Health Plans: The only game in town?

"Independence Blue Cross is so dominant here that another player coming into the market is forced to pay physicians as little as IBC does in order to compete on premiums," says Schott, who just over two years ago sought greater strength in numbers by merging his three-person group with a much larger one.

In its annual survey of competition in the health insurance industry, the AMA backs up Schott's charge of IBC dominance. According to the study, the company controls 68 percent of the combined HMO/PPO market in the greater Philadelphia area, 72 percent of the HMO market and 65 percent of the PPO market. The next most dominant payer is Aetna, which controls 21, 26, and 15 percent, respectively, of those markets.

But it's in smaller metropolitan areas where health plan power is most concentrated. In fact, in towns like Auburn, AL; Pueblo, CO; and Bismarck, ND, a single company virtually dominates the market, with combined HMO/PPO concentration ranging from 77 to 95 percent. Overall, of the 294 metropolitan areas the AMA looked at, 166, or 56 percent, had at least one insurer with a combined HMO/PPO market share of 50 percent or greater. The trend toward consolidation is confirmed, in part, by the Government Accountability Office, which in 2002 and again in 2004 looked at dominant companies in the small group market (typically, those companies that insure groups of 50 employees or fewer). In 2004, the largest among these companies held a median market share of approximately 43 percent, according to the GAO. This was up from 33 percent in 2002.

The managed care industry acknowledges this trend, but rejects the idea that mergers and other consolidations have stifled competition or limited choice. If they had, industry officials say, government watchdogs would have stepped in.

The AMA sees things very differently, however. In testimony before the Senate judiciary committee this past September, the organization called on lawmakers to have both the Department of Justice and the Federal Trade Commission take a closer look at the concentration of power in the health insurance industry. It's also called for renewed talks with federal officials "on more flexible approaches to physician joint ventures"-approaches that doctors think will help level the playing field between dominant plans and unaligned physicians.

To find out more about the real effects of health plan consolidation, we talked to doctors in four of the harder hit large and medium-size cities across the country.

Philadelphia

According to cardiologist Richard C. Schott, Independence Blue Cross currently pays him at an average rate of 81 percent of Medicare. Aetna, the other dominant payer in the market, pays him a similar rate for most codes. Even if Aetna wanted to pay him closer to its national average of 110 percent of Medicare, it couldn't, he argues, because it would be unable to compete with IBC on premium price.

Prior to merging with his current mega-group, Schott found that his reimbursement levels were so low compared with national averages that he was unable to recruit a third cardiologist to his three-doctor practice.

"We tried hard for three or four years, but, quite honestly, it was slim pickings," he says. "Most new trainees don't want to come into this area because of the reimbursement levels. And the competition to get trainees who are here is enormous." In the end, Schott and his partners decided that they couldn't afford to hire another person without seriously diluting their earnings.