What Washington's anti-consolidation push misses

Attacking consolidation and related anti-competitive business practices in health care has emerged as something of a bipartisan cause over the last few years. There's just one big problem: Health care already is heavily consolidated, and most of the solutions can't change that.

Why it matters: Whether it's insurers, pharmacy benefit managers, hospitals or providers, today's health care landscape is increasingly dominated by large players wielding outsize market power, which experts say contributes to high and rising costs.

• Most policymakers worried about health costs are still generally united around approaches that use market forces to lower or at least stabilize prices. Many measures that would ultimately help prevent future consolidation and preserve competition have widespread appeal.
• But a question that often goes unaddressed is, what to do about markets where there's little to no competition?
• "The term that is used when you talk about trying to unwind consolidation that's already happened ... is unscrambling the eggs," said Leemore Dafny, an economist and Harvard Business School professor. "That's so exceedingly difficult that their energies are focused on prevention."

The answer, experts say, has to be some combination of government cracking down on anti-competitive business practices, regulating prices, or directly or indirectly breaking up big companies.

• Spoiler: I can't find anyone advocating for the FTC or the DOJ to swoop in and start engaging in early 20th century-style trustbusting, although some ideas could have the effect of breaking up large companies.
• And while there's decent support for measures like price transparency or prohibiting anti-competitive contracting, those alone probably won't undo the downstream effects of consolidated markets.
• That leaves government price regulation — an approach supported by even some staunch free-market advocates. But aside from prescription drug prices, it's an option even progressive Democrats shy away from when dealing with the commercial sector.
• "It is hard to look ahead and see that we are going to correct, in many settings, the lack of competition that we observe," Dafny said. "And so if we don't have competition, unless you want unfettered monopoly power, you need some kind of regulation."

Catch up quick: PBMs have had a particularly newsy month and were the subject of both a House Oversight Committee report and an interim FTC report.

• Both point out how the largest three PBMs control about 80% of the market and are vertically integrated entities that also own insurers and pharmacies.
• Insurers also increasingly own providers (read Stat's excellent investigation on how UnitedHealth "exploited its growing power to milk the system for profit," which was co-authored by my old pal and former Axios colleague Bob Herman).

• Vertical integration has its virtues; economists can see how an integrated payer model would lead to cost savings, for example.
• "Conceptually, there's a lot to like about it, but that only works downstream to benefit patients and payers if there's competition," Dafny said.

Zoom in: Despite the recent attention on the payer side, the first place most of the experts I spoke with gravitated to was hospital consolidation.

• That's also where Congress has focused most of its attention over the past couple of years.
• That's at least partially because there's better research on the impact of hospital mergers and provider acquisitions than other forms of vertical integration, and research has found over and over that concentrated hospital markets lead to higher prices.
• But it's also the segment of the medical system where the question of what to do about concentrated markets is most relevant and, given all of the attention it's received, the obvious elephant in the room.
• "A major challenge of antitrust policy is that many provider markets are already highly concentrated, and it's difficult to break up mergers or unwind mergers after they've already occurred," said KFF's Zach Levinson.

The other side: Hospitals say mergers and acquisitions enable them to expand patient access, keep financially struggling facilities afloat and have a strong footing in negotiations with large national insurers.

Let's go deeper below...