The Role of State Government in Wisconsin’s Health Care Markets September 16, 2016 Kevin O’Connor (608) /

2 Overview I.Main Takeaways II.History of Health Care Transformation in WI in the1980s III.How Self-funding Will Affect These Markets

I.Takeaways A. Wisconsin enjoys cost-effective, high- quality health care, especially in South Central Wisconsin B.Why? In large part, it was the result of: - Application of antitrust laws to health care - Smart purchasing decisions by the state - Avoidance of ill-conceived regulation 3

Takeaways C.Self-funding Could Undermine These Policies and Results By: - Unraveling the integrated delivery of care - Complicates the state’s exercise of “buyer power” - Shifting risk to taxpayers of health care cost increases 4

WI Health Care History 101: Antitrust Arizona v. Maricopa County Medical Society (1982): Supreme Court holds that health care entities subject to antitrust laws Providers and Insurers Required to Compete on the Merits, Like Other Industries Caused Sea Change in Approaches to Health Care Competition and Collaboration 5

6 II. Purpose of Antitrust Laws Antitrust laws promote business competition. Competition is the best way to achieve low prices, high quality, and best service. Potential antitrust issues arise whenever competition may be lessened. -By coordination among competitors; or -By strong firm's actions to limit weaker competitor's access to market. Antitrust laws punish anticompetitive behavior.

History Continued: Closed Panels State Regulatory Changes in 1980s - Wisconsin eliminates ban on closed panel plans - Prior to 1983, only two insurance companies operated in WI and, by law, they had totally open panels - Closed panels began to be formed as antitrust laws became relevant 7

More History: The State as Power Buyer ETF develops aggressive bidding process for state employees in 1983 Worked in tandem with antitrust enforcement and allowance of closed panels Caused massive reorganization of markets in Dane County and, to lesser extent, in other parts of the state 8

The Result? Vertical Integration South Central Wisconsin has three* vertically- integrated systems that compete vigorously 1. Dean Health Plan/Dean Clinic/St. Mary’s Hospital 2. Physicians Plus/Unitypoint Meriter/MMG 3. Unity/UWH 4. *GHCSCW Basic Economics: Intense competition = lower costs + improved quality 9

The Rest of the Story: Dumb Regulation Avoided Regulation of Health Care Markets Can Undermine the Gains from Competition States Can Exempt Private Anti-competitive Conduct from the Federal Antitrust Laws provided a State Actor Actively Supervises 10

Hospital Rate Setting Mid-1980’s: WI allows hospitals to coordinate their pricing with rate-setting agreements - Clearly illegal under federal antitrust laws Reaction? State sets up Hospital Rate Setting Commission to dictate hospital rates Replaced by Cost Containment Commission (CON “light”)—eventually abolished 11

COPA Certificate of Public Advantage statutes passed by 20+ states, including WI, in 1990s -Purported to immunize health care collaborations from federal antitrust -Absence of supervising state actor undermined purpose - “Legitimate joint venture” allowed when clear conditions are met 12

Dodging the Bullet Wisconsin is fortunate that the policies put in place in the 1980’s were not undermined by counter productive regulation and state policies 13

Can WI Dodge It Again? Self-funding has superficial appeal, but - Will likely unravel connection between risk-bearing function and providing care - Change in incentives (essentially move to fee-for- service) antithetical to way these systems operate - Will allow providers to engage in opportunistic behavior 14

OFFICES IN MILWAUKEE, MADISON, WAUKESHA, GREEN BAY AND APPLETON, WISCONSIN AND WASHINGTON, D.C. The presentation and materials are intended to provide information on legal issues and should not be construed as legal advice. In addition, attendance at a Godfrey & Kahn, S.C. presentation does not create an attorney-client relationship. Please consult the speaker if you have any questions concerning the information discussed during this seminar. Questions or Comments? Kevin O’Connor (608)