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Each week, Health Affairs' Rob Lott brings you in-depth conversations with leading researchers and influencers shaping the big ideas in health policy and the health care industry.
A Health Podyssey goes beyond the pages of the health policy journal Health Affairs to tell stories behind the research and share policy implications. Learn how academics and economists frame their research questions and journey to the intersection of health, health care, and policy. Health policy nerds rejoice! This podcast is for you.
Hello, and welcome to a health podocy. I'm your host, Rob Lott. It was the 2009. The Black Eyed Peas boom boom pow topped the pop charts. A young president, Barack Obama, was just getting settled in office, and congressional Democrats were taking early steps to drive health reform.
Rob Lott:Among them, West Virginia senator Jay Rockefeller, for whom I worked at the time, convened a hearing of the senate commerce committee, which he chaired. His goal was to highlight just how much insurance companies were purportedly keeping as profit and paying out for advertising, overhead, and executive salaries while finding creative ways to give short shrift on actual medical care. Rockefeller followed the hearing with letters to the largest insurance companies calling on them to disclose their medical loss ratio or MLR. That is the percentage of total premiums collected that are spent on actual medical care. Many responded to those letters, others were more cagey, but throughout the summer and fall, the idea of requiring insurance companies to meet certain minimum MLR and provide rebates if they fall short kept popping up during the debate around what would become the Affordable Care Act.
Rob Lott:That rule requiring an 80% MLR in the small group market, 85% in large group plans was included in the final version of the law and took effect in 2011. Now, fifteen years later, we've seen plenty of debate about the provisions implementation and how it's working today in a healthcare landscape that's changed quite a bit since 2009. And at the core of that debate is a fundamental question. Are the MLR provisions still working the way they were intended? That's the subject, or perhaps one of the subjects, of today's health odyssey.
Rob Lott:I'm here with Doctor. Daniel Arnold, a senior research scientist at Brown University. Together with his coauthor, Doctor. Brent Fulton at UC Berkeley, doctor Arnold has a new paper in the November issue of Health Affairs, and its title is one of its main findings. Quote, UnitedHealthcare pays Optum providers more than non Optum providers.
Rob Lott:Now, what does that have to do with the black eyed peas and the Affordable Care Act and medical loss ratio? Well, I have an idea, but why don't we ask our guest, Doctor. Daniel Arnold. Welcome to A Health Podicy.
Dan Arnold:Thanks for having me.
Rob Lott:All right, well, so before we talk about MLR, I'm hoping maybe we could cover a little bit of background and maybe you can tell us about the shift that we've seen in the healthcare landscape over the last few decades away from small independent physician practices toward today's more common model where most physicians are employed by large corporations. I think a typical version of this kind of consolidation looks like hospitals and health systems buying up physician practices. But there are also instances of insurers buying provider practices or vice versa, and large parent organizations taking control of both payers and providers. How common is that scenario?
Dan Arnold:So that latter scenario that you described of insurance companies and then also private equity is in this latter category. That is the more recent kind of phenomenon that we have insurance companies and private equity equity coming in and purchasing physician practices and other type of provider groups. Historically, as you mentioned, there's been this huge trend towards hospitals doing this. And if you looked in the last decade or so, it was mainly hospitals. But in the most recent kind of five years, maybe a little earlier than that, it's been these kind of insurance companies and private equity as the two kind of integration players here.
Rob Lott:Got it. And I think when people think about health systems buying a smaller provider practice, the incentive there is pretty clear. They're sort of increasing their leverage by increasing the number of providers who are who are part of their system. What's the sort of the theory behind integration between payer and provider? And I guess another way to ask this might be, you're a researcher, when you look at these situations, what kind of questions come up for you?
Dan Arnold:Exactly. So yeah, you're right. The incentives for hospitals and health systems are pretty clear. I think most of the evidence now is that it's kind of a referral game. That's why they're essentially acquiring these physician practices.
Dan Arnold:You acquire the physician practices. Now where are those doctors gonna send patients for the admissions and those type of things? Well, the hospital, they're affiliated. That's like that's pretty we've seen that documented. There's a lot of evidence there, and that's kind of an obvious incentive.
Dan Arnold:For insurance companies, and private equity, I'll talk about insurance companies more since this paper is kind of focused on insurance companies. So there's the there's a few possible motivations here that we see. Also, as for to step back, it's there there was this kinda arm's length between providers and insurance companies. The only kinda real example we've had that wasn't this was the Kaiser system, which is kinda well known in California and a few other parts of the country. But they they've had, like, an integrated system for a long time now.
Dan Arnold:They're the insurance company. Hospitals. They're the physician groups. They're everything. This kind of situation we've seen now with UnitedHealthcare moving into the space and CVS Health through Aetna and Elevance, which used to be Anthem, they're all moving into this space.
Dan Arnold:We haven't seen them move into kind of the hospital space yet. They're not really acquiring hospitals, but they have acquired a good deal of physician groups at this point with the leader being UnitedHealth and what the paper is based on. But the incentives here apply to any of these kind of new insurance companies that are entering. The same thing that applies to United would apply to these other insurance companies. So the first question we kinda have is, well, why?
Dan Arnold:Why do this? And the there's a few reasons we can think of. One, as you led off the show with, is this medical loss ratio. So you do have to, by law, now provide a certain percentage of the premium has to go directly towards medical care. And if you don't meet that, then you end up having to reimburse consumers that difference that you you fell short.
Dan Arnold:And this can end up being billions of dollars for an insurance company. So there's really you do not wanna fall short of this medical loss ratio. And so if you are an insurance company and you have this provider group that is part of your parent company, you could pay them more. And so you keep the money in house, but you then are making the you're you're gonna pass that threshold that you might not have passed previously. So that's the medical loss ratio is is kind of the most obvious incentive we see.
Dan Arnold:There's there's another incentive you can think of if you're a and it has to do with this concept called foreclosure and economics. So you you have these competitors out there. So you can think of other physician groups, the ones that you don't, that aren't part of your parent company. They're your competition. And by paying the physician groups that are part of your entity more, you give them more resources.
Dan Arnold:You can also kind of funnel your health insurance enrollees to them if you'd like. And then that makes the competitive pressure on these outside physician organizations that much greater. That's also a possibility. I think it's a less obvious one, or it's a little more difficult to do that than the first, just kind of MLR gaming, but those are kind of the incentives we see, and that's what kind of interests us in terms of research questions.
Rob Lott:Okay. Great. Well, you mentioned research question. Let's let's talk about your paper specifically. And I know you looked at, UnitedHealthcare Group, which comprises both an insurer in the form of UnitedHealthcare and a provider group in the form of Optum.
Rob Lott:Can you give us a sense of just how big of a presence these players are in the market?
Dan Arnold:Yeah. So starting just with the whole parent company with UnitedHealth Group, which owns the insurance branch, UnitedHealthcare, and then also has the provider group Optum. So the the full parent company, Forbes does this list every year, the global 2,000, the largest companies in the world. UnitedHealth Group is the seventeenth largest company, public company in the world. So you start there.
Dan Arnold:And then you go to the insurance side, which is UnitedHealthcare. That is the largest health insurer in The United States. And then on the provider side, Optum, there are now numbers out there that around 90,000 physicians in The US are aligned with Optum. So not necessarily employed, and this is something that came up in when the when UnitedHealth CEO was answering to congress, well, what do you mean by aligned? He gave the answer that it was it's closer to 10,000 that are actually employed and with the other kinda 80,000 in some kind of financial arrangement that aligns them, but they're not actually employed.
Dan Arnold:But in some way, they're aligned. We know that.
Rob Lott:Got it.
Dan Arnold:Okay. That means 90,000 would be 10% or so of all physicians in the country. So that would be a sizable portion of all physicians being part of the Optum system.
Rob Lott:Wow. Okay. So you've got this, behemoth, and you attempted you and your coauthor attempted essentially to determine if UnitedHealthcare is paying Optum providers differently from how it pays those providers that are not owned by the parent company or their own parent company. What were some of your top line findings?
Dan Arnold:So the kind of the headline result is that if you look at that difference between Optum and non Optum providers, it turns out that UnitedHealthcare is paying 17% more to that Optum group than the non Optum group relative to the other large health insurance companies in the country. So in our dataset, there was Aetna, Cigna, and Blue Cross Blue Shield. And those are generally the four largest health insurers in The US. Humana used to be part of that, but in the commercial market, it's really The United and those three others that are really the whole thing there.
Rob Lott:Got it. Alright. Well, in just a moment, I wanna ask you a little more about what that signifies. First, let's take a quick break. And we're back.
Rob Lott:I'm here talking with doctor Daniel Arnold about, the differences in how UnitedHealthcare pays Optum providers compared to how it pays non Optum providers. And I think you just a moment ago said that basically they're paying 17% more to Optum providers compared to other insurance companies. Did I say that right? That's correct.
Dan Arnold:Yes.
Rob Lott:Okay. And so what, like, what do you take away from that? Why is that significant? And does this align with what you expected when you started the study?
Dan Arnold:Yeah. So that and I guess a follow-up result there and something that ties into kind of what we hypothesized is that when you look in the markets where UnitedHealthcare has its largest market share, So they're, like, the dominant insurance company in that market. It turns up if you have a lot of market share and a lot of market power, it's gonna be easier or there's gonna be you you're not gonna be forced to pay the amount of premiums to meet the medical loss ratio. Like, competition's not gonna drive you to say, pay 90% or 95% of the premium in terms of medical claims. There's there's that there's less competition there, so you're not gonna be forced by competition to to surpass that threshold.
Dan Arnold:So one of our hypotheses was that in the markets where they're dominant as an insurer company, you're going to see this difference of them paying Optum physicians more than non Optum physicians. It's going to be like more clear in those markets. And that's what we found. One of the results is that in those markets where they have a lot of market share, a lot of market power, they pay Optum physicians 61% more than relative to their competitors, the Aetna's, the Blue Cross Blue Shield, Cigna. So that was something we wanted to test because if if you think this is an MLR story, then that's where the MLR kinda gaming would most show up is in those kind of more heavier market share, heavier market power kind of areas.
Dan Arnold:And so that's kind of the idea with that result.
Rob Lott:Got it. And you said, you know, if you think it's an MLR story, I presume that's sort of what motivated you to kind of start this investigation, if you will. Do you at this point feel like that's what it is, an MLR story? And I guess how definitive can you be in your statement based on these findings, or are is there subsequent research and investigations that need to take place?
Dan Arnold:Yeah. So my feeling is it is an MLR story, and others, I think, are feeling that as well just because the incentives are kind of obviously there. And there was a nice piece that written in the forefront series of health affairs recently that lays out the incentives in much more detail than we are able to do in our paper. So I'd encourage listeners to to look there. But based on those incentives, it seems like there's that's kind of the obvious thing that's that's going on here.
Dan Arnold:For us so this one of the ways we were able to do this study is because of the the hospital and insurer price transparency rule that came out a few years ago. And now this before, we were never able to see, like, the price that a certain insurer would pay a certain provider. We'd see kind of an average of all the insurers, what they'd pay a provider, but we wouldn't see it broken out by UnitedHealthcare, Aetna, etcetera. The price transparency allows us to do that. The downside there is that it's still pretty early in the price transparency era.
Dan Arnold:So what future studies will have to do is really do, like, more kind of a longer kind of look at this. So we kind of had a we had a snapshot of prices at one point in time. If you look over time and see the same sort of thing, that will be more definitive, I think, evidence of what's going on here.
Rob Lott:So essentially, you know, you're pointing to this scenario where in theory, the insurer is paying these providers in house a little more so that they can show that they've hit the MLR mark, but they're not actually paying for additional or better or improved medical care. So essentially that they're sort of wringing some extra money out of the system or maybe even just kind of moving the money around in order to kind of meet their obligation to MLR. And so in that sense, think it's fair to say that under this theory, they're sort of undermining the original intention of the law of the MLR provision. And I guess, is that consistent with your take on what's happening here? And then are there other potentially problematic pieces of this process that we should be wary of or attuned to?
Dan Arnold:Yeah. I think it's clear and more evidence I think we can start looking at this now, but more evidence will make it even more urgent that we need to look at this. But the the MLR regulation as is is just set up in a way that allows this sort of gaming. And it's almost you know, it it comes off as as as these insurance companies or these big parent companies doing this not so great thing, but it's it's like those are the rules of the game and you almost don't blame them in a way.
Rob Lott:Don't don't hate the player. Hate the game.
Dan Arnold:Yeah. Exactly. So that's I think something has to be looked at there. And like I said, the the the articles about UnitedHealthcare, because they're the largest kind of player in this space, they've done these physician group acquisitions earlier than the other companies. But this is in no way just a UnitedHealthcare story.
Dan Arnold:So and the other insurance companies are facing the same incentives. So something definitely has to be looked at that regulation.
Rob Lott:Circling back to this idea of foreclosure, foreclosing other practices, it seems like that's kind of another area that's separate in a way from MLR gaming, but perhaps they're sort of synergistic in a way that, like, once the health systems are engaging in this process, it also kind of creates a dynamic where they're pushing some providers out and keeping some in and it becomes a little more ruthless as a result. Is that fair?
Dan Arnold:Yeah. I think that's right. And I I think why I think it's less of a concern at the moment is while UnitedHealthcare we'll we'll take UnitedHealthcare as the example again. And Optum have a good amount of market share kinda nationally. Within local markets, it would be hard for, like, Optum to just not take insurance or not take patients from other insurance companies.
Dan Arnold:Like, to be able to do that, you really have to kinda be the dominant provider in the area Just say, we're getting so much volume from UnitedHealthcare. We don't need Aetna. We don't need Blue Cross Blue Shield, etcetera. And then the same thing for from the flip side for, like, UnitedHealthcare. They'd have to say, like, well, we we can just have this network of Optum providers.
Dan Arnold:We don't need anyone else. We don't need, say, UCSF physician practices in the Bay Area or Stanford physician practices or anything like that. We we don't need them. We're fine. To get to that level, you need quite a bit more market share.
Dan Arnold:And maybe there's places in the country where they are kind of dominant like that. But to do that kind of across the board, I think they need to reach kind of like more dominant status than they have now. So that's why I think that's kind of foreclosure possibility is there, but it's it's second order kind of at the moment, I think.
Rob Lott:Got it. Now in the introduction, I mentioned sort of the journey that this provision traveled in 2009 as part of the debate around the Affordable Care Act. If I recall, perhaps it's through rose colored glasses, but that MLR was generally spoken about in widely positive terms that the general assumption was that this seemed like a straightforward kind of consumer oriented provision. Certainly, were debates about what qualified as medical care and what didn't and how you set the levels and that kind of thing. But in general, it seemed like positive thing all around.
Rob Lott:And here we are. It's potentially sort of a pretty big loophole in the provision. And I'm wondering, did the policymakers at the time just not foresee that potential loophole? Or was it that they had no way of knowing the existence of these private equity firms would be so pronounced and and was the landscape just that different? Or what did they miss at the time that we're seeing now in such a stark light?
Dan Arnold:I think it's exactly what you said. It was just the landscape was completely different. And that's because both
Rob Lott:private
Dan Arnold:so that's we're talking ACA around 2010. Private equity and and these insurance physician kind of integration arrangements, none of that was there. Like, there's hardly any examples going back to 2010 of that going on. So, I I mean, I I can see why they they miss this given that was the environment at the time. And it's yeah.
Dan Arnold:I I think you're right to say that just generally the idea of MLR was a good idea, and I don't think it's, like, completely, you know, a lost cause. I mean, you can do some things in terms of transparency, like ownership transparency, which people are asking for all the time now on these large health care companies. I think it's something like UnitedHealth Group has something like 3,000 subsidiaries right now. So it's it's just very hard to track this. And so if you did make some kind of changes to the MLR, like, we need to see transparency, like, on where this money is going.
Dan Arnold:And then, you know, we're not gonna count it if you if it's, like, going more towards here than it should be, and it's looks like an inflated payment. So there's there's ways to, you know, through transparency measures, I think, save kind of the MLR system. And, yeah, I think you're right that people do generally, you know, like the idea of it that more larger percentage of your premiums going to medical care versus profit administration, etcetera.
Rob Lott:Doctor Daniel Arnold, thank you so much for taking the time to speak with us today. I had a great time. Thanks for having me. To our listeners, thanks for tuning in. If you enjoyed this episode, please tell a friend, leave a review, and, of course, tune in next week.
Rob Lott:Thanks, everyone.
Dan Arnold:Thanks for listening.
Rob Lott:If you enjoyed today's episode, I hope you'll tell a friend about the health policy.