Healthcare Markets and Acquisitions
Health Insurance After Corporatization —What Next?
New England Journal of Medicine Perspective
Leemore Dafny, Ph.D.
The author explores whether the corporatization of the U.S. health insurance industry (i.e., the consolidation of insurers within and across markets) contributes to the industry's poor performance among the commercially insured population. The answer is maybe. One key driver of such consolidation is the "technology of insurance." Economies of scale drive insurance consolidation by lowering costs and stabilizing risk for larger insurers, but beyond a certain size, these advantages fade, and large bureaucracies can hinder innovation and efficiency. A second driver is that larger insurers gain consolidation advantages by using their market power to secure lower reimbursement rates, attracting more customers and further increasing their leverage, which in turn fuels a broader arms race of consolidation among health care organizations seeking to restore bargaining power. A third driver is the rise of for-profit insurers—driven by tax advantages, profit-growth pressures, and policy changes that weakened not-for-profit protections—accelerated industry consolidation, as these firms aggressively expanded to gain market share. The consolidation of for-profit insurers, including the formation of Elevance Health, has increased market concentration, with the four largest insurers covering half of all commercial enrollees by 2023. These large insurers can negotiate forcefully with providers and influence not-for-profit plans, though there is limited, clear evidence that ownership status affects premiums or quality. Since insurers remain essential to managing financial risk, policymakers should focus on improving competition and transparency rather than removing insurers from the system.
Balancing Investment And Oversight: A Legislative Framework For Health Care Acquisitions
Health Affairs Forefront
Richard K. Leuchter, Thom Walsh
The authors argue that the mere presence of private equity (PE) investments is not inherently problematic; instead, there should be legislative guardrails that allow certain benefits of private investment while avoiding harm to the healthcare system. The authors identify harmful practices and provide guides for responsible legislative investment. First, the authors acknowledge that leveraged buyouts increase the risk that the acquired healthcare entity will declare bankruptcy. Excessive leverage raises the likelihood of bankruptcy and financial distress. To mitigate risks, the authors suggest debt responsibility standards that limit the amount of allowable debt used in acquisitions, asset protection provisions that would limit how the allowable debt is collateralized, a clear definition of covered investment companies, and a definition of health care entities. Second, the authors look at the lack of a clear national framework for balancing investment and oversight. They argue that legislation must ensure that adequate data are available to regulators and the public through strengthened federal oversight and annual mandatory reporting of key metrics. Third, the authors illustrate issues with rapid resale bans, which can undermine patient safety and facility sustainability. To mitigate those problems, they suggest legislation requiring a mandatory holding period before an acquired health care entity can be resold, and regulatory review of any requests to bypass the holding period. The authors conclude that health care financialization poses serious risks to patients, providers, and communities, and that legislators should focus on leverage, transparency, and accountability.
A Role for Market Forces in U.S. Health Care—Principles and Guardrails
Sandro Galea, MD, DrPH
JAMA Health Forum
The author explores how the U.S. can better deploy market-based solutions to improve health care. Recognizing the potential of market forces in certain sectors of the economy and that these forces can drive efficiency and innovation, the article examines why health care markets often fail to operate effectively. It explains that deep information asymmetries, third-party payments, and high consolidation among hospitals and insurers weaken market dynamics. But evidence from generic drug competition and consumer financial tools shows that genuine competition can reduce costs and improve value. The author argues that thoughtfully designed market mechanisms, supported by strong guardrails, could enhance the current system rather than displace public involvement. This approach would require strengthening antitrust enforcement, improving price transparency, and shifting payment models toward outcomes-based rewards rather than volume. The author concludes that a balanced strategy combining government oversight with market-driven incentives may create a more efficient, innovative, and sustainable health care system.
Healthcare Pricing
Addressing Costs Through Pricing And Coverage Policy
Health Affairs Forefront
Hayden Rooke-Ley, Andrew M. Ryan, Robert A. Berenson
The authors of this article set out an alternative payment policy agenda to value-based payment, grounded in a fee-for-service pricing and coverage policy. First, the authors review the physician fee schedule. The reliance on AMA's relative values for various service codes leads CMS to adhere to strict budget rules, resulting in a misvalued, complex Physician Fee Schedule with more than 10,000 service codes. The authors suggest that the Government Accountability Office and independent experts should develop objective, empirical measures of physician work, and that CMS should regularly reevaluate RVU assessments based on observed practice patterns. Second, the authors look at hospital payments. They note that hospital payment demonstrates pricing policy and the need for reform. The shift in 1983 to the inpatient prospective payment system (IPPS) was largely successful, but there is room for improvement. Price distortions come from upcoding and outlier payments. CMS could issue clearer, more objective coding guidance to reduce the gray areas hospitals use to exploit. Further, Congress should ensure site neutrality so that Medicare patients pay the same amount for the same service, regardless of which hospital they visit. Third, the authors examine pharmaceutical payments. They suggest that Congress should expand CMS's negotiation authority to address the high cost of drugs in the U.S. Fourth, the authors acknowledge that aggressive action is needed to address excessive prices in the private and commercial insurance markets. On average, commercial hospital prices are about 250% higher than Medicare prices. While states have some strategies to combat these prices, such as banning anticompetitive practices and strengthening antitrust laws, the authors suggest that policymakers should directly regulate commercial processes or cap price growth. The goal of all these changes is to build a standardized, transparent health care coverage regime.
Experts Mixed On How Most-Favored-Nation Drug Pricing Would Affect Prices, Access, And Innovation
Health Affairs Forefront
Pragya Kakani, Dhruv Khullar, Emma E. McGinty, Colleen L. Barry, Amelia M. Bond
There is uncertainty among health policy experts about the effects of most-favored-nation (MFN) prescription drug pricing policies. The split was largely due to uncertainty about the policy's effects on manufacturers' revenue. An insight panel survey asked health care policy experts about the likely effects of a widely applied MFN drug pricing policy requiring drug manufacturers to charge net drug prices no higher than those paid in peer nations to all U.S. payers and patients. A little over half of respondents did not believe that MFN drug pricing would improve access to medications in the U.S.; however, experts did think that medication access would improve in Medicaid. There was also no consensus about whether MFN pricing would reduce pharmaceutical innovation. While there were no strong conclusions about the best way forward, the authors note that policymakers should thoroughly consider how manufacturers could respond to MFN pricing.
Hospital Spending Accounted for 40% of the Growth in National Health Spending Between 2022 and 2024
KFF
Jamie Godwin, Zachary Levinson, Tricia Neuman
The authors examine whether hospital spending has contributed to the growth in national health expenditures over the last few years, using CMS data. National spending on health has increased rapidly, reaching 18% of GDP in 2024. Spending on hospital care alone accounted for $277 billion of the growth in spending from 2022 to 2024. Notably, the use and intensity of services were lower during the COVID-19 pandemic, yet hospital prices still saw the fastest growth in 2024 since 2007. Hospital spending growth over the past two decades is largely due to increases in both hospital prices and the quantity of services provided. The authors conclude that continued growth in hospital spending will likely exacerbate concerns about health care affordability in the United States.
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