The lawsuit said a large company without such competitors would then likely use its power to maximize profits by charging higher prices and reducing benefits to consumers.
The U.S. Justice Department recently filed two lawsuits to block mega-mergers that would reduce the number of the nation’s largest health insurance companies from five to three.
The larger of the two multi-billion dollar mergers is a takeover of Connecticut-based Cigna by Indiana-based Anthem.
Connecticut Attorney General George Jepsen was among 11 state attorneys general to join the DOJ lawsuit against the Anthem-Cigna merger. He said it would create “a colossus nearly twice as large as the nearest competitor.”
The Justice Department's lawsuit said there would be no stopping such a colossus—that it would be unchecked by competitors, who could offer lower prices and more benefits to consumers.
And the lawsuit said a large company without such competitors would then likely use its power to maximize profits by, among other things, charging higher prices and reducing benefits to consumers.
That's the power of a monopoly. It’s the power a big seller—like a giant insurance company—has over consumers who want to buy something like health insurance coverage.
There’s another side to the DOJ lawsuit—an argument that's not often brought up. That argument involves the power a big buyer has. It's the mirror image of a monopoly. Economists have a fancy word for that: it's called a monopsony.
Leemore Dafny is a Harvard Business School economist who specializes in competition in the health insurance industry. She said that becoming a colossus means, "that insurer can make a take-it-or-leave-it offer to providers.”
The providers then have no one else to turn to if they lose the business.
According to Dafny, a take-it-or-leave-it offer raises an important question.
“If insurers become more sizable and through that size can impose lower prices on providers," Dafny said, "would those lower prices come with quality reductions and reductions in access on the part of providers? So could consumers be harmed as a result of pressing rates down in a way that’s uncompetitive?”
In its lawsuit, the DOJ said yes, that would harm consumers.
And Dafny said demonstrating harm to consumers is a crucial point for the DOJ's monopsony argument in its lawsuit.
That's because it's not enough that the big buyer formed by a merger could harm physicians and hospitals when that colossal company forces lower rates on them. The DOJ has to believe that doctors and healthcare providers would respond in a way that would pass the harm onto consumers.
"It’s not just that the doctors are driving away in Priuses instead of Mercedes," Dafny said. "But that in fact they’re actually going to work less, or do a less good job at what they’re doing, or there will be fewer of them in the marketplace as a result of those lower rates.”
The DOJ is arguing in its lawsuit that doctors could end up delivering lower quality care, or even leaving the marketplace because of a merged, colossal company's ability to hand them a take-it-or-leave-it offer.
Matthew Katz, CEO of the Connecticut State Medical Society said that most doctors would not be able to leave such an offer.
“You would have no patients if you did not in fact accept whatever contract rates, terms, and conditions they provided," Katz said.
When doctors accept low rates of reimbursement for their care of patients, Katz said it puts them in a bind.
"They may reduce their hours," said Katz. "They may have to limit access to those within the Anthem-Cigna network because, again, if the rates are so low that they’re losing money on every patient, you see more patients—you just close quicker. So the issue would be to see less patients within that network, simply because you couldn’t afford to see those patients.”
Katz said a possible Anthem-Cigna colossus, handing out take-it-or-leave-it offers, means doctors would either see patients more quickly, or see less patients. There would also be less choice in a network that some doctors would feel is unaffordable.
WNPR reached out to Athem and Cigna for comment for this story. They referred us to their statements last month on the lawsuits.
In its statement, Cigna said it was “evaluating its options.”
Anthem issued a statement that called the lawsuit, “unfortunate and misguided.” The insurer said the takeover of Cigna would improve consumer choice, quality, and affordability.
