumers by
unreasonably restricting competition. At the same time, the FTC
is not solely a vigilant cop on the beat out to protect
consumers from anti-competitive conduct.
The Agency works to promote competition through a variety
of other actions as well, including providing guidance to
market participants to help them comply with the law,
undertaking and publishing studies, public hearings and
reports, and advising State and Federal policymakers on
competition issues in health care.
Indeed, education explaining antitrust policy to the
industry and the public, is a key part of our mission. There is
a good deal of misapprehension and misinformation about the
application of the antitrust laws to the health care
marketplace and the FTC activities and policies in this area.
The Agency works hard to keep the lines of communication
open and our guidance up to date as markets evolve, and to
provide additional guidance as new market structures and new
forms of competition develop.
As part of its law enforcement role for the past 25 years,
the Commission has challenged naked price fixing agreements and
coercive boycotts by physicians in their dealings with health
plans.
These arrangements largely consist of otherwise competing
physicians jointly setting their prices and collectively
agreeing to withhold their services if health care payors do
not meet their fee demands.
Such conduct is considered to be, per se, unlawful because
it harms competition and consumers. Indeed, the anti-
competitive effect from this conduct is not simply felt by
health plans who are forced to pay more to the physicians. It
extends to consumers, employers, and governments at the
Federal, State, and local levels.
The effects include higher prices for health insurance
coverage, increased out-of-pocket expenses such as co-payments,
reduced benefits, fewer choices, and even loss of coverage.
Not all joint conduct by physicians, however, is improper.
Physician network joint ventures can yield impressive
efficiencies. Thus, the FTC committed long ago, using a
balancing test called the ``Rule of Reason'' to evaluate those
physician network joint ventures that involved significant
potential for creating efficiencies through integration.
Physician joint ventures involving price agreements can
avoid summary condemnation and merit the balancing analysis if:
1) the physician's integration is likely to produce significant
efficiencies that benefit consumers; and 2) any price
agreements are reasonably necessary to realize those
efficiencies.
In this context, it is important to emphasize that
collective setting of prices in negotiation with health plans
by physicians does not assure quality health care, and there is
no inherent inconsistency between vigorous competition and the
delivery of high-quality health care services.
Theory and practice confirm that just the opposite is true.
When vigorous competition occurs, consumer welfare is increased
in health care, as in other sectors of the economy.
As noted above, however, it is also important to remember
that much joint conduct by physicians can be pro-competitive,
and that neither the antitrust laws nor the enforcement agency
is treated as an antitrust violation.
As pressures to control health care costs continue and
assure quality continues, there has been increasing effort in
encouraging efforts to achieve the efficiencies that can come
through cooperation and collaboration.
Practically every week FTC staff hear about new forms of
collaborative arrangements in the health care field involving
various combinations of providers, insurers, and other
purchasers.
Although these cooperative efforts often involve factually
novel arrangements, antitrust analysis is sufficiently flexible
to distinguish innovative, pro-competitive market responses
from collective efforts to resist competition.
The FTC supports initiatives to enhance quality of care,
reduce or control escalating health care costs, and ensure the
free flow of information in health care markets because such
initiatives benefit consumers.
The Commission has no preexisting preference for any
particular model for the financing and delivery of health care.
Such matters are best left to the marketplace. The FTC's role
is important, but limited to protecting the market from anti-
competitive conduct that prevents it from responding freely to
the demands of consumers.
The dynamics of evolving health care markets continue to
pose challenges for market participants. The FTC is committed
to working with physicians and other providers to give them
guidance to avoid antitrust pitfalls as they respond to market
challenges.
At the same time, collective action by health care
providers to obstruct new models for providing or paying for
care, or to interfere with cost-conscious purchasing remains a
significant threat to consumers and the Commission will
continue to protect consumers from such conduct. Thank you.
[The prepared statement of Mr. Wales appears as a
submission for the record.]
Chairman Specter. Thank you very much, Mr. Wales.
Our next witness is Dr. Mark Piasio, president of the
Pennsylvania Medical Society. He practices in DuBois, a
relatively small community, and is chief of the Department of
Surgery at the DuBois Regional Medical Center.
He has his bachelor's degree from Johns Hopkins University,
a master's in Psychology, and M.D. from Georgetown University.
We appreciate your coming down today, Dr. Piasio, and we
look forward to your testimony.
STATEMENT OF MARK A. PIASIO, PRESIDENT, PENNSYLVANIA MEDICAL
SOCIETY, HARRISBURG, PENNSYLVANIA
Dr. Piasio. Thank you, and good morning, Mr. Chairman and
members of the committee.
My name is Mark Piasio. I am an orthopedic surgeon
practicing in Dubois, Pennsylvania, and president of the
Pennsylvania Medical Society.
First, let me thank you for allowing me to speak with you
this morning to examine competition in group health care. I
would like to make it clear that our testimony is not intended
as a corporate or personal attack on any of the market
participants and the people who work for them; each of them is
doing what they think is best. However, each is doing what
comes naturally in failed markets.
This, we believe, is the fundamental cause of a host of
problems and calls for extensive public policy analysis and
response.
The lack of competition among health insurers and health
delivery markets throughout the country and in Pennsylvania, as
well as the consolidation of health insurers across the Nation,
raises serious concerns for provision of quality patient care.
As patient advocates, physicians are often undermined by
market-dominant insurers and prevented from providing necessary
care through ``take-it-or-leave-it'' contracts and other
insurer-imposed cost-cutting mechanisms.
These dysfunctional markets have produced annual double-
digit health insurance premium increases, physician fee
schedules that are unilaterally imposed, and have provided
stagnant or declining compensation and substantial profit
levels for health insurers.
In short, market consolidation is also detrimental to
consumers from a financial perspective. While many large
Pennsylvania insurers are posting huge profits and surplus
reserves, premiums continue to skyrocket. Pennsylvania has some
of the highest premiums in the Nation and patient cost sharing
increases.
Physician payment, particularly in the Philadelphia market,
continues to lag behind other geographic markets. For example,
evaluation & management services, in some cases, are paying at
65 percent of the comparable Medicare rate.
In the meantime, operating costs increased. From 2000 to
2004, Pennsylvania health insurers increased premiums 40
percent per enrollee, nearly double the U.S. average, while
insurers' surplus reserves rose from $5 billion to $6.8
billion.
Total annual profits of Pennsylvania health insurers
increased from $468 million in 2000 to $621 million in 2004.
Overhead and profit percentages of Pennsylvania health insurers
increased, despite the fact that much of the revenue increase
was pure price level change.
One of the classic hallmarks of a firm with monopoly power
is the erosion of administrative efficiency. There is no
evidence that larger health insurers are more efficient. To the
contrary, published studies show that health insurers exhaust
their economies of scale at 100,000 to 150,000 enrollees.
Insurers with 1, 2, 4, or 5 million enrollees are not any more
efficient and may in fact be more inefficient than smaller
ones.
So why are these dysfunctional markets not the subject of
an antitrust investigation? The Sherman Act has two provisions
that would appear to apply: prohibitions of 1) monopolization;
and 2) contracts, combinations, and conspiracies in restraint
of trade.
To prove monopolization or monopsonization, it is necessary
to show that a firm has a dominant market share and has engaged
in prohibited conduct. The dominant share test is met here.
The question is whether there is prohibited conduct.
Conduct that might fall into this category includes: monopoly
rents, dis-economies of scale, predatory pricing, product tie-
ins, various contract provisions, including the combination of
all products and most favored payor terms in the 75 percent
rule.
Contracts, combinations and conspiracies in restraint of
trade are evaluated under per se and Rule of Reason standards.
There are four substantial Blue Cross firms that operate in
Pennsylvania. Only Independence offers products in the
Philadelphia region.
We understand that this is due to a Division of Markets
Agreement and a non-competition agreement at the national
level. If this is the case, the full ramifications of the
agreement bear investigating.
There are, perhaps, reasonable arguments that the way
southeast Pennsylvania markets are organized and operate does
not violate antitrust law. We ask whether, as a matter of
public policy, good medical care and sound economics, such
organizations' operation is a public good. If the conclusion is
that it is not, then changes in the antitrust law that restore
competitive balance are warranted.
The AMA each year conducts a study looking at the
competitive markets in the United States and health care. The
Herfindahl-Hirschman Index for the national geographic markets
is evaluated and 1,800 is considered ``highly concentrated''.
The Philadelphia MSA area is approaching 6,000, four times the
HHI indicator of little competition.
Entry into health care insurance markets is not easy. If it
were easy, much more competition would exist. In large markets
such as Philadelphia, entry is difficult even for larger
players such as United.
As I see my time running short, what we are going to ask at
this point in time is, there are several options that one can
use to address failed markets.
We feel, in Pennsylvania, our markets are failing. Profits
are increasing and compensation to physicians and hospitals is
declining, who are bearing the full brunt of the cost drivers
that are occurring in our health care marketplace.
We are asking, since health care is an extremely difficult
commodity to measure with respect to a competitive market and
countervailing power theories are debatable, we are asking the
Department of Justice to look a little bit closer at the
markets in Pennsylvania at least, and probably nationally as
well, to be sure that competition is providing for good patient
service and affordable health care for our businesses. Thank
you.
[The prepared statement of Dr. Piasio appears as a
submission for the record.]
Chairman Specter. Thank you very much, Dr. Piasio.
We now turn to Dr. Edward Langston, a family practitioner
in LaFayette, Indiana. He serves on the AMA's Board of Trustees
and will chair the board in 2007 and in 2008.
He has a medical degree from Indiana University, and has
bachelor's degree in Pharmacy from Perdue. As a pharmacist, he
also serves as Assistant Professor at Perdue's School of
Pharmacy.
Thank you for being with us today, Dr. Langston. We look
forward to your testimony.
STATEMENT OF EDWARD L. LANGSTON, CHAIR-ELECT, BOARD OF
TRUSTEES, AMERICAN MEDICAL ASSOCIATION, CHICAGO, ILLINOIS
Dr. Langston. Well, thank you very much, Mr. Chairman, and
other members of the Senate Judiciary Committee.
My name is Edward Langston. I am a member of the Board of
Trustees of the American Medical Association, and I do practice
family and geriatric medicine in LaFayette, Indiana.
I want to thank you for inviting me to testify today, and
for holding a hearing on this important subject, competition in
group health care.
The AMA has been cautioning about long-term negative
consequences of aggressive consolidation of health insurers for
quite some time. We have watched with growing concern as large
health plans pursue aggressive consolidation and we fear that
this rapid consolidation will lead to a health care system
dominated by a few publicly traded companies that operate in
the interest of shareholders rather than patients.
The AMA's competition study suggests that our worst fears
are being realized. Competition has been significantly
undermined in the majority of markets across the country.
AMA's study is the largest and most comprehensive study of
its kind. It has analyzed 294 metropolitan health insurance
markets against an index used by Federal regulators for
measuring market concentration. According to the Federal index,
markets that are highly concentrated have a few competing
health insurers.
I would like to highlight a few of those numbers to
illustrate our concern. Most notably, the AMA competition study
found that in the combined HMO-PPO markets, 95 percent of the
metropolitan areas have few competing health insurers. For
example, in 78 percent of the markets, a single PPO has a
market share of 50 percent or greater.
This alarming reduction in competition is extremely
troubling, not only because competition does drive innovation
and efficiency in the health care system, but because it does
not appear to be benefitting patients. Health insurers are
posting high profit margins, yet patient health insurance
premiums continue to rise without a corresponding expansion of
benefits.
In addition to the compelling results of our study, many
health care systems across the country exhibit characteristic,
typical, uncompetitive markets and barriers to entry for new
health insurance carriers: the ability of large, entrenched
health insurers to raise premiums without losing market share
and the power of dominant health insurers to coerce physicians
into accepting unreasonable and unjust contracts.
We believe there are significant, immediate steps Congress
can take to inform the debate about excessive health insurance
market power and its effects on cost and patient care. For
instance, we believe that current market distortions warrant
Congress directing the Department of Justice to exercise its
investigation power to determine whether plans are, in fact,
engaging in anti-competitive behavior to the detriment of
consumers--our patients, your constituents.
To gauge the severity of the problem, there should be
public reporting of health insurer enrollment numbers by
county, by MSA, and by product line. There should be
standardized reporting of medical loss ratios for nonprofit,
mutual, and for-profit insurers by State and product line.
Health insurers should be required to report their financial
information, including total revenue, premium revenue, profit,
and administrative expenses.
Now, all of this information is critical in assessing
efficiencies and determining how much of the premium dollar is
going toward actual patient care.
It is time to address the serious public policy issues
raised by unfettered consolidation of health insurance markets.
The AMA study demonstrates the competition has been undermined
in markets across the country.
This has real, lasting consequences for the delivery of
health care and it is time to halt the march toward a
marketplace controlled by a few health insurance conglomerates.
It is time to encourage meaningful competition that will truly
benefit America's patients. Thank you very much, Mr. Chairman,
for this opportunity.
[The prepared statement of Dr. Langston appears as a
submission for the record.]
Chairman Specter. Thank you very much, Dr. Langston.
Our next witness is Ms. Stephanie Kanwit, Special Counsel
to America's Health Insurance Plans, a national association
representing more than 1,300 member companies which provide a
variety of health care insurance. She was formerly a partner at
Epstein Becker & Breen, and spent 6 years as head of Health
Litigation for Aetna. She is a graduate of the Columbia
University Law School.
We appreciate your being here, Ms. Kanwit, and the floor is
yours.
STATEMENT OF STEPHANIE W. KANWIT, SPECIAL COUNSEL, AMERICA'S
HEALTH INSURANCE PLANS, WASHINGTON, DC
Ms. Kanwit. Thank you so much. Good morning, Chairman
Specter and other members of the committee.
America's Health Insurance Plans' testimony this morning
focuses on two main topics. First, the fact that vigorous
competition does exist in the health care industry, including
how that competition has spurred the introduction of new
products that benefit consumers, and, second, on the issue that
Senator Coburn addressed, the issue of increasing quality and
transparency, how we are working with practitioner and employer
groups to maintain a competitive marketplace.
Health insurance plans operate in one of the most highly
competitive industries in this country. The Department of
Justice and the Federal Trade Commission, in their recent
landmark report, explored the issue of whether payors, such as
health insurance plans, possess monopsony, or buyer side power,
in the U.S. health care market. The resounding conclusion was
that they do not, nor do they possess monopoly power.
In fact, employer groups testified repeatedly at those
hearings that health insurance markets in most areas of the
country enjoy robust competition, with multiple insurers
offering multiple product options to employers on behalf of
their employees.
Such vigorous competition is critical for all stakeholders,
including health insurance plans and health care practitioners,
to increase efficiency and improve patient care and ultimately
reduce costs for consumers.
Consumers benefit from that competition. They have wide
choices in the U.S. health care markets. I cite some of those
choices in my testimony, including how every major metropolitan
area in the U.S. has multiple competing health care plans
purchasing physicians' services, and each of those plans
offering multiple products to consumers and employers.
In addition, new types of products, such as consumer-
directed health plans, which many of you know are HSAs,
continue to be introduced into the marketplace, affording
consumers additional choices to the HMO, PPO, and indemnity
options that we are all familiar with, thus demonstrating the
vitality of the marketplace.
Senator Coburn spoke this morning of the need to promote
greater transparency in health care. We support that goal
totally. Our members are currently working with a 125-member
coalition.
This coalition consists of more than 35 physician groups,
just for one, the American Medical Association, as well as the
American Board of Internal Medicine, the American College of
Cardiology, the American Academy of Pediatrics, as well as
other provider groups like the American Hospital Association,
and government agencies like CMS, the Centers for Medicare and
Medicaid Services.
What are we doing with this group? We are working to
develop uniform processes for performance measurement and
reporting. Two goals. First, to allow patients and purchasers
to evaluate the cost, quality, and efficiency of health care.
Second, to enable practitioners to determine how their
performance compares with others in similar specialties.
Senator Coburn spoke of the need to improve outcome
measurement. Exactly right. Toward that end, the AQA, this
coalition, has endorsed a set of clinical physician-level
performance measures that are already being incorporated in
provider contracts.
Over the next few months, the AQA is working toward
identifying a set of efficiency measures. We are also receiving
report from CMS, as well as the Agency for Healthcare Research
and Quality, and we are carrying out pilot programs in six
areas of the country.
Secretary of Health and Human Services Michael Leavitt has
applauded our efforts on these pilots and he has expressed
interest in creating more throughout the country. The results
of this pilot program are going to lead to a national framework
for measurement and reporting of physician performance.
Finally, I want to note that health insurance plans are
designing products to carry out one of the key recommendations
of the FTC/DOJ health care report, and that is to promote
incentives for providers to deliver high-quality and efficient
care.
We are working with stakeholders across the health care
community, particularly health care professionals who work on
the front lines, to develop and improve incentive programs, as
well as an overall strategy with accountability for the quality
of care delivered to providers.
Thank you so much for this opportunity to testify.
[The prepared statement of Ms. Kanwit appears as a
submission for the record.]
Chairman Specter. Thank you very much, Ms. Kanwit.
Our final witness is Professor David Hyman. He is a
professor at the University of Illinois College of Law, School
of Medicine. He previously served as Special Counsel at the
FTC. Before teaching at Illinois, he was a professor at the
University of Maryland Law School. He has a medical degree and
law degree from the University of Chicago.
We appreciate your being here, Professor Hyman, and we look
forward to your testimony.
STATEMENT OF DAVID A. HYMAN, PROFESSOR OF LAW AND MEDICINE,
GALOWICH-HUIZENGA FACULTY SCHOLAR, COLLEGE OF LAW, UNIVERSITY
OF ILLINOIS AT URBANA-CHAMPAIGN CHAMPAIGN, ILLINOIS
Mr. Hyman. Thank you, Mr. Chairman. Thank you for
appearing, Ranking Member Durbin, from my home State of
Illinois.
Let me start just by echoing Senator Coburn's remarks at
the outset about the importance of relying on markets and
health care, and strengthening and improving them. Let me just
flag a volume that has been mentioned several times over the
course of this morning, the joint report of the Federal Trade
Commission and Department of Justice, Improving Health Care: A
Dose of Competition, issued in 2004, which comprehensively
surveys the performance, both good and bad, of the financing
and delivery sides of the health care market, and offers a
series of recommendations for ways of strengthening and
improving the performance of the market.
My academic interests focus on the financing and regulation
of health care, and I have written a number of articles on that
subject, including one on the specific issue that we are going
to be talking about this morning, monopsony power in health
care financing markets. There is a 2004 Health Affairs article
on that subject that I would be happy to provide.
Now, obviously the backdrop for this hearing is the
complaints of health care providers about disparities in
bargaining power in dealing with insurance companies. The fact
that the complaints come from health care providers should give
us pause for two distinct reasons.
First, disparities in bargaining power are simply not the
same thing as monopsony, or buyer side monopoly. Indeed, equal
bargaining power is very much the exception in most markets.
But as long as those markets are reasonably competitive, you do
not need equal bargaining power to get efficient outcomes.
I can give plenty of examples, including car rental and
purchase, retail consumer goods and air travel, where there are
huge disparities in bargaining power, but reasonably efficient
outcomes.
Second, is the context of this is that the sellers of a
service, any service or good, have a natural tendency to
conflate what is good with them with what is good for society.
But the interests of consumers and patients do not map
perfectly onto the interests of health care providers, so we
should generally discount complaints from providers of
services.
We should pay close attention to complaints from consumers
of services, but discount complaints from providers of
services, consistent with the maxim that the purpose of
antitrust is to protect competition, not competitors.
Now, we have heard a certain amount this morning about the
emergency of national insurers and the significance of high
Herfindahl-Hirschman indices in individual States and
metropolitan areas.
On the emergence of national insurers, this actually marks
a de-concentration, not an increased concentration, in the
markets in many States as we have gotten new entrants from
national insurers.
Second, the raw numbers of people covered by national
insurers is not really important. What is important, is their
percentage in any given market.
Now, when you analyze market power, if you do not have
direct evidence of anti-competitive effects, you usually start
by trying to identify a relevant product and geographic market
and calculate the shares of market participants and
concentration ratios.
So, let us talk about the HHI in the minute and 43 seconds
that I have remaining. HHI is a mechanical calculation which
you do after you have determined the relevant product and
geographic market.
HHIs determined in the absence of a sensible market are
essentially meaningless. I closed my written statement with the
example that I am the only person at the University of Illinois
College of Law that does empirical research on medical
malpractice.
That means the HHI for researchers in medical malpractice
there is 10,000, a completely monopolized market, but I can
assure you, I do not have any monopoly power whatsoever in
dealing with my dean on any subject. So, you basically have to
get the market right in order to come up with a sensible HHI.
That is part one.
Part two is, even if you have defined the market properly,
an HHI is simply a screening tool which creates both false
positives and false negatives for the kinds of things we are
interested in.
So all it does, in the context of merger analysis which is
where it was developed, is mark areas where our index of
suspicion should be higher or lower for whether there are
monopoly or monopsony problems.
It does not define them, it does not identify them. All it
does is say you should not worry about these sorts of
transactions, and these other transactions you might want to
look further in order to determine whether there are monopoly,
monopsony, and market power problems.
The final point that I want to make, is the importance of
factoring in false positives and false negatives in an analysis
of monopoly and monopsony power. It is not a trivial
proposition to determine when there is, and the more
aggressively we look for it, the fewer false negatives we end
up with. But the more false positives we have, the cost of
false positives are borne by consumers quite directly.
Thank you very much.
[The prepared statement of Mr. Hyman appears as a
submission for the record.]
Chairman Specter. Thank you, Professor Hyman.
Senator Durbin, would you care to make an opening
statement?
STATEMENT OF HON. RICHARD J. DURBIN, A U.S. SENATOR FROM THE
STATE OF ILLINOIS
Senator Durbin. Thanks, Mr. Chairman. I will make it very
brief. I thank this panel for gathering today, and I thank you
for calling this hearing.
I listened to the testimony that was given, and as I was
listening to it I was thinking about how lucky we are on this
side of your microphones, because we are Federal employees. We
have a Federal Employees Health Benefit Program and we have an
agency that sits down with these insurers and bargains with
them before they can have a chance to sell to 8 million Federal
employees and their businesses. It turns out that they are
pretty good negotiators.
In 2005, the Federal Employees Health Benefit Program
offered 249 plans. In 2006, it was up to 278 plans, exactly the
opposite of the experience you are describing; where many of
your health care providers are finding fewer and fewer
insurers, we are finding more and more who want to do business
with us.
The Office of Personnel Management has the responsibility
to negotiate with hundreds of insurance companies on our
behalf. Tom Bernatavitz, vice president of Aetna Insurance,
recently said pretty tough negotiators are at OPM.
He said that OPM experts were ``much tougher'' in
negotiations with insurance companies, which has more than
250,000 Federal enrollees. Bernatavitz says, ``In general, we
wanted some more benefit enhancements at some additional
premium costs that they really wouldn't allow....There was
definitely a lot of rigor about keeping our premiums down.''
So, it turns out that we have a pretty good model here, and
some of us believe that it is a model that ought to be
expanded. It ought to be expanded so that small businesses all
across America can have the same basic common market of private
insurance companies. There are four or five States in this
country where there is one dominant health insurance company
that sells to over 70 percent of the market.
I do not want to dwell on this, Mr. Chairman, other than to
suggest to Dr. Coburn and my colleague, Senator Specter, that
if you take a look at what we are doing effectively here to
represent Federal employees and their families, we do not have
the problems that they are just describing in the open market
outside. I hope that you all will take a look at Senator
Lincoln's bill that I am co-sponsoring.
Thank you.
Chairman Specter. Thank you, Senator Durbin.
We now will turn to the panelists for a five-minute round
of questioning.
Ms. Kanwit, I was disappointed that we asked five health
insurers to testify today and none would agree to do so:
United, Aetna, Independence Blue Cross, Highmark, and
Wellpoint.
So let me ask you, what is wrong with an antitrust
exemption for doctors to be able to negotiate with these
companies which have had such an enormous number of mergers,
some 400 in the last 12 years?
Ms. Kanwit. Well, a couple of points, Senator Specter. The
idea of physician collective bargaining has been condemned by
the Federal Trade Commission and the Department of Justice over
the course of the last 10 or 15 years for a very good reason,
the reason being that allowing physician collective bargaining
or an exemption from the antitrust law allowing them as
horizontal competitors to bargain collectively with health
plans, without clinical or financial integration, will
inevitably raise prices while doing absolutely nothing to
increase the quality of health care that consumers enjoy.
Congress, in the last 10 years, has looked at numerous
bills on collective bargaining and rejected every one of them,
as, by the way, have many, many States. There are just a
handful of States that allow physicians, under very strict
rules, to collectively bargain. That is because it is a bad
idea.
Chairman Specter. Let me turn to Mr. McDonald. We only have
a few minutes, so we are going to have to be brief on the
responses.
Only two challenges over 400 mergers in the past 12 years.
Is there not some suggestion of not quite enough scrutiny, Mr.
McDonald?
Mr. McDonald. Mr. Chairman, antitrust analysis is very
fact-specific. We have investigated a large number of mergers
and found reason to challenge the ones that you have mentioned.
Chairman Specter. You have investigated all 400?
Mr. McDonald. Likely not, Mr. Chairman. But we have
investigated all those that had any significant possibility of
presenting an anticompetitive problem.
Chairman Specter. Dr. Piasio, the Daily and Sunday Review
from Towanda, Pennsylvania has noted the Pennsylvania Medical
Society recently cautioned against the impending merger, as
they put it, of two of Pennsylvania's largest health insurers,
Independence Blue Cross and Highmark, two companies who have an
enormous share of the Pennsylvania market. Would you be
apprehensive or opposed to such a merger?
Dr. Piasio. Well, certainly we have not seen any
information yet as to what efficiencies that merger is going to
bring. Contrary to some of the things you have heard earlier
though, there may be markets in the country that are working
competitively. Pennsylvania certainly is not. We enjoy the
highest premiums, the lowest reimbursement, and the highest
profit margins and reserves of most insurers in the country.
I think if you look at the contract provisions under the
Rule of Reason, we are meeting those requirements of at least
questionable behavior on the part of our large players.
But what we would much prefer to see in Pennsylvania are
the four Blues competing in each other's market as opposed to
having one Blue now. We do not have national players in
Pennsylvania. Aetna and United represent extremely minor
players in our entire State, and even less so.
So from our perspective, until we see some evidence that a
merger of that nature is going to bring some level of consumer
benefit as well as provider and quality benefits, we are
looking at it extremely cautiously. But as they are operating
now, we do not particularly see where there is going to be any
efficiency that the market is going to enjoy.
Chairman Specter. Professor Hyman, do you not think that
Dr. Piasio has a point, that all of these mergers have to have
an impact of lessening competition?
Mr. Hyman. The question is, who is merging, and are they
combining market shares in the same market or are they, as the
rise of national firms would suggest, buying shares in
different markets? You have to look at them individually. I do
not know enough about the Pennsylvania market to have an
informed opinion on that subject.
Chairman Specter. Mr. Wales, in your written testimony you
said that ``the antitrust laws allow physicians to act jointly,
including agreeing on fees, so long as their efforts produce
significant efficiencies and price agreement is reasonably
necessary to achieve those efficiencies.''
Absent that standard, physicians cannot act jointly on
agreeing on fees. Is that not an extraordinarily difficult
standard for physicians to try to achieve, putting themselves
at risk of violating the antitrust laws?
Mr. Wales. Mr. Chairman, what we have found is that when
you do not have collective bargaining that is associated with
pro-competitive benefits and integration, that you do find
clear consumer harm, whether it be increased prices for health
care, higher out of pocket expenses for consumers, reduced
benefits and choices. So I guess we do find that, without that
integration, that there are clear harms in place.
What we have tried to do is be very clear with doctors as
to what types of integrative efficiencies we think would be
permissible, and have done that through not only guidance with
our colleagues at Department of Justice in statements, but also
in advisory opinions and other fora, including our web site and
enforcement actions, where we try to explain where that line is
that we do not think doctors should cross.
Chairman Specter. Well, thank you, Mr. Wales. The red light
was on during your testimony and I will conclude, and yield to
the Democratic side, as our alternation provides.
Senator Durbin?
Senator Durbin. Thank you, Mr. Chairman.
So Ms. Kanwit, let me make sure I understand here. By your
answer to Senator Spector's question about collective
bargaining as an antitrust exemption for doctors, I take it
that you are opposed to exemptions for the antitrust law.
Ms. Kanwit. We are, Senator.
Senator Durbin. How about the McCarran-Ferguson Act which
applies to your industry which gives you an exemption so that
you can share pricing information which some say may lead to
higher prices and collusion by your own industry? That has been
on the books a long time.
Ms. Kanwit. It has.
Senator Durbin. Do you support that exemption?
Ms. Kanwit. Senator, the McCarran-Ferguson Act has been on
the books for about 60 years and it has worked very well. But
it is not an antitrust exemption. It does allow insurers to
gather, collectively, actuarial information in the interest of
consumers. But it specifically does not allow boycotts or
collusive pricing, so it is not exactly an analogy to physician
collective bargaining.
Senator Durbin. But it clearly is an exemption for your
industry that most businesses do not enjoy. If all of the
automobile manufacturers had the ability to do what the
insurance industry has under McCarran-Ferguson, some would
suggest that it would not be in the best interest of consumers.
Do you understand that?
Ms. Kanwit. It is, but it is a very, very narrow exemption
for rate setting, actuarial rate setting. But the real purpose
of McCarran-Ferguson, as everyone knows, was to give the States
authority over the business of insurance, an issue that has
been litigated over and over for 60 years. This was a minor
point on it, but it is an extraordinarily narrow exemption.
Senator Durbin. But it is an exemption.
Ms. Kanwit. It is.
Senator Durbin. Thank you.
Dr. Piasio, so if you were allowed to collectively bargain,
which many doctors have been seeking for a long time so they
have some power to bargain as the Federal Government does for 8
million employees, what is the protection for consumers, I
mean, in terms of whether or not individual doctors and
practitioners are going to charge reasonable rates for their
services?
Dr. Piasio. I think, first and foremost, we need to
distinguish, in terms of collective bargaining, it is allowed
if you are going to be at risk, such as taking risk as an
insurer, but not in a fee-for-service system.
I am not sure there are good studies out there that show it
does not work. I think when you look at what that does, it kind
of goes into that countervailing power theory of how to balance
a market competitively that cannot be done economically or
through political processes.
At least that seems to work in other markets. If you look
at the western part of Pennsylvania where there are some
competitive insurers, we enjoy slightly lower premiums and
slightly higher reimbursement. At this point, I am not here to
say that collective bargaining is the solution. It is just one
of the potential solutions in trying to bring back competition
to a market that does not seem to exist, at least in my State.
Whether it will work or not, I leave it up to the gentleman
to the right to study and get back to us as to whether they can
make it work. Certainly when you are looking at trying to put
in efficiencies such as electronic records and quality and
value metrics, which we have not even started discussing yet as
to how you can do that, it is difficult to integrate, but you
can do it unless you are at risk. That is just something that
we are not experienced enough to do.
Senator Durbin. Professor Hyman, thank you from being here
from Illinois. But let me ask you this question. You seem to be
skeptical about whether or not there is a concentration of
power here to the disadvantage of these providers and
consumers.
But most people you speak to would agree with the following
statement: ``It seems like every year the premium costs for
health insurance goes up and the coverage goes down. I have to
pay more out of pocket for less coverage each year.'' So, this
is a consumer's point of view in this picture.
Then when you step back and you look at it in a global
context, you say the end result here, the health care result
that comes out of this, is not as good as we might expect.
There are countries that spend a lot less per capita on health
care and get a lot better results, in terms of life expectancy,
for example.
Do you quarrel with those conclusions?
Mr. Hyman. Well, I certainly would quarrel with drawing a
causative line from one to the other. I think the quality
issue, which I touch on very briefly at the end of my written
statement, is a very important issue.
I do not see, even if we by fiat de-concentrated the
insurance market, we would see the kinds of quality
improvements that we would want to buy and that we, in fact,
are already paying for. I think that is something we need to go
after directly.
It is certainly clear that the costs of health care have
gone up, and go up every year. But drawing a causative line
between that market concentration, actually, there are a bunch
of other things going on. There is an increase in the number of
elderly people receiving care. They have higher intensity of
services.
We can do more things for more people that cost more. The
retail prices of some things have gone up. You have seen
consolidation on the provider side as well, something we have
not mentioned so far, and then you can get the sort of
bilateral monopoly problems. There are a lot of things going
on, would be my short answer.
Senator Durbin. Thank you.
Thanks, Mr. Chairman.
Chairman Specter. Thank you, Senator Durbin.
They have started the vote, but we are going to complete
the round of questioning with Senator Coburn.
Senator Coburn. Thank you, Mr. Chairman.
I just would wonder, how many of you all really think there
is insurance out there versus pre-paid expense that is paid for
by an agent? How many really believe there is an insurance
market in this country? I am talking, risk spreading market
versus pre-paid health care expense. Does anybody want to
answer that?
Mr. Hyman. I guess my short answer is, there is a huge
amount of pre-payment, but there is some risk pooling for
catastrophic expenditures.
Senator Coburn. But the vast majority is pre-paid medical
expense.
Mr. Hyman. I would probably say a majority. I am not sure
``vast''.
Senator Coburn. The point is, we are paying a very
expensive fee to have pre-paid health care expense. The other
question that I had, for anybody that wants to answer it, who
is the consumer? I have heard the word wielded about a bunch.
The consumer I see is not my patients or the individual. The
consumer is whoever has the power.
Senator Durbin talked about the FEHBP that went up 6.7
percent this year, versus 8 percent last year. That is the
largest purchaser in the country, 8 million people, and it
still went up that much. Yet, the costs to the providers, the
reimbursement to the providers who are caring for the people,
is not rising at all in terms of numbers.
So the question goes back to the 16.2 percent of our GDP.
What are we getting for it? Doctor?
Dr. Langston. Yes, Dr. Coburn. It is not necessarily a free
market because there are middlemen involved. Our concern is
that we are raising the red flags on some of these issues
because we are seeing the change in the number of coverage and
the increase of 6.8 to 8.6, yet premiums are rising in the
double-digit areas.
All we know is, in 2004 and 2005, the insurance industry
spent nearly $55 billion in consolidating and in acquisition,
so there is something going on. We know the profits are higher.
As a physician, our reimbursement is not changing.
I think we are unjustly accused of being the driver, which
indirectly says we are getting more payment for what we are
providing, where in fact what we are doing is providing, I
believe, increased quality of care because of technology, drug
expenses, and other institutional and system expenses.
So we are raising the red flags and we really appreciate
the opportunity to talk about that because we think it needs to
be explored. We, too, call for transparency. That is why we
said we need the data, just as you do, to make public policy
decisions on what are the real costs within that industry, and
is there really any risk there. We certainly advocate the
quality measures because that is ingrained in us as
professionals, and we support that, quite frankly.
Senator Coburn. Let me go to one other point. We have
almost 47 percent of our health care paid for by the
government.
Dr. Langston. Right.
Senator Coburn. That is off the table. So that leaves 52
percent, of which about 12 percent is not covered through some
type of insurance program. What do we get for the one in four
dollars of that? That is $1.9 to $2.3 trillion, somewhere
between that. There is 45 percent of that, so you have got $1
trillion.
For the $250 billion that does not ever get into health
care at a minimum, what are we getting for that in terms of
quality? And the reason I raise that question, is Mr.
McDonald's statement said that doctors can increase the
patients that they serve. Well, they cannot. They are maxxed
out.
What is happening, is the arc of medicine is declining and
the quality of medicine--the first thing you are taught in
medical school is to listen to your patient.
That is not happening any more because doctors cannot
afford to pay for the receptionist, the insurance filing
clerks, and their malpractice, and at the same time see the
same number of patients.
So what is happening, one of the reasons we are with the
16.2 percent, we are not seeing this markedly increasing
quality that we should be because we are spending 50 percent
more than anybody else in the world, is because we are jamming
the very people.
So what is the response? The response is, well, I will
order a test rather than listen to the patient. What we do
know, is about a quarter of a trillion dollars of tests are
ordered every year that are not necessary. That is one of AMA's
own studies. They are not necessary because they do not have
the time to listen to the patient.
So I want to go back to my opening statement and just let
people comment. Why do we not take and let consumers, the real
consumer, be the decider of value about their health care, and
why do we not let everybody own their own health insurance
rather than their employer own it? Why do we not give the tax
benefit to the individual rather than to the employer? Any
comments on that?
Ms. Kanwit. Senator, I would like to comment on that. We
are working hard, as I mentioned in my comments here, to make
value-based information available to consumers so that they can
make choices. You raise an excellent point. The Federal Trade
Commission and Department of Justice, in their recent study,
said exactly the same thing.
Senator Coburn. Well, the problem with that is, most people
who come under one of your insurance companies do not have that
choice because their employer made that choice for them. They
do not get to make that choice, so they have a proxy making
that choice.
What I am saying is, why would we not want individuals to
make that value judgment rather than their employer, and let
individuals decide what is in their best interests in terms of
their care rather than some proxy for them? Let them squeeze
out this one in three dollars out of the health care system to
either increase quality and lower premiums.
Somebody else? Yes, sir. Doctor?
Dr. Piasio. Yes. I would also just like to comment. At
least in Pennsylvania, when you are looking at trying to get
the transparency with respect to the quality, and now the new
value metric, those are going to be determined by the sole
insurer.
We do not have the bargaining power to even participate in
those discussions as to even determine what those metrics may
be. So in the transparency issue of what is quality and what is
value, we have very little input on exactly how we are even
going to measure what we are doing.
Senator Coburn. All right. Thank you.
Chairman Specter. We have only nine minutes left on the
vote.
Well, thank you all very much for coming in. This is a
panel to be continued.
In concluding the hearing, let me call to the attention of
the regulators, Mr. McDonald and Mr. Wales, the impending
merger of the two big companies in Pennsylvania. Independence
Blue Cross collected 28 percent of the $28 billion spent on
health insurance premiums; Highmark collected 27 percent of the
$28 billion.
I would join Dr. Piasio and Dr. Langston--even an Indiana
AMA guy speaks for Pennsylvania, in part--in taking a very
close look at that situation. When they talk about
efficiencies, one last question. I would like you to provide it
in writing for me.
They talk about efficiencies. Why not hold them to a
specific determination of what those efficiencies are, pulling
down cost and the commitment that they are going to reduce
premiums by that amount? Let me address that to the regulators,
the Department of Justice and the FTC.
But let me ask that of you, too, Ms. Kanwit, since you are
here representing all of these companies. We only surveyed five
of them, who would not come in. That is not a very good sign if
the Senate Judiciary Committee wants to have an antitrust
hearing on this issue not to have companies be willing to come
in and respond to some questions.
Chairman Specter. But this is a big, big issue. We all know
the costs of health care. Everywhere I go, it is a question. I
spent last week traveling in Pennsylvania, and everywhere I
went the question comes up repeatedly, especially among small
business men and women, what are we going to do?
Thank you all very much. Sorry the vote intervenes, but I
think we pretty much covered the ground.
That concludes our hearing.
[Whereupon, at 12:11 p.m. the hearing was concluded.]
[Questions and answers and submissions for the record
follow.]
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