Deals by UnitedHealth, other health giants set off antitrust alarms in D.C.

WASHINGTON – The country’s largest health insurer, UnitedHealth Group, received permission last week from federal regulators to buy about 225 medical clinics across the country. The purchase will add to a health care empire that already includes large medical groups in 10 states, a specialty pharmacy, a pharmacy benefits manager, 200 outpatient surgical facilities and a 20-state chain of urgent-care centers.

UnitedHealth, America’s sixth-largest publicly traded company and Minnesota’s biggest corporate citizen, is hardly alone in this health care trend. In 2018, Aetna health insurance merged with CVS Health, a huge national pharmacy chain. Another major health insurer, Cigna, merged with Express Scripts.

Big corporations buying different links in the health care chain -- a process known as vertical integration -- has set off antitrust alarms on Capitol Hill.

Democratic Sen. Amy Klobuchar of Minnesota has introduced two bills that will make it easier to monitor and challenge all kinds of mergers, especially vertical consolidations like those seen recently in the health care industry.

“We all know that corporate interests and consumer interests are often very different,” Klobuchar said at a recent Senate subcommittee hearing on health system consolidation. “The stakes couldn’t be higher. This is about nothing less than the future of health care in our country.”

The health care corporations counter that they are consolidating services to streamline and make care delivery more effective and efficient.

“UnitedHealth Group delivers a wide range of comprehensive, coordinated health benefits and services to employers, individuals, and government agencies,” a company spokesman said. “We work closely with more than 80 health plans, 67,000 pharmacies and 1.3 million physicians and other health care professionals to improve patient outcomes and experiences and lower costs.”

The company did not address questions about Klobuchar’s proposal for more rigorous scrutiny of vertical mergers.

Government regulators have traditionally paid little attention to vertical mergers, presuming that they are more about efficiency than monopoly. Merger specialists agree that can be the case. But many said each acquisition should be weighed individually for its potential to help deliver good, affordable products and services against its potential to stem competition and raise consumer costs.

Law professor and former U.S. Justice Department antitrust attorney Thomas Greaney was more direct. He warned the recent subcommittee hearing on health care consolidation that “concentration begets anticompetitive conduct.”

At an investor conference in November, UnitedHealth said it now “serves” more than 14 million patients through primary-care practices, surgery centers, urgent-care centers and its network of hospitalists and nurse practitioners. OptumCare, United’s medical-care arm, has 36,000 aligned physicians, the company said, and 8,000 advanced-practice clinicians.

Size does not necessarily mean higher prices for individuals, explained Pinar Karaca-Mandic, a professor of health economics and health insurance at the University of Minnesota’s Carlson School of Management.

Streamlined record sharing between insurers and physicians working for the same company could reduce transaction costs, she said. Other forms of cost-cutting coordination have the potential to increase the quality of care and the efficiency of care without raising the charge to consumers.

However, without more scrutiny than currently exists, Karaca-Mandic and others said it will be hard to tell where economies of scale end and exclusion of competitors begins. Karaca-Mandic pointed to secrecy in the negotiation of drug prices between pharmacies and pharmacy benefit managers as a source of concern. If rebates remain shrouded, no one knows how much of a negotiated price cut consumers get.

Among other ongoing concerns is limiting consumer choices of care providers and treatment facilities and driving up patient prices and copays in markets dominated by a single company.

Scholars at American University, Georgetown University, Massachusetts Institute of Technology and Yale University have collaborated on a proposal to change the burden of proof in approval of vertical mergers. Neither “economic theory” nor “empirical evidence” supports the 35-year-old standard the government now applies that vertical integrations are presumed to be helpful and therefore need less scrutiny than horizontal mergers, they said.

Regulatory agencies “should require the merging parties to show that the efficiencies are verifiable, merger-specific and sufficient to reverse the potential anticompetitive effects,” the scholars wrote.

Klobuchar sounded a similar theme in discussing legislation that would increase merger fees to fund more aggressive government scrutiny of vertical integration and a second bill where “parties involved in a mega-merger ... would have to prove simply that their merger did not harm competition instead of having the government have to prove it.”

Both of Klobuchar’s bills have been assigned to the Senate Judiciary Committee on which she sits. Neither has come to a vote.

As vertical consolidation continues, medical costs are rising at more than three times the rate of inflation, Klobuchar said.

“It is no wonder,” she added, “that people who still struggle to pay their health insurance premiums, copays and prescription-drug costs grow skeptical of promises that large health care mergers will produce cost savings.”

Jim Spencer • 202-662-7432

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