Walmart—considered the world’s largest company by revenue, by the Fortune Global 500 for 2016—is known for asserting “monopsony” (the reverse of a monopoly, using market dominance to force down prices) over the prices its suppliers charge.
Could the same tactic be used by the insurance industry to control healthcare costs?
An opinion piece on
Kaiser Health News ponders the thought, at a time when medical costs continue to skyrocket and the industry’s major health insurers are looking to merge into even bigger insurance companies.
The piece mentions Anthem’s proposed merger with Cigna, the second and sixth largest health insurers in the country, respectively. According to Anthem CEO Joseph Swedish, the merger of the two would allow the resulting company to “manage the cost drivers that negatively impact affordability for consumers.” Anthem spokeswoman Jill Becher added to this, saying that the bigger company could “negotiate better reimbursement rates” with medical providers.
Research suggests that such a notion could work; in metro areas where there are only several major insurers, hospital and doctor bills tend to be lower than what economists would otherwise expect. If only a couple or so insurers are bidding to include healthcare providers in their network, hospitals and doctors need to agree to the offered deal or risk getting left out.
“There’s some literature out there that does show that when you have relatively concentrated insurance markets, they tend to keep actual hospital costs down,” commented Yevgeniy Feyman, Harvard University T.H. Chan School of Public Health researcher and Manhattan Institute fellow.
On the other side of the fence, the opinion piece also details the thoughts of the American Hospital Association (AHA) and the American Medical Association (AMA)—trade groups for hospitals and doctors, respectively. Both groups are worried that Anthem’s proposed merger with Cigna, as well as other planned mergers such as the Aetna-Humana deal, could cause more harm than good.
“[Both deals] have the very real potential to reduce competition substantially [and] diminish the insurers’ willingness to be innovative partners with providers and consumers,” said AHA lawyer Melinda Reid Hatton in a letter sent to antitrust authorities.
Antitrust regulators are siding with the medical providers in this issue, saying that the “monopsony” these potential mergers could hold can lead to suppliers refusing to produce due to the lower prices, making need goods and services unavailable.
“As a result of the merger, Anthem likely would reduce the rates that … providers earn by providing medical care to their patients,” the Justice Department said as it filed suit against the two mergers. “This reduction in reimbursement rates likely would lead to a reduction in consumers’ access to medical care.”
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