Promoting Competition in the Health Care Marketplace

Health care consolidation reduces competition and increases prices, with limited benefits to quality of care.¹ From 1998 to 2017, nearly 1600 hospital mergers occurred, many resulting in price increases of more than 20%.² These price increases are partly because health care systems with dominant market share can negotiate higher prices and anticompetitive contracts. Although the Department of Justice (DOJ) successfully litigated against antitiering and antisteering practices by Atrium Health in 2018, it has only filed 2 antitrust cases against hospital systems since.

Increasing practice consolidation may be another legacy of the COVID-19 pandemic. Smaller practices and safety-net hospitals typically lack financial reserves and were less able to access emergency relief funding. As a result, these practices could downsize, be acquired by larger conglomerates to offset financial burdens, or experience physician flight or retirement.³

These trends merely exacerbate policies that have furthered practice consolidation. Complex administrative and compliance requirements add costs for independent practices. Additionally, hospitals receive higher reimbursement for identical services through what are known as facility fees. These fees, originally intended to cover hospital overhead costs, are often applied to services outside the hospital setting, incentivizing hospitals to purchase practices.¹

President Biden’s 2020 campaign policy platform explicitly called for the need to “tackle market concentration across our health care system,” including through aggressive antitrust action, and the Federal Trade Commission (FTC) has already announced plans to study the effect of consolidation on health care costs. Kocher and colleagues⁴ suggest that this goal may require revising the definitions used to measure hospital market concentration and clearly setting the minimum threshold of market share needed to be considered a market-dominant hospital. The nominee for Secretary of the Department for Health and Human Services, Xavier Becerra, could champion such reforms, having brought successful antitrust litigation against Sutter Health as California attorney general. Dafny⁵ as well as Cooper and Gaynor² have recommended increasing the federal antitrust enforcement budget² and revising horizontal merger guidelines.⁵ While the approach by the FTC and DOJ to prevent hospital mergers has received considerable attention,^2,4,5 the Biden administration has additional specific opportunities to leverage legislative, regulatory, and administrative action to promote competition.

Given slight Senate margins, health legislation will need to attract bipartisan support or be narrowly scoped under budget reconciliation. There have been several recent bipartisan proposals to improve competition, including the Lower Health Care Costs Act of 2019, which was cosponsored by Senators Alexander (R-TN), Ernst (R-IA), and Murray (D-WA). The bill aimed to protect patients from surprise medical bills but also sought to improve transparency of price and quality information, promote data interoperability, and limit antitiering and antisteering clauses in contracts. The Hospital Competition Act of 2019, cosponsored by Representatives Banks (R-IN) and Westerman (R-AR), planned to require hospitals without sufficient competitors to accept Medicare reimbursement rates regardless of their enrollees’ Medicare status and mandate hospitals to publish prices for certain highly used services. If the Biden administration chooses to elevate health care competition as a priority, it may garner rare bipartisan support.

The Centers for Medicare & Medicaid Services (CMS) can further promote site-neutral payments. An appeals court ruled in favor of the authority of CMS to use the outpatient prospective payment system to reduce rates for off-campus hospital facilities to the rates paid to outpatient clinics. CMS can also use payment levers to proactively support independent practices. Rathi and colleagues³ suggest that consolidation can be limited by ensuring federal assistance to primary care practices and rural hospitals, adapting public payer reimbursement to stabilize practice finances (eg, expanding prospective payment elements to ensure predictable cash flow), and encouraging private payers to support spending through alternative payment models. Alternative payment arrangements targeted to independent practices can reduce the importance of market power from fee-for-service systems and enable practices to compete on cost and quality rather than negotiating power.

Many states have certificate of need (CON) laws that limit the number of services offered in certain localities to save on duplication of services. Despite the rationale, research suggests that these laws increase prices by reducing competition and free market entry. CMS may be able to reduce the anticompetitive consequences of CON laws. Under Executive Order 13890, CMS provided additional flexibility to Medicare Advantage plans with network adequacy challenges in states with CON laws. These approaches could be expanded to state health insurance marketplace exchanges and federal employees’ health benefits programs.

One way health systems might leverage their market dominance to further reduce competition is by limiting access to patient data to community practices unwilling to join their contracted networks. In April 2021, CMS can begin enforcing information blocking rules that limit interference with access, exchange, or use of electronic health information. However, CMS and the Office of the Inspector General have yet to issue regulations regarding noncompliance that define appropriate disincentives for practices and monetary penalties for networks and vendors. CMS must also issue guidance on how it will enforce requirements for hospitals to notify community physicians when patients are hospitalized, discharged, or transferred under the conditions of participation in the Medicare and Medicaid programs.

In addition to enforcement against mergers, the FTC and DOJ should limit noncompetitive behaviors regarding physician employment. Noncompete agreements prohibit workers from joining competing firms. In areas with limited health care competition, these contracts cause health care professionals to relocate to find employment, reducing competition. According to the Center for American Progress, many states have passed legislation to reduce these agreements across the employer landscape. Alabama, Arkansas, California, Delaware, Massachusetts, New Hampshire, North Dakota, and Rhode Island have rendered these contract provisions unenforceable for physicians. State attorneys general, like Washington State’s Bob Ferguson, are taking an aggressive approach to preventing exploitative employment practices. The Biden administration should further commit the DOJ to supporting state-led efforts by monitoring and enforcing antitrust legislation to limit these practices.

In summary, the FTC and DOJ should more aggressively prevent hospital mergers that would lead to significant reductions in market competition, especially as hospitals mitigate financial losses from COVID-19. This should be paired with strategies that eliminate additional payments for hospital services rendered outside the hospital setting, reduce administrative complexity for practices to comply with regulatory standards, and expand alternative payment models to independent practices. Furthermore, the Biden administration should support bipartisan legislative measures to promote quality and cost transparency, encourage reform of CON laws to promote competition, support interoperable data frameworks, and limit nefarious employment practices. Effectively addressing these challenges represents an opportunity for the new administration to build a sustainable health care system that is responsive to evolving patient needs.

Open Access: This is an open access article distributed under the terms of the CC-BY License. © 2021 Kannarkat JT et al. JAMA Health Forum.

Corresponding Author: Joseph Kannarkat, MPP, University of Maryland School of Medicine, 655 W Baltimore St S, Baltimore, MD 21201 (joseph.kannarkat@som.umaryland.edu).

Conflicts of Interest: Dr Mostashari reported by CEO of Aledade, a physician enablement company, outside the submitted work. No other disclosures were reported.