Organization dedicated to advancing knowledge and understanding of Health Policy issues for the policy making community, the media and the surrounding stakeholders in the d. C. Area and beyond. So welcome this morning to those who are joining us live on cspan2 and watching from home. And before we begin, i just want to make a quick note about the dates for the next several breakfasts. Well be doing them about once a month. The next one will be march 29th, and we will be talking about pandemic preparedness. So quite different from todays topic. Today we are delving into the broad topic of shifting dynamics in the Health Care Market, and were going to take a closer look at the issues around market concentration, consolidation and integration. And although there have been a lot of recent headlines about this topic, this is not a new issue in our health care system, and so the panel of experts today is going to help us understand whats happening right now, what the implications are and also how this fits into the historical context. So were going to hear from four excellent speakers, each of whom has a different perspective on the issue. Im going to briefly introduce them. To my far left is tom scully. Tom is a general partner at welk Carson Anderson and stowe. He was administrator at the centers for medicaid and Medicare Services and president and ceo of the federation of american hospitals for six years. Next we will hear from leslie norwalk. Ms. Norwalk is strategic counsel, ebg advisers and National Health advisers, she also serves on numerous boards. Leslie served under the Bush Administration as the acting administrator for the centers for medicare and medicaid services, and for four years prior to that was the agencys deputy add morer. Thank you. Welcome, leslie. Next well hear from Debbie Feinstein who is a partner at arnold and porter where she heads their global antitrust group. She recently rejoined the firm from the u. S. Federal trade commission where she was director of the bureau of competition from 20132017. Shes advised clients on hundreds of transalaskas involving transactions involving virtually all sectors of the economy including health care and is going to help us shed some light on how regulators think about these issues. And lastly, we will hear from chapin white whos a senior policy researcher at the rand corporation. His work combines quantitative and qualitative methods and focuses on provider payment reform and the implementation and impacts of the Affordable Care act. Prior to joining rand, chapin was a Senior Health earninger at the researcher and a principal analyst at the congressional budget office. So thank you all for joining us. Im going to ask each panelist to make about five minutes of remarks regarding this issue, and then we are going to open it up to some q a and discussion for those in the room. Thank you. Great. Tom scully. Well, i will jump in first noting that i think my first breakfast might have been in 1989, probably on similar topics. [laughter] jerrys a great guy, so its a great tradition. The issue about consolidation of health care, whether its good or bad, is an incredibly complicated question. Some of these issues have been around since the 90s, i think we had discussions about managed care and how it was working, what happened to hospitals back in the days of the 90s. Health cares a local business, so whether consolidation is good depends on whether youre a doctor, hospital, Insurance Company. It affects everybody differently and affects every market differently. I think making a generalization about whether consolidation in health care is a good thing is really a local issue. Health cares a local issue. The one thing i would say, and i assume my former antitrust regulator would agree with this, as a republican ive always thought the most Important Health care regulation was antitrust regulation because you believe in markets and believe that markets have to function reasonably well, the other alternative is just is singlepayer government price setting, then you have to believe you have a market with the relative power between the doctors, the insurers and companies are in balance. So i think the question of whether consolidation is good or not depends on the local market. Generally, my view over the last 2530 years is that the hospital consolidation has been too much and is not necessarily a good thing. I live in norb virginia. I northern virginia. Great set of hospitals, but from washington to fredericksburg, everythings owned by one Health System. I dont think thats a good thing. You can go around the country and find a lot of markets where the hospitals have consolidated way too much. The case law r i would argue, got a little out of control. And theres not a lot of great case law trying to slow hospital mergers. Some of them are good. There was a lengthy article in the post last year about pittsburgh, and some of whats going on there is good. In the doctor world, generally its been difficult for docs to organize. I happen to think one of the better trends is docs getting organized in groups to take risks and understand in their market to have them get together and be efficient Market Participants. Generally the weakest of the Market Participants in most markets, in my view, has been the physicians. So finding a way to allow physicians to organize into more effective economic groups is important. In the insurance world, it depends on the market. Obviously, the two giant mergers last year did not go through to many peoples surprise. I dont think i was surprised, but a lot of other people were. And again, the Drug Companies, you can talk about a lot of things about the Drug Companies where you get a competitor and you buy them up and, boom, they disappear. Whether you think consolidation and Companies Joining together is a good thing, again, depends totally on the market. And pittsburgh was in the post last week, i happen to think the market is size of pittsburgh its healthy to have two big systems that are beating each other up and competing competitive pressure. Creating competitive pressure. If youre really going to slow the growth of health care and people more efficient and do it in a marketoriented place, youre going to have to have people not get everything all the time for free or with very low copayments. They have to make some network choices. I think in markets like pittsburgh, those choices, you know, are more apparent and better when you have a fair amount of competition. So if you believe that you can have a quasimarket health care system, competition is critical, and antitrust enforcement is critical. We owned a big chunk of the Health System, the loveless Health System for years in albuquerque, and that market totally different than most others finish youre either in the loveless plan or the presbyterian plan. And there is no thats your choice. You dont go out of network. These choices about networks and competition and whos dominating the Health System locally whether its an Insurance Company like a high mark in western pennsylvania or a hospital or, in my view, as long as you have strong Competitive Forces making utilization decisions that are rational and striving down prices, thats all a good thing. Your real choice in the long run, either the government setting prices as we did in medicare which i think is not a good thing, not healthy and drives up volumes and causes prices in health care systems, or you really believe in competition. And im obviously, you know, i think a marginally conservative republican. If you want to have competition, youve got to have markets. And if you want to have markets work, going back to john d. Rockefeller, you better have antitrust enforcement. So thats my quick introduction. Thank you. So im leslie norwalk. The first thing i would like to point out is maybe some table setting, and that is last week cms came out with the new numbers theyve calculated for National Health expenditures. For 2016 the total National Health expenditures were 3. 3 trillion or 7. 9 17. 9 of gdp. They anticipate in 2026 that it will be 5. 7 trillion in terms of National Health expenditures which is just shy of 0 of gdp 20 of gdp. Typically, its almost doubling, National Health expenditures nearly trouble every ten years. Clearly, if you are a conglomerate of any kind in this country, makes health care really interesting. And you probably want a piece of that action. In 2007 if you take a look at what microsoft did, they came up with health vault. Havent really heard much about it since then. Google health in 2008, came out, and they shut that down in 2011. So maybe the i. T. Focus was their initial push. Havent now you see more in terms of health i. T. With apple and apple watch and the iphone and App Developers and so forth. I think that one trend you might see is everyone really starting to play more in the health i. T. Space which i think is interesting. But does that change the Health Paradigm . Does that change the trend of Health Care Spending that tom mentioned going, well, as being a problem and really going up and needing to change that focus . Google comes back into the Health Care Market with a Company Called verb surgical which is a j j google venture, roughly a billion dollars, to bring robots, more robots into is technology center. Or surgical suite. Amazon, for a long time, has been disrupting the front of the store in the pharmacy. Lots of dme distribution. If you think about how people once upon a time got many things by going to the pharmacy, quite often now theyre simply going on amazon and having it delivered. That, of course, makes Companies Like cvs nervous. So what does cvs do . Initially, in 2007, they acquired highmark, the pbm also has an insurance component to it, so maybe its not that big a surprise they took a look at aetna. Well see if that goes through this year. I think its far more likely than the other mergers that were out the last couple years. So what does that do to the market . How does that change things . Is it sufficient to be a paradigm shift . Not sure. What does amazon do next in amazon says, well, lets take a look with Berkshire Hathaway and Jpmorgan Chase to do what . Im not sure. That is the big question. [laughter] in my mind, the question is given toms comments on the local market, for example, can you do a paradigm shift in the Health Care Space . Its not just local markets, its the culture of health care which is greatly influenced by the u. S. Government. Its influenced by medicare e re imburstment, by fraud and abuse, by fda approval. Ing, for example apple, for example, has to worry about every app that it has that may or may not be regulated in some way by the fda. Distribution channels, can the Distribution Channel be disrupted. I think there has been a debate as to whether or not amazon would get further into the pharmacy is. Not just the front of the store, but the back of the store prescriptions. Distribution channels would need to be disrupted for that to occur. And i think the whole Health Care Paradigm that we have, while its really interesting to or consider what amazon, berkshire and is jpmorgan might do, its unclear to me exactly what the first steps would be to get to that paradigm shift. To change how big insurers have historically been paying claims, how health cares been provided at the local market. Its a lot to disrupt locally. It may be easier when youre looking at national distribution, but i think far more difficult when youre doing it on a local basis. So thank you so much, leslie. Next well turn to Debbie Feinstein. Great. Well, thanks, its a pleasure to be here. I appreciated thomas remarks that antitrust has an Important Role to play in the Health Care Marketplace, because that was certainly my view when i was at the ftc. It was a big part of what we did. And we faced a lot of concern over whether we were doing the right thing. We often heard that the administration wanted to have it both ways. On the one hand, they had the aca which was telling Health Care Providers to do one thing and the antitrust laws were telling them to do another thing. I dont think thats actually right. If you look at the aca, it specifically says its not meant to displace competition, and i think the goals of aca and competition can coexist. So when parties used to come in with Health Care Mergers and say the aca made me do it, that was not a defense that was particularly persuasive to the agency. I think its also important to note that the ftc and i mention the ftc because the way the division of labor between the ftc and the doj goes, the ftc looks at provider mergers, the department of Justice Antitrust Division looks at insurance mergers. So with some foot note exceptions, the ftc always going to be looking at hospital mergers, provider mergers, pharmaceutical mergers and at pharmaceutical conduct unless its hard core price fixing which goes to the department of justice. The ftc is a Law Enforcement agency, not a regulator. And that sometimes, i think, is a surprise to folks in the industry who are so used to working with, you know, hhs and cms and all the other threeletter agencies around town that are, in fact, regulators and can have broad prescriptions against types of conduct. The ftc has to look at everything case by case, one matter at a time. And the ftc has no ability to just prohibit something. It has to go to a court to basically get the judge to agree that whatever the ftc thinks is the right thing actually is what happens. And so there were a number of years where the ftc was on a real losing streak in hospital mergers for a variety of reasons; federal court judges all over the country were finding that the ftcs mode of analysis wasnt correct and were allowing mergers to go through for any host of reasons. I think, you know, among them sometimes it was its a nonprofit hospital, these guys are good folks in the community, theyll do the right thing. And that was never really the question. Its not a question of the intent, its a question of what the effect will be of a hospital transaction. And what the ftc started doing is conducting empirical analyses to look at the effects of some of these Health Care Mergers that had gone through that it thought should not have gone through. And what they found is prices went up. They looked at other studies. There was a large scale study in the u. K. Which basically showed that quality goes down when theres consolidation. So those two things made the ftc, you know, look harder at, okay, how can can we explain this well . And they really started explaining it not from the perspective of individual consumer, but from the perspective of the health care and Insurance Companies, you know, what do they look for when they buy. How do they view competition. Because theyre the ones paying in the first instance. And after some bumps in the road at the District Court level, the circuit courts have embraced that. So the ftc has, over the last four years, won cases in numerous circuit courts. So i think the mode of analysis is really established. Now, you see hundreds of hospital mergers every year. Why are only a handful of them challenged . Many mergers simply dont raise competitive concerns. The hospitals are 200 miles away and dont compete. There are numerous other hospitals in the market. Theres a brand new competitor coming in and building a new hospital. Sometimes the facts show that the hospital being acquired literally would go out of business, and the government doesnt want to see a hospital closed. So these are all casebycase analyses. Physician consolidation looked at largely the same way, casebycase. There was recently a situation where a combination of physicians in north dakota got challenged in the ftc and the ftc blocked that because it would have led to just too much consolidation. My times up, ive talked about health care, im happy to answer questions about pharmaceutical issues as well. Good morning, everybody. I guess its my turn. Im an economist. Ion go going to talk about money and dollars. So i want to pivot off the comment about the National Health expenditures, and that the National Health expenditures are a great way to set the table. What i would encourage all of you all to do and email if we want me to send you the tables is dig into the growth and expenditures per enrollee among privately insured individuals versus medicare beneficiaries. This is in the National Health expenditures table. Its buried deep in there, but i can help you find it. The growth in expenditures is really remarkable among the privately insured. In medicare, growth per beneficiary has been at or below inflation for many years running. And among the privately insured, expenditures per enrollee are growing well in excess of inflation. And i would tie that directly back to consolidation. And when we think about consolidation, its come up in some of the previous comments. I think its really important to take the u. S. Health care system, split it into two theyre roughly half and half. The medicare and medicaid, publicly insured and the privately insured in terms of expenditures roughly in terms of the number of people enrolled, its about half and half. On the medicare side, medicare sets prices directly through the fee for Service Program, indirectly through Medicare Advantage, and medicare uses its pricesetting power to keep expenditures growing flat or in line or below inflation. Now, providers dont like that, but thats a fact. On the private side, the private plans have to negotiate rates with providers, and its and the relationship between private health plans and providers where we see, where consolidation is a major concern. And let me ground us in something, in a more concrete example. So lets talk about 80053. This was a comprehensive metabolic panel, its a simple blood test, okay . If you are a Medicare Beneficiary and you get those blood tests, medicares going to pay about 15. If youre a privatelyinsured individual, your health plan has to negotiate the rates that theyre going to pay. If they get it from quest or lab core, its probably also going to be about 15. If they get it from the hospital Outpatient Department, theyre typically going to pay about 45, three times as much as what medicares paying. Okay. If youre a hospital and youre getting paid 45 a pop for simple blood tests, first of all, those services are incredibly profitable for the hospitals. Secondly, youve got to be a little nervous about having a 300 price overhang, okay . Especially with amazon and these big disrupters lurking in the background. If youre a hospital, again, and getting paid 45 a pop for blood tests, how do you protect yourself from having that volume taken away from you . The way to do it when youre negotiating with private health plans is to make it as painful as possible for the private health plan to cut you out of their network. And way to make it as painful as possible is to team up with as many other hospitals as you can, scoop up as many physicians, get them under your umbrella and make it nearly impossible for the private health plan to cut you out of their network. That, the only real leverage that the private health plan has is to say, okay, 45 a pop, thats ridiculous. Youre out of network. Okay. What that does, albuquerques a good example. There are a couple systems that run the whole city. And if you cut one of them out of your network, youre going to make your health plan really unappealing to a lot of your enrollees. If the enrollees go to that hospital thats out of network thank you and get that blood test, instead of paying 45, theyll be exposed to Something Like 150. So theyll be exposed to full charges for getting those services. Thats the pain point that private health plans are facing in their negotiation with hospitals. And the action and consolidation that i see going on is an attempt mainly by hospitals teaming up with physicians to make it more and more impossible to cut them out of health plan networks. Medicare doesnt care. You want to team up, you want to merge, you want to buy a bunch of Physician Practices . Great. Knock yourself out. Medicares still going to pay the same administrative price. So i think the core question that this all comes back to is how do we set up a competitionbased health care system. And competitionbased is intentionally vague. That can mean a bunch of Different Things. I think our vision for the future should be moving in the direction of competition where people can legitimately choose to go to one provider, not be steered and funneled into these hospitalowned systems and that may, that may involve some degree, some role for price setting. Price setting can be consistent with, it can support a competitionbased Health Care Market. So in five minutes, ive probably not been able to connect all the dot cans, but those are the big ones that i finish. Can we dive in on this . Please. Well, i dont know if we want to leslie asked first. To follow on to your point, chapin, the high growth in private Health Insurance has really led employers to be fed up with their traditional insurance plans. And i think that part or maybe not the entire reason, i dont know having not spoken to them why you see amazon, berkshire and Jpmorgan Chase coming up with whatever theyve come up with, i think it is a response to this frustration. You have slight changes. You have High Deductible Health plans which i think the verdict, at least the early verdict is its really not done enough to keep Health Prices or health, health costs lower. Or to lower them at all. And they come back at some point throughout the year. And its really more same old same old. So what does a combination like abc, if you call it amazon berkshire chase x what does that look like . Does it mean that youll see more direct to employers . That the competition paradigm has changed, that somehow traditional insurance, maybe they still pay claims, but how that health care is provided or paid for, that theres some change and that employers might bring that change if they have, for example, h. R. Departments that are perhaps more creative than what weve seen at traditional insurance. Maybe thats what cvs brings to the table looking at a new way with aetna should that merger go through. So i think that the high growth in private Health Insurance is what is driving, ultimately, a lot of the behavior that we see. And whether thats because the local markets in many instances have not done a sufficient job at reducing the Health Care Costs because of consolidation or otherwise. But i do think that thats a trend thats worth watching. You brought up a lot of issues. I could spend the next two hours talking about myself, but ill try to explain. [laughter] look, i ran medicare and medicaid for three and a half years. I love the programs. I fundamentally believe in the history of the world, in the history of man kind, price fixing has never worked any place ever, period. And the only place is in the United States in health care, and its been a disaster. I would believe medicaid fixed prices, artificially pays 60 of costs, medicare pays 98 of costs, commercial payers play 126 of costs n. The long run, its a behavioral disaster. So when you look at do i really think and one of the reasons the private market doesnt work very well is when you have, you know, 40 , 30 or 40 of the market actually works at best because the rest is price fixed from the government, how much is the market going to work when the insurers have minimal leverage . Seniors consume a hell of a lot more health care, so the average hospital is looking at 4060 of its revenue coming from medicare or medicaid. Number one, i think the whole concept and, by the way, i didnt agree with obamacare because i thought the subsidies were too high. The concept of getting more people into private insurance and trying to create better markets was totally correct. Same thing identify been saying ive been saying for 30 years. I liked what president obama was trying to do, the issue is who do you want to subsidize and how much. Then you get into there are a million other issues that you get in. The issue i agree with is hospitals. Hospitals and docs combining to control markets is a very bad thing. Thats very different than doctors. Tampa and orlando, orlando is a hospitalbased market where the hospitals own everything. I used to run the second biggest Hospital Association in the country, i love hospitals, but hospitals are the most expensive thing, and hospitals try to fill their beds and keep things filled up. It is the most expensive part of the health care system. Orlando with the hospitals including all the docs, what do you have . 30 higher costs generally in medicare than you do in tampa because tampas a market where the hospitals are relatively weak, and doctors are organized and figuring out, hey, guess what in if what . If the Insurance Companies give us the money and we keep hem out of the hospital, we make a little more. So i think, you know, this issue is how do you make the market work better, and is one of the last things ill throw in is you talked about private insurers. The Biggest Issue is the vast bulk of private insured in this room nobodys negotiating for you. If its cigna, they get paid a fee to lease their network. They have no money at risk, they dont care about the 125 of cost. Their moneys not at risk. There are a million different tiers at issue here, but if you want to make a market work, youve got to find ways to balance the market and make it work better. Price fixing, to me, is the worst thing you can do. I spent a lot of time in the government, i think a lot of what president obama was trying to do but moving back towards singlepayer is a disaster. All right. Im going to ask debbie or chapin if they want to respond to that and then maybe ask a question and then open it up to our media friends in the audience. Well, i dont think youre ever going to find anybody at the ftc who thinks that regulation is a good idea. So ill leave that there and chapin can follow up on that. I will say that with respect to hospitals and physicians combining, again, i dont think thats necessarily all bad. Thats what antitrust lawyers think of as a vertical combination. And often those can have significant benefits. I think some of the reason that you have some of the you know, it can be a problem if one hospital acquires all the cardiologists in a community and, therefore, there are no cardiologists for the other hospitals. That can be a problem. But if all physicians were, you know, employed by a hospital but there was adequate hospital competition, that wouldnt necessarily be problem mat you can. Some of problematic. Some of the reason i think you see prices increase is because of the way medicare and others reimburse. They do so higher if something happens in a hospitalbased system than a physicianbased system. Theres no good reason for that other than somebody came up with that regulation whether or not the costs are higher. So sometimes you see those price increases that have nothing with the extent of competition, but its simply because the physician is now in a hospitalbased environment rather than an officebased environment. So the orlando example, im wondering is that in the Medicare Program that you see orlando as a more orlando as the more hospitaldominated, is that right . Yes. Okay. And is that in the Medicare Advantage market where those cost differences were showing up . Yes. Across the board, its still a significant difference. And by the way, i agree with you not all doc hospital agreementswith are bad, just the ones with too much market are. So Medicare Advantage is a really interesting market, and im glad you brought it up as an example of a competitive market for health plans that seems to be working pretty welcome and what working pretty well. And what i would plant really firmly in the center of the discussion of Medicare Advantage is that Medicare Advantage plans when theyre negotiating payment rates with providers, lurking in the background is the medicare fee for service is fee schedule as a fallback. So in other words, if youre a Medicare Advantage plan, youre negotiating rates with the big Hospital System in orlando and the big Hospital System says take a walk, were not going to take your crummy rates. And then the Medicare Advantage enrollees go to that hospital anyway. You know the hospital gets paid medicare fee for Service Rates. The medicare fee for service rate schedule and price fixing or price setting depending on how you want to spin it is in the background and is supporting everything that happens in the Medicare Advantage market. And theres been some really interesting eyepopping work coming out. Aaron trish and bob aronson and some other researchers have been documenting this phenomenon that Medicare Advantage plans get negotiated rates that are at medicare fee for Service Rates or even below. If medicares overpaying for lab tests, the Medicare Advantage plans can get better rates than medicare fee for service. So Medicare Advantage, i agree, is a functioning corner of our health care system, and we should be thinking about expanding it. It sets up a system where people can choose provider networks, benefit design. But lurks in the background and this is a core piece of why that system works lurking in the background is the medicare fee for service rate setting, and that completely changes the negotiating dynamics and i think helps make it work. I would, by the way, say thats true. I dont disagree with that. But when i got to cms is, leslie was there. I think Medicare Advantage was 5 of the program, its now 35, 36 of the program. M what really amazes me is private, i love cms, i love medicare and medicaid, but when the people are writing checks off the treasury, the behaviors different. The main thing about Medicare Part d which we spent a lot of time creating is some Third Party Capital is at risk. People behave differently. If i gave humana or aetna 15,000 and said call me next year, magically, theyre focused on only spending 14,000. Medicares not run by the government, medicares run by blue cross plans. You get your medicare check and traditional medicare, you get a check from blue cross of florida. They write checks occupant of the treasury and get paid a 1. 5 administrative fee and they dont care because theres no money at risk. Magically, they care a lot about the costs. So behavior changes dramatically when somebody has their money at risk, and thats whether its a nonprofit blue cross or aetna or humana, its all about risk. When the treasury has an open openended checkbook, things dont work so well. Leslie has one more comment, and then well open it up. One of the things weve focused on this morning so far is the role of the hospital. And is you might consider at the same time that were looking at consolidation what does Technology Mean to that highest acuity level setting. What does Technology Mean when you have more minimally invasive surgery, when you robotics wn you have robotics . In my mind, i think its going to become less and less necessary except for very highlevel acuity needs. So maybe the more tertiary hospitals and level i Trauma Centers, etc. , can see that need. But as more and more traditional Inpatient Hospital Services move to the outpatient side, this too can be a disrupter Going Forward where physicians may have more power in a market moving to an ambulatory Surgical Center and taking perhaps some of the more historically advantageous medicare reimbursement off the inpatient setting and is into the outpatient setting. That, too, could have some disruption particularly in the medium and long term with how health cares delivered in this country as opposed to much of it centered around a very big hospital in any particular local market. Or. Great, thank you. So were going to open it up to questions. If youd just introduce yourself and your outlet. [inaudible] modern health care, good to see you in person, tom. I want to follow up on the Medicare Advantage discussion because i just did a story based on a cbo report that found in rural hospitals especially the medicare fee for service was used to leverage really low rates for Medicare Advantage plans. And it was kind of interesting, i talked to a bunch of different rural providers across the country. It really depended which market they were in. In north dakota, for example, they said, well, we dont really have many Medicare Advantage patients, thank goodness, because we cant deal with Medicare Advantage plans. They treat us badly. In kind of more populace areas, they said is, oh, yes, we got bullied, and basically we had to keep a certain plan in network because we had so many Medicare Advantage enrollees in our hospital. So we had to keep them even though they negotiate a very bad deal for us. And this is the critical access hospital. So how does that play out . I mean, it seems that the same issues with the, changes with the exchanges, Network Advocacy applied to Medicare Advantage, and how is talking points, Medicare Advantage creates more competition, how do these two is it just that Rural America is just difficult in general, or can Medicare Advantage be leveraged a little better . So, look, the reality is its tougher, always has been tougher in the exchange. Its tougher in Medicare Advantage if you have north dakota [inaudible] you know, spent a lot of time with the north dakota delegation over the years. Its just difficult if youre in small market in a small town with one hospital to find a way to create competition. I think the numbers are always going to be small and Rural America. I think theres some other things we should probably look at. Believe it or not, there used to be a medicare select, im the only one who remembers it back in the 1980s and 90s. Basically, the hospitals operated on a fee for service basis. Whether it was critical access, youre going to have to keep those hospitals in business because thats the only source of care, but you still want to set the providers. Get together, take payments and figure out how do we make sure theyre taking four prescriptions instead of fifteen . What encouragement do we have to keep them out of the hospital . You want the providers to be involved in the whole continuum of care. Medicare select create risk for half of the spending. That program discuss appeared about 15 years ago disappeared about 15 years ago. Its a little like some of the rural areas have medicare cost plans which im not a huge fan of, but its somewhat similar. So theres ways to do partial capitation to get some of that. But the fact is i think in Rural America, small months with 50 small hospitals with 50 beds, its pretty tough to see Medicare Advantage working. You just have to make accommodations for it, and i dont think its ever going to work in big numbers, and thats a small part of the process but there are two different components from a regulatory perspective that are relevant here and the first is that the noninterference provision that people normally consider on the drug side, how cms cant interfere with negotiations between plans, drug manufacturers and plans or pharmacy ises, theres a very similar noninterference provision on the other side which says cms cant require a health plan to contract with any particular provider, hospital or what not. At the same time, cms does require minimum access depending on the area and the more rural the area, the broader the reach to meet that access requirement fending on population depending on population and practice pattern, and the like. So there is some push by cms to, on the one hand, try and insure that beneficiaries have access in the Medicare Advantage space. But on the other hand, they cant require anything. What theyve been doing of late is to figure out, well, what are ways that we can where access talk about provided even if we cant require the contracts . What could we do, how could we work with the Medicare Advantage plans. And one way might be be a plan, if a beneficiary goes out of network, they have innetwork cost sharing, but the plan reum bursting the out of network reimburses the knockout of network hospital. So i think those sorts of dynamicsing are what you see in markets where historically in particular the providers have said no to Medicare Advantage, because theyve been able to do so. Thank you. I saw three hands go up at once, so well go sarah and then down the row. Sarah hanson with bloomberg law. Can somebody comment on the idea that theres Cost Shifting from medicare to private plans . It seems to be kind of assumed there is, but then there seems to be some debate is that really going on. I dont think theres any question there is. But its important to differentiate between differences in price levels which are profound and dramatic and undeniable versus the, theres the trickier question of whether when medicare rates grow slowly or drop for some reason, does that actually push up private rates . And thats a much harder question. And i did a paper that came out years ago that i think documented pretty conclusively that when medicare pushes its rates on a lower trajectory, it actually tends to dampen the growth in private rates. This is still a huge gap between private rates and medicare rates, but in terms of cause and effect, it seems from the work ive done and what some others have done, it seems to me like when medicare pushes its rates down, it lowers the, it constrains the overall revenue environment for the hospitals. Private plans are still getting, still paying much higher rates than medicare in general, but my sense is that medicare is not pushing up rates. What and tom culley, i tom scully, i think you brought up the fact that medicares paying below hospital costs, private plans are paying substantially above hospitals cost. My sense of whats going on there is back in the old days medicare and private plans were the same. They were same Blue Cross Blue Shield plans. They, and then thedivergent managed care revolution came along, the rates between the private plans, whats happening is a hospital is scooping up all the revenue they can from medicare. They are no negotiating they have no negotiating leverage, little or no negotiating leverage with Medicare Advantage, its more or less take it or lee it. On the private side, theyve been able to crank up their negotiate prices well in excess of inflation. And once the hospitals got all the revenues they could get from medicare, medicaid and all the revenues they can get from the privately insured, hospitals figure out how to spend it all. And so is their costs and so their costs rise to keep roughly in line with their revenues. Can i yes, please. Debate that a little . My view is, not surprisingly, different. [laughter] if you look at how lets take a market like western pennsylvania, highmark and pnc are big players, they have a lot of power, they can do a fair amount of costs. In most markets in the country, youre still looking at 30 average Medicare Advantage. So if youre looking at a market 60 of payments come from medicaid and medicare, and then you take the rest and maybe youve got a blue cross that has 10 of market share and a whole bunch of plans that have 3 or 4 or 5 . Nobody has the clout to drive the market. The bulk of those are selffunded. And reality is for most of the commercial people in the world, the plans are basically taking a fee to manage their network. Theyre passing through costs. Theres not a lot of competitive pressure, so they dont care if theyre paying 125 . They dont have the market leverage to do much about it. So when you really get into whats driving this, its lack of risk. You take all those same people and put them in a risk plan, they behave totally differently. Pbms on drugs, they take a fee on the front end, they pass through all the drugs not to pick anybody on particular youre a commercial patient, they pay on the front, they have all kinds of rebates going to the Drug Companies that you never see, and actual cost they pass to the consumers, they dont care. They dont care what the drugs are. They switch them around all the time, and the base bryce doesnt make a difference base price doesnt make a difference. They said you dont understand our business. We dont take risks. I said you dont care about the costs, you pass them through, were going to force you to take risks. We said heres the cash youre going to get, 4500 this year, call me nexter year. Magically, they cared about drug price. Why . Because it was their cash. The issue is market leverage, and in most markets the private insurers have very little leverage, is so they just pass through the cost. In Medicare Part d the government said, you know what . Youre at risk, magically the whole approach changed. The only difference between private pdms and part d, they care more because its their money, and if they dont spend the right amount, they lose it. Shockingly, its called capitalism. I want to come back to the question of Delivery System reform, so to speak, and kind of what the incentives are to lower cost, but we had a couple of other questions, so i think you had a question, ellie, and then phil. Ellie [inaudible] synopsis newsletter. Two parts here. First of all, am i hearing what all i dont of you all call for siteneutral payments . Second of all, the growth of allowing Medicare Advantage plans to use and pay physicians for providing health care i through telehealth, do you see that as increasing access and decreasing costs especially in rural areas, but also in urban areas . And do you think that more needs to be done to enable that such as allowing providers to provide this care through telehealth regardless of what state theyre licensed in and where the patient is located . This has been a big issue that the ftc has weighed in on. In addition to the bureau of competition which is where i was which we were the Law Enforcement part, theres a policy planning shop at the ftc, and they have done a lot of work in this area. And the way the policy planning shop works is if a state legislature writes them, they will respond. Were not basically an advocacy group, we dont go around and say heres what we think you should do, but if the state asks, hey, what do you think about this bill, well respond, and weve been asked on many, many telehealth bills to opine on the question of what kinds of oversight should there be. Should there be a role that there has to be a doctor on site every time any professional talks . Does it have to be that the physician must have seen the person in person before she can deliver telehealth to the patients . And so on the ftc web site theres all kinds of advocacy about this issue and investigations that have been opened when there have been concerns about lack of restraints on telehealth. So the ftc has certainly taken a position that that is certainly something that can help improve access, reduce costs. And not harm quality in the process. On your siteneutral payment question, absolutely. At least if you ask me. Should we be moving to siteneutral payments . Absolutely without question. If you look at two examples. In the postacute care setting, lets say you had Knee Replacement surgery, and you need rehab. Well, the fact that historically the Medicare Program has developed varying postacute care payments over time based on when congress put it into the statute, theyre unrelated to each other. Theyve had different patient assessments. So what does the patient need, whats the acuity level, so on and so fort. Cms has been working i think its finished, i dont know if theyve implemented it, but have put together an instrument for all the varying postacute care facilities or home health so that, ultimately, if you need knee rehab, its the same reimbursement depending on the patients acuity need and not on the site of service. Not whether youre in the Home Health Setting or whether youre in a we probably wont be in an inpatient Rehab Facility after knee rehab, but thats still in the mix. Whether youre in a hospital Outpatient Department, Skilled Nursing facility, wherever you are theres no reason for a knee rehab to to be reimbursed diffet prices unless the patient has a different level of acuity. But on average, they should be the same. Nowhere near that now. Colonoscopy is another example. You can yet an blah story Surgical Center, all three are different. Why . No reason. Simply because medicare pays differently. Fee for service. Thats correct. So on the fee for service side, why shouldnt that change Going Forward . The idea of siteneutral payments absolutely critical, i think, to change some of the ab secure or ab secure and obscure and Health Care Incentives that we have which often let me get, let me have this person get their colonoscopy in the Outpatient Department because i i get the most money out of it. Makes no sense is at all. You get a colonoscopy, strong likely hide youll be done in the hospital. They practiced across the street. That makes absolutely no sense. Driven by medicare fixing prices and 50 years of medicare, 6 people, god live them on the it becomes crazy incentives and i can grow the health care system. You good to Medicare Advantage, the blue cross of western pennsylvania, 15,000, call me next year. Theyll figure out ways to have a colonoscopy. They dont care about the mid care setting. All these arcane rate settings for 60 years, causing perverse behavior and the biggest problem is its 40 to 50 of health care sending. In western pennsylvania, the dominant force is medicare because a another of seniors but surgeons seniors are sick. Site neutral payments. A good starting point. So, site neutral payments. Medicare pays different amounts for the essentially the same service depending on whether its provided by thats an art artifact of medicare. Theyre hammering anybody who pays any attention, you cannot miss the fact that this is like bad rate setting. The private sector, the price differentials are vastly bigger. So, the private health plans, when they pay the hospital outpatient depth medicare pays more. Private health plans, its very difficult to figure out what private health plans are paying. When you finally pick up that rock and see what private health plans are paying the hospital Outpatient Departments for the same service that could be arrived in the Free Standing setting, the price gap is vastly bigger. So, yeah, medicare fee for service has problems in its rate setting. There are obvious flubs in medicares rate setting system. On the private side, my sense of what is going on is these private health plans are being overwhelmed by the negotiating position of hospitals, and a hospital is able to charge literally three times not charge get paid literally three times what medicare pays. The 300 price overhang. The way that hospitals can protect the volume is by dialing up physicians and steering the referrals to that hospital Outpatient Department despite the fact the price gap between the hospitalout Patient Department and Free Standing is much, much worse than in medicare fee for service. I love medicare fee for Service Payment policy discussions. There are clear problems in pay for service. The private sector sometimes gets its even worse ask this site neutral payment is one case where the private sector is getting the price setting even worse, and its spurring consolidation and its intimately tied to the consel addition process. I think we a let me i want to get to you have been very patient. Turn the ftc is the top in the room. Has been successful in st. Lukes in idaho, putting the chill on the northwestern mergers. Has it had any Chilling Effect out there . And what is three for fur ftc case should reports be looking at right now . Great question. We think of ourselves as the cop 0 on on on the beat when i was there thats the phrase the chair used regularly. Has it had a chilling sneak its hard to tell. You dont know the deals that might have happened but arent happening. The hope is that the the goal is to educate folks and saying were not saying all hospital mergers are bad. We would hear you have a vendetta against hospitals could not be farther from the truth. Many hospital deal goes unchallenged but there are bad ones out there and those are the ones that try to be stopped. The only healthcare merger i think now is in litigation is the Stanford Health one on appeal to the eight until circuit. Its next door neighbor, the seventh circuit, put out a very clear opinion and advocate laying out why the government was right and my own perspective is they almost wrote it in a way to say other circuit courts, pay attention. This the right way to think about it. The old law is wrong. And so the advocate case. Right. It was very interesting. Remember the District Court found for the parties, and the seven inflame circuit said seventh circuit said, you dont understand the right way to think about this. The mere fact that a patient who lives in the suburbs may occasionally go down to a hospital an hour away doesnt answer the question of whether the hospitals in the north shore area could raise prices because the question is from the perspective of the insurer, could they market a health plan that excludes the suburban hops and says to employers, the only health plans your employees get to buy force then on saturday afternoon, when you kid breaks this wrist to go an hour away to see the doctors and hospitals there. 0so the question is we have the third, the sixth, the seventh and nine inch circuits seeing the analysis as chapin explained in the question whether the eight signature eighth circuit will fall in line. Any kind of new i think it was pretty much its physicianphysician and that was different but the basic method of analysis of a horizontal merger, too high a share of physicians in the market and would make it difficult for insurers to put together a health plan without having to pay a higher price. Can i you have a question. I just want to quickly follow up on that. Can you go through there is a basic list of what are the factors that they look at in terms of analyzing these kinds of deals . Yeah. They look ill try to be brief. Light at the question look at the question of patient flows, what are hospital market shares, what are the Insurance Companies saying . Are they saying, hey, look, i can easily put together plan without the two hospitals because i have eight others, or say, if i dont have those plans those hospitals in my plan, i have nothing to sell. Those are the kinds of questions and then then Financial Health of the hospital. Sometimes we really do see that a hospital is about to close its doors or the health Insurance Company says, look it, i couldnt use them as an alternative. Theyre not sound enough for me to be able to do that. So they dont really serve a competitive constraint. Thank you. Question over here. Rich daley, healthcare financial management. I wanted to check on two points. Your thoughts, where do you see the trends going right now in hospital mmn and secondly, what new things are you seeing or possible new things at the federal or state levels that are likely to have the biggest impact on the m a. In terms encourage it or reducing it. I think what ive seen is the companies are still doing hospital mergers. The rate of it is really hard to tell. I think for the ftc it will be business as usual. A very bipartisan issue. Expect to see no change how the ftc enforces antitrust laws are in the new administration and its for the ftc, its a very casebycase approach. Depths depths on the market. Depends on the markets. In cincinnati, hospitals have gone to three system us. Not a bad thing. Im from philadelphia. Philadelphia has way too many systems and theyre starting to merge. Depends on the market. If you have a act market and they cant survive, too many, theyll close, ten closed in philly. Its a marketbymarket thing. Really i would say trend, wise, all dependsment theres some markets overbidded and over hospitalized and youll see mergers. When you have big consolidated markets and one dominant play, i hope the fnc is active. Its tote lay local market. Health care hick is a is a local market issue. Frame that question, are the incentives still in place for hospitals to merge with each other and to buy Physician Practices and my sense is, yes, absolutely. The rewards are there, and it comes from the lack of site neutral payments. Comes from the fact that the bigger and bigger you get, the more indispensable you back to private health plans and its worth pointing out that weve set up a system where private health plans are negotiating contracts with providers. We have plans in charge of negotiating contracts for most poo privately insured and im glad you have highlighted the fact, these the claims processors dont care how much is being spent. They are structurally i dont want to say asleep at the switch but just a watching the money go by and getting a cut, the more money goes by. Thats structural flaw that enables the supports rewards to consolidation among providers woman have an uncapped tax exclusion for employers sponsored Health Benefit is. The cadillac tax is scheduled to go into effect, thats tended to counteract that but its like an unlimited 40 off sale in employersponsored Health Benefits. That skews every decision about the breadth of network, in favor of broader networks, given to the price demand of the big consolidated Health Systems. Thats pro consolidation. One second. Its not the private Insurance Companies. Im on the board of one. Insurance business is a very simple businessment you collect 100, wellrun insure the government pays 589 of medical care and have a 5 of margin and they spend 10 ons a minimum and you have to believe thats mow efficient than the government fixing prices. Aetna and prefer prefer risk. En you come in as john deere or Good Morning America or gc you make a 2 margin. They would prefer to have risk not they can lay dont want riskbases employers say they want to lease the network and you lose incentive to control costs. Its predictable behavior. Not like the Insurance Companies are doing anything wrong. Theyd generally rather take the risk but morse large employers say we can do it on our own, like amazon. Trust me, amazon has no clue what theyll do and you took amazon on p morgan, Berkshire Hathaway has 1. 3 billion employees. Thats insignificant theyre not going to drive change, theyre too small wont to drive change, buy an Insurance Company and shake up the world by being transparent and exposing all these price is. That would drive change. Okay. I just have one more question in terms of Common Ground on this panel. Beyond site neutral payments, anything else that everyone agrees on. Ill say i dont have a position on site neutral payments and point out its aning are. That the ftc is not a policy oriented body. So i dont know if they have position. I personality low dont have one. Anything else . Ill let other people. Health care is complicated. One thing i would think we all agree on some people bruise is a friend of mine and i dont believe in price fixing but if you have a competitive market to some be you should have a balanced market which the fnc should help. If love them automatic. The hospitals, insurance and doctors should dislike each other a little bit and be competitive and the governments role should be trying to keep that balance in every market and most markets are out of whack. Some places the hospital ties strong, some the dawks docks docs are to strong. Tom, you anticipated a question i wanted to ask everyone on the panel which is you talked about making markets where what is the vision for working market and you talked about that, the balance of power between the different stakeholders, if anyone else would like to comment on that and maybe also bring in the consumer viewpoint because we have alluded to it throughout, the kid who breaks his wrist on a saturday or somebody who suddenly cant access the largest Hospital System in their area, but if you could talk about what is a functioning market look like. Well, my view ive been saying the same thing for 30 years, so im a broken record. The politics is driving me crazy the reality looks like 30 years ago the Heritage Foundation wag advocating for the fed employee Health Benefit plans to be the model. If go to the republicans and say what do you think of obamacare, they ahead it. It looks like premium support to me. Ifover under 65, premium support. Like the federal employee Health Benefits model. The issue is who to subsize. I diaggrieve with obama who to sub size. The sub diz were to much but the structure of trying to buy plans with people under 65 at a democrat about Medicare Advantage. Its terrible. Well, premium support, which paul ryan and most republicans are for, is exactly the same if youre over 65 as obamacare was in the exchange for people under 65. The same structure. Depends on what age you are. Look back, theyre both models every the fed employee Health Benefits program. So how to set up a competitive moldle cho politics will probably prevent . Give six or seven structured plans to buy into with a base premium support, which is federal employees and say go at its. Well have a lot of Competitive Service and thats what president obama tried to do for people under 65. The republicans for people over 65 but the politics are so screwed up so people dont know what theyre talking about and just scream at each other. Thank you. Is that unfair. Thats fair. I think we talked briefly about transparency, and if youre asking about the consumer, is. Translator transparentty going to solve the problem . I think of quality as subjective. Probably not really. But many people i think consider the more you spend, the better it must be, which it nose really the case in health care because often in fact the opposite. But that is i think one of the concerns you have with both transparency and quality and you look at the High Deductible Health plans and havent done a sufficient job of controlling costs. Why is senate the high deductible is only a few thousand door. You have a hospital favorite andow blow right through that and if youre a family of four and have a deductible and you hit it youre no longer concern about what something costs . Individuals really have no idea about the price of their health care. It is for most people in the country, because that risk is born somewhere else, they dont have any idea and therefore they want what the most expensive . Because they think its the best. Its totally perverse and unlike any other market in the country. Thats problem one, not helped at all by the price fixing that the mid care program has as well Medicare Program has. What can we do . What is out there that might change that particular paradigm . Is health i. T. Going to do anything . Will the clams dat and quality data combined perhaps change behavior if that information is packaged appropriately to either insurers because they direct or or employers because they direct their enrollees particular place . Used to develop a different benefit design so enrollees who want to have higher cost care actually pay a higher portion, whether its coinsurance or coname do you differentiate levels based on surprise quality youre paying, whether your insured by the government or an employer . I think there are lot of Different Things changing the feature that might involve consumers more and bring a more competitive, intelligent market and individual get Better Health care as a lower cost. A couple of things. One thing you can do to make markets more competitive. Con laws are not helpful to competition, ftc has bone about that. Speaking of need. I hope that economists will study some of the certificates of public advantage that have been granted allowing hops to merge notwithstanding antitrust concerns. States can trump the federal antitrust laws and there are questions whether or not that is workable. I think its going to be in five years ripe for economists to look at and i hope theyll study that. I dont think its about the balance of power. Thomas mentioned innova, know ha volunteers gotten big by billing good hospitals. Thats not against the antitrust laws, never going to be against the laws and nova had had acquisitions that the ftc determined was not a problem and some acquisitions the ftc challengedded and got inova to not proceed with. We often used to hear the argue at the ftc and hospitals would say were the little guys. We need to get bigger to have a balance of power against these big, blue cross and all the big names. Their household names. We little hospital out here in chicago, in pennsylvania, in idaho, arent. Thats not the question. Its whether or not the bargaining leverage changes in a way that will lead to increased prices and ultimately harm consumers. So at the back of the ftcs mine the front of the ftcs mind is how this will um maltly impact consumers so thats the question we ask, not what is the right level of bargaining leverage equilibrium. Its will leverage change a way that it will harm consumers. We have four minutes left. I eto corners of the Health Care Market functioning pretty well in terms of golf television. One is Medicare Advantage, and i think the key thing to note there is that theres a medicare administrative price fee schedule backstop that is supporting the entire Medicare Advantage market, and without that medicare fee for service backstop the met car aid advantage market would be very different. When we talk about premium support, you have to ask, is there still going to be a medicare fee for Service Program or not . And will that medicare fee for service rate setting system support the Medicare Advantage plans or will it be gone . They would be a completely different world if these Medicare Advantage plans didnt have medicare for fee solves rates as a backstop, and if it leaves them gives them some protection against consolidation from providers. The other corner i think is working farley will ill the aca exchanges. Now, you take a consensus, centrist concept, pro competition proposal, consistent with then ideals and it just went through the buzz saw of i dont know how to describe it. It went through the buzz saw of political feelings and has been vilified. But the aca exchanges are a competitive marketplace for private plans. If you take that concept and add in some backstops on the rates that these aca plans are paying, that could make the aca plans Even Stronger and the natural backstop is based on the medicare fee for service rate schedule. This is popping up in various places where there are proposals to limit payments for out of Network Services based on the multiple of the medicare rate schedule. Thats happening in california under ab72. A potential support to a competitive market for health plans and for health care and i see ratesetting and competition as potentially supporting and consistent with each other. Okay. Thank you. I didnt want to pick on lee. I have to live in the middle of inova and they states with the blues have 95 market share. Thats terrible. Im not sure how to pick on them saying having the correct balance, should be way more insurance come pigs. I think Competition Among hospitals have to have competitive amounts. Have to have a a bigstop. In north dakota, how many level three Trauma Centers are there . Youre dealing with you need to have some backstop for geographic markets where Competition Among hospitals just isnt really feasible. Well, thank you all for a really lively discussion this morning. Before we close i want to thank bill peerson for making the briefing possible. Thank you to those who are watching live on cspan. If you enjoyed todays discussion and you want to learn more about a totally different topic, pandemic preparedness, join us on march 29th. Please, before you leave, complete the evaluation form if you are in the room and join me finally in thanking our panel. Flaws applause [applause] all day coverage of the conservative Political Action conference continues tomorrow. Energy secretary rick perry, entirer in and congressman mark meadows, chair of the conservative free tom Freedom Caucus will be live. Thats scheduled to get underway live friday at just after 10 00 a. M. Eastern on our come pan nonnetworks, cspan. Join us saturday at 9 30 a. M. Eastern on American History tv on cspan3. At the American Civil War museum in richmond, virginia. For live coverage the civil wars impact on americans. Speakers including inning a republican form of government, virtue was need. In a republic the people themselves pick the rulers. Sunday at 4 p. M. Oregon real america. The 1956 film, city decide, about the Historic Supreme Court decision, brown v. Board of education. Delegates from the high school. At our school, some kennedy us just dont like color people. I think its individual. That counts. How are you going to get to know a person unless you meet them . When the Supreme Court ruled that segue degree base was illegal, these children were ready. At 6 00 p. M. On american artifacts, we look at a selection of Clifford Berrymans popular political cartoons from the early 20th century. He continued to draw for the washington evening star for 42 years himself cartoons appeared almost daily on the front of the paper. What American History tv, every weekend on cspan3. You can spend this weekend with the nations governors at their annual winter meeting. 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