[House Hearing, 113 Congress]
[From the U.S. Government Publishing Office]



 
                 PATIENT PROTECTION AND AFFORDABLE CARE
                 ACT, CONSOLIDATION, AND THE CONSEQUENT
                  IMPACT ON COMPETITION IN HEALTHCARE

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

                                HEARING

                               BEFORE THE

                            SUBCOMMITTEE ON
                           REGULATORY REFORM,
                      COMMERCIAL AND ANTITRUST LAW

                                 OF THE

                       COMMITTEE ON THE JUDICIARY
                        HOUSE OF REPRESENTATIVES

                    ONE HUNDRED THIRTEENTH CONGRESS

                             FIRST SESSION

                               __________

                           SEPTEMBER 19, 2013

                               __________

                           Serial No. 113-51

                               __________

         Printed for the use of the Committee on the Judiciary


      Available via the World Wide Web: http://judiciary.house.gov


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                       COMMITTEE ON THE JUDICIARY

                   BOB GOODLATTE, Virginia, Chairman
F. JAMES SENSENBRENNER, Jr.,         JOHN CONYERS, Jr., Michigan
    Wisconsin                        JERROLD NADLER, New York
HOWARD COBLE, North Carolina         ROBERT C. ``BOBBY'' SCOTT, 
LAMAR SMITH, Texas                       Virginia
STEVE CHABOT, Ohio                   MELVIN L. WATT, North Carolina
SPENCER BACHUS, Alabama              ZOE LOFGREN, California
DARRELL E. ISSA, California          SHEILA JACKSON LEE, Texas
J. RANDY FORBES, Virginia            STEVE COHEN, Tennessee
STEVE KING, Iowa                     HENRY C. ``HANK'' JOHNSON, Jr.,
TRENT FRANKS, Arizona                  Georgia
LOUIE GOHMERT, Texas                 PEDRO R. PIERLUISI, Puerto Rico
JIM JORDAN, Ohio                     JUDY CHU, California
TED POE, Texas                       TED DEUTCH, Florida
JASON CHAFFETZ, Utah                 LUIS V. GUTIERREZ, Illinois
TOM MARINO, Pennsylvania             KAREN BASS, California
TREY GOWDY, South Carolina           CEDRIC RICHMOND, Louisiana
MARK AMODEI, Nevada                  SUZAN DelBENE, Washington
RAUL LABRADOR, Idaho                 JOE GARCIA, Florida
BLAKE FARENTHOLD, Texas              HAKEEM JEFFRIES, New York
GEORGE HOLDING, North Carolina
DOUG COLLINS, Georgia
RON DeSANTIS, FLORIDA
JASON T. SMITH, Missouri

           Shelley Husband, Chief of Staff & General Counsel
        Perry Apelbaum, Minority Staff Director & Chief Counsel
                                 ------                                

    Subcommittee on Regulatory Reform, Commercial and Antitrust Law

                   SPENCER BACHUS, Alabama, Chairman

                 BLAKE FARENTHOLD, Texas, Vice-Chairman

DARRELL E. ISSA, California          STEVE COHEN, Tennessee
TOM MARINO, Pennsylvania             HENRY C. ``HANK'' JOHNSON, Jr.,
GEORGE HOLDING, North Carolina         Georgia
DOUG COLLINS, Georgia                SUZAN DelBENE, Washington
JASON T. SMITH, Missouri             JOE GARCIA, Florida
                                     HAKEEM JEFFRIES, New York

                      Daniel Flores, Chief Counsel

                      James Park, Minority Counsel


                            C O N T E N T S

                              ----------                              

                           SEPTEMBER 19, 2013

                                                                   Page

                           OPENING STATEMENTS

The Honorable Spencer Bachus, a Representative in Congress from 
  the State of Alabama, and Chairman, Subcommittee on Regulatory 
  Reform, Commercial and Antitrust Law...........................     1
The Honorable John Conyers, Jr., a Representative in Congress 
  from the State of Michigan, and Ranking Member, Committee on 
  the Judiciary..................................................     5

                               WITNESSES

Sharis A. Pozen, Partner, Skadden, Arps, Slate, Meagher & Flom 
  LLP, representing American Hospital Association
  Oral Testimony.................................................     6
  Prepared Statement.............................................     9
Joseph Miller, General Counsel, America's Health Insurance Plans
  Oral Testimony.................................................    15
  Prepared Statement.............................................    17
Barak D. Richman, Edgar P. and Elizabeth C. Bartlett Professor of 
  Law and Business Administration, Duke University
  Oral Testimony.................................................    28
  Prepared Statement.............................................    31
Thomas P. Miller, J.D., Resident Fellow in Health Policy Studies, 
  American Enterprise Institute
  Oral Testimony.................................................    71
  Prepared Statement.............................................    73
Thomas L. Greaney, Chester A. Myers Professor of Law, Saint Louis 
  University School of Law
  Oral Testimony.................................................    93
  Prepared Statement.............................................    96
David Balto, Law Offices of David Balto
  Oral Testimony.................................................   108
  Prepared Statement.............................................   110

          LETTERS, STATEMENTS, ETC., SUBMITTED FOR THE HEARING

Prepared Statement of the Honorable Bob Goodlatte, a 
  Representative in Congress from the State of Virginia, and 
  Chairman, Committee on the Judiciary...........................   142
Prepared Statement of the Honorable Steve Cohen, a Representative 
  in Congress from the State of Tennessee, and Ranking Member, 
  Subcommittee on Regulatory Reform, Commercial and Antitrust Law   146

                                APPENDIX
               Material Submitted for the Hearing Record

Prepared Statement of the Honorable John Conyers, Jr., a 
  Representative in Congress from the State of Michigan, and 
  Ranking Member, Committee on the Judiciary.....................   149
Response to Questions for the Record from Sharis A. Pozen, 
  Partner, Skadden, Arps, Slate, Meagher & Flom LLP, representing 
  American Hospital Association..................................   151
Response to Questions for the Record from Joseph Miller, General 
  Counsel, America's Health Insurance Plans......................   168
Response to Questions for the Record from Barak D. Richman, Edgar 
  P. and Elizabeth C. Bartlett Professor of Law and Business 
  Administration, Duke University................................   169
Response to Questions for the Record from Thomas P. Miller, J.D., 
  Resident Fellow in Health Policy Studies, American Enterprise 
  Institute......................................................   173
Response to Questions for the Record from Thomas L. Greaney, 
  Chester A. Myers Professor of Law, Saint Louis University 
  School of Law..................................................   175
Response to Questions for the Record from David Balto, Law 
  Offices of David Balto.........................................   177


                   PATIENT PROTECTION AND AFFORDABLE
                    CARE ACT, CONSOLIDATION, AND THE
                    CONSEQUENT IMPACT ON COMPETITION
                             IN HEALTHCARE

                              ----------                              


                      THURSDAY, SEPTEMBER 19, 2013

                       House of Representatives,

                  Subcommittee on Regulatory Reform, 
                      Commercial and Antitrust Law

                      Committee on the Judiciary,

                            Washington, DC.

    The Subcommittee met, pursuant to call, at 1:02 p.m., in 
room 2141, Rayburn Office Building, the Honorable Spencer 
Bachus (Chairman of the Subcommittee) presiding.
    Present: Representatives Bachus, Goodlatte, Marino, 
Holding, Collins, Smith of Missouri, Cohen, Conyers, DelBene, 
and Garcia.
    Staff present: (Majority) Anthony Grossi, Counsel; Ashley 
Lewis, Clerk; Justin Sok, Legislative Assistant to Mr. Smith of 
Missouri; Jon Nabavi, Legislative Director to Mr. Holding; 
Jaclyn Louis, Legislative Director to Mr. Marino; Jennifer 
Lackey, Legislative Director to Mr. Collins; and (Minority) 
James Park, Minority Counsel.
    Mr. Bachus. The Subcommittee on Regulatory Reform, 
Commercial and Antitrust Law hearing will come to order.
    Without objection, the Chair is authorized to declare 
recesses of the Committee at any time.
    Mr. Cohen is engaged in the debate on the floor concerning 
the SNAP program, and he will arrive in the next few minutes. 
But he has asked me to go ahead and proceed.
    The first order of business is the opening statements by 
the Members.
    Let me welcome everyone to today's hearing on consolidation 
in the health care marketplace. The Patient Protection and 
Affordability Act--I am going to refer to it as Obamacare, as 
it is sometimes commonly known and referred to even in the 
press for brevity. But its effect or its impact on 
consolidation and the resulting effects on competition. The 
cost of health care is an issue that comes up almost on a daily 
basis in the news and certainly in conversations with my 
constituents and here on the Hill, especially small business 
owners.
    A way to curb these expenses and address the rising cost of 
Government entitlement programs like Medicare and Medicaid is 
to promote a competitive health care marketplace. As Members of 
the Judiciary Subcommittee with antitrust oversight, we have 
the responsibility to ensure that the laws passed by Congress 
do not produce anticompetitive effects and that our enforcement 
agencies are properly policing anticompetitive conduct.
    Today we will be focusing our oversight on the health care 
industry and the impact of the passage of the Affordable Care 
Act on consolidation and competition in the health care 
marketplace.
    Significant consolidation in the industry started around 
the beginning of the 1990's when there was an industry shift to 
managed care organizations. Nearly 2 decades later when 
Obamacare was signed into law, over 80 percent of the hospital 
markets and over 70 percent of the health insurance markets 
were considered highly concentrated by the standards used by 
the Department of Justice and the FTC. And I know some of our 
witnesses were with the FTC. In other words, Obamacare was 
enacted in an environment of clear consolidation in the health 
care industry which actually began to occur long before its 
passage.
    And now not all consolidation is necessarily negative. 
Consolidation can result in greater efficiencies. In the 
context of health care, this can translate into a higher 
quality of care at a lower cost.
    However, consolidation can be troubling when it falls into 
one of two categories. The first is consolidation in a 
particular market that reaches a level where competition is 
improperly stifled. The second is consolidation motivated by 
Government intervention.
    Our hearing today will focus on these types of 
consolidation. It is my belief that Obamacare with its top-
down, highly regulatory approach will further accelerate 
consolidation in the industry. Less competition in this case 
could mean less patient choice or will mean less patient choice 
and decisions being made according to Government dictates 
rather than according to the needs of consumers in the health 
care marketplace. Broadly speaking, this is a result of 
provisions in the law that compel the insurance industry to 
offer a more commoditized product where profits can be achieved 
only through economies of scale, incentivizing further 
consolidation activity and the health care services market by 
increasing regulatory burdens, revising Medicare and Medicaid 
reimbursement rates, and promoting the formation of 
consolidated entities commonly referred to as ``accountable 
care organizations.''
    We have a distinguished panel of witnesses here today that 
will provide us with testimony concerning the current state of 
the competitive landscape and how the new health care law has 
impacted and continues to impact consolidation and competition 
in the health care industry. And I look forward to hearing 
their testimony.
    And we have people of varying opinions and obviously 
contrasting opinions, and that is a part of a democracy. So I 
think by hearing all sides or different sides of an argument, 
we can form--at least hope to begin to form some opinions as to 
what the true state of the health care industry is as it 
relates to consolidation.
    Once we recognize other Members who wish to make an opening 
statement--I know Mr. Conyers is not here. Mr. Goodlatte is not 
here. Mr. Cohen is not here. So do the gentlemen from 
Pennsylvania or New York have anything they want to say? Two 
former U.S. attorneys with us. Watch what you say. Didn't I say 
North Carolina? Yes, I did.
    Without objection, other Members' opening statements will 
be made a part of the record.
    As I said, we have a very distinguished panel today, and I 
will begin by first introducing our witnesses and then we will 
move to the statements of our panelists.
    Ms. Pozen is a partner in the antitrust and competition 
practice group at Skadden, Arps. I am going to read the whole 
name of the law firm because Skadden, Arps is what we call it. 
Right? So it is Skadden.
    Ms. Pozen. Skadden.
    Mr. Bachus. Skadden. And she is representing the views of 
the American Hospital Association.
    Prior to joining the law firm, she served as Assistant 
Attorney General at the Department of Justice. During her time 
at DOJ, she oversaw the antitrust litigation that resulted in 
injunctions against the proposed purchase by AT&T of T-Mobile 
and of H&R Block's proposed merger with TaxACT. Ms. Pozen also 
served as an attorney advisor to FTC Commissioners Dennis Yao 
and Christine Varney.
    She received her B.A. from Connecticut College and her J.D. 
from Washington University Law School in St. Louis.
    The first of our Millers--we have two millers testifying 
today--is Mr. Joseph Miller. He is the General Counsel of the 
America's Health Insurance Plans. Prior to joining AHIP, he 
served in the Antitrust Division of the Department of Justice 
from 1998 to 2010, including 6 years as Assistant Chief of the 
Litigation Section. There he oversaw enforcement and 
competition advocacy in, among other things, health care and 
insurance markets. Before joining the DOJ, he worked for 
Collier, Shannon, Rill & Scott as a trial attorney for the FTC.
    He received his B.A. from Emory University and his J.D. 
from George Mason University School of Law. And I guess that 
means you are conservative. Right? George Mason School of Law?
    Professor Barak Richman is an Edgar P. and Elizabeth C. 
Bartlett Professor of Law and Professor of Business 
Administration at Duke University School of Law and is on the 
health sector management faculty at Duke's Business School, 
Fuqua. His work has been featured in the Columbia Law Review, 
the University of Pennsylvania Law Review, Law and Social 
Inquiry, the New England Journal of Medicine, and the Journal 
of the American Medical Association, and Health Affairs.
    Prior to joining Duke Law, Professor Richman clerked for 
Judge Bruce Selya of the United States Court of Appeals for the 
First Circuit and served on the staff of the Senate Finance 
Committee.
    Professor Richman has an A.B. magnum cum laude from Brown 
University and a J.D. magnum cum laude from Harvard Law School 
and a Ph.D. from the University of California-Berkeley. Did you 
ease up at Berkeley and just did not study as hard? Was the 
competition more intense?
    Mr. Richman. It took a long time. I had a very patient and 
supportive wife.
    Mr. Bachus. Mr. Tom Miller is a health policy research and 
resident fellow at the American Enterprise Institute. He is a 
prominent frequent speaker and author on health care issues 
with his work presented to, among others, the American College 
of Physicians, the American Society of Health Economists, 
Brigham and Women's Hospital, Harvard Medical School, and the 
World Health Care Congress Leadership Summit on Medicare.
    Prior to joining AEI, he was the Senior Health Economist on 
the Senate Joint Economic Committee for 4 years and Director of 
Health Policy Studies at the Cato Institute.
    Mr. Miller received his B.A. cum laude from New York 
University and his J.D. from Duke University. So we have two 
Duke University graduates.
    Professor Tom L. Greaney. And I am pronouncing it right?
    Mr. Greaney. Greaney.
    Mr. Bachus. Greaney. Okay. I stand corrected. I was 
thinking it was Greaney and then the staff said it was 
pronounced Greaney.
    Mr. Greaney. It's Irish.
    Mr. Bachus. It's Irish? Okay. You are one of 40 million 
Irish Americans. Do you know how many people are in Ireland 
today, by the way? There is a little over 4 million and there 
are 40 million Irish Americans. Their population has just now 
gotten back up to the population in the Potato Famine, just in 
the last few years. Interesting little facts that you all can 
forget as soon as you leave this hearing.
    Let's see. Professor Greaney is a Chester A. Myers 
Professor of Law and Co-Director of the Center for Health Law 
Studies at Saint Louis University School of Law, author of 
``Health Law,'' one of the leading health care case books, as 
well as numerous articles on the intersection of antitrust and 
health law that have been published in, among other places, the 
New England Journal of Medicine, Antitrust Law Journal, Journal 
of the American Medical Association, and the Yale Journal of 
Health Law and Policy.
    Prior to joining the Saint Louis University School of Law, 
he served as Assistant Chief in the Antitrust Division of the 
Department of Justice.
    He received his B.A. magnum cum laude from Wesleyan 
University and his J.D. from Harvard Law School.
    Welcome, Professor.
    Mr. David Balto is an antitrust attorney at the Law Offices 
of David Balto. So you are in charge. Right?
    Mr. Balto. Right.
    Mr. Bachus. He has over 15 years of government antitrust 
experience as a trial attorney in the Antitrust Division of the 
Department of Justice and in several senior level positions at 
the Federal Trade Commission during the Clinton administration, 
including Policy Director of the Bureau of Competition and 
Attorney Advisor to FTC Chairman Robert Pitofsky?
    Mr. Balto. Pitofsky.
    Mr. Bachus. They did not teach phonetics. I was taught 
sight reading. So I blame it on the educational system.
    He is also an author of the 1996 DOJ FTC Health Care 
Antitrust Enforcement Guidelines and served as a liaison on 
competition issues to the Food and Drug Administration and 
Congress, advising several committees on pharmaceutical 
competition and Hatch-Waxman reform.
    He received his B.A. from the University of Minnesota and 
his J.D. from Northeast University School of Law.
    At this time, Mr. Conyers, would you care to make an 
opening statement?
    Mr. Conyers. Just briefly, sir.
    Mr. Bachus. Okay. Go ahead. The Ranking Member of the full 
Committee is recognized for an opening statement.
    Mr. Conyers. Thank you very much, Mr. Chairman.
    And I welcome, as you have already, the six witnesses that 
we have. And I consider this a very important hearing in view 
of the 41 attempts by the conservative Members of the House to 
repeal it ultimately unsuccessfully.
    But for those who care about the Nation's health care 
system, about the millions of uninsured and under-insured, and 
about the need to serve all consumers of medical services with 
affordable prices, today's hearing takes on a special 
importance. And if we care about unfair trade practices, we 
should consider the measure in the 111th Congress to repeal 
McCarran-Ferguson. To me that is an incredibly important 
consideration, and we need to ensure that more providers and 
insurers will be able to enter the marketplace through a more 
vigorous antitrust enforcement. The exchanges also will be of 
some help.
    We need to understand how the Affordable Health Care Act 
will ensure that consumers will obtain lower prices, better 
health insurance coverage, and improved quality care.
    So I am very pleased to join this discussion and 
examination.
    I noticed that one of our witnesses has written a book 
about why he opposes the Affordable Health Care Act. As a 
matter of fact, it is entitled ``Why Obamacare is Wrong for 
America.'' So I await our witness' discussion of this subject 
since he has made his position very, very clear to all who are 
interested in it, as I am.
    I want to point out that I have introduced H.R. 99, the 
Health Insurance Industry Antitrust Enforcement Act, on the 
very first day of this Congress, which would, in effect, repeal 
the McCarran-Ferguson exemption for health insurance companies. 
Why should this industry be able to engage in a lot of 
anticompetitive conduct when I see no sound justification for 
this exemption? Some of this conduct sometimes includes price 
fixing, bid rigging, market allocations.
    And the problem is compounded, Members of the Committee, by 
the fact that even though most of the Nation's health insurance 
markets are disproportionately dominated by a handful of 
powerful players, enforcement actions challenging consolidation 
in the health insurance market were rare until only recently. 
Many of us know of regions that have only two major insurers, 
some only one. And so this Administration has breathed new life 
into the Justice Department and the Federal Trade Commission's 
action, and even in Michigan, there has been action against 
Blue Cross Blue Shield of Michigan because of their dominance 
and conduct in my home State. And there are lawsuits going on 
in other places.
    Now, the marketplaces will foster competition with existing 
insurers and potentially allow for even new innovators to enter 
the market. And so I am hopeful that this discussion this 
afternoon will shed light on these activities.
    And I salute the Chairman of this Committee for bringing a 
subject of this significance to our attention for examination. 
I think that it will be a helpful one.
    And I yield back the balance of my time.
    Mr. Bachus. I thank the Ranking Member.
    Without objection, other Members' opening statements will 
be made a part of the record.
    At this time, I would like to recognize one of our former 
colleagues, the gentleman from Massachusetts, Mr. Bill 
Delahunt, who is a good friend of many of us. Bill, why don't 
you come up here and sit near the front?
    Mr. Delahunt. I prefer being in the back.
    Mr. Bachus. Do you? Okay. He served on our Commercial and 
Administrative Law Subcommittee and he was a distinguished 
Member and I think a great friend of many of us. We have a 
tremendous amount of respect. I do for you personally. We 
welcome you back, and we miss you in Congress and what was a 
rational, reasonable voice.
    At this time, we will start with our witnesses, and Ms. 
Pozen, if you will go first. Basically 5 minutes, but we are 
not going to adhere. If it is 6 minutes, it is 6 minutes. 
Whoever wrote the book on why Obamacare--was that Mr. Miller? 
You can get 8 minutes. [Laughter.]
    Mr. Thomas Miller. Not long enough. [Laughter.]
    Mr. Bachus. No. I am kidding.
    Thank you.

 TESTIMONY OF SHARIS A. POZEN, PARTNER, SKADDEN, ARPS, SLATE, 
 MEAGHER & FLOM LLP, REPRESENTING AMERICAN HOSPITAL ASSOCIATION

    Ms. Pozen. Well, on behalf of the nearly 5,000 member 
hospitals and 43,000 individual members of the American 
Hospital Association, I appreciate the opportunity to speak to 
the Committee today.
    I am Sharis Pozen. As was noted, I am a partner in the 
Antitrust and Competition Group at Skadden, Arps. I previously 
served as acting Assistant Attorney General at the Department 
of Justice, and I also had the privilege of serving at the 
Federal Trade Commission.
    An editorial in Tuesday's Politico, co-authored by the 
President of the National Business Group on Health, attributed 
the nearly unprecedented low growth in health care inflation 
largely to the new models of health care delivery in both the 
public and private sectors.
    There is no question that the health care field is 
undergoing a period of fundamental transformation in which the 
very model of health care delivery is being changed in order to 
improve quality and lower costs. The reasons for such changes 
are varied, but chief among them----
    Mr. Bachus. Wait. Let's have order on the dais. If we could 
let the witnesses testify. It is just kind of picking it up.
    Ms. Pozen. As I said, there is no question that the health 
care field is undergoing a period of fundamental transformation 
in which the very model of health care delivery is being 
changed in order to improve quality and lower costs. The 
reasons for such changes are varied, but chief among them are 
the expectations by patients, employers, insurers, and 
government at all levels for higher quality and more efficient 
health care, in other words, greater value.
    Meeting these expectations requires building a continuum of 
care to replace the current fragmented system. In addition, 
hospitals are facing enormous pressure to raise capital to 
invest in new technologies and facility upgrades.
    Some degree of consolidation through a variety of means, 
through mergers and acquisitions or others, is one way chosen 
by providers to make these goals a reality. It is also why 
doctors and other caregivers are being added to the hospital 
family. They are the linchpin of better, more coordinated care.
    Providers often choose consolidation as a way to gain 
enhanced efficiencies in quality, as was noted, because 
regulatory barriers can keep hospitals and doctors from working 
closely together unless they are under the same ownership 
umbrella. Antitrust laws, fraud and abuse policies, and even 
tax exempt rulings can cause providers to choose consolidation 
over clinical integration. It is notable that all the Federal 
agencies that administer these laws needed to provide guidance 
or waivers to make the Medicare ACO program feasible. But this 
effort is not extended to commercial organizations yet.
    Some pundits decry this changing landscape. These critics, 
it seems, would like to have it both ways. On the one hand, 
they blame the current health care system for high costs and 
inefficient and uncoordinated care. On the other hand, they 
express alarm over the prospects of hospitals trying to replace 
the current silos with a better coordinated continuum of care 
that delivers higher quality care at lower costs.
    These criticisms are often at odds with the assessments of 
professional observers such as Moody's and Standard & Poor's 
and are too often based on flawed data and possibly out-of-date 
biases. Moreover, they rarely pause to examine the impact that 
a concentrated health insurance market currently has on health 
care prices and quality.
    They are also at odds with the data. A recent study 
conducted for the AHA by the Center for Healthcare Economics 
and Policy, which was updated today in fact, found that only 12 
percent of the Nation's nearly 5,000 hospitals were involved in 
a merger or acquisition between 2007 and June 2013. And far 
from being anticompetitive, these activities can have real 
benefits for the affected patients and communities. Of those 
hospitals that were involved in these transactions, all but 22 
occurred in areas where there were more than five independent 
hospitals. That means that there are plenty of independent 
hospitals left following the transaction to maintain a 
competitive marketplace.
    The stories about how the transaction benefited the 
community are compelling. Nine of the transactions, in fact, 
involved small hospitals with 50 or fewer beds, the type of 
hospitals that often struggle without a larger partner to 
supply essential capital for specialized expertise.
    Moreover, mergers and acquisitions are vigorously policed 
by two Federal and numerous State antitrust authorities. 
Officials at the antitrust agencies have stated repeatedly that 
they have been and will remained focused on competition in the 
health care sector. Transactions that these authorities deem to 
be anticompetitive in fact have been challenged.
    However, despite this activity, hospitals' price growth is 
at an historic low and is not the main driver of higher health 
insurance premiums. The growth in health insurance premiums 
from 2010 to 2011 was more than double that of the underlying 
health costs, including the costs of hospital services.
    The antitrust authorities should continue to pay as much 
attention to the health insurance industry as it does to the 
hospital field, and there is no question that the health 
insurance industry is highly concentrated and is now acquiring 
hospitals and providers in an effort to replicate the care 
continuum hospitals are building.
    In closing, thank you for the opportunity to testify today. 
Patients receive significant benefits when caregivers work 
together to provide more coordinated, more efficient, and 
higher quality care. We look forward to working with the 
Subcommittee to forge ahead toward a shared goal: improving the 
quality of American health care. Thank you.
    [The prepared statement of Ms. Pozen follows:]
 Prepared Statement of Sharis A. Pozen, Partner, Skadden,Arps, Slate, 
     Meagher & Flom LLP, representing American Hospital Association















                               __________
    Mr. Bachus. Thank you very much.
    Mr. Miller?

 TESTIMONY OF JOSEPH MILLER, GENERAL COUNSEL, AMERICA'S HEALTH 
                        INSURANCE PLANS

    Mr. Joseph Miller. Good afternoon, Chairman Bachus and 
Members of the Subcommittee. I am Joe Miller, General Counsel 
for America's Health Insurance Plans.
    I appreciate this opportunity to testify on issues 
surrounding competition and consolidation in the U.S. health 
care system. These issues have far-reaching implications for 
the cost of health care, quality improvement, consumer choice, 
and innovative approaches to the delivery of care.
    In the health insurance marketplace, competition is helping 
to drive innovative programs as health plans continually work 
to make their products more appealing to consumers and 
employers based on both quality improvements and cost savings. 
Our members have demonstrated strong leadership in developing 
and implementing initiatives that provide value to consumers. 
These include developing performance measures to provide 
consumers better information about quality and costs to help 
them make value-based decisions about their medical treatments, 
providing disease management services to enrollees who stand to 
benefit the most from proactive interventions, and working with 
primary care physicians to expand patient-centered medical 
homes that promote care coordination and accountability for 
clinical outcomes.
    Through these and other strategies, health plans are 
working to ensure that their enrollees receive high quality 
health care at competitive prices. Vigorous competition among 
other participants in the health care system, including 
hospitals and physician practices, also is crucial to promoting 
the best interests of consumers.
    Consumers benefit when health care providers compete to 
offer them lower costs, higher quality services, and innovative 
approaches to delivering care. There are situations in which 
provider consolidation does not impede these or even enhances 
these goals. In other situations, however, consolidation 
substantially reduces competition among providers and leaves 
consumers with higher costs and diminished quality.
    The Federal antitrust agencies have selectively and 
carefully challenged mergers of hospitals that hold a 
significant prospect of harm to such consumers. Now, while such 
challenges represent a relatively small percentage of the total 
number of hospital mergers, they are of great importance to 
consumers. Not only do such challenges prevent harm in specific 
markets, they also deter other anticompetitive transactions.
    According to Irving Levin Associates, the number of 
hospital mergers and acquisitions in the United States has more 
than doubled from 50 in 2009 to 105 in 2012. Moreover, an 
analysis by Bates White Economic Consulting found that hospital 
ownership in 2009 was highly concentrated in more than 80 
percent of the 335 areas studied.
    Professors Richman and Greaney cite the academic literature 
in their written statements that demonstrate hospital 
consolidation can result in consumer harm. I will add to that 
list two policy studies to bring to your attention. A June 2012 
Robert Wood Johnson study found that increases in hospital 
market concentration led to increases in the price of hospital 
care and that when hospitals merge in already concentrated 
markets, the price increase can be dramatic, often exceeding 20 
percent. Second, a September 2013 research brief by the Center 
for Studying Health System Change reported that increases in 
provider prices explain most, if not all, of the increase in 
premiums in recent years.
    Now, through the ACA implementation process, AHIP has 
emphasized that affordability must be a central goal in health 
reform and addressing provider market issues is an important 
part of achieving this goal. Promoting competition and halting 
harmful consolidation in provider markets are critically 
important steps toward increasing affordability. With that in 
mind, our written testimony offers the following 
recommendations.
    We urge the Federal Trade Commission and the Department of 
Justice to continue to be vigilant in identifying hospital 
mergers that would harm consumers by concentrating market power 
in a way that diminishes competition.
    We further encourage the agencies to examine the increasing 
acquisition of physician practices by hospitals and the 
potential competitive implications of such acquisitions.
    We urge the Committee and other policymakers to closely 
monitor the Medicare shared savings program and ensure it is 
operating under a regulatory framework that promotes choice and 
competition and does not allow accountable care organizations 
to accumulate market power that leads to higher costs.
    Third, we encourage the Federal agencies, HHS, and other 
agencies to take steps to help consumers obtain useful, 
actionable information about provider cost and quality.
    Thank you, Mr. Chairman, for the opportunity to testify and 
I look forward to your questions.
    [The prepared statement of Mr. Joseph Miller follows:]

    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    


                               __________
    Mr. Bachus. Thank you, Mr. Miller.
    Professor Richman?

   TESTIMONY OF BARAK D. RICHMAN, EDGAR P. AND ELIZABETH C. 
  BARTLETT PROFESSOR OF LAW AND BUSINESS ADMINISTRATION, DUKE 
                           UNIVERSITY

    Mr. Richman. Thank you, Mr. Chairman and Members of the 
Committee. It is an honor to testify before you on a topic that 
is extraordinarily important both to our Nation's physiological 
health and also our Nation's long-term fiscal health.
    Latest statistics reveal that the United States spends 
nearly 18 percent of its gross domestic product on health care 
services. This is nearly twice the average for OECD nations and 
far more than number two, which spends less than 12 percent. 
Viewed another way, the United States in purchase-adjusted 
dollars spends more than two and a half times the OECD average 
per capita on health care and more than one and a half times 
the second largest spender. Yet, in spite of our leadership in 
health care spending, we are safely in the bottom half of OECD 
nations on most measures of health care outcomes.
    We are spending too much and getting too little in return, 
and the Nation simply is on an unsustainable trajectory. All 
discussions about health care policy should begin with the 
recognition that curbing health care spending needs to be among 
our Nation's highest priorities. The cost of private health 
insurance is bankrupting companies and families alike, and the 
cost of public health care programs are putting unmanageable 
burdens on both the Federal and State budgets.
    Many studies suggest that the cost of health care is 
unsustainable not because we consume too much health care, but 
because we pay too much for the health care that we do consume. 
In other words, as one study put it famously, ``It's the 
prices, stupid.'' And one of the most severe contributors to 
the rise of health care prices has been the alarming rise in 
market power by health care providers.
    The past several decades have witnessed extraordinary 
consolidation in local hospital markets, with a particularly 
aggressive merger wave occurring in the 1990's. By 1995, the 
merger and acquisition activity was nine times the level at the 
start of the decade, and by 2003, almost 90 percent of 
Americans living in the Nation's larger MSA's faced highly 
concentrated markets. This wave of hospital consolidation alone 
was responsible for sharp price increases, including price 
increases of 40 percent when merging hospitals were closely 
located.
    There is also evidence that hospital consolidation leads to 
worse outcomes. Another important studied showed this with the 
clever title ``Death by Market Power.'' One of the authors, by 
the way, is now the Chief Economist at the Federal Trade 
Commission, and the taxpayers should be very, very happy that 
he, Martin Gaynor, is now working for them and their consumer 
interests.
    Even after this merger wave in the 1990's prompted alarm, a 
second merger wave starting in 2006 significantly increased the 
hospital concentration in 30 MSA's and the vast majority of 
Americans are now subject to monopoly power in their local 
hospital markets.
    Hospitals and hospital networks did not achieve this market 
dominance through superior skill, foresight, and industry, 
which would be unobjectionable under the antitrust laws. This 
is not the free market at work. To the contrary, this 
consolidation occurred because of mergers and acquisitions, and 
permitting hospital mergers to achieve such remarkable levels 
of consolidation represents a major failure of our antitrust 
policy. There is plenty of blame to share--both Democratic and 
Republican administrations, Congress, the executive, and the 
courts. But we are now in a position where we must cope with 
hospital monopolists. In other words, we not only must resist 
additional consolidation that creates greater market power, but 
we must develop policy tools that stem the harm that current 
hospital monopolists are in a position to inflict.
    My testimony is divided into three parts. The first briefly 
reviews some failures in antitrust policy that permitted 
hospital consolidations with a focus on court decisions in the 
1990's. I submit that part of my testimony for the record 
saying now just that for too long there was a widely held 
perception that hospitals and especially nonprofit hospitals, 
unlike all other economic entities, did not reflect economic 
harm when possessing market power. Research has thoroughly 
refuted this belief, but for too long hospitals tended to enjoy 
selective scrutiny under the antitrust laws. The courts' 
inability over time to apply antitrust law rigorously to the 
big business of health care and the FTC's failure in convincing 
them to do so and Congress' failure in instructing them to do 
so is one important reason why many health care markets are now 
dominated by firms with alarming pricing power.
    The second part of my testimony explains why hospital and 
health care provider monopoly power is especially costly, even 
more costly to American consumers than what one might call a 
typical monopolist. This discussion I also submit for the 
record saying now only briefly that it is the combination of 
monopoly power with health insurance that magnifies the effect 
of provider market power. Health insurance enables a monopolist 
of a covered service to charge substantially more than the 
textbook monopoly price, thereby earning even more than the 
usual monopoly profit. The magnitude of the monopoly plus 
insurance distortion contributes severely to both excess health 
care spending and the misallocation of health care dollars.
    The third part of my testimony discusses available policy 
instruments to protect health care consumers against current 
and growing hospital monopolists. I turn very briefly in some 
detail to this third part.
    Because most hospital monopolists are already highly 
concentrated, we need a new antitrust agenda. A first order of 
business would be to fastidiously prevent the formation of new 
provider monopolies. Because health care providers continue to 
seek opportunities to consolidate, either through the recent 
wave of forming accountable care organizations or through 
alternative means, there remain several fronts available for 
policymakers to wage an antitrust battle.
    A second order of business might be to revisit some already 
consummated hospital mergers. Retrospective mergers have the 
additional cost of unscrambling the eggs, but they are worth 
considering for mergers that have inflicted significant 
economic harm. Alternative conduct remedies should be 
considered as well.
    But in addition to prohibiting new mergers and revisiting 
old ones, an array of other enforcement policies can target 
monopolists behaving badly, those trying either to expand their 
monopoly into currently competitive markets or to foreclose 
their markets to possible entrants. Thus, several fronts remain 
available for policymakers seeking to restore competition to 
health care markets. A new antitrust agenda begins with 
recognizing the extraordinary costs of the health care provider 
monopolies and continues with aggressive and creative anti-
monopoly interventions.
    [The prepared statement of Mr. Richman follows:]

    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    


                               __________
    Mr. Bachus. Thank you. We appreciate that testimony, 
Professor.
    Mr. Miller, number two, Mr. Thomas Miller instead of Mr. 
Joe Miller.

TESTIMONY OF THOMAS P. MILLER, J.D., RESIDENT FELLOW IN HEALTH 
         POLICY STUDIES, AMERICAN ENTERPRISE INSTITUTE

    Mr. Thomas Miller. Thank you, Mr. Chairman and Members of 
the Subcommittee, for the opportunity to testify today on 
health care consolidation and competition under the Affordable 
Care Act.
    Health care providers with market power enjoy substantially 
pricing freedom than monopolists in other markets, as Professor 
Richman further explains in his testimony. Traditional 
antitrust enforcement tools did little to halt extraordinary 
consolidation in local hospital markets over the last 2 
decades, which drove higher price increases for in-patient 
services. Comprehensive U.S.-style health insurance further 
enhances the pricing freedom of health care firms with market 
power. The ACA also does little to address the monopoly problem 
and may even worsen it.
    Problems of excessive concentration and insufficient 
competition in health care markets are not new, although their 
industry sector source has varied over time. Most recently, 
markets for our hospital services have presented the more 
serious competition policy issues.
    A less-noted future problem involves the increased 
political competition under the ACA among dominant health 
sector players to obtain, maintain, or extend their market 
power advantages. The highly regulated and heavily subsidized 
regime ahead already has triggered a feverish scramble among 
health businesses to get bigger and also become better 
connected politically to ensure that they will be among the 
politically dependent survivor incumbents in the years ahead. 
With most of the key decisions in health care financing, 
coverage, and even treatment likely to be made in Washington, 
investments in winning future rounds of political competition 
is likely to trump responsiveness to market competition.
    Hence, we have seen even more health care market 
consolidation since passage of the ACA. The primary effect of 
the law and its increasingly dense web of regulation has been 
to encourage a substantial increase in vertical integration and 
consolidation of health care services, mostly in the form of 
acquisitions of physician practices by hospitals. Increased 
vertical and even horizontal consolidation potentially could 
improve the allocation of health care resources but it also 
risks coming into conflict with pro-competition policies 
favoring greater price transparency, improved quality 
reporting, and lower prices. Well-integrated health provider 
networks or health systems may face less competition, lock in 
patients to non-interoperable health IT systems, and leverage 
market power across health services domains.
    One strong factor in the move toward greater consolidation 
of health care services is the continued likelihood of tighter 
reimbursement limits combined with cost increasing mandates 
that would shift more financial risk to providers.
    On the health insurance side, post-ACA-enactment 
consolidation has not been as rapid thus far. However, longer-
term factors suggest that this is likely to change. The new 
health exchanges or, as I like to call them, marketplaces 
without market prices are structured to gravitate toward more 
standardized corridors of coverage. It is important to 
distinguish between short-term effects as the ACA exchanges 
begin their first shakedown year of implementation and the more 
likely longer-term dynamics of this more heavily regulated and 
tax-subsidized market for individual and small group insurance.
    Passage of the ACA triggered a new wave of defensive 
consolidation in the health care sector instead of just 
presenting better opportunities to reconfigure operations and 
business relationships to become more efficient. Anti-
competitive strategies were predictable responses to the new 
law's incentives and penalties. Under the ACA's regime of 
complex, confusing, and costly regulation, it will take a 
larger village of lawyers, lobbyists, and lines of credit to 
comprehend, cope and comply or maneuver around this. Growing 
bigger or staying large becomes the best hedge against 
political and regulatory risks.
    The evolving regulatory balance, of course, does remain 
unsteady and is not fully charted at this time. Well, is this 
time different? Antitrust enforcers should be congratulated for 
recently ending their long losing streak in the courts in 
challenging hospital mergers seemingly likely to reduce 
competition and raise prices. But prospects for addressing 
competition problems in the ACA era of health care markets 
through conventional antitrust enforcement remain limited. 
Better antitrust policy still has an important role to play in 
ensuring more competitive health care practices. We need 
expanded solutions to the chronic problems of too much 
concentration and too little competition.
    Beyond tighter review of new hospital mergers and 
consolidations, they should include curbing new abuses of State 
action immunity, challenging anticompetitive terms in insurance 
provider contracts, requiring unbundling of monopolized health 
care services, promoting inter-regional competition in health 
care services, removing or limiting regulatory barriers to 
entry by new health sector competitors, ensuring that new 
accountable care organizations deliver on their promises rather 
than facilitate aggregation and abuse of market power, and 
finally, empowering consumers and private purchasers with 
better information tools.
    Thank you very much.
    [The prepared statement of Mr. Thomas Miller follows:]

    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    


                               __________
    Mr. Bachus. I thank you.
    Now, our next two witnesses have been waiting patiently to 
respond I guess. Mr. Cohen and our Democratic Members here 
invited them. Are you all raring to go? Professor Greaney, you 
are up next.

 TESTIMONY OF THOMAS L. GREANEY, CHESTER A. MYERS PROFESSOR OF 
           LAW, SAINT LOUIS UNIVERSITY SCHOOL OF LAW

    Mr. Greaney. Thank you, Chairman Bachus and Members of the 
Committee. I think you will find my diagnosis is a bit 
different than Mr. Miller's but I think our prescriptions for 
the remedy are pretty much the same.
    Let me summarize my testimony with five key points.
    First of all, the Affordable Care Act actually depends upon 
and promotes competition in provider and payer markets.
    Secondly, hospital market concentration is the result of 
merger waves that have been going on for the last 20 years. And 
this consolidation was actually fomented by what I believe are 
erroneous Federal court decisions, lax antitrust enforcement, 
and was exacerbated by Government payment policies and other 
laws.
    Third, as to provider consolidations, the Affordable Care 
Act fosters pro-competitive consolidations through reforms and 
incentives and encourages providers to form efficient delivery 
systems. But I think it is erroneous and misleading to claim 
the Affordable Care Act is somehow responsible for 
anticompetitive mergers when in fact these mergers are designed 
precisely to avoid the pro-competitive features of the act.
    Fourth, there has been a significant resurgence in 
antitrust enforcement, and I think that should serve to limit 
consolidations going forward. But as other witnesses have said, 
antitrust will not unwind pre-existing consolidations.
    The fifth point in my testimony is much on track with what 
you have heard from Professor Richman. What he and I both call 
the provider monopoly problem calls for countermeasures, 
countermeasures that reduce barriers to entry, enable payers to 
develop tools that promote consumer choice, and encourage new 
delivery systems.
    So let me take these one at a time. First, beginning with 
the proposition I began with, that the Affordable Care Act both 
depends on and promotes competition, the natural question to 
ask is why you need the Government to make health care markets 
more competitive. And the answer in my testimony is what I call 
the ``witches' broth of history,'' provider dominance, ill-
conceived payment systems, and most importantly, the market 
characteristics of health care which make markets different in 
health care.
    And as a result, we found ourselves at the beginning of the 
century with the worst of two worlds. We had fragmentation on 
the one hand, doctors operating in silos, practices of onesies 
and twosies unconnected to each other and providing duplicative 
care that is not evidence-based. At the same time, we had 
growing pockets of concentration, dominant hospitals and 
dominant specialty practices that were able to charge monopoly 
prices.
    My testimony details some of the specifics about how the 
ACA's numerous efforts to reform both private and governmental 
insurance payments create marketplaces for people to shop and 
compare plans, and undue existing obstacles will make markets 
work maybe for the first time. And I can go into some detail 
about some of the Medicare reforms that I think are important 
and pro-competitive and without which markets will not work.
    Next, a couple of points briefly on the provider monopoly 
problem.
    First, provider monopolies is not just a problem for the 
Affordable Care Act. It is a problem for those who would rely 
on laissez-faire approaches to health care, for those who would 
propose vouchers for Medicare. Provider market power has been 
shown through the countless studies that Professor Richman and 
I cite as a primary culprit in increasing costs today, prices 
rising as much as 40 percent after hospital mergers.
    The good news I mentioned in my testimony was the 
resurgence of antitrust enforcement with the Government 
agencies, coupled with many, many of the State Attorneys 
General challenging hospital mergers. An important case goes to 
trial on Monday challenging physician acquisitions by a 
hospital in Idaho. And also going after practices such as most 
favored nations clauses and other discriminatory practices that 
harm competition. And finally, the FTC has done an admirable 
job of competition advocacy, urging State legislatures to avoid 
legislation that is anticompetitive.
    But now, the caveat I offered earlier. Antitrust has little 
to say about extant market power, power that is already there 
lawfully acquired. There is no silver bullet, but my testimony 
points to several kinds of actions that could be taken. These 
are, to be sure, legislative and regulatory but they are pro-
competitive regulations and statutes.
    Just very quickly, dealing with the certificate of need, 
which in many States creates a barrier to entry, excessive 
restrictions that have been imposed by the Affordable Care Act 
on physician-controlled specialty hospitals and State laws that 
may impair quick clinics and things like that, these are the 
sources of new entry into the dominant markets that may at 
least provide a relief valve.
    In addition, we could expand the opportunities for mid-
level professionals through State law changes that would allow 
them to practice within the full scope of their professional 
license. This move would serve to help new organizational 
arrangements like patient-centered medical homes and ACO's 
provide a counterweight in the dominant markets.
    The second set of remedies goes to things that might 
strengthen employers' and payers' ability and willingness to 
negotiate effectively in the face of provider market power. 
Some of the ideas that both Professor Richman and I have talked 
about deal with laws that might abolish most favored nations 
clauses, as Michigan did in response to the Justice 
Department's suit there, doing away with contractual 
commitments to prevent insurers from using tiering and other 
things that may at least allow consumers to undercut the 
monopoly power in these markets. Laws affecting price 
transparency can help and enlist consumers in the effort. And 
finally, calling upon the expertise and leverage of the 
agencies and the insurance regulators to back up or nudge 
payers that face monopolies. And State insurance commissioners 
and exchanges can require or at least encourage the unbundling 
of services, as Professor Richman suggests, but also do other 
things to insist on dealing with market power.
    Let me close with just a cautionary note. These ideas I 
have outlined are competition-enhancing regulations and laws 
designed to address the provider monopoly problem. If those do 
not work, the last resort, if all options fail, will be public 
utility-style regulation. That is what most economists predict 
for dominant monopolies such as all payer rate controls or 
empowering insurance commissioners to place caps on their 
expensive provider contracts.
    Thank you very much.
    [The prepared statement of Mr. Greaney follows:]

    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    


                               __________
    Mr. Bachus. Thank you.
    Mr. Balto?

                   TESTIMONY OF DAVID BALTO, 
                   LAW OFFICES OF DAVID BALTO

    Mr. Balto. Thank you, Chairman Bachus and the other Members 
of the Committee. I am David Balto. I am the former Policy 
Director of the Federal Trade Commission. I am a public 
interest antitrust attorney.
    I have a simple message. Does the Affordable Care Act 
matter to consumers? You bet it does. In 2 weeks, health 
insurance exchanges will be formed. Very few people would 
contest the competitive problems in the health insurance 
market. Those exchanges will offer consumers the ability to do 
one-stop shopping and will lead to greater competition between 
health insurance in markets in which there is barely enough 
competition as it is.
    Does the act matter? The act provides that when health 
insurers companies increase rates too much, the Secretary of 
HHS can just say no. And she did last year, and she forced them 
to return over $1.2 billion to over 6.8 million consumers. That 
is over $1.2 billion in excessive rate increases by insurance 
companies.
    Now, my testimony is like the other people's testimony, 
focusing on the problems in the health care market. Five key 
points.
    First, there is increased consolidation, but as other 
people have said, there are lots of reason for that 
consolidation, not just the Affordable Care Act. It existed 
before the Affordable Care Act passed.
    Second, there is a tension between the Affordable Care Act 
and some of the past antitrust enforcement. To be honest, as a 
past antitrust enforcer, antitrust enforcers like atomistic 
health care providers. They prefer to see lots and lots of 
competition. But recent scholarship has really shown us how an 
atomistic health care market, especially on the provider side, 
leads to increased health care costs. That is why the 
Affordable Care Act incents greater integration, and that 
integration is positive.
    Third, antitrust enforcement is going in the right 
direction. I applaud my co-panelist, Sharis Pozen, who as the 
Deputy Assistant Attorney General of the Antitrust Division 
helped revitalize health insurance antitrust enforcement, 
stopping anticompetitive mergers where there had been barely 
any enforcement before.
    Fourth, is antitrust enforcement enough? No, it is not. 
Antitrust provides a limited tool. What we really need to look 
for, as Congress did in the Affordable Care Act, are increased 
means of regulation. What should enforcers do? Well, what they 
should not do is approve otherwise anticompetitive mergers 
because they think they will fulfill the mission of the 
Affordable Care Act. That is what the FTC did when it approved 
the merger of Express Scripts and Medco, two of the three 
largest PBMs. That is making a deal with the devil. They 
thought that would lead to greater bargaining power that would 
hold down drug costs, but what it is leading to today is 
consumers having less choice and having to pay more and 
community pharmacies suffering a great deal.
    Now, let me just touch on two small issues here.
    First, rural antitrust. Whenever antitrust cops look at a 
rural market, they see somebody with a big market share and 
they think it is time to take out their antitrust guns. That is 
a mistake. The antitrust authorities have to recognize the 
unique characteristics of rural markets and the need for rural 
hospitals and doctors to be able to effectively collaborate. 
And when the antitrust standard is set up too high, when they 
prevent those folks from being able to collaborate, those 
hospitals in those small towns have no choice--they have no 
choice--but to sell out to the big hospital system in the major 
metropolitan area.
    Second, the advocacy by antitrust enforcement agencies. The 
antitrust enforcement agencies, rather than trying to welcome 
State regulation, oftentimes oppose State regulation. I provide 
two examples where the antitrust folks said, no, consumer 
choice would not work here. I mean, Professor Greaney just 
talked about transparency. I can show you four letters where 
the FTC opposes transparency when it comes to pharmacy benefit 
managers. Fortunately, oftentimes, including in your States, 
the State legislatures pay the FTC no heed. But if the FTC is 
not going to take more aggressive enforcement actions here, the 
least they should do is not try to stop States from being able 
to effectively regulate.
    I have five suggestions at the end.
    First, the FTC and DOJ need to focus on payers. That is 
insurance companies, PBM's, and also group purchasing 
organizations. That is where there are chronic competitive 
problems. These markets are overly concentrated.
    Second, the FTC, in looking at these markets, should use 
its power under section 5 of the FTC Act to go after unfair 
trade practices and unfair methods of competition that are not 
technical violations of the antitrust law.
    Third, everybody applauds the FTC's retrospective study of 
hospital mergers. We should do the same for health insurance. 
There was just a study issued earlier this year that looked at 
the United-Sierra merger in Nevada that found that consumers 
are paying 13 percent more in premiums because the Justice 
Department approved that merger. We need more of those studies 
to figure out where we need to have greater health insurance 
antitrust enforcement.
    Fourth, the enforcement agencies need to recognize it is 
not the PBM who is the consumer. It is not the insurance 
company that is the consumer. It is you and me are the 
consumer. Too often, like in the Express Scripts-Medco merger, 
the FTC approves things thinking that the PBM is really the 
consumer and not looking at the ultimate consumer.
    Finally, we have a problem which is in 2 weeks the 
insurance exchanges go live, and we do not have a national 
consumer protection cop on health insurance. The FTC says the 
McCarran-Ferguson Act prevents them from being a health 
insurance cop. I think they are wrong. But to the extent they 
might not be wrong and McCarran-Ferguson prevents them from 
protecting consumers from egregious practices by health 
insurance companies, it is time to repeal the McCarran-Ferguson 
Act, as suggested by Congressman Conyers.
    Thank you for the opportunity testify, and I welcome your 
questions.
    [The prepared statement of Mr. Balto follows:]

    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    


                               __________
    Mr. Bachus. Thank you, and I think it is very thorough 
testimony by all the panelists. I very much appreciate it. That 
is a tremendous amount of information to try to absorb and 
analyze.
    At this time, I will recognize the gentleman from 
Pennsylvania, Tom Marino, for questions.
    Mr. Marino. Thank you, Chairman.
    Good afternoon, panel. Thank you for being here.
    I am going to try and stay focused on the antitrust aspect 
of this, even though I do oppose most of what Obamacare has to 
offer, which I think is very little at this point.
    But, Mr. Balto, you talked about rural hospitals. I come 
from Pennsylvania, the 10th congressional district, very rural, 
largest geographic district in the State of Pennsylvania. I 
visited all of my hospitals since I have been in Congress, 
being elected and taking office in 2011, numerous times. And 
one of the biggest complaints that I hear from the 
administrators is the cost of administration and not being able 
to provide the services because they are in a rural area with 
escalating costs.
    Are you saying that--and I think you touched a little bit 
on the fact that rural hospitals are a different type of 
animal. Am I correct in that? Please go ahead.
    Mr. Balto. Yes. First of all, many rural hospitals are 
critical access care hospitals.
    Mr. Marino. Yes.
    Mr. Balto. We are trying to preserve them. Because of the 
limited population, it is hard for them to attract doctors, and 
they have a very high cost structure.
    Mr. Marino. So are we talking about two sets of rules then 
pertaining to Obamacare and rural hospitals versus metropolitan 
hospitals?
    Mr. Balto. So the agencies had to come up with the 
antitrust standards for affordable care organizations. They 
came up with a special provision for rural ACOs to try to 
provide them a little more leeway to form ACOS, recognizing 
that any ACO would probably appear to have market power. I do 
not think that went far enough, and I do not think we see 
enough development so far of rural ACOs.
    Mr. Marino. Professor Greaney, you talked about--I wish I 
had an hour to discuss this with each of you. I took so many 
notes during your input.
    You talked about more regulation. Did I understand that 
properly? You think we need more regulation by the Federal 
Government when it comes to health care.
    Mr. Greaney. I am talking about State and Federal 
regulation that would really do away with pre-existing 
legislation and other regulations that block entry, such as 
certificate of need and so forth. But at the same time, for 
those markets in which there are dominant provider markets, 
there really is not a good competitive solution to ensure price 
competition simply because there is not any price competition.
    Mr. Marino. But how do you do that in a situation 
concerning hospitals? It is very complex. They have to cover a 
multitude of needs that walk through the door. They certainly 
have to have--it is a great deal of paperwork involved as it is 
now. That appears to me--and I am told by the administrators 
that their paperwork is increasing. Their costs are going up. 
And then factor in the aspect of what hospitals are not paid 
because when people come in, at least in Pennsylvania and I am 
sure across the country, you provide care for people who are 
injured even though they cannot pay for it. So how does all 
that factor into when you were saying we need more competition? 
Because does it not make companies run more lean?
    Mr. Greaney. Well, first of all, let me mention that much 
of what the Affordable Care Act tries to do is remove those 
burdens of uncompensated care that they are providing through 
Medicaid expansion and other means.
    Mr. Marino. I understand that. I mean, that opens up a 
whole other can of worms as to who is going to pay for this. 
But aside from that--and I will let you finish here in a 
minute. I just want to throw out this other thought. Are you 
saying that regardless if it is a government entity controlling 
a hospital or it is a private hospital, that overlapping 
services, if they are eliminated, are not going to lower the 
cost of health care?
    Mr. Greaney. I think the issue that we are addressing today 
is dominant hospitals that have achieved market power such that 
they can charge monopoly prices. And the question is whether 
antitrust can do anything about that. And I am afraid the 
answer is very little or nothing.
    So the question for regulators such as insurance 
commissioners or certain States might be to put some kind of 
benchmark or caps on provider pricing. That is a regulatory 
option, but frankly that is one of the few tools they have.
    On the other hand, other measures such as ACO's and 
patient-centered medical homes, might provide some pressure 
from the ground up to reduce over-prescribing and excess costs.
    Mr. Marino. I see my time has expired. I will close with 
saying this. I get constant calls in my office from businesses, 
large and small, and from individuals as to say what do I do 
about my health care now. And we go a step further. We try to 
touch base with HHS and ask the questions, not pertaining to 
antitrust, but just services, and we get no answers. The answer 
we get is we do not know at this point. So that is one of my 
biggest problems with Obamacare.
    It is very clear that businesses are now saying to their 
employees we are going to have to take your family off the 
health care program or you are going to have to pay more into 
it or we may eliminate it. Whereas I admit antitrust is a big 
factor, it is a project of mine watching antitrust issues 
concerning particularly the pharmaceuticals, as you discussed--
and you and I know about that a little bit. But there are many 
other issues concerning this.
    I yield back and thank you, gentlemen.
    Mr. Bachus. Thank you.
    Mr. Smith? No questions? Okay. Thank you.
    Let me ask you this. Professor Richman, you and Professor 
Greaney have said you agree on certain things that could be 
done to increase competition. Have the other panelists--are 
they aware of what they have proposed? Is there any awareness 
of some of the things they have proposed? Maybe you ought to 
comment on some of the things they have proposed.
    Mr. Joseph Miller. Thanks for the question.
    I would like to start with the idea that everybody here 
seems to agree on that antitrust does not have a big role to 
play once a provider has aggregated market power. Historically 
that has been true. The FTC has tried it in the Evanston case. 
That case was something like 7 years from the beginning of the 
investigation until the litigation ended in a settlement. So it 
is not a solution that is going to get to the whole problem, 
but I do not want to let the moment pass without saying 
antitrust laws still have jurisdiction and if there is the 
right case, the agencies can go back and look at a consummated 
merger.
    In terms of the other proposals, we have not taken a 
position. I think they are all worthy of further study and 
debate. There are some that are relatively obvious to be in 
favor of, allowing practitioners to practice to the top of 
their licenses, lowering regulatory barriers to entry for 
competitors, and those sorts of things. There is a lot that has 
been suggested that is worth discussing.
    Mr. Bachus. Mr. Miller or Mr. Balto or Ms. Pozen?
    Mr. Thomas Miller. Sure. Full disclosure, since I edited 
and published a study by Professor Richman, I would agree with 
many of his prescribed remedies.
    Let me just say as a preliminary, though, you know, there 
is a tendency when you talk to folks in antitrust--it is the 
old hammer and nail situation. They have a certain set of tools 
they can normally apply, and therefore, they find problems to 
which they can apply their remedy. In the area of hospital 
mergers, one of the reasons why the problem is not large 
anymore is hospitals have run out of targets. They are about as 
consolidated as they can be, and there are not many more 
opportunities to consolidate although there have been some 
rollbacks recently.
    We need to focus a little bit more on a different type of 
regulatory barrier to entry, which is the simple cost and 
burden of complying with regulation keeps the new entrants out 
of the field. You know, we think we are doing so many wonderful 
things with regulation, but we might be closing out and 
foreclosing the opportunity for someone to enter that business 
in a less conventional mean. It is not just scale. It is the 
ability to have the lawyers and compliance experts to get in 
the door. Health insurance is a hard area to get into to begin 
with. It is hard to start up new hospitals. We raised the bar 
even higher by the thickening web of what it takes to actually 
be a going concern in that regard.
    On the remedies, I think they are all worth exploring to 
the extent that they improve market entry and also facilitate 
market exit.
    I think the unbundling issue is a little harder to parse. I 
think it is promising. We have not figured out exactly where 
the thresholds are for where it could be applied. There was a 
lot of bad antitrust law in the past which over-exaggerated the 
degree to which you can leverage market power from one area to 
another. That may, though, be applicable in the case in which 
Professor Richman is talking about. We would have to go in and 
have to probe that a little bit further as to what is a 
workable way to actually carry that out.
    Again, we keep forgetting that transparency can go a long 
way. The folks in Massachusetts who talked so much about the 
terrible consolidation and all the anticompetitive practices, 
when they finally got to the end of the line, they had to say, 
you know, it is not just a matter of more exotic payment and 
integration. We have to be able to find a way to measure this 
stuff and make it transparent to the people who are actually 
paying for it, and that is where you will get the real push-
back from the true consumers and purchasers in this area.
    Mr. Bachus. Ms. Pozen and then Mr. Balto.
    Ms. Pozen. If I could, I just wanted to refocus a bit on 
this issue of consolidation in hospitals. As I mentioned in my 
testimony and it is further elaborated on in the written 
testimony--and we actually can provide a study from 2007 to 
2013 in terms of the number of hospital mergers. We actually 
calculated the number in the United States and found that 
number to be at 12 percent of the total number of hospitals. So 
this notion of consolidation and undue consolidation through 
mergers and acquisition--I think the study that the AHA 
commissioned from the Center on Healthcare Economics and Policy 
really rebuts that notion.
    I think, secondly, there has been a lot of discussion about 
retrospectives, and I really commend the Committee to think 
long and hard before it would advocate retrospectives in the 
hospital industry. Those were done previously. I think those 
who participated in that, the hospitals and the millions and 
millions of dollars that they had to pay to be reviewed by the 
antitrust agencies many years, as Mr. Miller mentioned after 
the mergers had occurred, would dispute the effectiveness of 
those retrospectives. Those that were actually involved in it 
like my former mentor and Commissioner Tom Leary who was at the 
commission at the time, wrote afterwards that he did not think 
those should ever be undertaken again, that they were not 
worthwhile.
    And I would add, as I mentioned in my testimony, you have 
the hospital industry going through tremendous change, these 
models of delivery, as I mentioned, and the drive toward 
efficiency and value. To undertake a retrospective and divert a 
hospital from its mission to serve patients to respond to a 
Government inquiry I think one should think twice before 
advocating that.
    Mr. Bachus. Mr. Balto?
    Mr. Balto. Thank you.
    You know, I just want to make an observation. From time to 
time I represent small town hospitals. I also sue hospitals 
actually for antitrust violations. We have all mentioned price. 
None of us have mentioned service. And I think that everybody 
has to be cautious about the extent that perhaps increases in 
reimbursement rates lead to improved service and how that goes 
into the balance.
    Now, as to the question of remedies, remember what 
Professor Richman is talking about is improving life for the 
insurance companies. The insurance companies will be able to--
will not be paying as much to hospitals. Does that matter to 
the consumer? It depends if the insurance market is competitive 
and it results in lower premiums. But right now insurance 
markets are not particularly competitive. To the extent, as 
Professor Richman observes, that insurance exacerbates the 
problems of provider market power, I think having monopoly 
insurance makes those problems much worse.
    As to the two suggestions Professor Richman has, look, 
there is a more efficient answer than antitrust enforcement. 
The DOJ brought a big case to challenge a single most favored 
nations provision, and that is it. The case ended when the 
State passes legislation. Could it have been better for the DOJ 
to issue a guideline saying most favored nations provisions are 
illegal? Would it have been better instead of going to court 
for the DOJ to go to State legislatures and try to get them to 
pass similar legislation? Sometimes there are more effective 
ways than antitrust enforcement.
    As to Professor Richman's approach on bundling 
arrangements, I think that is certainly worth exploring. By the 
way, those bundling arrangements are clearly a problem when we 
look at the pharmaceutical industry where pharmacy benefit 
managers effectively force consumers to buy specialty drugs, 
very expensive drugs for people with chronic conditions, from 
the PBM's own specialty pharmacy. Every one of the problems 
that Professor Richman has identified there is in spades when 
you look at pharmacy benefit managers.
    Mr. Greaney. I want to drill in one more point about 
regulations. I alluded to the fact that there are important 
changes underway right now with respect to Medicare payment 
both the physicians and hospitals. And I think it is important 
for Congress to support some of the recommendations coming out 
of CMS and, most importantly, out of Medpac.
    One great example is the fact that some of the physician 
acquisition by hospitals is motivated by the fact that the 
hospitals can charge a higher fee for the very same services 
that were provided independently in the doctor's office, and 
that certainly is an incentive, a very perverse incentive, for 
acquisition.
    So I think Congress should pay attention to what Medpac and 
others are saying, and I think the reforms that are underway, 
partially spurred by the Affordable Care Act, are very 
important. They are looking at retooling how we pay doctors 
because we have a fairly absurd system.
    And by the way, Medicare payment policy is followed by 
private payers in many, many instances. So the fact that we pay 
physicians based on inputs of their costs rather than outcomes 
and their value is a complete distortion, and the fact that 
private payers follow that model is important. So Medicare 
reform is very important in driving both efficiency and 
competition in the private market.
    Mr. Richman. If I could just add two small points. Actually 
both of them relate to what my fellow panelists have already 
said.
    Professor Greaney points to one feature which is really 
endemic throughout the industry, which is how providers and 
insurers alike seek to exploit different loopholes in the 
reimbursement system. And to a large degree, this is the market 
model that most providers have assembled. And I think it, to 
one degree, was why Congressman Marino has observed in his 
district and districts throughout America--why the 
administrative costs of running hospitals are so high. It is 
because they respond to these different incentives both with 
public payers and private payers. The whole market model is one 
designed to capture a market and extract maximum dollars from 
payers.
    There is an alternative business model, which really has 
not been pursued a whole lot among providers, and that is to 
really pursue efficiency or value-based models. It is one 
reason why business education is so critical to encourage both 
providers and administrators to really pursue. It really 
involves a very different kind of economic model.
    That also speaks to one very interesting dynamic that we 
heard both from Ms. Pozen and Mr. Joe Miller. Mr. Chairman, you 
observed in the beginning you were hoping to hear from all 
sides, and what is funny about that conversation you hear out 
of AHA and AHIP is sometimes you are hearing both sides of what 
really is the same coin. The insurers often lament 
consolidation among the providers and use that as a 
justification to consolidate themselves. Providers lament big 
insurance companies and use that as a justification for their 
own consolidation.
    And the end of this kabuki dance--this kabuki dance really 
has gotten us to a large degree in this mess that we are in, 
but the end of it is culminated in exactly the litigation that 
Mr. Balto described in Michigan where essentially you had one 
dominant provider, one dominant insurer, and they were in 
cahoots with each other. That is what these contractual 
provisions, the MFN clauses, the anti-steering clauses, really 
are. It is the dominant insurer saying to the dominant provider 
we will make sure there are no entries, and the dominant 
providers saying the same to the insurer. That is where this 
dance is ending. If either we do not figure out ways not just 
to address market power but really--and it involves a 
combination of cooperation among market players and regulators 
to figure out a way to revitalize competition in this industry.
    Mr. Bachus. Thank you. That is an excellent point. And any 
input that you can give the Committee, any proposals that some 
of you even maybe come together and cooperate with some of this 
because I see a lot of agreement on certain points that are 
made.
    At this time, the Ranking Member of the Committee has 
waited patiently for several hours and observed, heard all this 
testimony, and he has now got some questions.
    Mr. Cohen. That is my story and I am sticking to it.
    Thank you, Mr. Chair. I was on the floor on SNAP and some 
other things trying to preserve food for hungry children and 
veterans and people without opportunities otherwise to have a 
meal. So I thought that was more important. But I am here, and 
this is very important too.
    First, I would like to ask Ms. Pozen a question because I 
am real concerned about these States that have not decided to 
expand their Medicaid programs. What will the impact of not 
expanding Medicaid programs be on hospital revenues and 
hospital existence in the States around the country and 
particularly if you know about Tennessee? But in general, will 
this be harmful to hospitals?
    Ms. Pozen. I think when you think about what has been going 
on in, as I mentioned, this transformation of health care and 
the idea of the Government payer and those getting into States 
so that actually there is access to care and that care can be 
provided, I can only imagine the hospitals in that situation 
and how they would respond to it. Again, the Affordable Care 
Act from the AHA's standpoint is about access to care and 
coordination of care. So without that, I think we will continue 
to see this fragmented health care system.
    Mr. Cohen. In the State of Tennessee, I think we have not 
decided to expand our Medicaid. Our Governor there has a 
problem with his Senate, which is catching up. It is at about 
1956 I think right now. So it takes time to catch up to the 
current situation. And I think $500 million we may be giving up 
a year by not expanding.
    Is it true, as it has been suggested, that rural hospitals 
might have to close because of the failure?
    Ms. Pozen. I cannot speak specifically to Tennessee or the 
rural hospitals in Tennessee, but I do know, as has been 
mentioned today on this panel, that the rural hospitals do 
struggle, and these smaller hospitals need inputs and sometimes 
need a partner, as I mentioned in my testimony. So without 
adequate funding and inputs, certainly they could struggle.
    Mr. Cohen. And how about the public hospitals? We have the 
Med in Memphis and Nashville General and Erlanger and UTS 
hospital in Knoxville. Will the public hospitals in general, 
the ones that serve the people that otherwise do not have 
insurance--will they suffer greatly too?
    Ms. Pozen. Again, I think those hospitals have to be open 
for business and accept those that come and need care, as was 
mentioned by one of the Members earlier. And so that certainly 
affects how hospitals produce and serve if they are doing it 
for free.
    Mr. Cohen. Mr. Joseph Miller, I understand you represent 
the insurance industry?
    Mr. Joseph Miller. Yes, sir.
    Mr. Cohen. Can you tell us how much money the industry paid 
back because of the Affordable Care Act which required that you 
only spend no more than 20 percent of your money on salaries 
and profits and advertising, that cost ratio? How much money 
did you all end up paying back to consumers for overpayment of 
insurance premiums because they did not come within that 80-20 
differential?
    Mr. Joseph Miller. I am sorry, Mr. Cohen. I do not have 
that figure in front of me.
    Mr. Cohen. But it would be a considerable amount of money, 
would it not?
    Mr. Joseph Miller. I do not know what you mean by 
``considerable.'' I think it went down from the first year to 
the second.
    Mr. Cohen. Yes, because you all were starting to bring your 
programs because you did want to have to be doing more than 80 
percent, starting to conduct yourselves within the parameters 
of the law and looking better.
    What are some of the other reforms that have come upon the 
insurance? Can you all no longer have yearly caps on an 
individual's insurance? Is that not allowed anymore?
    Mr. Joseph Miller. Annual lifetime limits have been 
outlawed from the beginning of the ACA. That is right.
    Mr. Cohen. And you used to be able to not allow people with 
pre-existing conditions to get insurance. You cannot do that 
anymore, can you?
    Mr. Joseph Miller. Starting now, yes, in 2014 pre-existing 
condition exclusions are no longer permitted.
    Mr. Cohen. And children with pre-existing conditions--they 
have already been affected by that. So they are getting 
insurance. Right?
    Mr. Joseph Miller. I am sorry. I did not hear you.
    Mr. Cohen. Children.
    Mr. Joseph Miller. Children, yes.
    Mr. Cohen. And then parents--they used to not be able to 
keep their children on their insurance until they are aged 26. 
Can they do that now because of the Affordable Care Act?
    Mr. Joseph Miller. Yes. Children up to the age of 26 are 
permitted to stay on their parents' policies, some I think 
before the Affordable Care Act, but now it is required.
    Mr. Cohen. Mr. Balto, I guess you have probably had a 
chance to hear all the testimony. I apologize for trying to see 
that people did not starve to death in our country in the 
future years.
    Are those reforms good? I mean, is it a good thing that 
people who have pre-existing conditions can get insurance and 
that insurance companies cannot take over 20 percent of what 
they take in for profits and advertising and other overhead and 
that people do not have yearly caps and lifetime caps on their 
insurance? Is that really good for the people?
    Mr. Balto. Yes. As a public interest attorney who often 
represents consumer groups, I absolutely think so.
    By the way, the number you were looking for was that last 
year HHS required the insurance industry to return over $12 
billion to over 6.8 million consumers.
    Mr. Cohen. Can you say that again?
    Mr. Balto. I did it twice when you were not here.
    Mr. Cohen. $12 billion to how many consumers?
    Mr. Balto. Over 6.8 million consumers.
    Mr. Cohen. Did you say it? Mr. Miller must not have heard 
you. He did not commit that to memory, but I am sure he has got 
it down now. That is amazing. That is amazing. $12 billion was 
returned to American citizens and how many millions of people?
    Mr. Balto. Over 6.8 million.
    Mr. Cohen. So they have already benefited from the 
Affordable Care Act because instead of just paying that to 
extra profits and advertising and overhead to the insurance 
companies, it came back to American citizens, and then they 
could spend that in the marketplace. And the ripple effect on 
that in the economy--wow, that is pretty strong.
    Mr. Balto. Yes, it would be, and we hope that once the 
exchanges go live and there is an increase in competition 
between insurance companies, insurance rates should continue to 
stay stable or even decrease.
    Mr. Cohen. Professor Greaney, what do you think about all 
this?
    Mr. Greaney. Well, I would make a couple points on the 
insurance reforms. When you think about it, what the Affordable 
Care Act has done is say to insurers what you used to do and 
you did it very well was find good risks by pre-existing 
conditions clauses and things like that. You did not manage 
care. You did not force providers to provide cost-effective, 
quality care. Taking that off the table, turns the tables on 
competition and says insurers are going to have to compete to 
provide better care through the providers they contract with. 
And when you think about it, some of these things that were 
taken off the table are things I do not think anybody would 
bargain for, pre-existing conditions, lifetime limits, and 
things like that. It is okay for, I think, legislators to say 
there are certain things that are not going to be in insurance 
contracts. Let's compete on quality and other matters. And that 
is what I think the Affordable Care Act did.
    By the way, we in Missouri have also declined to expand 
Medicaid, and my colleagues on the Saint Louis University Law 
School faculty have accumulated a lot of evidence about the net 
cost not only to the taxpayer of Missouri but to the 
government. It is going to cost the government more in pre-
existing programs that it could have done away with.
    And finally, there is a health care issue in Medicaid 
expansion. We have actually calculated the number of probable, 
based on statistics, mortality rates that will occur in 
Missouri as a result of the lack of Medicaid expansion. People 
without health insurance will die in greater numbers.
    Mr. Cohen. Let me ask you something else. And I forgot 
about that, that under this program, the donut hole will be 
eliminated. Is that going to help people in Missouri?
    Mr. Greaney. It sure will. I mean, the donut hole is one of 
the most oddball contraptions ever designed. It was a 
compromise in many ways, but it was very hard to make the case 
that that really improved rational shopping among consumers.
    You know, I think co-pays and deductibles are important and 
they can serve a purpose, but in many ways co-pays and 
deductibles can have a bad effect. And there is a lot of 
academic literature out there, studies, that show people making 
decisions under the pressure of economic constraints through 
co-pays and deductibles. They do change their behavior. 
Unfortunately, the studies also show they are just as likely to 
forgo unnecessary care as needed care.
    Mr. Cohen. Even for a small co-pay.
    Mr. Greaney. Even for a small co-pay. In the Medicaid 
context, that is certainly true. Small co-pays can do----
    Mr. Cohen. So like under this----
    Mr. Greaney. Co-pays can be targeted, however, Congressman. 
They could be targeted in areas where it makes sense and the 
consumer can make that tradeoff. It is no so clear the consumer 
can make that tradeoff when the doctor says you need an MRI.
    Mr. Cohen. In the Affordable Care Act, if you go in to your 
doctor and you should get a colonoscopy because you turned 50 
or you have gone 10 or so years after that, there is no co-pay 
now. Is there?
    Mr. Greaney. No. The Affordable Care Act rightly eliminated 
co-pays for preventative services.
    Mr. Cohen. And mammograms?
    Mr. Greaney. And did exactly that for that very purpose. 
Those are the kind of decisions that should not be affected by 
the financial constraint because they are so important.
    Mr. Cohen. And then it costs more money later because if 
they develop this illness and it costs more money later. 
Preventative care can save money in the long run. I am even 
more happy that I voted for the Affordable Care Act today than 
I ever was. Thank you. This has been a great hearing and I 
appreciate your testimony.
    Mr. Marino [presiding]. I think that we have time, if you 
have time, to have another round. I have a couple of questions 
I would like to zero in on.
    Like my good friend here, I have to go down and vote 
against SNAP because of all those who do not want to work and 
want the government to keep them at a cost that is just 
doubling and tripling. But be that as it may, we still have a 
good relationship.
    Mr. Cohen. We do.
    Mr. Marino. Mr. Balto, I am a little confused on the 
figures that you threw out now, and I think my colleague says 
that based on what you said, that $12 billion has been paid 
back to individuals, and in your testimony you said $1.2 
billion. Can you help me out?
    Mr. Balto. I misstated it. Thank you, Congressman. It is 
$1.2 billion.
    Mr. Marino. Okay. It is still a lot of money. So maybe we 
can take that $1.2 billion and put it into Medicare where the 
President took out $500 billion and moved it over to Medicaid, 
which would help our seniors. So we both have a cause here.
    Mr. Thomas Miller, can you please--I am going to throw this 
thought out. I have rural hospitals and municipal hospitals 
that tell me that the 80-20 setup is not working for them, and 
that is one of the reasons they just cannot afford to keep 
operating under the premise. Now, I am a capitalist. I believe 
the market will determine what prices are. I have a daughter 
with a pre-existing condition which is causing me a problem now 
because of Obamacare. And what do we do when the hospital says 
we are going to go out of business if we do not merge with a 
larger entity?
    Mr. Thomas Miller. Well, given your premises, I mean, there 
are situations in which small hospitals do not have capacity to 
be effective, efficient operators. That is an issue for the 
particular case as to what the economics look like. So I cannot 
give you an automatic reaction to it on that alone. And we 
certainly do have some small hospitals that have been in that 
situation, and they have been rolled up into larger chains. I 
am not quite sure what else you are asking beyond that.
    Mr. Marino. Well, they are still in existence. The point I 
am getting to, particularly in my district, is these smaller 
hospitals are still in existence even though they have merged. 
And so someone does not have to go 50 miles away from their 
home to get to a hospital. If it were not for the merger, it 
would be a 30 or 40 or 50 mile trip to get to a hospital even 
for emergency purposes. Now, we do have EMT's and people that 
can sustain life, but it is quite a distance to travel.
    Mr. Thomas Miller. Well, we are certainly looking toward 
improvements in the ability, whether you want to talk about 
telemedicine. We have had employers literally paying their 
folks to travel further to centers of excellence. So there is a 
shaking out on that as to what is a more efficient economic 
operation, although we know that patients have an underlying 
natural bias to want to be close to home when they look for a 
hospital, and that has shown up in most referral patterns.
    Mr. Marino. There are parts of Obamacare that I had been 
promoting even before I came to Congress--I was in government 
and I was a prosecutor for years--simply because of my 
daughter's condition. But given the fact that it appears at 
this point--let's forget about the antitrust side of this for a 
moment and the merging--that there are going to be a fair 
number of hospitals that will go out of business. Particularly 
in my area, we are going to have a problem obtaining qualified 
nurses and physicians to come into those areas. So how do we 
compensate for that if the merger is characterized as being 
just this dangerous monster that is going to increase the cost 
of health care, which Obamacare is doing? I mean, the insurance 
companies, the health care providers are telling me about this.
    Mr. Thomas Miller. Well, I am not assuming up front that 
necessarily those mergers are bad or dangerous under the 
circumstances that you have described. The flip side of this is 
that we have tried this for years in many areas to try to chase 
after it with additional subsidies. That has diminishing 
returns over time, and it turns out we run out of subsidized 
money and then we have done some other sets of distortions.
    So what we are really thinking about is a different type of 
health delivery system landscape in which the people who need 
services can find them in other means if it turns out the 
existing institutions cannot serve them as well as they would 
like to in an economic manner. The more we can break down some 
barriers to having those type of transformations occur, the 
better off we will be in getting to that resorting.
    Mr. Marino. I apologize for walking out and coming back. I 
had another Committee hearing going on and we were doing a 
markup and I had to vote.
    But as I was coming in, did I hear a conversation 
concerning payment based on outcome? Would anyone like to 
explain that to me? Because it seems a little strange when you 
say ``payment based on outcome.'' I am not being facetious, but 
I am going to exaggerate a point here.
    A patient goes in the hospital. Everything is fine. The 
surgery went well. And then for some reason, the patient passes 
away. So what do you do based on that outcome?
    Mr. Richman. The measurement of health outcomes is a very 
complicated science, but it is a science that is getting very 
good. And there are certain things that are easy to measure, 
certain preventable outcomes like infection rates that are 
easily prevented, and unnecessary readmissions is another. And 
the approach among payers, private payers and also Medicare, is 
to increasingly try to put pressure on providers to avoid 
avoidable adverse outcomes like infection rates. And the result 
actually has been a reduction in certain rates.
    And it is a bit of an embarrassment that American hospitals 
still boast higher infection rates and other avoidable problems 
than our colleagues in other OECD nations. It is not because 
American physicians or American hospitals are worse than other 
hospitals, but I think it is because the payment system really 
does not incentivize them to look for avoidable measures that 
are costly ultimately to Medicare and also to insurance 
subscribers.
    Mr. Marino. Thank you.
    Ms. Pozen, please.
    Ms. Pozen. Could I add a little bit to that as well?
    Mr. Marino. Yes, please.
    Ms. Pozen. Because I do think one of the things, to address 
some of the issues that we have been talking about--and we have 
talked a little bit about accountable care organizations or 
what we call in antitrust clinical integration and this notion 
of allowing the providers actually to work together to 
coordinate their care for a given patient so that when a 
patient comes in, that group of physicians knows here is my 
checklist based on what I know is likely that I can apply. It 
is easier for the hospitals and physicians to establish those 
not only because they are serving that population, but also 
everyone that comes in is insured either commercially or from a 
private payer and you do not want to have different checklists.
    So I would say having the provider community own this issue 
in a sense and owning it through the creation of accountable 
care organizations that have proper integration and have these 
kinds of protocols established can help in a large part to end 
again this fragmentation of health care to provide the kind of 
efficiency and quality care that I think we as Americans hope 
for.
    Mr. Marino. Mr. Greaney?
    Mr. Greaney. Chairman, I once heard a CEO of a major 
system--it may have been the Mayo system--say it does not pay 
to be good. An example would be readmissions. If you have a lot 
of readmissions that are preventable as a hospital, you get 
paid twice. If you do not, you only get paid once. That is sort 
of a simple outcome measure but it is one.
    Medicare is looking at value-based purchasing, as it calls 
it. And again, it would be facilities that have measurable bad 
outcomes like infectious disease rates, et cetera because none 
of us want to pay for something we did not get. And I think 
that is just a sensible way of doing business, and I think 
private payers are going in that direction as well.
    Again, remember, Medicare payment is the tail that wags the 
dog or vice versa in that the way Medicare pays often leads the 
way for private payers. So what these reforms are doing in 
Medicare are changing the way payment is made and delivery 
occurs.
    Mr. Marino. Thank you. I think we need to develop a hybrid 
here.
    Mr. Thomas Miller. If I could just say, most of our quality 
measurement in the past and even currently has tended to be 
process measures. We think if you do something, it will create 
a good result. There are efforts--and they need to be pushed 
further--to begin to move toward actually measuring what 
matters to people which is their outcomes. Now, sometimes it 
may be an intermediate marker. It might be a lab test. There 
are the no-brainers, which is how to eliminate the infections 
and the readmissions, but that is not a large enough scale.
    I think there has been some progress under the law in CMS 
in trying to make more available the wider database, 
particularly Medicare data, to make that more accessible for 
other folks to begin to analyze that and come up with 
something. But it is a matter of probabilities. It is not 
certainties. We have two competing views which is if we just 
tell you what to do in a certain manner, good things will occur 
as opposed to saying why don't we actually see whether or not 
you are producing something that works. There might be some 
ways to get there. And that is the difference in terms of those 
two approaches to measurement.
    Mr. Marino. Thank you.
    The Chair now recognizes Congressman Cohen.
    Mr. Cohen. Thank you, sir. I appreciate it.
    Mr. Balto, you obviously missed a decimal. Was it $1.2 
billion that has been paid back to red-blooded, hardworking, 
good American citizens?
    Mr. Balto. Yes.
    Mr. Cohen. And how many millions of people was that?
    Mr. Balto. 6.8 million.
    Mr. Cohen. That number has not changed. 6.8 million people 
got refunds. That is great. That is $1.2 billion with a ``B'' 
monies paid back. How many million?
    Mr. Bachus. I thought he said 8 billion.
    Mr. Cohen. Are you Johnny Manziel? [Laughter.]
    So, Professor Greaney, let me ask you a question. You are 
an antitrust expert. Right?
    Mr. Greaney. I have been toiling in that vineyard for a lot 
of years.
    Mr. Cohen. And you know something about mergers. Apparently 
this has been going in some of the hospital industry.
    Mr. Greaney. Yes.
    Mr. Cohen. Hasn't this been going on for a long time?
    Mr. Greaney. Yes. I left the Antitrust Division in 1987, 
and there were challenges then. And what happened going back 
was a series of several cases which I think a lot of economic 
studies now prove were wrongheaded. Courts defined very large 
markets, allowed mergers to go through. And then the enforcers 
got cold feet and stopped bringing merger cases involving 
hospitals. What that precipitated was a real wave of hospital 
mergers in the 1990's and early 2000's. So it was a bringing 
together of both questionable precedents and a lack of 
willingness to go forward.
    Mr. Balto said we have had retrospective studies and others 
that I think have changed matters, and right now the FTC is 
pursuing a number of important merger cases with greater 
success.
    Mr. Cohen. And so those mergers started, you say, in the 
1980's and the early 1990's?
    Mr. Greaney. The challenges to the mergers did, yes. And 
there were rampant mergers in the 1990's, yes.
    Mr. Cohen. That was before Barack Obama was even a State 
Senator.
    Mr. Greaney. That is correct.
    Mr. Cohen. It is amazing.
    And there have been a lot of mergers in the airline 
industry, has there not?
    Mr. Greaney. There have.
    Mr. Cohen. And in the supermarket industry?
    Mr. Greaney. I believe so, yes.
    Mr. Cohen. And department stores.
    Mr. Greaney. Yes.
    Mr. Cohen. So there is nothing unique about hospitals per 
se in a way. I mean, hospitals, airlines, grocery stores, 
department stores--mergers have been commonplace in America in 
all areas independent of the fact that Barack Obama was even 
around or that the Affordable Care Act was passed because the 
Affordable Care Act had nothing to do with Northwest and Delta 
getting together or Macy's buying out Goldsmith's in Memphis 
and I do not know who they bought in St. Louis. Do you still 
have a regular home department store in St. Louis?
    Mr. Greaney. We do. We have several department stores left, 
but there have been mergers there as well.
    Mr. Cohen. And Schnucks came to Memphis and then they 
``schnucked'' us out and sold to Kroger's who has turned out to 
be a good group.
    Mr. Greaney. Well, we had an interesting FTC case involving 
the Schnuck's merger in St. Louis that did not turn out so 
well.
    Mr. Cohen. And all that had nothing to do with the 
Affordable Care Act, did it?
    Mr. Greaney. It did not. What I think has precipitated some 
of these mergers is the attempt to sort of gain ground by 
preemptively merging so they do not have to face competition.
    Mr. Cohen. And Mr. Miller, the insurance Mr. Miller, I just 
want to make sure you did not get $12 billion in your mind. You 
got $1.2 billion.
    Mr. Joseph Miller. Yes. We are checking on the number.
    I do want to address the point you are making on the 
medical loss ratio.
    Mr. Cohen. Yes, sir.
    Mr. Joseph Miller. It does nothing to address the issue 
that we are talking about in this hearing, the underlying cost 
of care.
    Mr. Cohen. It has a lot to do with the bill, though, the 
Affordable Care Act, and that is what this is all about. In 
this House that I serve in the 113th Congress, 40 times there 
has been an attempt to repeal Obamacare, and now there is a 
possibility of shutting down the Government, which John Roberts 
upheld as the law that the Congress passed and the Senate 
passed and the President signed. And the President is not going 
to sign any kind of repeal bill and the Senate is not going to 
see it. And that is what this is about.
    Mr. Joseph Miller. Yes, as far as that goes, AHIP tries to 
stay out of politics.
    Mr. Cohen. Good move.
    Mr. Joseph Miller. But I did want to talk just for a minute 
about the MLR. Everything that health plans do to add value is 
penalized under the MLR. Formation of high-value networks, care 
coordination, coordination of medical homes, population health 
management, and most fraud deterrence expenditures are 
penalized. They are on the wrong side of the ratio. And so 
things that we could be doing to help hold down costs were 
deterred under the MLR.
    Mr. Cohen. Mr. Balto, do you have a response to that?
    Mr. Balto. Look, I think the Affordable Care Act 
appropriately looked at insurance company operations. I did not 
recite all the testimony delivered in the last Congress about 
problems in the health insurance market. There were very 
serious problems, you know, escalating premiums, a huge number 
of uninsured. It was appropriate to go and look at what was 
going on and impose certain types of regulation. Those 
regulations--hopefully 5 or 6 years from now we will not need 
those regulations because the exchanges will have made the 
market more robustly competitive and there will not be this 
kind of padding that is going on.
    I do want to go back to your question, does the Affordable 
Care Act cause the problems in the market. I just want to 
caution here. Insurance companies and PBMs will knock on the 
FTC's door and say please let us merge. You need us to get 
bigger because the drug companies are getting bigger or the 
hospitals are getting bigger. Going and creating some bigger 
entity to try to bargain with another big entity always harms 
consumers. It ends up costing consumers.
    Mr. Cohen. Thank you, sir.
    And I yield back the balance of my time.
    Mr. Marino. Thank you.
    The Chair recognizes the Chairman of the full Committee, 
Congressman Goodlatte.
    Mr. Goodlatte. Thank you, Mr. Chairman, and I want to thank 
you and Chairman Bachus for holding this hearing.
    And I just want to ask Thomas Miller if--we have had some 
discussion here about the fact that consolidation takes place 
in the natural order of things and in other industries for 
other reasons. But I would like to come back to whether you 
think that Obamacare by itself has the prospect of more 
consolidation because of this new health care law and why that 
would be.
    Mr. Thomas Miller. I do. I think that there is less 
opportunity for further consolidation in the hospital industry 
in light of what has already occurred. But certainly we are 
seeing, in terms of the integration and consolidation--we are 
not sure whether it is true clinical integration, which is the 
outstanding question in a lot of the ACO's. But in general, 
among physicians and other medical practitioners, they are 
selling out and being bought up, saying I have got to have some 
shelter in the larger organization.
    Now, we have got limited evidence on what the ACO's are 
really producing. We had the early results from the pioneer 
ACO's where it is a little hard to find many cost savings 
coming from the early going. This is in keeping with many of 
the previous demonstration projects or other pilots that CMS 
has done in this field. We got a lot of promises of 
efficiencies in integration, but the actual delivery indicates 
a little bit more of a mixed record. We are not sure who is 
really running the show. What we do know is that consumers 
often are not asked whether they want to participate in the 
ACO. So it is more for the other parties about it.
    There is a longer-term dynamic. I think it is early to say 
what is happening in the health exchanges. I was just looking 
at a study by McKinsey last night suggesting there are two 
different types of reactions between whether or not the 
exchanges are being run by the States, which are a little more 
enthusiastic in recruiting a lot of insurers to participate 
initially, as opposed to the default federally run exchanges or 
even the partnerships where there is less participation. The 
big insurers are staying out in year one more so than what have 
been predicted. We are getting a lot of the Medicaid insurers 
trying to leverage up and provide Medicaid-like products with 
more limited networks and lower reimbursement as a way to be 
the low-cost bidders in the exchanges. So I think it is hard to 
say where those exchanges are going to be a couple of years 
from now, but in all likelihood, as we have seen before, the 
folks who get the market share early tend to hold onto it and 
there is going to be less switching in subsequent years.
    So the story of this widespread, competitive dynamic with 
everyone having every choice in the world--I would suggest you 
take a look at the New England Journal of Medicine article by 
Henry Aaron and Kevin Lucia suggesting this is just the 
beginning. We really want to clamp down on this stuff and be 
much tighter in terms of what we are going to allow with more 
active purchasing. Those tools are there under the ACA, and I 
think if they can get out of the initial bumpy road, extremely 
bumpy road, of implementation, we may see a different face as 
to how those exchanges are actually run.
    Mr. Goodlatte. And in terms of pricing of health care and 
health insurance, more Government subsidies, it would seem to 
me, are likely to not result in better price control but 
actually greater demand not being readily met, resulting in 
higher prices for health care.
    Mr. Thomas Miller. The Government is good at usually 
increasing demand. It is a little harder at increasing supply. 
That is why I certainly think some of the proposals here to 
expand in more creative ways supply, such as eliminating some 
of the barriers to entry by other types of providers of health 
care services, will be necessary. But we are going to run out 
of enough physicians.
    Let me just allude briefly. You know, Medicaid expansion. 
Speaking of Tennessee, I think they already had their 
experience with a large expansion in terms of what happened to 
their health care market. So sometimes you can invite a lot of 
people in the front door and end up wrecking your system 
because you cannot actually handle the capacity of what seem to 
be those demands.
    Mr. Goodlatte. And you may price other people out of the 
market. Is that not a possibility? Are we seeing a reaction 
from a number of fronts that the fact that the Government is 
going to standardize the health insurance policies, that that 
is going to have an upward force on pricing that is going to 
cause some employers to push their employees into the 
exchanges? It is going to cause others to only hire part-time 
employees, others to not grow their business above 50 
employees. Young people who are going to have to pay higher 
rates because of the community rating that is involved here are 
going to get priced out of the market. I think a case could be 
made that there may be as many people losing health insurance 
as there are gaining health insurance from the new Government 
subsidies and expansion of Medicaid, pushing people from a 
place where they have earned health care through their own work 
into a place where they are dependent on Government for 
providing it. Is that a good competitive environment?
    Mr. Thomas Miller. Well, we are having pseudo prices as 
opposed to real prices. So people react to whatever they see in 
front of them. Certainly the record in terms of the posted 
premiums and the analyses as to what these exchanges are going 
to offer--they are all over the lot. People are actually 
somewhat guessing because they do not know who is going to 
enroll, whether the exchange is going to work as well, whether 
you are only going to get the higher risks and what people are 
going to be willing to pay for it. We do not have the answer to 
that, but there is enough reason for alarm.
    And one of the better indicators is what State and local 
governments are doing. They are getting out of the insurance 
business. They are cutting back on their full-time workers. 
They are the folks who are most squeezed on their budgets, as 
other budgets may be squeezed in the future. And normally in 
that environment, what you were promised does not end up 
getting delivered. It turns out it is a lot less, and it starts 
looking a lot more like Medicaid, which has already got enough 
problems in its current size without trying to put it up on 
steroids.
    Mr. Goodlatte. And I noted last week that IBM, one of the 
largest and most successful corporations in American history, 
announced that they were going to put all of their retirees, 
110,000 of them, into the exchanges. Is it possible that we are 
going to find that many businesses find the cost-benefit 
analysis here says it is cheaper to put into the exchanges than 
it is to continue to provide ever-rising costs of health 
insurance and that the exchanges are going to wind up with more 
people than intended and the penalty that employers and 
individuals are--or was it a tax? I cannot remember what the 
Supreme Court said. Oh, actually they said it was both a 
penalty and a tax.
    Mr. Thomas Miller. That is right.
    Mr. Goodlatte. But whatever it is, it is highly likely that 
it is not going to be enough money to pay for all because, 
after all, that is why they made the rational decision to be 
put into the exchange or go into exchange because it was 
cheaper to do that than to provide for this ever-increasing 
cost of insurance. Aren't the taxpayers going to get slammed 
with----
    Mr. Thomas Miller. Well, we know the taxpayer is the 
ultimate default payer in most of these arrangements.
    Mr. Goodlatte. Yes, absolutely.
    Mr. Thomas Miller. Of course, we do not know whether we are 
going to have an employer mandate. We will just have to guess 
on that for another year or so. You do not know what law you 
have until you actually try it out in the field, the same way 
the individual mandate may or may not have much strength behind 
it in terms of its impacts as to what its results will be.
    What we have got is a different type of insurance and 
health care market in a lot of turmoil. Employers might want to 
dump their employees into it if they know it works. They have 
to see if there is any water in the pool. So we are going to 
have a very precarious ride over the next year or 2, and we can 
spin all our theories as to whether it will be better or worse. 
But we do not know. We are taking a pretty large leap.
    Mr. Goodlatte. Thank you very much.
    And by the way, Mr. Chairman, a hospital in a rural area in 
the congressional district right next to mine announced just 
last week that they are closing, and the number one reason they 
are closing is the uncertainty caused by the economic 
environment and they listed Obamacare as their number one 
concern.
    So I thank you very much, and I yield back.
    Mr. Marino. Chairman, do you have an opening statement you 
would like to submit into the record?
    Mr. Goodlatte. I will do that as well. Yes, thank you.
    [The prepared statement of Mr. Goodlatte follows:]

    
    
    
    
    
    
    
    


                               __________

    Mr. Cohen. And I would like, with consent, to introduce my 
opening statement for the record.
    Mr. Marino. Without objection.
    [The prepared statement of Mr. Cohen follows:]

 Prepared Statement of the Honorable Steve Cohen, a Representative in 
Congress from the State of Tennessee, and Ranking Member, Subcommittee 
           on Regulatory Reform, Commercial and Antitrust Law

    I thank Chairman Bachus for holding today's hearing on the impact 
of the Patient Protection and Affordable Care Act on consolidation and 
competition in the health care industry. I hope that we can have a 
serious discussion on the important antitrust issues before us today.
    As all of our witnesses have outlined in their written statements, 
consolidation in the health care industry has been going on for some 
time, long before the ACA's enactment. In both the hospital and 
insurance sectors, we have seen substantial consolidation.
    With respect to the hospital sector, we have seen numerous studies 
suggesting that such consolidation among providers may have resulted in 
increased prices, although some challenge that conclusion.
    We have seen far fewer studies done on the substantial 
consolidation in health insurance markets, though the effects of such 
consolidation have been highly detrimental for consumers.
    According to a May 30, 2013 memorandum released by the Obama 
Administration, in 2012, the individual insurance market was dominated 
by one or two different insurance companies in most states.
    In 11 states, the largest two issuers covered 85% or more of the 
individual market. In 29 states, one insurer covered more than 50% of 
all enrollees in the individual insurance market, and in 46 states and 
the District of Columbia, two insurers covered more than half of all 
enrollees.
    At least one recent study has shown that such concentration among 
health insurers has caused average premiums to rise by 7%, or about $4 
billion.
    Lax antitrust enforcement during the Bush Administration against 
health insurance companies was part of the problem. As David Balto, one 
of our witnesses, has noted, during the previous Administration ``there 
were more than 400 health insurance mergers brought before the DOJ, 
only two of which required restructuring.''
    While I am heartened to see that the enforcement agencies have 
stepped up efforts to stop anti-competitive mergers in the last few 
years, such efforts may not be able to entirely undo the harmful 
effects of already consummated mergers.
    In recognition of this fact, the ACA takes a number of measures to 
improve consumer choices and the quality of health care.
    Most prominently, the ACA requires the establishment of Health 
Insurance Exchanges or Marketplaces. These Marketplaces will serve to 
foster competition by facilitating the offering and purchasing of 
health insurance by pairing a large and stable risk pool with a number 
of health plans competing for their business, whether on price or 
coverage or both.
    The ACA also prohibits certain anticompetitive practices by health 
insurers, including cherry-picking only the youngest and healthiest 
policyholders and keeping a disproportionate amount of revenue from 
premiums for profit rather than using it for policyholders' health 
care-related issues.
    The ACA also recognizes that not all coordination or integration 
among health care providers is bad. In fact, as most of our witnesses 
appear to acknowledge, such integration and coordination can be 
procompetitive.
    For instance, the ACA encourages the formation of Accountable Care 
Organizations. This is because our current health care delivery system 
is fragmented and our health payment system incentivizes quantity over 
quality. If structured properly, ACO's can overcome these problems by 
encouraging health care providers to share relevant information with 
each other that can result in more efficiency, better quality care, and 
cost savings.
    To the extent that the premise of this hearing is that the ACA will 
encourage anticompetitive consolidation, I note that two different 
Commissioners of the Federal Trade Commission have noted in recent 
public remarks that there is no inherent conflict between the ACA and 
antitrust law.
    Commissioner Julie Brill--a Democrat--noted that the argument that 
``the ACA encourages providers to `consolidate' whereas the antitrust 
laws require that providers `compete' is mistaken. The ACA requires 
providers to create entities that coordinate the provision of patient 
care services. The ACA neither requires nor encourages providers to 
merge or otherwise consolidate.''
    Similarly, just last Friday, Commissioner Maureen Ohlhausen--a 
Republican--stated that ``the antitrust laws and the [ACA] are simply 
not at odds. The goals of the Act include fostering greater 
efficiencies for patients--that is, higher quality at lower cost--
through increased coordination of care, while FTC challenges to 
anticompetitive consolidations of hospitals or providers serve to 
protect competition that creates efficiencies and benefits patients.''
    I hope we keep all of these points in mind as we consider the 
discussion before us today.
                               __________

    Mr. Marino. Chairman Bachus?
    Mr. Bachus. Let me just make a comment first of all and 
then I am going to ask a question.
    Anytime we talk about competition, we have to talk about 
new businesses, new starts because ultimately most competition 
comes from new ventures or new companies. Traditionally in this 
country, it has generated probably two-thirds of the growth of 
our job market. So we are all, I think, very concerned that we 
do not do anything to restrain new companies, small businesses.
    And in that regard, the Small Business Administration, 
others have taken a look at the cost of Federal regulations, 
whether you say good regulations, bad regulations, or so-so 
regulations. The number that the Small Business Administration 
comes up with is that Federal regulations alone absorb 14 
percent of our gross domestic product, or we could say our 
economy. That is one way of saying our economy. 14 percent. 
That is not taxes. That is not health care. That is Federal 
regulation. That is not State and local ordinances. And that 
figure is outdated because we have had 25 percent more 
regulations added since that time primarily in the Affordable 
Health Care Act, Dodd-Frank, and climate control legislation, 
and increased EPA, the lion's share.
    So whether we say the Affordable Health Care Act is a good 
thing or a bad thing, it increases regulation. There are good 
regulations. There are regulations that protect us, our safety, 
our health. So this is not a diatribe against all regulations.
    And jobs I think is something that unite all of us. We want 
better jobs. We want more jobs for our children and our 
grandchildren. It is affecting our deficit. It is affecting our 
debt. It is affecting our ability to finance government. It is 
affecting our ability--a weak economy--our ability to pay for 
our elder care and health care. It is one reason there is a 
discussion on the floor today about the level of food stamps.
    And we have been having hearings in this Committee where if 
you can increase the gross national product or grow the 
economy, you take it from 2 percent to 4 percent, you can add 
enough jobs to where you are creating close to a million jobs 
every month. And economically it would be a boon for this 
country. If you take that 14 percent figure and you try to get 
out of that one out of seven, just cut the cost by one-seventh, 
you pick up as much as 2 percent in gross national product 
because regulations tie up capital, they divert some of the 
workforce into complying. And obviously, you have got capital 
plus the workforce or population, whatever, and innovation and 
productivity. And anytime that you are complying with certain 
regulations, it reduces productivity.
    Every President has said--and this is President Bush, 
President Clinton, President Obama--we need to get rid of some 
of the Federal regulations. Not all of them. There are some 
outstanding ones, some good ones. But none of these Presidents 
have done that. Every President has added pretty much the same 
number of regulations, although when these regulations from 
really the two biggest pieces of legislation in the last 30 or 
40 years--it is going to increase tremendously.
    So I would just say we all ought to be committed to better 
jobs, more jobs, higher paying jobs. And one thing we ought to 
look at, which President Obama has made two speeches on, is 
let's look at our regulations and let's eliminate some. And I 
do not think we have eliminated any of them in years.
    My one question is certificate of need. I seem to hear a 
pretty much consensus that certificate of need boards are not a 
good thing, that they inhibit competition and they drive up the 
cost of health care. Is that basically the consensus? Can I 
have a show of hands that believe they are not a good thing?
    Mr. Richman. That they are not a good thing?
    Mr. Bachus. Not a good thing.
    We have one in Alabama. I truly believe it is not 
beneficial. So I do see some agreement here. And that is 
something for States to address as we look for savings.
    So thank you very much for the hearing today, and I will 
yield back to the Chairman.
    Mr. Marino. Thank you, Chairman.
    This concludes today's hearing, and I want to thank our 
witnesses. It was a good, lively discussion. I actually wish we 
had more time.
    I want to thank the people in the audience for sitting 
through this and listening to this exchange.
    And without objection, all Members will have 5 legislative 
days to submit additional written questions for the witnesses 
or additional materials for the record.
    This hearing is adjourned.
    [Whereupon, at 3:05 p.m., the Subcommittee was adjourned.]


                            A P P E N D I X

                              ----------                              


               Material Submitted for the Hearing Record

Prepared Statement of the Honorable John Conyers, Jr., a Representative 
 in Congress from the State of Michigan, Ranking Member, Committee on 
     the Judiciary, and Member, Subcommittee on Regulatory Reform, 
                      Commercial and Antitrust Law

    The Affordable Care Act makes critical reforms to our Nation's 
health care system and will help millions of uninsured Americans to 
gain access to affordable health insurance.
    Today's hearing considers the impact the Act may have on 
competition in the health care industry among both health care 
providers and health insurance companies.
    My principal objective is to ensure that consumers will be the 
primary beneficiaries of these reforms through lower prices and better 
health insurance coverage.
    To begin with, I share with my friends across the aisle concerns 
about the detrimental effects that consolidation in the health 
insurance market can have on our ability to achieve this objective.
    But let us be clear. Consolidation in the health insurance market 
has been occurring at least since the 1990's.
    A major reason why this has occurred is that the health insurance 
industry has enjoyed almost complete immunity from the antitrust laws 
through the McCarran-Ferguson Act of 1945.
    Thanks to this exemption, insurers have been allowed to run 
roughshod over consumers and care-givers.
    That is why I introduced H.R. 99, the ``Health Insurance Industry 
Antitrust Enforcement Act of 2013,'' on the very first day of the 113th 
Congress.
    My legislation would repeal the McCarran-Ferguson antitrust 
exemption for health insurance companies with respect to price-fixing, 
bid-rigging, or market allocations, the worst kinds of anti-competitive 
conduct.
    This legislation should enjoy broad bipartisan support based on the 
fact that the House passed a similar bill during the 111th Congress 
with more than 400 votes.
    Accordingly, I would very much welcome the Majority's assistance in 
bringing this measure to the Floor again.
    The problem is compounded by the fact that although most of the 
Nation's health insurance markets are disproportionately dominated by 
only a handful of powerful players, enforcement actions challenging 
consolidation in the health insurance market were rare until only 
recently.
    The Justice Department, for example, has finally taken action 
against Blue Cross Blue Shield of Michigan because of its dominance and 
conduct in my home state.
    In addition, the Department has recently brought actions against 
insurers in other states.
    Federal antitrust enforcement, however, has been, on the whole, 
insufficient. Most markets are dominated by one or two plans.
    Our regulating and enforcement agencies must continue to enhance 
their efforts to prevent incumbent, dominant insurers from hampering 
competition through exclusionary or collusive conduct.
    I believe, however, that the Affordable Care Act's provisions for 
Health Insurance Marketplaces will encourage new insurance companies to 
enter this industry.
    The barriers to entry to starting new insurance companies or 
entering new markets are extremely high, and these market 
concentrations, in turn, have pushed hospitals to claim the need to 
merge in order to effectively negotiate with the major insurance plans.
    These Marketplaces will help foster competition with existing 
insurers and potentially allow for new and innovative players to enter 
the market.
    Just this past Tuesday, the Department of Health and Human Services 
released a report showing that about 6.4 million Americans who are 
eligible to buy health insurance through the new Marketplaces will be 
able to obtain health insurance for less than $100 a month in premiums 
thanks to tax subsidies.
    And, according to HHS, health insurance premiums will be 20% lower 
in 2014 than initial estimates suggested thanks to these new 
Marketplaces.
    The quality of insurance plans offered through the Marketplaces 
will also be better for consumers, as the Affordable Care Act requires 
these plans to provide certain minimum coverage.
    And, the Act prohibits insurance companies from cherry-picking only 
the youngest and healthiest individuals to sell policies to, among many 
other reforms.
    Some have suggested that the Act may further promote healthcare 
consolidation, particularly through its encouragement of the 
establishment of accountable care organizations and minimum loss 
ratios, among other things.
    They ignore the fact that these features have the potential to be 
pro-consumer, providing better health care quality and efficiency. 
Moreover, given that they will not come into effect until 2014, the 
conjecture about their anti-competitive effects is premature.
    More broadly, our privatized healthcare system, by its nature, 
creates an innate tension between increasing shareholder profits, on 
the one hand, and improving access to quality health care, on the 
other.
    This is precisely why our Nation ultimately needs a single-payer 
system.
    Basic economics would suggest that with fewer market participants, 
the incumbent firms will eventually end up exercising market power with 
no countervailing benefits for consumers.
    The ultimate question in antitrust, however, is whether conduct 
results in net harm to consumers. To the extent that conduct results in 
net benefits to consumers, it should not run afoul of the antitrust 
laws.
    So the real challenge is whether the Act will be implemented in a 
way that will mitigate some of the negative effects of consolidation in 
the health insurance and provider markets while also maximizing the 
pro-consumer benefits of greater integration and coordination among 
providers.
    Because implementation of the Act is still in its early phases, and 
because major pieces of the law will not come into full effect until 
2014, we have the opportunity now to influence how it is implemented to 
increase competition, quality, and access to care.


                                







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