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The Effects of Regulatory Neglect on Health Care Consumers

Testimony of David Balto Before the Senate Committee on Commerce, Science and Transportation

SOURCE: AP/Lisa Poole

A customer approaches a CVS pharmacy in Saugus, MA, on February 18, 2009. CVS/Caremark is one of the three largest Pharmacy Benefit Managers, which is considered the only segment of the health insurance market that is unregulated by the Federal Trade Commission. 

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Chairman Pryor, Ranking Member Wicker and other members of the committee, I appreciate the opportunity to come before you today and testify about health care competition and consumer protection enforcement. As a former antitrust enforcement official, I strongly believe the mission of the Federal Trade Commission and Antitrust Division of the Department of Justice is vital to protecting consumers and competition. However, in the past administration, the priorities of those enforcement agencies were not effectively aligned with the critical priorities in the health care market, with the result that there is substantial anticompetitive and fraudulent activity that raises prices and costs for consumers and the American taxpayer, especially conduct by certain health care intermediaries—Health Insurers, Pharmacy Benefit Managers, or PBMs, and Group Purchasing Organizations, or GPOs.

This committee, like the rest of Congress, has been devoting considerable resources to health care reform. This committee, under the leadership of Chairman Rockefeller, has led the way in making the public aware of the deceptive and fraudulent conduct of health insurers, particularly by shining a spotlight on the egregious activity of Ingenix, the United HealthCare subsidiary which has harmed thousands of patients and doctors by distorting the usual and customary rates of those health care providers. Thanks to the efforts of New York Attorney General Cuomo this fraudulent scheme activity is being reformed.

The problem of regulatory neglect

I have a simple and vital message for this committee: The Ingenix example is only the tip of the iceberg. The fundamental elements for a competitive market are transparency and choice and in both respects, health insurance markets are clearly broken. Few markets are as concentrated, opaque and complex, and subject to rampant anticompetitive and deceptive conduct. As the health care debate progresses, many advocate for limited reform of the health insurance system. Their belief is that it is a fundamentally sound market and with a little dose of additional regulatory oversight, all the ills of the market will be cured. They could not be more mistaken.

The Ingenix example is important for other efforts at managing health care costs—PBMs and GPOs. Some suggest these entities serve an important function in controlling health care costs. But like the Ingenix example, they often are subject to deceptive conduct and conflicts of interest and can be used to forestall competition, rather than promote it. Again because of a lack of choice and transparency—and the existence of conflicts of interest—these intermediaries have failed to fulfill their mission and foster competition and choice.

The FTC has accomplished tremendous things with its enforcement actions in the health care sector over the past 50 years, from opening up the practice of medicine to innovative forms of practice, to challenging conduct that has impeded entry of generic drugs. In a recent paper for the Center for American Progress, I detailed the positive results of the efforts of the FTC in expanding access to affordable generic drugs. By taking action against the deceptive strategies, which allow drug companies to artificially extend the life of their patent-protected drugs, the FTC has given consumers wider choice in the drugs available to them. Consumers save billions of dollars annually because of these efforts.

Unfortunately, the same attention has not been given to health insurers, PBMs, and GPOs. As I describe in my testimony, much of the reason for the lack of competition and transparency, and the existence of conflicts of interest, is the failure of federal antitrust and consumer protection enforcement in the health insurance industry. During the Bush administration, there were no enforcement actions against health insurers’ anticompetitive, deceptive or fraudulent conduct. None. There was tremendous consolidation in the market, and the Justice Department simply required minor restructuring of two mergers. There were no cases against anticompetitive conduct by health insurers. There were no federal consumer protection enforcement actions. A similar record of regulatory neglect exists for PBMs and GPOs.

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