[House Hearing, 112 Congress]
[From the U.S. Government Publishing Office]





                   HEALTH CARE INDUSTRY CONSOLIDATION

=======================================================================

                                HEARING

                               before the

                         SUBCOMMITTEE ON HEALTH

                                 of the

                      COMMITTEE ON WAYS AND MEANS
                     U.S. HOUSE OF REPRESENTATIVES

                      ONE HUNDRED TWELFTH CONGRESS

                             FIRST SESSION

                               __________

                           SEPTEMBER 9, 2011

                               __________

                           Serial No. 112-HL5

                               __________

         Printed for the use of the Committee on Ways and Means











                                _____

                  U.S. GOVERNMENT PRINTING OFFICE
72-277                    WASHINGTON : 2012
-----------------------------------------------------------------------
For sale by the Superintendent of Documents, U.S. Government Printing 
Office Internet: bookstore.gpo.gov Phone: toll free (866) 512-1800; DC 
area (202) 512-1800 Fax: (202) 512-2104  Mail: Stop IDCC, Washington, DC 
20402-0001






                      COMMITTEE ON WAYS AND MEANS

                         SUBCOMMITTEE ON HEALTH

                   CHAIRMAN WALLY HERGER, California

SAM JOHNSON, Texas                   FORTNEY PETE STARK, California
PAUL RYAN, Wisconsin                 MIKE THOMPSON, California
DEVIN NUNES, California              RON KIND, Wisconsin
DAVE REICHERT, Washington            EARL BLUMENAUER, Oregon
PETER ROSKAM, Illinois               BILL PASCRELL, JR., New Jersey
JIM GERLACH, Pennsylvania
TOM PRICE, Georgia
VERN BUCHANAN, Florida

                       Jon Traub, Staff Director

                  Janice Mays, Minority Staff Director








                            C O N T E N T S

                               __________
                                                                   Page

Advisory of September 9, 2011, announcing the hearing............     2

                               WITNESSES

Martin Gaynor, Ph.D., Professor, H. John Heinz III School of 
  Public Policy and Management, Carnegie Mellon University.......     5
Paul B. Ginsburg, Ph.D., President, Center for Studying Health 
  System Change..................................................    38
Dianne Kiehl, Executive Director, Business Health Care Group.....    48
Michael Guarino, Member, Board of Directors, Ambulatory Surgery 
  Center Association.............................................    60
David Balto, Senior Fellow, Center for American Progress Action 
  Fund...........................................................    69

                       SUBMISSIONS FOR THE RECORD

American Medical Association.....................................   105
Coalition for Affordable Health Coverage.........................   111
Glenn A. Melnick.................................................   119
National Community Pharmacists Association.......................   126
The Center for Fiscal Equity.....................................   132
The Estes Park Institute.........................................   136

 
                   HEALTH CARE INDUSTRY CONSOLIDATION

                              ----------                              


                       FRIDAY, SEPTEMBER 9, 2011

             U.S. House of Representatives,
                       Committee on Ways and Means,
                                     Subcommittee on Health
                                                    Washington, DC.
    The subcommittee met, pursuant to call, at 9:34 a.m., in 
Room 1100, Longworth House Office Building, Honorable Wally 
Herger [chairman of the Subcommittee] presiding.
    [The advisory of the hearing follows:]

HEARING ADVISORY

FROM THE 
COMMITTEE
 ON WAYS 
AND 
MEANS

                  Chairman Herger Announces Hearing on

                   Health Care Industry Consolidation

September 09, 2011

    House Ways and Means Health Subcommittee Chairman Wally Herger (R-
CA) today announced that the Subcommittee on Health will hold a hearing 
to examine how private health insurance costs, Medicare spending, and 
beneficiary costs are impacted by mergers and acquisitions in the 
health care sector. The hearing will take place on Friday, September 9, 
2011, in 1100 Longworth House Office Building, beginning at 9:30 A.M.
      
    In view of the limited time available to hear from witnesses, oral 
testimony at this hearing will be from invited witnesses only. However, 
any individual or organization not scheduled for an oral appearance may 
submit a written statement for consideration by the Committee and for 
inclusion in the printed record of the hearing.
      

BACKGROUND:

      
    Recent years have seen a large number of acquisitions and mergers 
in the health care industry. Among typical transactions, hospitals are 
buying or merging with other hospitals, hospitals are purchasing 
physician practices, physician practices are merging with physician 
groups, and large insurance companies are purchasing smaller plans. 
Industry experts expect regulations and policies contained in the new 
health care overhaul to exacerbate this trend.
      
    While such consolidation may facilitate greater efficiencies and 
deliver higher quality services by eliminating duplication and excess 
capacity, many experts are concerned that some consolidations are being 
driven primarily by a desire to increase reimbursements. Richard 
Feinstein, director of the Bureau of Competition at the Federal Trade 
Commission, warned that provider consolidation ``can create highly 
concentrated markets that may harm consumers through higher prices or 
lower quality care.''
      
    In announcing the hearing, Chairman Herger stated, ``While 
consolidation within the health care industry is not new a phenomenon, 
all signs point to it accelerating in the coming years. In some 
circumstances, consolidation produces desirable results like improved 
efficiency and quality. However, we must ensure that consolidation is 
not simply used as a tool to increase revenues by driving up Medicare 
spending and the cost of private health insurance. This hearing will 
provide members with a better understanding of what is currently taking 
place, what is expected to occur, and how we can protect America's 
seniors and those with private health insurance and the employers who 
offer it.''
      

FOCUS OF THE HEARING:

      
    The hearing will focus on the impact health care consolidation is 
having on the cost of private health insurance, Medicare spending, and 
beneficiary costs.
      

DETAILS FOR SUBMISSION OF WRITTEN COMMENTS:

      
    Please Note: Any person(s) and/or organization(s) wishing to submit 
for the hearing record must follow the appropriate link on the hearing 
page of the Committee website and complete the informational forms. 
From the Committee homepage, http://waysandmeans.house.gov, select 
``Hearings.'' Select the hearing for which you would like to submit, 
and click on the link entitled, ``Click here to provide a submission 
for the record.'' Once you have followed the online instructions, 
submit all requested information. ATTACH your submission as a Word 
document, in compliance with the formatting requirements listed below, 
by the close of business on Friday, September 23, 2011. Finally, please 
note that due to the change in House mail policy, the U.S. Capitol 
Police will refuse sealed-package deliveries to all House Office 
Buildings. For questions, or if you encounter technical problems, 
please call (202) 225-1721 or (202) 225-3625.
      

FORMATTING REQUIREMENTS:

      
    The Committee relies on electronic submissions for printing the 
official hearing record. As always, submissions will be included in the 
record according to the discretion of the Committee. The Committee will 
not alter the content of your submission, but we reserve the right to 
format it according to our guidelines. Any submission provided to the 
Committee by a witness, any supplementary materials submitted for the 
printed record, and any written comments in response to a request for 
written comments must conform to the guidelines listed below. Any 
submission or supplementary item not in compliance with these 
guidelines will not be printed, but will be maintained in the Committee 
files for review and use by the Committee.
      
    1. All submissions and supplementary materials must be provided in 
Word format and MUST NOT exceed a total of 10 pages, including 
attachments. Witnesses and submitters are advised that the Committee 
relies on electronic submissions for printing the official hearing 
record.
      
    2. Copies of whole documents submitted as exhibit material will not 
be accepted for printing. Instead, exhibit material should be 
referenced and quoted or paraphrased. All exhibit material not meeting 
these specifications will be maintained in the Committee files for 
review and use by the Committee.
      
    3. All submissions must include a list of all clients, persons and/
or organizations on whose behalf the witness appears. A supplemental 
sheet must accompany each submission listing the name, company, 
address, telephone, and fax numbers of each witness.
      
    The Committee seeks to make its facilities accessible to persons 
with disabilities. If you are in need of special accommodations, please 
call 202-225-1721 or 202-226-3411 TTD/TTY in advance of the event (four 
business days notice is requested). Questions with regard to special 
accommodation needs in general (including availability of Committee 
materials in alternative formats) may be directed to the Committee as 
noted above.
      
    Note: All Committee advisories and news releases are available on 
the World Wide Web at http://www.waysandmeans.house.gov/.

                                 

    Chairman HERGER. The subcommittee will come to order.
    Today we are going to hear from a panel of witnesses 
regarding consolidation in the health care industry.
    Consolidation among hospitals, doctors, and insurance plans 
has occurred for some time. I recognize that, at least in 
theory, consolidation can lead to greater efficiencies and 
improved outcomes. Unfortunately, research has shown that 
higher prices are more often the result.
    Consolidation allows providers to command higher insurance 
payment rates. As one official at an Ohio hospital that is 
seeking to merge with another hospital stated in an internal 
document obtained by the Federal Trade Commission, such a 
partnership would allow them to ``stick it to employers, that 
is, to continue forcing high rates on employers and insurance 
companies.'' Research has repeatedly shown that after hospitals 
merge the prices they charge to those with private health 
insurance increase significantly. Unfortunately, research has 
not shown that such consolidation leads to greater efficiencies 
or improved quality.
    In my own State, a 2010 report conducted by the Sacramento 
Bee concluded that one California hospital system's large 
market share has allowed them to obtain ``reimbursement rates 
with `markups' more than double what it costs them to provide 
services.''
    Consolidation also enables providers to receive higher 
Medicare reimbursements by simply changing their designation on 
paper. While this increases provider revenue, it results in 
higher costs for beneficiaries and an increased burden on 
taxpayers with no discernible community benefit.
    When hospitals purchase physician groups, hospitals are 
able to further increase revenue by controlling referral 
patterns and creating a situation in which they could pressure 
their physicians to perform more procedures. Similarly, 
insurance plan consolidation leaves consumers with fewer 
coverage options and providers with fewer carriers paying 
claims.
    In many ways, the Democrats' health care law has made a 
challenging situation worse as all signs point to the law 
leading to even greater consolidation as providers try to blunt 
the impact of the law's one-half trillion dollars in Medicare 
cuts and massive new regulations.
    Providers unable to absorb the cuts are prime candidates to 
be acquired by larger providers who can. Large insurance plans 
that are able to comply with the new regulations are likely to 
buy smaller plans that cannot. Providers teaming up in 
preparation for the ACO program are likely to be able to 
command higher private insurance rates whether or not their ACO 
is successful.
    Who ultimately pays higher prices associated with 
consolidation? It is not the insurance companies. They pass it 
along to employers by way of higher premiums and employers pass 
it on to their workers by way of reduced wages, higher costs, 
and benefit cuts. At a time of elevated unemployment, Congress 
must ensure that it is doing all it can to foster a more 
competitive environment that promotes growth, not one that adds 
additional cost burdens and ``sticks it to employers'' and, by 
extension, to their employees.
    This hearing will shed light on the important and under-
examined issue of consolidation and its implications for health 
care consumers.
    Before I recognize Ranking Member Stark for the purposes of 
an opening statement, I ask unanimous consent that all members' 
written statements be included in the record.
    Without objection, so ordered.
    I now recognize Ranking Member Stark for 5 minutes for the 
purpose of his opening statement.
    Mr. STARK. Thank you, Chairman Herger, for calling this 
hearing. It is difficult to take on a topic of this breadth 
with a single panel on a Friday morning, but we can work 
together, I am sure, to fashion more targeted hearings in the 
future.
    The questions of whether provider consolidation helps to 
improve the clinical integration of care, how it is balanced 
against the desire not to create provider giants that can 
become virtual price setters, the issue of pharmaceutical 
benefit manager consolidation is also timely, and there is 
growing examples of new mergers that warrant review.
    I think we will hear from our witnesses today a mixed 
story. Consolidation may indeed be a core strategy in achieving 
our shared goal of increased integration, but the health care 
delivery systems that are lauded by Members on both sides of 
the aisle for their efficiency are ones that are integrated and 
consolidated.
    So we recognize that consolidation could lead to market 
imbalances and have got to be balanced by a regulatory role 
that ensures that consumers are protected.
    We know that common perceptions about each of our parties--
you Republicans are seen as the party that defends the 
marketplace and the power of competition and we Democrats are 
perceived as the party that puts regulation ahead of 
competition. Perhaps what we see today is that these 
perceptions can be wrong, and the majority raises concerns 
about competition and how it may result in outcomes that are 
bad for consumers.
    So I look forward to seeing what we can develop today and 
whether this will lead to future hearings on this topic.
    Thank you very much.
    Chairman HERGER. Thank you.
    Today, we are joined by five witnesses who will discuss the 
effects of consolidation in the health care industry from 
overall health care spending to the impacts at the local level.
    Our witnesses in the order they will testify are Martin 
Gaynor, E.J. Barone Professor of Economics and Public Policy, 
Carnegie Mellon University; Paul Ginsburg, President, Center 
for Studying Health System Change; Diane Kiehl, Executive 
Director, Business Health Care Group; Michael Guarino, Board 
Member, Ambulatory Surgery Center Association; and David Balto, 
Senior Fellow, Center for American Progress.
    You will each be recognized for 5 minutes.
    Mr. Gaynor, if you would kick things off.

STATEMENT OF MARTIN GAYNOR, PH.D., PROFESSOR, H. JOHN HEINZ III 
    SCHOOL OF PUBLIC POLICY AND MANAGEMENT, CARNEGIE MELLON 
              UNIVERSITY, PITTSBURGH, PENNSYLVANIA

    Mr. GAYNOR. Thank you very much, chairman and committee 
members, for giving me the opportunity to address you on this 
very important topic.
    Health care, as we all know, is a very large and very 
important industry. There has been a tremendous amount of 
consolidation in this industry, and this represents a serious 
problem.
    Let me talk about consolidation. I will start with 
hospitals. We know a great deal about consolidation among 
hospitals. Most hospital markets in the U.S. are now highly 
concentrated markets, meaning that market shares are 
concentrated in the hands of a very small number of hospital 
firms.
    With regard to physician services markets, we don't have 
nearly as much information. There is some information to 
indicate that some practices have been growing in size and some 
information from California that shows very highly concentrated 
physician practice markets.
    For health insurance markets, we do have more information 
than we have for physician markets, although not as much and 
not as good information as for hospital markets. Some recent 
data show that the large employer health insurance market has 
grown concentrated over time and became highly concentrated 
about 2004. The report of a couple of years by the General 
Accounting Office for the small group market also showed some 
evidence from recent years that that market is highly 
concentrated.
    With regard to integration between different kinds of 
providers, what I am calling here vertical consolidation, for 
example, physicians and hospitals, the evidence is that those 
forms of integration between doctors and hospitals peaked in 
the mid-1990s and fall steadily thereafter, with the exception 
of employment of physicians by hospitals which has increased 
steadily over time.
    Now, what are the effects of all of this consolidation? 
Because this is what we care about after all.
    For hospitals, the evidence on prices is very clear. Prices 
are higher in more concentrated markets. Consolidation leads to 
price increases, in some cases price increases that are well 
over 50 percent.
    The evidence on quality is as follows. The markets with 
regulated prices, Medicare, for example, the evidence is that 
competition enhances quality and vice versa. Consolidation 
harms quality. For markets where the prices determine the 
market for the privately insured, the evidence is all over the 
map. I don't think there is any firm conclusion that can be 
drawn from those markets.
    Cost savings are possible from hospital mergers if the two 
hospitals really truly do become fully integrated, although the 
evidence I just cited with regard to prices being passed on to 
consumers doesn't support the fact that any cost savings 
actually end up in the hands of consumers.
    Now, who pays for this? Well, as health care prices go up, 
insurers don't end up paying for it. Employers don't end up 
paying for it. The evidence is that if there are costs in 
health benefits for employers, those increased costs get passed 
on to workers in the form of lower total compensation.
    For physicians, we don't actually have much evidence on 
consolidation and competition in the markets. There is some 
evidence that the prices do go up in the absence of 
competition.
    For insurance markets there is more evidence, evidence that 
premiums are higher in more concentrated markets for large 
employers specifically. There is some recent work that shows 
substantial market power in the Medigap, the supplemental 
insurance market for Medicare beneficiaries, and there is some 
older research that shows evidence that competition has a large 
effect on premiums in the Medicare+Choice market, the 
predecessor of Medicare Advantage.
    For integration between physicians and hospitals, there is 
not much evidence. There are two studies I know of, and they 
have exactly opposite results. So I don't think we can draw a 
firm conclusion about impacts on price.
    There has been much more work about the impacts of 
integration, particularly physician hospital organizations, on 
costs and quality, access, et cetera, and that work turns up 
little evidence that integration has an impact, that 
integration at that point in time.
    Let me now briefly talk about policy options in this 
industry. The first and most obvious is vigorous antitrust 
enforcement that can occur over a number of domains. Now, many 
of these markets are already highly concentrated, so there does 
have to be some concern about exactly how effective antitrust 
enforcement can be, although it is important to realize that 
strong and vigorous enforcement can have effects far beyond the 
actual cases that are prosecuted because they can have a 
chilling factor on possible anti-competitive conduct by other 
kinds of firms.
    One thing that is very important is considering safe 
harbors. The Federal Trade Commission and the Department of 
Justice have gone to great lengths to establish safe harbors 
for kinds of integration they think could be efficiency 
enhancing that extends to the accountable care organizations. 
That is important, but it is also important not to allow 
integrations that are sham or integrations that foreclose the 
possibility of competition in the future.
    In support of that, policies that facilitate the entry of 
firms in innovation in organizations technology are very 
important, making sure that it is possible to do that, set 
policies on the demand side, such as facilitating selective 
contracting. Making sure that consumers have information that 
is not only good but they can actually understand and use is 
very important.
    And, last, rate regulation is certainly a policy option as 
well. As the market becomes too concentrated for other policies 
to be effective, then rate regulation is a policy option that 
can be considered.
    Thank you.
    [The prepared statement of Mr. Gaynor follows:]




    Chairman HERGER. Thank you.
    Mr. Ginsburg is recognized for 5 minutes.

  STATEMENT OF PAUL B. GINSBURG, PH.D., PRESIDENT, CENTER FOR 
        STUDYING HEALTH SYSTEM CHANGE, WASHINGTON, D.C.

    Mr. GINSBURG. Thank you, Mr. Chairman, Congressman Stark, 
and Members of the Subcommittee. I am delighted to be able to 
testify before you today.
    I and my colleagues at the Center for Studying Health 
System Change have been conducting research on leverage between 
health care providers and private insurers for some time. Much 
of my testimony is based on the community tracking study site 
visits which we have conducted in 12 representative 
metropolitan areas since 1996.
    There is a striking difference between the period of the 
early and mid-1990s and the present time. In the 1990s, health 
plans were able to pressure providers to accept lower payment 
rates and assume financial risk for patient care. It was a time 
of rapid growth of managed care enrollment, and employers 
supported relatively restrictive provider networks. Excess 
provider capacity existed in many markets and there was 
relatively limited provider consolidation, although extensive 
merger activity was getting under way, prompted partly by plan 
leverage. Many of these mergers were challenged unsuccessfully 
by the Federal Trade Commission. Premium increases were very 
small. In fact, they got close to zero in the mid-1990s.
    Contrast with the present time we see substantial provider 
leverage, and higher prices have been a more important driver 
of spending trends recently than volume growth. We see a 
pattern of very extensive variation in prices paid by private 
insurance as a percentage of Medicare rates both by market and 
by providers within the market. Some hospital rates are four 
times Medicare payment rates.
    What has changed? Well, part of the story is increased 
provider consolidation, both through mergers and also by 
attrition of weaker providers. But the managed care backlash of 
the mid 1990s led to demands for broad provider networks, and 
employers have not backed plans in showdowns with providers 
over payment rates.
    Now, we have the notion of must-have providers. Providers 
who have a reputation for quality, who have a geographic niche 
or a very large part of the market are able to get much higher 
rates from insurers because of the inability of insurers to 
exclude them from networks.
    I want to say a few things about this recent development of 
hospital employment of physicians.
    This has developed very rapidly. In some communities, a 
large majority of physicians are employed by hospitals. Some 
have perceived this as a step to prepare for delivery reform, 
accountable care organizations, and bundled payments, but the 
trend toward hospital employment started before the name 
``ACO'' was even coined.
    My perception is that this employment is predominantly to 
garner more patient referrals, expand hospital specialty 
service lines, and increase provider market power. This is a 
highly attractive strategy today under volume-driven, fee-for-
service financing. It is also a potential asset for 
integration, but, to do that, hospitals would need to rework 
the compensation incentives to focus on volume.
    Hospital employment of physicians is causing rising prices 
because hospitals can negotiate higher payment rates for 
physicians than small physician practices can, and the 
differences are very large. It may even permit higher prices 
for hospital services. Also, there is an impact on Medicare and 
its beneficiaries and the facility charges that begin when 
physicians become parts of hospital outpatient departments.
    Now, there are both markets and regulatory approaches to 
address provider leverage. The market forces work by engaging 
enrollees in selecting providers on the basis of price and 
quality. Some employers have adopted benefit designs to do 
this, and some evidence is that the poor economy has 
contributed to this increasing interest. But provider ability 
to resist the tiered designs by refusing to contract is a 
serious barrier.
    There are things that government can do to support market 
approaches. One is the development of methods for measuring 
value that will be credible to both providers and to consumers. 
Also, government can limit provider contracting practices that 
interfere with cost-conscious choices by enrollees. Changing 
the tax treatment of health employee benefits is another 
option.
    There is a major question about how effective market 
approaches can be because some markets are already too 
concentrated, and consumers did not react well to some of these 
approaches in the mid-1990s, and we need to know how they will 
react to better-conceived approaches today.
    If market forces do not work, regulation should be 
considered. It could come in the form of rate review or rate 
setting by a public entity, most likely at the State level, and 
it could take a loose form like a limits or a review trigger by 
high rates in relation to Medicare or it can be a much more 
structured system. The key is to designing such interventions 
so that they foster or accommodate payment reform for 
innovations.
    Thank you very much.
    [The prepared statement of Mr. Ginsburg follows:]




    Chairman HERGER. Thank you.
    Ms. Dianne Kiehl is now recognized for 5 minutes.

STATEMENT OF DIANNE KIEHL, EXECUTIVE DIRECTOR, BUSINESS HEALTH 
                CARE GROUP, FRANKLIN, WISCONSIN

    Ms. KIEHL. Good morning and thank you, Chairman Herger, 
Ranking Member Stark, and committee members, for the invitation 
to speak to you today.
    I am here representing the Business Health Care Group of 
southeastern Wisconsin serving as their executive director 
since 2004. We are a progressive and very active employer-based 
health care coalition. We represent over 1,200 employers, 
including Fortune 500 companies.
    I have submitted my full statement to the committee which I 
ask be made part of the hearing record. I encourage you to 
review my written testimony for details about my organization's 
efforts and other health care initiatives in our State, as well 
as a thorough explanation of provider consolidation in our 
market.
    I have spent 41 years in the health care field both as 
clinician--I am a registered nurse and clinical lab 
technologist--and as an executive and business owner assisting 
employers in managing health care costs. I also serve on 
numerous health care organizations' boards of directors, as 
well as various steering committees dedicated to payment reform 
and delivery reform.
    When I started my health care career many years ago, health 
care was available based on community need, which minimized 
costly infrastructure. I am sure many of you remember a time 
when hospitals specialized in specific high-cost services, and 
we had a virtual center of excellence care delivery model. As 
we are all aware, things are very different today. With the 
current reality of extensive vertical integration of health 
care providers, most services are duplicated at every system in 
our region. The emphasis is now on keeping the patient in the 
system's revenue stream and controlling processes.
    In my written testimony, I mention that our remaining 21 
full-service hospitals have consolidated into six systems in 
our six major counties, but I would like to clarify that no 
county has six. Two counties have four; the others only have 
two.
    A more serious consequence of consolidation is that doctors 
report that they are now being expected to meet revenue targets 
or jeopardize their jobs. Physicians are key to cost control. 
They need to determine the standards of care and quality 
metrics regardless of financial implications to the system that 
employs them.
    First and foremost, I am here to testify our costs is what 
caused our founding CEOs to form our group, but the continued 
consolidation is what keeps us going and growing. We believe 
hospital consolidation will continue and physician 
consolidation is ongoing. We have seen that consolidation has 
decreased competition, added excess infrastructure, decreased 
physician autonomy, contributed to our costs, and decreased 
consumer choice. Detailed information corroborating our 
position on the effects of provider consolidation can be found 
in my written testimony.
    The most critical point I would like to make is that 
provider consolidation has increased provider leverage at the 
negotiating table, including contractual language that limits 
what employers can do and still access competitive rates. For 
instance, we are not able to provide incentives to direct 
patients based on cost and/or quality. Additionally, there are 
significant limits on quality and price transparency, which is 
a must-have for true health care reform. To allow transparency 
to work for consumers, providers must be forced to publicly 
report their contracted rates and all quality measures.
    The final point I would like to make is that we do need to 
provide care efficiently and effectively in a patient-centered 
model where patients get care according to established 
appropriateness and by the right provider. Integrated or what 
once was called coordinated care is the goal, but it does not 
necessitate consolidation.
    We are expecting more consolidation as providers get ready 
for health care reform and form accountable care organizations. 
Physicians want to keep their autonomy but feel they have no 
choice. The fear of the unknown is driving defensive behavior. 
The race is on to lock up market share.
    In summary, as employers, our ability to control our costs 
is significantly compromised by the provider leverage and 
control achieved through consolidation. Employers' choices to 
reduce coverage or workforce are not good choices.
    Lastly, we believe in the promise of patient-centered care 
with full price and quality transparency, physician autonomy 
and leadership, payment reform, and consumer choice to reform 
our Nation's ailing health care system.
    Chairman Herger, Ranking Member Stark, I would like to 
thank both of you and the committee for your time and the 
opportunity to have an employer-based person share their 
testimony on this very important topic. It is indeed an honor 
to share my thoughts and experience with all of you. I look 
forward to your questions and comments.
    [The prepared statement of Ms. Kiehl follows:]




    Chairman HERGER. Thank you.
    Mr. Guarino is now recognized for 5 minutes.

   STATEMENT OF MICHAEL GUARINO, MEMBER, BOARD OF DIRECTORS, 
  AMBULATORY SURGERY CENTER ASSOCIATION, WEEKI WACHEE, FLORIDA

    Mr. GUARINO. Chairman Herger and Ranking Member Stark, 
thank you for inviting me to testify on health care 
consolidation.
    My name is Michael Guarino, and I live in Weeki Wachee, 
Florida. I manage the operations of five ambulatory surgery 
centers, better known as ASCs, in New York and Florida. I am 
testifying on behalf of the Ambulatory Surgery Center 
Association for which I serve as a board member.
    I have worked for more than 15 years in the management of 
ACSs and physician practices, and I manage both single- and 
multi-specialty centers. I commend you for convening this 
hearing to explore the impact of consolidation in the health 
care industry, as I believe this phenomenon has increased 
recently and may raise overall health care costs.
    In theory, consolidation may bring efficiencies to the 
market by reducing excess capacity and duplication. However, I 
have seen firsthand that consolidation can also be anti-
competitive and may result in virtual monopolies in certain 
markets where patients are funneled into higher cost settings.
    Surgery centers are health care facilities that specialize 
in providing essential surgical and preventative services in 
the outpatient settings. Surgery centers have transformed the 
outpatient experience by offering a convenient, personalized, 
lower price alternative to hospitals. With approximately 5,300 
Medicare-certified facilities, surgery centers perform more 
than 25 million procedures each year, which constitutes nearly 
40 percent of all outpatient surgeries nationwide.
    As you may know, on average, Medicare now pays surgery 
centers about 56 percent of the hospital outpatient department 
payment rate for providing identical services. For instance, a 
hospital receives almost $2,000 reimbursement when a knee scope 
procedure is performed, while a surgery center only receives 
nearly $1,200 for the same service. This means surgery centers 
are an enormous source of savings to the Medicare program, 
cutting costs for the program by approximately $2.5 billion a 
year.
    We stand ready to work with Congress to reduce Medicare 
outpatient surgery costs even further. For example, if just 50 
percent of the cases performed in a hospital setting that are 
eligible to be performed in a surgery center were moved to the 
surgery center, Medicare would save an additional $20 billion 
over 10 years.
    But there is a flip side to this growing disparity in the 
payment that surgery centers and hospitals receive. Just 8 
years ago, surgery centers were paid 86 percent of the hospital 
rate. As that rate has slipped to 56 percent, there is now a 
growing payment incentive to treat these patients in the 
hospital. Indeed, we are now starting to see a number of 
hospitals acquiring surgery centers and converting them into 
HOPD. A recent analysis conducted by our Association found that 
of 179 surgery center closures since 2009, about one-third were 
purchased by hospitals. The result is that Medicare will pay 
substantially more for its beneficiaries to receive identical 
services.
    My own experience may also be illuminating. I have been 
approached by a hospital or hospital system to sell my surgery 
centers in every market in which I operate. One hospital system 
presented an economic analysis showing that one surgery center 
could increase its annual revenue by over $4 million simply by 
allowing the hospital to acquire the surgery center. This 
revenue increase would occur only because we would be paid more 
by Medicare and commercial insurance for the exact same cases.
    In another market, the vice president of operations of a 
major health care system suggested that I either allow them to 
purchase my single specialty surgery center or watch as my 
surgery center became worthless when the not-for-profit 
hospital system became an accountable care organization.
    In my New York market, all three hospital systems have 
contacted me about acquiring the outpatient surgery center. In 
addition, virtually all my referring doctors were approached by 
a hospital system to enter into a management agreement that 
effectively prohibits physicians from referring cases to any 
facility not affiliated with their hospital system.
    What would be the impact on Medicare when this acquisitions 
occur? The answer is that the beneficiaries will pay 
substantially higher copays for the outpatient surgical 
procedure. For example, a beneficiary's copayment for cataracts 
would soar from a little less than $200 to well--if she 
received the procedure at a surgery center--to nearly $500 for 
the exact same service instead provided at a hospital. 
Similarly, the price Medicare would pay for a colonoscopy and 
biopsy would nearly double from $370 to $647.
    What should be done about this phenomenon? Congress has the 
obligation to ensure the proper incentives to provide high-
quality care at the most economical price.
    Among the key areas that should be addressed: implement 
transparent quality and cost-sharing reporting across settings 
to better inform patients about their treatment options; ensure 
that ASC payment updates keep pace with the updates from the 
same services provided in hospitals; surgery centers and 
hospitals confront the same inflationary challenges of hiring 
and retaining nursing and purchasing medical supplies; provide 
vigorous oversight of accountable care organizations to ensure 
they do not hinder competition and lead to higher costs.
    Once again, thank you for inviting me to participate in 
this hearing.
    [The prepared statement of Mr. Guarino follows:]




    Chairman HERGER. Thank you.
    Mr. Balto is now recognized for 5 minutes.

 STATEMENT OF DAVID BALTO, SENIOR FELLOW, CENTER FOR AMERICAN 
             PROGRESS ACTION FUND, WASHINGTON, D.C.

    Mr. BALTO. Thank you, Chairman Herger, Ranking Member 
Stark, and the rest of the committee.
    I am David Balto, a Senior Fellow at the Center for 
American Progress. My testimony today is based on over 15 years 
as a government antitrust enforcer at the FTC and the 
Department of Justice and my experience as a public interest 
lawyer representing consumers and other groups.
    I have a simple message for you today. I applaud you for 
holding this hearing. Concentration in any market is certainly 
problematic, definitely in health care markets, and antitrust 
enforcement plays an important tool here.
    Let's start off with health insurance. Unfortunately, 
because of a complete lack of health insurance antitrust 
enforcement, almost all health insurance markets in the United 
States are highly concentrated. You know the results of that--
you heard about it in the last congressional session--
skyrocketing premiums, consumers harmed by egregious and 
deceptive conduct by health insurance companies. Fortunately, 
Congress has enacted the Affordable Care Act which gives us 
tools to go and help to deal with some of these problems. I 
know not all of you voted for it, but watch and see. I think it 
is going to be effective in grappling with many of these 
problems.
    Fortunately, the new antitrust enforcers at the Department 
of Justice have set a line in the sand and simply said no more 
consolidation when it comes to health insurance, and they have 
gone after anti-competitive practices that stop markets from 
performing effectively, and that is really important.
    Now, an area where the antitrust enforcers have been asleep 
at the switch are pharmacy benefit managers which play a 
crucial role in managing drug benefits. Two of the three of 
them now plan to merge, Medco and Express Scripts. They will 
have over 50 percent of the large plan market. They will have 
over 150 million covered lives. They will be phenomenally 
larger than anybody else.
    And I should have said right at the beginning, I represent 
consumer groups, unions, and specialty pharmacies in advocating 
against this merger before the FTC.
    This merger will significantly increase the cost of the 
specialty drugs. For the millions of vulnerable consumers who 
need specialty drugs, it will deny them the choice they need 
because these two firms control the two largest specialty 
pharmacies in the United States.
    Hey, this hearing is about providers with too much market 
power. Go back to your districts. Go look at your community 
pharmacist. Look him in the eye and you tell me does he have 
market power. Community pharmacists are the life bone to our 
drug delivery system. They are there advising patients, helping 
them deal with their drug benefits, delivering high-quality 
care. They don't have any market power, but these PBM mergers 
threaten to drive them out of business by forcing consumers to 
mail order, which is more expensive and leads to less care.
    Finally, for you as members of the Ways and Means 
Committee, this PBM merger is important. Government programs 
such as TRICARE, Medicare Part D, and FEHPB rely on these PBMs. 
You are going to have only two choices at the end of the day.
    Let's turn to the issue of hospital consolidation, which is 
a big part of this discussion here. There is no doubt that 
there are economic studies that suggest that these mergers lead 
to higher costs, but there is a tremendous need for hospital 
consolidation. There is no doubt that there is overcapacity. 
There is no doubt that there is a need for certain types of 
consolidation. Fortunately, antitrust enforcement has been 
ramped up in this area. The FTC has brought some significant 
cases and, also, the Department of Justice has gone after anti-
competitive practices that prevent other hospitals from being 
able to effectively compete. The combination of both active 
antitrust enforcement and greater regulation offers a promise 
here.
    Now, I agree with the other panelists about what the 
solutions are here. Besides antitrust enforcement, we have to 
look for market mechanisms to make the market work. Is there 
adequate transparency so employers get the right price signals, 
so consumers get the right price signals, so consumers are 
choosing the health care that is lowest cost and leads to the 
best quality? We have got to make sure that there is nothing 
that prevents that.
    And important here could be the possible role of the FTC in 
helping to go and educate the market to make sure that there is 
adequate transparency but, also, when there are problems such 
as the referral power that was mentioned earlier, where you 
have a group of providers with referral power, the FTC can go 
after that kind of conduct under Section 5 of the FTC Act.
    Finally, if there is a concern about the impact of ACOs, 
let me make one suggestion to my friends at the FTC and the 
DOJ. People are concerned that the ACOs will be controlled by 
dominant hospitals. That is a legitimate concern. It is time 
for the FTC and DOJ to adjust the antitrust standards so 
doctors can get together and form ACOs that are competitive to 
the ACOs that are controlled by the hospitals. Unfortunately, 
the standards the FTC and DOJ have been applying are too strict 
in this area.
    My testimony ends with several other suggestions for 
revitalized antitrust enforcement, and I appreciate the 
opportunity to appear before you today.
    [The prepared statement of Mr. Balto follows:]




    Chairman HERGER. Thank you.
    Mr. Gaynor, research indicates that provider consolidation 
results in higher prices. Who ultimately ends up paying these 
prices?
    Mr. GAYNOR. Thanks for the question.
    The folks that ultimately end up paying for that are folks 
who have employer-provided health insurance. There is a lot of 
research evidence that shows that if health benefit costs for 
employers go up, those costs get passed on to workers, either 
in the form of lower pay or pay increases that are lower than 
they would otherwise have gotten, greater cost sharing for 
health insurance, or reduced benefits for health insurance, 
including, in some cases, elimination of the provision of 
health insurance entirely.
    Chairman HERGER. Generally speaking, does consolidation 
result in improved quality of care or increased efficiency? And 
please explain.
    Mr. GINSBURG. Consolidation has the potential to do these 
things, but I think Dr. Gaynor had mentioned the literature--
and I don't want to paraphrase him wrong--but I think there is 
no evidence of a consistent pattern; is that correct?
    Mr. GAYNOR. Yeah. For hospitals, again, if a consolidation 
is actually real, there is real integration, it will keep 
operating. Say two large orthopedic or oncological centers they 
consolidate, there can be real cost savings, but the evidence 
is that prices go up when there is consolidation. So if cost 
savings are realized those are not being passed on to 
consumers.
    The only other evidence that I know we have on 
consolidation comes from some hospital organizations during the 
1990s, and that does not provide evidence of substantial 
efficiency gains from that kind of integration at that time. 
Doesn't improve quality, either.
    Chairman HERGER. Thank you.
    Mr. Guarino, the difference in Medicare payment for the 
same procedure when it is done in an ambulatory surgical center 
versus a hospital outpatient department is striking. Can you 
walk through an example for a specific procedure so that we are 
clear on the discrepancy and the cost implication for 
beneficiaries and the taxpayers who largely fund the Medicare 
program?
    Mr. GUARINO. Yes, Mr. Chairman.
    On a knee scope, the hospital would receive $2,042, where a 
surgery center would receive $1,167 for the exact same 
procedure, and then there would be--the copay would be based on 
the dollar amount that the hospital would have charged, the 
higher amount.
    Chairman HERGER. Thank you.
    Mr. Stark is recognized.
    Mr. STARK. Thank you, Mr. Chairman.
    As I listen to the witnesses today, it becomes clear to me 
that Medicare has an advantage in the marketplace because it is 
a national program and pays defined rates. It doesn't run into 
negative consequences of consolidation the way that consumers 
in the private health care system may. I would ask Dr. Ginsburg 
and Mr. Balto if that doesn't suggest that a Medicare-for-all 
or an all-payer system might be the best answer for our health 
care system in the future. It seems to me that with that system 
we get the advantages of integration, increased efficiency, 
quality, and reduced waste, without having to worry about price 
consequences in local communities.
    I don't know if you gentlemen would like to comment on 
that.
    Mr. GINSBURG. There certainly are pros and cons of 
Medicare-for-all or rate setting, but I would say that, one of 
the pros for both is the ability to prevent consolidation from 
leading to much higher prices paid by the purchasers of medical 
care. It can be achieved through a broader Medicare program or, 
alternatively, in a private insurance system, it can be 
achieved through a rate-setting mechanism.
    Mr. BALTO. And I agree with Dr. Ginsburg. I think, you 
know, a powerful buyer like Medicare can really drive 
efficiency in the system and you see much greater efficiencies 
in the Medicare system.
    Mr. STARK. Thank you.
    Thank you, Mr. Chairman.
    Chairman HERGER. Thank you.
    Mr. Reichert is recognized for 5 minutes.
    Mr. REICHERT. Thank you, Mr. Chairman; and thank you all 
for being here today.
    I have just a real quick question for Mr. Gaynor. In your 
slide presentation, one of the bullet points states that there 
is evidence of substantial market power in the Medigap market. 
What do you attribute the reason for that?
    Mr. GAYNOR. Thanks for the question.
    I should clarify in a couple of ways.
    One, this is a recent study--or, actually, there is a 
couple of recent studies, so there is not a huge evidence base 
on this, but the evidence that is out there does point in that 
direction, one.
    Two, there are a small number--or I should say, rather, 
that market is dominated by a couple of large insurers, and 
that is probably the reason for that.
    Mr. REICHERT. What is the impact on Medicare Advantage 
then? Is part of the increase to the Medigap market the cuts to 
Medicare Advantage, seniors maybe moving to that market, or is 
it just because we have these two large organizations that have 
consolidated?
    Mr. GAYNOR. Yeah. I think that the main impact is because 
the Medigap market is dominated by two large insurers offering 
the product. There may be spillover effects onto Medicare 
Advantage, for that matter, traditional Medicare as well, but 
there isn't any research evidence on that directly.
    Mr. REICHERT. AARP's role in advertising have anything to 
do----
    Mr. GAYNOR. It could, it could, but I am not----
    Mr. REICHERT. Their special label might have some impact 
there, you think?
    Mr. GAYNOR. Well, I don't have specific knowledge about 
that, but the evidence that I am referring to did say that 
brand name had a lot to do with that, without referring 
specifically to AARP, to be clear.
    Mr. REICHERT. Yes, sir. So this is a question for the 
entire panel, specifically to the dialysis industry and their 
consolidation. There is enormous consolidation taking place in 
that venue. For the past decade that has been happening, and 
there has been a recent acquisition, as you know, in this past 
week. Just two extremely large for-profit dialysis companies 
provide care to over now 65 percent of everyone in this country 
who require dialysis to stay alive. What impact is that going 
to have in that specific market on the choices, the price that 
people will pay, the access that people will have--won't it 
have the effect of eliminating those smaller neighborhood 
dialysis centers where people would have maybe better access 
to--what is the impact on these large consolidations in the 
dialysis arena?
    Mr. BALTO. Congressman Reichert, you are right. This week 
the Federal Trade Commission acted in the DaVita matter 
requiring divestiture of I believe 29 centers which the FTC, 
based on its investigation, believes is going to be sufficient 
to alleviate the competitive concerns raised by the merger. 
They looked specifically at a wide variety of geographic 
markets and in markets that they believed were very 
concentrated required the divestiture. I am not sure that the 
FTC's action is adequate. The FTC action leaves very few 
national players in the market, but their focus was primarily 
on just these 29 individual markets.
    Mr. REICHERT. Any other comments?
    How about home dialysis? Any impact on that that you would 
see, Mr. Balto, or anyone else on the panel?
    Mr. BALTO. No.
    Mr. REICHERT. No?
    Mr. Ginsburg, can you talk a little bit about why a 
hospital might want to purchase a local physician practice? I 
know you touched on this a little bit, but could you go through 
some of the reasons why that might happen again, please.
    Mr. GINSBURG. Sure. One of the points that I made--and we 
published a study about two weeks ago on this--is that even 
though in theory preparing for integration, accountable care 
organizations, employing physicians would be helpful, but I 
believe that much of the current activity is motivated by 
opportunities in the current fee-for-service system. And, 
basically, hospital strategies in recent years have been to 
identify fairly profitable service lines; and sometimes to 
expand a service line by going and recruiting physicians, 
prominent physicians. Hospitals are always battling each other 
over market share, and employing physicians is a way to get 
market share from one's competitors. Those are the key drivers.
    Mr. REICHERT. Thank you, Mr. Chairman. My time is expired.
    Chairman HERGER. Mr. Kind is recognized for 5 minutes.
    Mr. KIND. Thank you, Mr. Chairman. Thank you for holding 
this very important hearing.
    I want to thank the witnesses for your testimony today, 
especially welcome Ms. Kiehl from my home in State in 
Wisconsin, very fascinating testimony. What is even more 
amazing is the results you have been able to achieve with the 
group that has been formed, the consolidation of the employers.
    If I read your testimony correct, you went from moving the 
insurance rates for your employers from 39 percent above the 
Midwest average in 2003 to 6 percent below the Midwest average 
by 2009, which is an amazing transformation; and it seems to me 
that what you have been able to achieve there through this 
collaboration of employers is a model we ought to be looking at 
nationwide. Yet it doesn't seem to be catching on in other 
areas. Why is that? Why aren't we spreading this model out so 
other employers can take advantage of what you have been able 
to establish?
    Ms. KIEHL. Well, let me just clarify. We didn't do that 
single-handedly. We definitely contributed to the market. We 
were a force in the market. We do get credit for what we did in 
the market, but there is a lot of activity going on in 
Wisconsin, as you probably well know, Representative Kind.
    Mr. KIND. Yeah.
    Ms. KIEHL. So we were definitely a force, especially in 
southeastern Wisconsin, which is heavily populated.
    The reason why it is hard to roll this approach out around 
the country is that you have to think about it from an 
employer's perspective. Let me explain the difficulty that we 
run into when we try to add more employers to our group. I can 
tell you I spend many hours in bed at night wondering why 
doesn't every employer in our market join our group. That would 
make it really good, and we could really deliver much better 
results. But the dilemma is that employers are multi-State, 
obviously global even. So they look at their plan designs and 
they look at their networks and they look at who serves them 
best across the country.
    We have a very unique model because we did not want to 
duplicate the infrastructure related to contracting with 
providers. We chose a strategy of having one sole 
administrator. So the dilemma is a lot of employers want one 
administrator and maybe the one we chose is not the one that 
works for them across the country. They need to change that 
focus of thinking that health care can be handled across a 
broad geographic area, and they need to look at what do they 
need to do in each market to control health care costs because 
then they would join our group and we would have more impact.
    Mr. KIND. Let me ask you--because my time is limited and I 
know my colleagues get tired of me talking or bragging about 
what is going on in Wisconsin, but there are a lot of unique 
things that we should be talking about to take nationwide. The 
Wisconsin Collaborative Health Care Quality that you referenced 
in your testimony, this was voluntary collaboration of health 
care providers joining forces in order to establish quality 
measurements to determine what works, what best practices 
protocols of care that they are sharing amongst each other. The 
Wisconsin Health Information Organization, the ability for 
public-private partnership to collect the data for greater 
transparency in the marketplace, too, things that I think 
virtually all of you were touching upon.
    But as we go forward with this supercommittee over the next 
couple of months looking for long-term deficit reduction to 
deal with the structural problem that we are facing, obviously 
health care costs is the major item. If we don't get a grip on 
the rising health care costs, virtually anything else we do 
really isn't going to matter.
    So there are three options the way I see it that we face. 
We can either go after the providers, asking for deeper cuts, 
and even though there are some already in the Affordable Care 
Act, more would be asked to start shifting costs to the 
beneficiaries and given the state of beneficiaries today that 
is not a very pleasant option, or we can change the way we pay 
for health care in this country. And that is something that is 
being worked on right now under the Affordable Care Act, 
changing the fee-for-service system to a fee-for-value or a 
quality-based reimbursement system.
    How important do you think that will be as far as the 
overall health care system is changing how we pay for health 
care in this country and getting away from these volume 
payments to payments based on results, quality, or value? Ms. 
Kiehl?
    Ms. KIEHL. Well, I actually think it is very important, but 
it is also very difficult. You are trying to change history of 
how claims and how services have been paid for, and the 
administrators or the carriers across the country, they have 
mega systems of IT that is not going to be able to turn on a 
dime. So it is going to take a long time I think to do this in 
an efficient way.
    Administrators and providers can handhold certain payment 
reform projects. We are doing some projects in Wisconsin, and 
we will get collaboration from some providers and 
administrators to be able to pilot some of these projects. But 
it will slow down the throughput on auto adjudication. It will 
take some time to automate these new payment approaches.
    Mr. KIND. I think a hearing on consolidation, the impact 
that is having on prices is fine, but unless we get a grip on 
the ultimate payment system, the incentives that are built in, 
encouraging more volume rather than to focus on value or 
outcomes, we are going to be spinning our wheels. And you are 
right. We are not going to change the way we pay for one-fifth 
of the entire U.S. economy overnight. It is going to require a 
transition period. I think that needs to be the ultimate goal.
    Thank you, Mr. Chairman.
    Chairman HERGER. Thank you.
    Gentleman from Georgia, Mr. Price, is recognized for 5 
minutes.
    Mr. PRICE. Thank you, Mr. Chairman. I want to commend you 
for holding this hearing.
    I want to thank the witnesses.
    The costs in health care are a concern for all. I would 
respectfully suggest that the major fundamental change that has 
occurred in health care over the past 2 years has been the bill 
that was passed by Congress that really does nothing to address 
the costs in health care, with the exception of the ability of 
the Federal Government to deny care to recipients.
    There is significant evidence that the market is so 
distorted I believe by rules and regulations from the Federal 
Government that we are not even talking about market forces 
anymore. All that I heard from the four to the left here are 
all the defensive activities that are going on in the market to 
just try to navigate the system, and what is lost in all of 
that is the patient, and we have had some allusions to quality 
care but most of this is talking about cost.
    Mr. Gaynor, in your presentation, there is a little line in 
there that says that regulated prices, especially in the 
Medicare system, that the consolidation in this area reduces 
quality of care. Would you expand briefly on that, please?
    Mr. GAYNOR. Sure, of course.
    So the evidence is as follows: There have been a number of 
studies in this area. The most prominent one looked at impacts 
on mortality for Medicare beneficiaries who are suffering from 
heart attacks, and what they found is that mortality rates were 
substantially higher for Medicare beneficiaries who had heart 
attacks who obtained care in the most concentrated hospital 
markets. Indeed, the mortality rate was on average one and a 
half percentage points higher for these heart attack patients 
if they were treated at a hospital in a highly concentrated 
market as opposed to a hospital in a less concentrated market.
    So price is not an issue here. Obviously, prices are set by 
fiat, but quality of care is something that is still an issue.
    I also can mention some research I have done recently with 
some colleagues in the U.K. The British National Health Service 
recently moved to a system where they tried to encourage 
competition among hospitals and used regulated prices like our 
Medicare prices, and our evidence is very much like the 
evidence from the U.S.
    Mr. GAYNOR. We find that patients do better when they are 
served by hospitals that are in less concentrated markets as 
opposed to more concentrated markets.
    Mr. PRICE. And I think this really is the major issue. As a 
physician, I can tell you that the patients are concerned about 
costs, yes, but they are concerned about quality. And the 
physicians in this country are concerned about quality, and 
they believe, many of them, that the quality that they are able 
to provide is being limited by the rules that are coming out of 
Washington.
    Mr. Guarino, I want to discuss, the evidence is pretty 
clear that ASCs, ambulatory surgery centers, many of which are 
physician-owned--provide higher quality care at lower costs. 
And yet the bill that was recently passed limits the number of 
physician-owned hospitals--and ASCs fall under this--to any 
expansion at all. What is going on?
    Mr. GUARINO. I think that is a better question for you 
guys.
    Mr. PRICE. Why do you think anybody would come up with a 
public policy that wants to do away with facilities that 
provide higher quality at lower costs? What is the rationale 
there?
    Mr. GUARINO. You possibly could look at the marketplace, 
what is being driven in the marketplace regarding with the--who 
we are in competition with. I know there has been concerns 
regarding physician ownership in surgery centers like you have 
said in the past, but it has been proven patient satisfactions 
are higher, quality, and the savings to the system.
    Mr. PRICE. So an ideal public policy then for decision 
makers here ought to be to expand the kind of facilities that 
you are representing here, as opposed to limit them. Would that 
be an appropriate statement?
    Mr. GUARINO. Yes, it would be.
    Mr. PRICE. I want to touch, Mr. Balto, on the comments that 
you made about antitrust reform for physicians. Noneconomically 
aligned physicians out there, the mom and pops, the smaller 
practices have been at the mercy of larger entities, whether it 
is insurance companies or the government or other provider 
entities that are much larger. And I think I heard you say that 
you supported, you encourage the administration to support 
anti-trust relief for those physicians so that noneconomically 
aligned physicians could pool together and negotiate with 
hospitals, insurance companies, and others, is that correct?
    Mr. BALTO. Yes, I strongly support that. I testified to 
that in other contexts. That was actually legislation proposed 
by former Republican Congressman Tom Campbell, and I think it 
is something physicians really need to create a balance and 
better protect the health care of consumers.
    Mr. PRICE. Thanks. I think you are absolutely right and 
encourage you to continue to champion that in the 
administration.
    Ms. Kiehl, in my very brief moments--in fact, the clock 
just turned, so I apologize. We will get questions to you on 
the record.
    Chairman HERGER. Thank you, Dr. Price.
    Now Mr. Johnson will be recognized for 5 minutes.
    Mr. JOHNSON. Thank you, Mr. Chairman.
    You know, it appears to me, at least in the Dallas area, 
that physician-owned hospitals versus other hospitals are doing 
a better job at lower cost. I don't know if you can confirm 
that or not, Dr. Ginsburg.
    Mr. GINSBURG. I don't have any specific evidence to compare 
physician-owned with other hospitals.
    Mr. JOHNSON. Why would we want--why does a hospital want to 
purchase physician practices right now? Can you talk to that?
    Mr. GINSBURG. Yes. Hospitals are continually competing with 
each other for--to get more patients, and the way they do this 
is to try to align physicians with them. And since employing a 
physician is the ultimate alignment----
    Mr. JOHNSON. Well, that is happening all around, but I 
don't see any reduction in cost.
    Mr. GINSBURG. I wouldn't expect any. For one thing, we know 
that hospitals are able to negotiate much higher reimbursement 
rates from private insurers for their employed physicians than 
physicians are able to obtain in small practices.
    Mr. JOHNSON. But that is costing you and me more when we go 
to the hospital.
    Mr. GINSBURG. Absolutely. It is costing us more when we pay 
our insurance premiums. And, as Dr. Gaynor mentioned, even when 
it is employer-paid coverage, the employees ultimately pay the 
bill.
    Mr. JOHNSON. Well, is there a deterioration in innovation 
and quality?
    Mr. GINSBURG. As far as hospital-employed physicians, if 
hospitals are going to innovate and integrate delivery, 
coordinate care, having employed physicians is going to be an 
asset to them. Because in the traditional staff relationships, 
hospitals can have a lot of trouble engaging physicians in 
efforts to improve quality or coordinate care. So it is going 
to be an asset if the system goes in that direction.
    Mr. JOHNSON. Okay. Well, I am told that docs aren't even 
going to school anymore because it doesn't look like a 
profitable profession, and they work them too long.
    Ms. Kiehl, what do you think the current barriers are to 
transparency? And is there anything this subcommittee can do to 
remove those barriers?
    Ms. KIEHL. Well, I think one of the barriers is that 
providers contract with all the different plans at varying 
rates. So they can't even tell--their front office can't tell a 
consumer what something will cost for that specific consumer. 
Try some time to find out what your rate would be for a 
colonoscopy. They really can't tell you. Because they would 
have to go back to the contract and figure it out. So it is 
very difficult.
    So this varying rate business really interrupts the ability 
to efficiently provide transparency.
    And the other barrier is the administrators, who also don't 
want their rates to be disclosed because that would give an 
advantage to the administrator who had the best rate. This is 
why we believe that providers should be in charge of setting 
what they charge for something, meaning they should decide what 
they can afford to charge for something, and they should 
compete with each other versus competing at a network level 
where the consumer really has no ability to impact. They can't 
choose their administrator, the employer chooses.
    So are people going to call a prospective employer and 
first ask them,--do you offer a health benefit plan that has 
the best prices in the market? Otherwise they just end up 
getting subject to whatever price happens to be in place with 
their employer's carrier or their administrator to deliver 
their service need. So it is just a dilemma that we are faced 
with at this time.
    The other thing is that providers don't want to display 
their rates either, because then everybody will know who does 
what at the best rate, and there is a lot of controversy on 
that in the provider community. So there are confidentiality 
clauses that are in place in the contracts on both the 
administrator side and the provider side that interferes with 
transparency.
    The consumer is the one who really needs to have access to 
the rates. They are the purchaser. Where else can you go and 
purchase something and not know the cost until after it is 
delivered to you? It doesn't make sense.
    Mr. JOHNSON. Okay. Thank you.
    Mr. Balto, you had a comment.
    Mr. BALTO. Yes. Sometimes our Federal Government creates 
impediments to transparency; and, as an example, the Federal 
Trade Commission has come out in opposition to transparency in 
the PBM market. Certainly this is an area where there is a 
desperate need for transparency. PBMs basically play the 
spread, getting one price for drugs and charging something much 
greater; and for some very-difficult-to-discern reason the FTC 
has come out and said transparency is bad. I don't think there 
is a person in the Halls of Congress that would come out saying 
transparency is bad.
    Mr. JOHNSON. Thank you.
    Thank you, Mr. Chairman.
    Chairman HERGER. Thank you.
    I apologize to our panelists and our members. We do have a 
series of a couple votes followed by a moment of silence. What 
I would like to do is, before calling on Mr. Pascrell for 5 
minutes, to announce that we will--I would ask the members to 
come back immediately after the moment of silence so we can get 
in maybe a final half hour of questioning before we adjourn.
    But, with that--and we will recess at that time, but Mr. 
Pascrell is recognized for 5 minutes.
    Mr. PASCRELL. Thank you, Mr. Chairman.
    Mr. Balto, you express very particular concerns about the 
health insurance industry and the results of a private market 
that hasn't protected the consumer and it has led to a dramatic 
increase in premium prices. The facts are the facts, Mr. Balto, 
would you agree?
    Mr. BALTO. Yes.
    Mr. PASCRELL. While I pointed out earlier this year that 
when reform is implemented--is implemented--premiums will be 
reduced by 9.2 percent for American families with employer-
based insurance or, to put it better, $2,000 per family, I 
don't believe we discussed certain details like the CO-OP 
Program in health care reform.
    According to a Commonwealth Fund report of May, 2010, do 
you know that the CO-OP Program in health care reform will 
support the creation of a new health plan in every State of the 
Union? Is that correct, Mr. Balto?
    Mr. BALTO. Yes.
    Mr. PASCRELL. Do you believe that the CO-OP Program, 
Section 1322 of the health reform bill, will help infuse 
competition into this private market which everyone wants to 
save and says is competitive?
    Mr. BALTO. I think the CO-OP Program is important, along 
with other provisions of the ACA which I have detailed in my 
testimony. It is going to provide greater transparency. It is 
going to force the insurance companies to compete at a level 
that they haven't had to compete up until now.
    Mr. PASCRELL. Do you think that there is more that the 
Federal Government can do, that we can do to protect the 
consumer and promote competition in the health insurance 
market?
    Mr. BALTO. Two things quickly. You should repeal the 
McCarran-Ferguson Act which, for some reason, gives the health 
insurance companies an anti-trust exemption. The only other 
people that get it is baseball.
    And then, second, the FTC should establish a bureau to deal 
with consumer protection problems in the health insurance 
industries.
    Mr. PASCRELL. There haven't been too many Justice 
Departments, regardless of who the President is, that have 
recommended that, Mr. Balto. So we shouldn't hold our breath 
over that.
    Mr. BALTO. Actually, the current Justice Department does 
recommend repeal of the McCarran-Ferguson Act.
    Mr. PASCRELL. Who recommended that?
    Mr. BALTO. Christine Varney in testimony in the last 
session.
    Mr. PASCRELL. Somehow that got by us, I guess. We have been 
talking about this for years. Do you think it is possible?
    Mr. BALTO. Yes. It passed by a strong--over 400 Congressmen 
in the last session voted to repeal the McCarran-Ferguson act.
    Mr. PASCRELL. Well, why haven't we done that?
    Mr. Chairman, we ought to take a look at that. I think that 
is critical. I think it is essential to everything that we talk 
about in terms of health care. Even the good doctor from 
Georgia agrees with me, right?
    Mr. PRICE. Even.
    Mr. PASCRELL. Very good.
    The Consumer Operated and Oriented Plan, the CO-OP, was 
created by Section 1322. I think this is very, very important 
to what health care--it is not a perfect piece of legislation, 
but I think that this CO-OP is very important in Section 1322. 
It supports the establishment of nonprofit health insurance 
plans to compete with plans in the current market. How do you 
think that is going to fly?
    Mr. BALTO. I think it is going to be an important 
competitive for us. We like to call it, in anti-trust jargon, a 
maverick, someone whose incentives are going to be totally 
different, they are going to be very consumer oriented. And if 
there is sufficient transparency and choice, and the exchanges 
are going to help ensure that, you are going to see a change 
and a significant improvement in competition in health 
insurance markets.
    Mr. PASCRELL. Thank you very much.
    Thank you, Mr. Chairman.
    Chairman HERGER. Thank you.
    Again, this committee will recess. We will come back 
immediately after the moment of silence. Thank you.
    [Recess.]
    Chairman HERGER. The Ways and Means Health Subcommittee 
will come to order.
    Again, I apologize to our witnesses for the votes we have 
had. But, before this hearing wraps up, I would like to ask two 
questions.
    Dr. Gaynor, when plans, hospitals, or other brick-and-
mortar providers exit a market, it generally puts upward 
pressure on the prices consumers pay for health care. Are these 
higher prices transitory or a permanent issue for consumers?
    Mr. GAYNOR. Once prices go up, they stay up. Price 
increases are not rescinded.
    So a price goes up this year, it is going to stay high next 
year and the year after that and so on. If a hospital or a 
physician practice acquired market power and nothing changes 
that market power, they will continue to charge high prices.
    Chairman HERGER. So do hospitals reenter the market or do 
consumers just have fewer choices?
    Mr. GAYNOR. When hospitals exit, they don't reenter the 
market.
    Chairman HERGER. And, Dr. Ginsburg, Mr. Balto has suggested 
that provider consolidation is not a significant problem and 
that there is no evidence that higher physician costs are a 
significant driver of escalating health care costs. However, 
you have noted that consolidation between hospitals and 
physicians can result in higher costs. Can you describe the 
evidence you have seen in this point across the 12 markets you 
have examined?
    Mr. GINSBURG. Yes, certainly. First of all, as far as Dr. 
Gaynor mentioned before, the research on how hospital mergers 
affect prices is fairly clear that that leads to higher prices. 
As far as physician--hospital employment of physicians, we know 
just from our interviews, because we ask hospital executives 
and health plans how much they pay physicians who are employed 
by hospitals. And in many large metropolitan areas the payment 
rates private insurance for small physician practices is not 
very different from Medicare rates, sometimes a little higher, 
sometimes lower. But the rates that hospitals can achieve are 
substantially higher than Medicare rates.
    So this is a very recently developing phenomenon. There has 
been a wave of hospital acquisition of cardiology practices 
that began in 2010. So there hasn't been an attempt 
quantitatively to say how much of premium increases is due to 
greater hospital employment of physicians. But from our 
qualitative research it is very clear that this is going to be 
increasing premiums.
    Chairman HERGER. Thank you very much.
    I would like to ask unanimous consent to enter into the 
record a new Rand Corporation study released yesterday that 
shows hospital consolidation, not insurance consolidation, is a 
leading driver in higher health care prices.
    Without objection, so ordered.
    [The information follows:]



    
    Chairman HERGER. Again, I want to thank each of our 
witnesses for your testimony and for your insight. Your 
participation was integral in helping us understand the history 
of consolidation, its current trends, and its implications. The 
issue of consolidation warrants this subcommittee's attention 
as all health care cost drivers need to be closely examined, 
especially in this challenging economic and budget environment.
    While I believe that market approaches hold great promise 
for improving the situation, my intent is to use the 
information we learn from this hearing as a starting point for 
further assessment of the consolidation issue.
    As a reminder, any member wishing to submit a question for 
the record will have 14 days to do so. If any questions are 
submitted, I ask that the witnesses respond in a timely manner.
    With that, the Subcommittee stands adjourned.
    [Whereupon, at 11:50 a.m., the Subcommittee was adjourned.]
    [Submissions for the Record follow:]



                                 
