White House's Antitrust Zeal in Healthcare Looks Like More Smoke and Mirrors

Last Updated May 27, 2010 5:11 PM EDT

The Obama administration is warning health insurers and healthcare providers that it plans to block anticompetitive mergers. In light of the Administration's laissez faire attitude up to now and the experience of the past decade, this call to arms -- enunciated by Christine Varney, chief of the Justice Department's antitrust division -- sounds more like a political statement than a significant change in policy.

Take the supposed crackdown on insurance mergers, for example. There have been no major acquisitions of insurance companies in the past few years, and none appear to be on the horizon. So Varney's boast that her department deterred Blue Cross Blue Shield of Michigan from merging with a smaller competitor doesn't seem very impressive. The real test will come when two national carriers like, say, WellPoint (WLP) and Cigna (CI) decide to merge.

Many people think that the 1945 McCarran-Ferguson Act exempts insurance companies from federal antitrust regulations. In February, making another political statement, the House passed a bill to rescind that law, and a similar bill later died in the Senate. But, as Varney indicated, the federal government already has the right to block mergers in the insurance industry. The limited exemption from federal antitrust rules granted by McCarran-Ferguson merely allows insurers to share pricing information, subject to state regulation. (Most states prohibit this type of collusion.)

In a speech to a joint meeting of the American Bar Association and the American Health Lawyers' Association, Varney also told hospitals that the government would counter mergers among providers that are "likely to reduce competition." Over the past decade, however, the government has rarely intervened in such mergers.

Following a series of legal defeats in its efforts to block hospital consolidation, the FTC in 2007 declared that the merger of Evanston (Ill.) Northwestern Healthcare with nearby Parkland Hospital violated antitrust rules. But the FTC did not require the health system to sell Parkland; instead, it just required the two hospital groups to negotiate separately with health plans. Since then, there have been no major antitrust actions against healthcare providers.

It's unlikely that the government will launch antitrust investigations of national providers that have operations across many markets, like homecare provider Gentiva, which just announced plans to acquire Odyssey, a hospice chain, for $1 billion. No matter how big companies are, it's their power in individual markets that counts under antitrust law. But the consolidation of hospitals in local markets definitely drives up healthcare prices. So if the government really wants to bar anticompetitive behavior, that's where it should look. Unfortunately, that's not as politically popular as making noise about regulating insurance companies.

The photo of Christine Varney was provided by the Center for American Progress at Flickr.

  • Ken Terry

    Ken Terry, a former senior editor at Medical Economics Magazine, is the author of the book Rx For Health Care Reform.