08 June 2023
As prepared for delivery
The finance committee meets this morning to discuss corporatization and consolidation in the health care system and the effect it has on what American families pay for and how they get health care.
When I keep town halls at home, the two challenges I hear about most often when it comes to health care is that it is too expensive and complex for a typical American family to navigate.
As the committee responsible for much of federal health care policy, including Medicare and Medicaid, the Finance Committee is responsible for identifying the financial incentives that are leading to greater corporatization in the American health care system. It is increasingly clear that these trends are driving up costs without improving the quality of care that families and taxpayers are paying for.
Before the committee dives in, I’d like to take a moment to define a few terms that will come up frequently during the hearing. While these trends may appear academic at first glance, these trends have a direct impact on American families and healthcare professionals every day.
The first is vertical consolidation. Vertical consolidation occurs when one company buys another company operating in a different part of the healthcare supply chain. For example, if a pharmaceutical benefits manager also owns an insurance company and a pharmacy chain, or if an insurance company buys primary care practices, this is vertical consolidation.
The other side of the coin is horizontal consolidation, which occurs when one company buys another company operating in the same part of the healthcare supply chain. When one hospital buys a rival hospital that crosses a city or two insurance companies merge, it is a horizontal consolidation.
Finally, private equity. In the simplest terms, private equity typically involves a group of investors buying a stake in a company in order to increase its financial value by restructuring or changing the business practices of the target company.
While all of these terms sound like a lot of word salad for an American family that works every day to pay the bills, the Finance Committee is holding this hearing to examine whether these practices are linking our health care systems to favor mega-corporations at the patient and taxpayer expenses.
With these terms in mind, I will briefly touch upon several examples of some of the practices I have outlined above.
I’ll start with one area that the committee has already begun working to address: pharmaceutical benefit managers. Just over two months ago, the Finance Committee held a hearing that came to the overwhelming conclusion that PBM business practices are driving up the cost of prescription drugs. Since that time, Ranking Member Crapo and I, and members of this committee, have worked hard to write legislation that will address some of the key challenges consumers and taxpayers face when it comes to PBM, and we’ll have more to do talk about it in next weeks.
Pharmacy benefit managers are in many ways Exhibit A for the consequences of consolidation in the healthcare system. In the 1990s, there were over 40 PBMs. Over the past two decades, they’ve slowly been grouped into mega-PBMs, and today the three largest PBMs now control more than 80 percent of prescription drug claims and are all among the top 15 largest companies in America.
Each of these companies is also affiliated with an insurance company and at least one pharmacy chain. This means that PBMs can benefit their own pharmacies at the expense of other competing pharmacies. In many cases, this harms community, independent pharmacies. In my part of the country, Bi-Mart, a regional pharmacy chain, has closed its doors in dozens of communities, which has had an especially severe impact on rural areas where closing one pharmacy can turn a 45-minute drive into a prescription in two hour trip.
Next I would like to talk about the cost and quality of health care. Supporters of the proposed mergers often say they will lead to lower healthcare costs due to increased efficiency. Time and time again, it’s simply not proven to be the case. When hospitals merge, prices go up, not down. When insurers merge, premiums go up, not down. And the quality of care doesn’t get better with these higher costs. A deeply troubling study last fall showed that medication adherence dropped significantly among communities of color and older adults if they visited a primary care provider managed by an inpatient system rather than an independent physician.
The consequences of greater consolidation in healthcare are just beginning to be understood, and there will be more to come. I am increasingly concerned about the potential for abuse when it comes to the use of big data and algorithms in healthcare. There have already been numerous reports of questionable claim denials by insurance companies using the technology. Trends like these will require vigorous oversight and transparency to ensure Americans are protected.
I’ll conclude by talking about private equity ownership in health care. When a private equity firm buys a nursing home, medical group, hospice agency, or any other part of the healthcare system, their goal is to restructure the business and sell it for a profit within a few years. The easiest way to do this is to raise prices and reduce costs, which is hardly a winning proposition for patients or healthcare providers.
Here’s an example. A private equity firm bought ManorCare Health, which was the second largest long-term care provider in the country at the time. The company sold the ManorCare properties to a real estate company, which began charging these care homes rent. These facilities simply couldn’t keep up, which led to a spiral of layoffs, health code violations, and closures. Eventually, ManorCare went bankrupt, but not before thousands of Americans lost their jobs or suffered poor living conditions. Naturally, the private equity firm made a profit on their purchase and walked away.
These are just a few examples of the trends that have grown in the healthcare system over the past decade and beyond. The consequences become clearer every year. I look forward to working with committee members to identify the financial incentives that are driving health care consolidation and continue our work to improve the health system by supporting the workforce and improving mental health care for all. Americans. I want to thank our witnesses for joining the committee.
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