Racial health inequity is an ongoing crisis in America, exacerbated by the COVID-19 pandemic. According to the CDC, 21.8% and 33.8% of all COVID-19 cases were Black and Hispanic individuals, though these groups compose only 13% and 18% of the U.S. population respectively. Minorities are also less likely to be vaccinated and twice as likely to be hospitalized. Although these issues can be attributed to existing socioeconomic disparities, the corporate dimension of healthcare is another contributing factor to racial inequity that has not received adequate attention.
There are growing concerns with the recent wave of vertical Merger & Acquisition (M&A) transactions in the healthcare industry. Vertical integration takes place when firms at different stages of the supply chain form a single entity to maximize the efficiencies of production. Major health insurance companies have vertically integrated with health care service providers to provide their customers with personalized plans for pharmaceutical drugs and insurance plans. For example, the Aetna-CVS merger intended to ‘fully integrat[e] Aetna’s medical information and analytics with CVS Health’s pharmacy data’ to develop customizable health care plans across CVS Health’s 1100 MinuteClinic locations. However, these transactions have a material impact on racial inequity in healthcare among minorities in the United States.
The most notable of these transactions occurred when UnitedHealth announced its acquisition of data analytics company Change Healthcare. With this, UnitedHealth controls the supplier, the middleman and the data aggregator, making it among the most dominant entities in the healthcare industry. Shortly before UnitedHealth’s announcement on Change Healthcare, it acquired pharmaceutical supplier companies Diplomat Pharmacy Inc and DivvyDose and Optum, a pharmaceutical benefit manager (PBM). A PBM is a company that negotiates the sale of pharmaceuticals from drug manufacturers to consumers on the behalf of insurance companies. This permits UnitedHealth to utilize Change’s data collection to route insurance claims from the pharmacy to the PBM using specific patient data. UnitedHealth’s increased market power diminishes health equity for two reasons: bias and anti-competition.
Bias
The series of recent collaborations raises important questions on the misuse of data against disenfranchised groups, causing further disparities in the healthcare system. Section 1557 of the Affordable Care Act prohibits discrimination in health care programs or activities on the basis of race, color, national origin, sex, age, or disability. However, a study in 2019 found that Optum’s algorithm was racially biased with healthier white patients receiving priority insurance coverage and medication over sicker Black patients. The algorithm recommended 17.7% of Black patients for extra care. However, if this bias were eliminated, this percentage would increase to 46.5%. Furthermore, an MIT study found the margin of error for algorithms to be 0.8% for white men but up to 34.7% for women of color. This disparity prevents equitable access to healthcare facilities. Therefore, healthcare mergers that incorporate biased algorithms into their infrastructure exacerbate racial health inequity in America.
Competition in Vertical Integration
Vertical M&A transactions also affect market competition. Health groups like UnitedHealthcare have significant market power from its investment in multiple sub-sectors of the healthcare industry. This market power translates to monopolization and has inflated prices, further restricting access for racial minorities. Its acquisition of Change will grant it access to sensitive data from rival insurers, spanning across 5,500 hospitals and 900,000 doctors. This will cause an exorbitant increase in pricing for insurance coverage and medication. Racial minorities are disproportionately affected by diseases such as cancer, AIDS and COVID-19, while being among the poorest groups in America. Increased prices will exacerbate the implicit bias against minorities in the healthcare industry.
The regulation of anti-competitive transactions in healthcare requires stricter enforcement by the Federal Trade Commission. Section 7 of the Clayton Antitrust Act prohibits M&A transactions that may substantially lessen competition or create a monopoly. The Federal Trade Commission’s ‘Horizontal Merger Guidelines’ define ‘lessen[ed] competition’ as ‘encourag[ing] one or more firms to raise price, reduce output, diminish innovation, or otherwise harm customers as a result of diminished competitive constraints or incentives.’
Recently, the American Hospital Association urged the DOJ to review UnitedHealth’s acquisition of Change because the transaction could potentially lessen competition for the sale of health information technology (IT) services in healthcare; this would negatively impact consumers and healthcare providers. Vertical integration diminishes a rival firm’s capacity to conduct business with important suppliers. Prior to UnitedHealth’s acquisition of Optum, it was a crucial independent health care IT service provider to over 5000 hospitals and 100,000 physicians across the country. Furthermore, its PBM subsidiary OptumRx was responsible for $96 billion in pharmaceutical spending for multiple insurance companies. Optum’s allegiance with UnitedHealth has deprived it of its independence, denying independent IT services and substantially reducing competition from rival firms. In addition to Change’s ability to process data, Optum’s data analytics subsidiary OptumInsight also processes 240 million patients’ data annually. The collective acquisition of Change and Optum grants UnitedHealth access to sensitive information on competitors, allowing it to act on that information in a way that harms the market.
The HIV/AIDS epidemic is an important precedent that demonstrates the relationship between monopolization and health inequity. Truvada and Descovy are two pharmaceuticals for the prevention of AIDS, manufactured by Gilead Sciences. However, as a consequence of Gilead’s monopoly over the market, they are priced at $1500 a month, while costing $6 to manufacture. This greatly restricts accessibility to Black and Hispanic patients, who have the highest and second highest rates of infection. Monopolization will inevitably lead to increased prices from rival insurance companies to stay afloat in the industry, disproportionately affecting access to healthcare for racial minorities.
Conclusion
M&A transactions in healthcare are increasing at an alarming rate with a significant number of major insurers integrating with pharmaceutical and hospital chains as well as companies engaging in data collection. As previously discussed, this trend could potentially have far-reaching implications for racial minorities in the United States.
With the emergence of illnesses such as COVID-19 and its disproportionate impact on racial minorities, there is a greater dependence on insurance and pharmaceuticals. However, when the industry is dominated by a single firm, which has been proven to use biased algorithms in its insurance coverage, it places an inequitable burden on disenfranchised groups in achieving health equity. Therefore, the Federal Trade Commission must scrutinize these transactions to a greater extent. This can be achieved through a stronger regulatory framework with stricter compliance requirements for corporations in healthcare engaged in business transactions. This prevents entities from creating a stronghold over the medical sector, encouraging competition between rival firms. Furthermore, the FTC must conduct its due diligence, ensuring that algorithmic biases, as seen in Optum’s software, are eliminated and that existing and new algorithms are regularly scrutinized for racial biases.
Philip Alexander is a law-student at the National University of Juridical Sciences, India. His research lies in privacy, data protection and human rights.
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