The WasteWatcher: The Staff Blog of Citizens Against Government Waste

Bigger is not Better

The WasteWatcher is the staff blog of Citizens Against Government Waste (CAGW) and the Council for Citizens Against Government Waste (CCAGW). For questions, contact blog@cagw.org.


News broke on Friday, July 24 that Anthem, the largest for-profit managed health care company in the Blue Cross and Blue Shield Association, will purchase Cigna for $48.4 billion.  The total deal, which includes purchasing Cigna’s debt, is worth $54.2 billion.  Cigna is known primarily for administrating health insurance coverage for large employers.  The Wall Street Journal notes Cigna is currently the fifth largest health insurer in the country and is being purchased by the second largest insurer, Anthem.  The merger, writes Bob Herman in Modern Healthcare, “is the largest-ever health insurance transaction and part of the mass-scale merger race that is fundamentally changing the industry and fueling concerns over costs and competition.”

Just three weeks ago, Aetna Inc. agreed to buy Humana Inc. for $34 billion.  These health companies are merging to seek “more cost efficiency and scale as the health-care landscape changes because of the Affordable Care Act,” the Journal reported.  If the merger is allowed by federal and state anti-trust regulators, as well as stock holders, the three big insurers in the U.S. will be Aetna, with a projected 2015 revenue of $115 billion; Anthem with $117 billion in revenue; and United Health Group with $154 billion in revenue.

These types of mergers are happening throughout the healthcare sector, not just with insurers.  Gregory Curfman, MD and editor of Harvard Health Publications, wrote in an April 2015 editorial that in 2014 there were 95 mergers, acquisitions, and joint ventures among U.S. hospitals.  He says, “When individual hospitals merge into larger systems, they gain a larger share of the consumer health market.  That puts them in a position to ask health insurance companies to pay more for medical care and procedures.  These higher prices are not borne by the insurers, but by consumers in the form of greater premiums.  Thus, some economists argue, mergers drive up health care costs and place added financial pressure on consumers.”  He warns that the “hospital mergers may offer expanded access to health care services, but this may very well come at a cost – higher prices for those services and higher insurance premiums.”

Healthcare Finance News is keeping a running list of health sector mergers such as CVS Pharmacy buying Target’s pharmacy and clinic businesses for $1.9 billion, taking over 1,600 pharmacies in 47 states.  Another example is Genesis HealthCare buying 24 skilled nursing facilities, as well as the contract rehabilitation business, from Revera Inc. for $240 million.  Writes Healthcare Finance, “analysts mostly agree that this year will be full of healthcare acquisitions as health systems, information technology companies, software firms, medical practices and service providers seek to find out whether bigger is better in the post-Affordable Care Act world.”

Just recently I wrote how expansion of the 340B drug discount program was leading to the acquisitions of independent oncology practices by hospitals to gain more access to cancer patients and revenue through the discount drug program.  These mergers are driving up costs for cancer care for private and government insurance such as Medicare.

We have also learned that almost 50 percent of the ObamaCare state exchanges, the on-line marketplaces where people can purchase a health insurance plan and obtain premium subsidies if their income allows it, are failing financially.  It is likely most, if not all of these states will turn over their ObamaCare marketplace to the federally-facilitated exchange, Healthcare.gov.  The recent Supreme Court ruling in King v Burwell will expedite the movement and will put more Americans’ healthcare under the control of the federal government.

Back in the late 90’s, Regina Herzlinger, an expert and author on healthcare policy, released her book “Market Driven Healthcare” in which she discussed how consumer-driven health care would lead to more competition and the creation of healthcare focused factories.  The “focus factories” would be smaller, nimble, innovative healthcare organizations that would focus their care in specific areas, such as cancer, open-heart surgery, or chronic diseases such as diabetes, and would do it better and less expensively.  They would not be like behemoth hospital systems that try to be all things to all people, ultimately doing too little and at too high a price tag.  In fact, that vision was starting to happen as more consumer-driven health plans and policies were taking hold, such as health savings accounts.  Consumers were using their dollars and their purchasing power to force more transparency and competition in the healthcare sector, leading to lower costs.

Yet, ObamaCare has changed all that, with its power emanating from Washington, its numerous rules, oppressive regulations, and its overall stifling administrative massiveness.  ObamaCare is decreasing competition, creating more bureaucracy and larger, less flexible health systems.  As a result, higher prices and less innovation will follow – the exact opposite of what was promised.

This process can be reversed but only if ObamaCare is repealed and a true consumer-driven healthcare system replaces it.

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