Assistant Attorney General Jonathan Kanter Delivers Remarks on the Platformization of Health care

The time has come to fundamentally redefine our approach to antitrust and competition policy for health care.

For the past three years, I have had the privilege to connect with people across the country. In the coming weeks, I will take time to reflect on my time at the Antitrust Division and our tremendous achievements. But not today.

Throughout the country I have heard deep-seated concern about the growth and expansion of monopoly power across our country and economy. In nearly every corner of the country and nearly every industry, the story remains startlingly consistent: people want the opportunity to build better lives for themselves.

They do not want handouts. They want to work hard and reap just rewards. They want a free and fair economy. Despite these admirable and righteous aspirations, too many people find that the pathways to economic freedom are limited, shrinking, or nonexistent.

It is striking to me that almost every conversation I have with concerned Americans eventually and inevitably turns to health care.

• I hear the stories of patients trying to get coverage for their prescription medication - a medication that they have been taking for years - only to hear that it is no longer a preferred drug. This means paying more, switching to another drug with potentially adverse side effects, or dealing with their insurer's byzantine "step" process to try and get coverage for the original medication.
• I hear stories of doctors, nurses, pharmacists and caregivers who are burned out and disillusioned as their work increasingly devolves into battling corporate middlemen to secure care for their patients, and as provider rollups encourage cutting corners and short staffing.
• I hear the collective state of despair from patients, families, doctors, nurses, pharmacists and health care professionals about the endless maze of paperwork, and faceless middlemen, that have overwhelmed the practice and receipt of medicine.
• And I hear stories about how many Americans need to pay more money out of their own pockets.

Foremost, this is a moral problem. The wealthiest country in the world should not let short-term profiteering get in the way of caring for Americans experiencing illness. Nowhere is this clearer than our national failure to take care of older Americans. For example, leaving their care decisions to the mercy of the algorithm or sending them to for-profit nursing homes. We must do better and do more to care for our aging population. But our health care system also places an enormous burden on Americans of all stripes and persuasions, who often do not have the luxury of generous insurance plans or the disposable income to cover the difference. On these bases alone, we must move with urgency. Lives literally depend on it.

Besides failing to provide care, the system is also exorbitantly expensive, puts enormous strain on our economy more broadly, and has ripple effects throughout the country.

Overall, health care costs totaled $4.5 trillion in 2022. Of total health care spending, Medicare and Medicaid together accounted for approximately 40%. Many people do not realize how much of these government programs' spending flows to for-profit companies. While Medicare has long contracted with insurers to offer privately run plans, they occupied a modest role until the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (MMA). At the time, the bill's proponents said that private plans would "provid[e] better coverage at affordable prices - helping to control the costs of Medicare by using market-place competition."

Instead, Medicare Advantage has become substantially more expensive per patient to American taxpayers than traditional Medicare, as insurers exploit the system to charge the government more. For example, insurers have a strong financial incentive to diagnose patients enrolled in their plans with additional conditions, whether they treat them or not. A recent Wall Street Journal report found that insurers charged Medicare about $50 billion from 2019 to 2021 for diseases, often unusual, that no doctor treated. Insurers earned almost $15 billion just from one-hour home visits where nurses input new diagnoses on a tablet, often with scant diagnostic equipment.

This is our money. Money that comes out of our paychecks in the form of payroll taxes used to fund programs like Medicare, which is a huge source of profit for America's insurers. And unlike federal income taxes, every American pays for Medicare because it is deducted automatically from your paycheck.

Employer-sponsored insurance costs also continue to climb substantially. This is our money, too. When employers' health care costs increase, workers pay for it, dollar for dollar, with stagnant pay, higher shares of premiums and reduced coverage. For three years, employer premiums have increased by more than 5%, and family premiums for employer-sponsored health insurance rose 7% this year.

When I speak to businesses around the country, what I hear is that the next biggest expense after payroll or salaries is health benefits. The cost of these benefits makes it more difficult for businesses to give workers raises. And as health care costs skyrocket, businesses are shifting more of those costs onto their workers, with insurance plans that require them to pay more - higher premiums, higher deductibles, higher co-pays and higher out-of-pocket minimums. That's money you could be spending on other things that matter to you and your family - groceries, gas or education.

In short, American health care is struggling. A system that was supposed to introduce competition and efficiency has become less competitive, less efficient and more wasteful. It presents the gravest and most complex challenges to competition policymakers.

Today, I would like to discuss the critical role for competition policy and antitrust enforcement to play in these confounding and pressing challenges. To be clear, I am not suggesting that competition and antitrust is a one-stop-shop to fix our health care system. That would be naïve and unrealistic. But antitrust and competition have an important and essential role to play. Undeniably, antitrust enforcement and competition policy are core tools to address problems that flow from consolidation, anticompetitive conduct and the emergence of increasingly disproportionally powerful players.

How did we get here? And how can antitrust enforcers bring the next generation of cases to address the problems we now face?

For most of my lifetime, competition policymakers have played Healthcare Tetris. Like the game, we looked at whether simplistic blocks line up to create discrete horizontal or vertical lines. Antitrust focused on provider markets or insurer markets, without considering whether there are other competitive interplays.

Antitrust exclusively used the two-dimensional geometry of "vertical" and "horizontal" analysis to focus on markets that were rapidly evolving into multisided and multidimensional platforms. Antitrust focused on horizontal consolidation in discrete local geographic markets or traditional vertical integration.

Unfortunately, these simple Tetris-like paradigms bear little resemblance to the emerging, but complex, ecosystem we confront as patients, health care practitioners, and employers. Using the outdated Healthcare Tetris approach, antitrust enforcement and policy missed opportunities to assess how broader changes in business, such as the rise of platform business models, health care technology and regulatory incentives, impacted competition.

In the world of Healthcare Tetris, we all agreed that horizontal consolidation raises concerns but did not look behind the two-dimensional geometry to see how vertical and horizontal business relationships intersect.

Too often, to the antitrust establishment, anything other than a straight horizontal merger was so-called "vertical integration." In their view "vertical integration" would presumptively lead to greater value, lower costs and more integrated care. This beguilingly simple approach blessed consolidation and entrenchment across vast swathes of the health care ecosystem without appropriate consideration of the boarder impact.

America's largest health care companies are no longer just health insurers or pharmacy benefit managers, and they are no longer just doctor groups or hospitals. They are all of the above. Meanwhile, consolidated health markets have failed to deliver on the promise of better care, lower prices, and increased access. Instead of increasing efficiency, health care platform integration and annexation has created perverse incentives, conflicts of interest and opportunities for self-preferencing.

The physical distance between the caregiver and patient in the examining room may be measured by inches, but it is functionally miles away due to the pervasive thicket of industry middlemen.

The time has come for us to break free from a two-dimensional Tetris-style analysis, which is ill-equipped to address a modern health care system defined by massive intermediation platforms. Continued over-dependence on these outdated modes of analysis will continue leading us down a path where the problems get bigger and more difficult to address.

The academic literature has begun to take note, albeit as a lagging indicator. Research on our decades-long experiment with consolidation in health care shows that concentrated markets have led to higher consumer prices and public spending, without accompanying improvements in quality or gains in efficiency.

Take the rise of pharmacy benefit managers (PBM). Many lauded their ascent as a useful counterweight to drug companies and pharmacies. In other words, we needed more bigness to discipline "big pharma," which is a noble and worthy objective. But PBMs have themselves become big - three vertically integrated entities now control 80% of the industry, with each enjoying even greater market power at the local level. But have patients and the economy benefited?

Instead, it is commonplace to hear allegations of PBMs self-preferencing and steering to affiliated pharmacies to the exclusion of others, pushing rebating practices that drive up sticker prices and discourage new drug entry, enabling their affiliated insurers to evade medical loss-ratios and tying PBM and medical insurance products.

Across health care we see similar concerns: moat-building, steering and coercion and regulatory gamesmanship. At the Antitrust Division, we have confronted many of these same challenges and characteristics in other industries, including "Big Tech." In effect, we are witnessing in real-time the emergence of Big Healthcare platforms and we are at risk of our markets tipping to one or two major national platforms.

The platformization of health care contains characteristics that are quite familiar to the Antitrust Division:

• Multi-Level Entry: Platform integration and consolidation can be used to stymie competitive threats by increasing the difficulty of entry. If a company has market power in one level of the health care ecosystem, entry may already be difficult in that market. But if a company can acquire companies across the health care ecosystem, it can further shield itself from competition by forcing a competitor to attempt multi-level entry. We see health care companies vertically integrating into a health care stack. The platformization of health care can result in moat building. This is a particular concern in health care where barriers to entry are already quite high.
• Conflicts Of Interest: With the development of health care platforms and stacks, we should be concerned about growing conflicts of interest that manifest in ways such as steering, self-preferencing, exclusivity and other forms of exclusionary and anticompetitive conduct. For example, we could see firms with dominant positions choose their own health care stack and exclude independent rivals.
• Regulatory Gamesmanship: One of the reasons that health care companies expand could be to circumvent the regulatory environment. Health care is one of the few markets with cost-based rate regulations. These regulations (called the "medical-loss ratio") require insurers to spend at least 80-85% of patient premiums on medical care. But insurers could increase prices in contravention of these medical-loss ratios by acquiring non-regulated businesses and health care middlemen, for example pharmacy benefit managers or providers. This would allow insurers to retain a greater share of health care spending by paying more money to their affiliate - for example, an unregulated provider wing - as costs in a regulated insurance business. Platform expansion and annexation could enable health care companies to exercise market power they have in their insurance business that they otherwise could not exploit in a less concentrated and more open ecosystem.

In assessing the potential harms from these trends, we must also consider how the loss of independent health care practitioners can harm patients and communities. Independent physician practices, community nursing clinics and independent pharmacies are not subsistence entrepreneurs but harbingers of self-sustaining communities. These small businesses, especially in small or rural communities, are the lifeblood of economically vibrant, healthy communities.

The dominance of these large systems not only prevents fair competition, and stymies the entry of new competitors, innovators and business models. It also thwarts badly needed innovation in the organization and delivery of care - innovation that is technically and humanly feasible, but not in the self-interest of these huge, profitable systems.

When our communities are imperiled in this way, it is time to look harder at the market structures in which they exist. In so doing, we are likely to find other distress signals, including a decrease in doctors, practitioners and pharmacists building thriving independent small businesses that function as pillars of their communities.

For example, today, in suing UnitedHealth Group to enjoin its $3.3 billion dollar acquisition of home health and hospice provider Amedisys, the Antitrust Division is not only alleging that the transaction may substantially worsen quality and increase prices, but also threatens to harm the thousands of home health and hospice nurses that provide crucial care to vulnerable patients.

The American public deserves more from competition policy. We need to return to the common-sense antitrust principles that motivated the passage of the Sherman and Clayton Acts and that have been accepted by courts. It means considering harms other than unilateral effects from horizontal consolidation. It means a mix of short-term and long-term strategies that cause harm. And it means agencies must critically assess and pursue competition as part of a whole-of-government approach. If we want health care to be a market-based industry, then we must invest in healthy market conditions, which start with competition and choice.

We should start with best practices like asking: How does competition actually work in today's economy? We also need to ask ourselves: What do health care markets look like today? What pieces of the ecosystem are being purchased? Why do those pieces matter for health care competition and the price we pay for health care? Are there other harms beyond price effects, and how do we talk about them in a way that reflects what people experience in health care markets?

We are at an inflection point. In technology markets, the world has coalesced around a few technology stacks. Incumbent technology firms seek to maintain their dominance in any number of ways across multiple markets. Once industries settle into such oligopolies, it can be hard to remedy the situation.

In health care markets, I foresee a not-so-distant future where a few integrated health care platform stacks will amass a generational hold over health care. It would be a private single payer without any of the oversight, impartiality, or scrutiny attendant to government health insurance programs.

In 2010, the big insurers promoted the narrative that single payer was a threat to Americans. Nearly 15 years later, we may well be accelerating the march to single payer, just not the kind anyone imagined in 2010, or wants today.

The moment for this discussion is now and the timing is urgent.

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