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Show even more important that the merger thresholds be applied and that the Wasatch Front hospital market not be permitted to be concentrated into two large networks, but rather that creation of a third network be facilitated. One thing is clear from the debate: Utah's health care market is unusual. Domination of Managed Care and Large Hospital Networks The market for hospital services along the Wasatch Front is unique because of the high degree of managed care penetration and the domination by hospital networks. Market forces in the state have steadily propelled the Wasatch Front health care market toward network-to-network competition as opposed to competition between individual hospitals. Where clinics and stand-alone outpatient facilities once competed, vertically integrated chains offering all forms of health care products now dominate. Similarly, captured insurance subsidiaries of health care networks, offering complete health care packages to employers, are displacing competition among independent insurers, such as Blue Cross, CIGNA, Educators Mutual, and others. Approximately 71 percent of the non-government insured population in Utah currently receive health care through a managed care provider, and that number has been increasing 14 percent annually over the past nine years. The percent of the population covered by third party payers compared with products offered by the large networks has declined each year for the last eight years.7 The following data reflect the overall scope of current managed care penetration among the insured population in the state of Utah.8 Paver Source Managed Care Indemnity Uninsured Medicare Medicaid Percent of Total Lives 52% 21% 11% 9% 7% Managed Care Penetration 71% of non-government insured lives This trend toward greater managed care penetration is likely to continue. The percentage of the population using managed care plans will increase dramatically in the near future for two reasons. First, it is rumored that many insurers offering indemnity plans are preparing to transition such plans to managed care products. Second, the legislature has authorized the state of Utah to seek a "1115" waiver, which would allow Medicaid recipients to be channeled through managed care providers beginning in 1997 (Waitzman, 1994). Effect of This Structure on Competition So, what does this have to do with the merits of the respective arguments regarding the FTC's divestiture order? The predominance of managed care, coupled with concentration of hospitals into networks, has dramatic effects on the resulting structure of competition. In markets dominated by hospital networks and managed care, competition becomes two dimensional. First, networks compete for inclusion in managed care panels. Once included, the networks then channel patients through their managed care plan to the network hospitals. This competition occurs through the bidding of discounts on standard services to third party payers.9 These payers then have the opportunity to pass on such discounts to consumers in the form of lower premiums. The second dimension of competition insures that these savings are actually passed on. Not only do networks compete for inclusion in insurance panels, insurers also compete to sell their products to employers. It is these employers who are the economic agents choosing from among the available managed care products. In fact, since most Utah employers offer only a single health care plan to their employees, the employees/patients are effectively excluded from the decision-making process, being replaced in the equation by their employers' benefits managers. Health insurers compete by offering premium reductions, improved product offerings, and attractive physician panels in order to induce these managers to adopt their plans. As a result, health service discounts are passed along to consumers. The Peril of Stand-Alone Hospitals One consequence of this competitive structure is that stand-alone hospitals, such as the University of Utah Hospital, are essentially excluded from the competitive process. Employer benefits managers require that any managed care product they offer provide a geographic dispersion of hospitals and clinics. This is because company employees demand access to primary care hospital services in the vicinity of their homes. As a result, stand-alone hospitals or hospitals without wide geographic representation cannot offer a viable managed care product on their own. Moreover, because third-party payers need an array of hospitals with service areas covering Utah's Health: An Annual Review 1995 |
