Prices increase in surgical centers acquired by Optum: study

Dive summary:

• Prices rose 11% at ambulatory surgery centers after Optum bought them, likely because newly acquired providers were able to negotiate higher prices with insurers, according to a new study that highlights how vertical consolidation increases health care spending.
• This increase translates into $10.1 million more in annual spending for only seven common procedures in the two dozen ASC markets analyzed. Extrapolating that estimate to all ASC services suggests the total financial impact could exceed $67 million each year, the study published Monday in Health Affairs found.
• This is concerning, given that those costs are charged to insurers that compete with UnitedHealthcare, Optum’s sister company, according to the investigation. Additionally, costs are typically passed on to consumers through higher premiums and out-of-pocket expenses.

Diving information:

There is harsh focus on market concentration in the healthcare sector, as lawmakers (including traditionally pro-business Republicans) become more critical of massive conglomerates in the space amid skyrocketing healthcare prices.

UnitedHealth, Optum’s parent company, has received a lot of criticism.

UnitedHealth operates both Optum, the largest physician employer in the U.S. with nearly 90,000 owned or affiliated physicians, and UnitedHealthcare, the nation’s largest private insurer.

UnitedHealth is not the only vertically integrated healthcare company: CVS, Elevation and Humana own supplier assets, for example, but it is certainly the largest, posting nearly $450 billion in revenue last year. As such, UnitedHealth has faced significant scrutiny from lawmakers and antitrust regulators over the overlap between their businesses and how they may be leveraging their market power to inflate UnitedHealth’s profits.

For the new study, researchers at Cornell University wanted to find out whether Optum’s acquisitions of ASC affected the prices it charged competing insurers. Optum has aggressively expanded its network of surgical centers, including through the 2017 acquisition of Surgical Care Affiliates, one of the largest ASC operators in the U.S. at the time.

Researchers analyzed business claims from 24 ASCs from 2015 to 2018, before and after they were acquired by Optum, and compared them to a control group.

They found price growth of $239.24 after Optum purchased the ASCs, an 11% increase from the pre-acquisition average. The price difference began to emerge two quarters after Optum bought the ASCs and then remained stable, according to the study.

Procedures performed by Optum-employed physicians and independent practitioners saw a large increase in facility rates following the ASC acquisition. But researchers found that the brunt of the higher prices was driven by inflated professional fees.

Additionally, price increases were concentrated in markets where Optum had stronger market share, including other ASCs or physician offices.

Those findings suggest that the price increases stemmed from the increased bargaining power of the newly acquired ASCs, as they became part of Optum’s large integrated network of doctors and facilities, the researchers said.

The study builds on other research that suggests UnitedHealth’s vertical integration may be increasing spending. A study published in November found that UnitedHealthcare pays Optum doctors more than other unaffiliated doctors.

However, the problem is not unique to UnitedHealth or solely owned by insurers.

The studies dovetail with broader concerns about vertical integration, which has accelerated as more doctors are pushed out of private practice and into the arms of health insurers, hospitals and private equity firms.

Research suggests that vertical integration has anticompetitive ripple effects, including price inflation and patient management.

The Cornell research found some evidence that Optum medical practices refer more patients to affiliated ASCs if they are acquired in markets where Optum had a large presence. That allows Optum to capture more revenue that would otherwise have gone to a competitor. It also reduces spending for insurers, including UnitedHealthcare, by moving more care from expensive hospital outpatient departments to cheaper ASCs.

However, overall, Optum’s ASC acquisitions had little impact on physician referral patterns, the study found. Instead, Optum appears to acquire medical practices that already refer more patients to ASCs than to outpatient departments.

UnitedHealth did not respond to a request for comment for this story.

Still, “our findings suggest that policymakers and antitrust agencies should look beyond traditional metrics of horizontal concentration because vertical integration can increase prices for competing insurers and, ultimately, for consumers,” the researchers wrote in the study.

Historically, it has been difficult for antitrust agencies to stop vertical deals. But in 2023, the Biden administration changed guidelines for reviewing corporate mergers, giving the Federal Trade Commission and the Justice Department greater leverage to pursue vertical deals, including acquisitions of medical practices by insurers. The Trump administration has kept the guidelines in place.

Additionally, Congress appears open to breaking up vertically integrated monoliths, as the public clamors for lawmakers to improve health care affordability. Still, such actions would face significant obstacles.