Why Obama's crack down on corporate mergers is the right prescription for US health care

FILE -- Nov. 22, 2015: President Obama in Kuala Lumpur, Malaysia. (AP Photo/Vincent Thian)

FILE -- Nov. 22, 2015: President Obama in Kuala Lumpur, Malaysia. (AP Photo/Vincent Thian)

Hail to the chief. President Obama is giving big business the business, holding the corporate giants’ feet to the fire – and as a small business owner who struggles to survive in an environment of acquisitions and mergers, I’m grateful.

Over the last several months the administration has moved aggressively to stop corporate megamergers and consolidations that have the potential to be harmful not only to the marketplace, but, more importantly, to the average consumer.

Earlier this month, the Treasury Department tightened the tax code for “inversions,” a strategy by which American companies merge with foreign companies and then whisk their corporate headquarters out of the U.S., reaping huge savings on their tax obligations. The change in rules had an immediate casualty: a planned $160 billion merger of the New York-based pharmaceutical giant Pfizer with Ireland-based Allergan.

This was great news for American taxpayers. But even if taxes hadn’t been an issue, this merger might have had serious implications for American consumers. The fact is that any merger of major pharmaceutical companies ultimately limits competition and opens the door to a dramatic rise in the already out-of-control price of prescription drugs.

And merger fever isn’t just the rage among drug manufacturers. Megamergers seem almost de rigueur among health care companies these days. Consider that six major health insurers in the last year have found dance partners and tangoed straight to the marriage license bureau. Aetna and Humana, Anthem and Cigna, and Centene and Health Net are all planning weddings. If they make it to the altar, six companies will become three, which will inevitably result in fewer health insurance policies, higher premiums, lower payments for health care professionals and fewer practitioners in the insurers’ networks. This is not a good prescription for American health care.

The bottom line is that many of these corporate mergers need to be stopped dead in their tracks, because when it comes to business, smaller and nimbler are often better. Small businesses create jobs and opportunities, and because they don’t pass the costs of overhead and inefficiencies on to the buying public, they keep prices down.

But they demand free-market principals and a level playing to compete with the big boys. Small businesses can’t afford to spend millions on lobbyists and slick, feel-good advertising, so it’s good to see the government stepping in to protect them – and us.

It’s more important now than ever because we’ve entered an age when product has a new and very powerful competitor – data. Market forces today are driven not only by a company’s share of consumers and the products it can deliver to them, but by the amount of information it possesses that can make it virtually impossible for new competitors to emerge.

The company that controls the data knows who needs its products, how best to package and deliver them and how much people are willing to pay for them. Today, when two large companies merge, they combine not only their business and products, but also their data. It’s a new type of monopoly, but the effect is the same: Controlling market knowledge makes it virtually impossible for anyone to compete.

Consider a hypothetical merger of two major car companies, say Ford and Toyota. The moment they consolidate, they do much more than combine production. They also integrate all their data on what consumers want to buy, what innovations are on the horizon, the costs of raw materials, purchase patterns and more. Such a merger would make it much harder for a new player to enter the game.

Or consider a real merger that happened just two months ago, when IBM paid $2.6 billion to acquire Truven Health Analytics, “a leading provider of cloud-based healthcare data, analytics and insights.” The acquisition brought “more than 8,500 clients, including U.S. federal and state government agencies, employers, health plans, hospitals, clinicians and life sciences companies to the IBM Watson Health portfolio.” But more importantly, it pulled Truven’s data analytics into the big blue tent.

For IBM, it was just $2.6 billion – or as they call it, peanuts. And it was well worth it, because the deal effectively shut down all potential competitors. No David will cut this Goliath down to size, because what kind of small business has that kind of pocket change? Furthermore, my impression when I appealed to the Federal Trade Commission when it considered the deal was that the people who reviewed it for possible antitrust issues had very little understanding of what they were looking at and very little knowledge about health data.. In fact, one of IBM’s attorneys stated that there were not enough resources at FTC to review the deal .

Megamergers make great headlines. We love to talk about them. But once they’re completed, we may not love what follows. Too often they add up to fewer choices, higher prices and a stifling of competition and predatory pricing to the detriment of the consumer.

The complexities of data as a major company’s core asset will evolve to become a critical area of scrutiny for the government, which will have to keep a much closer watch to ensure that massive monopolies are not created.

President Obama has taken a lot of criticism from some quarters for his administration’s aggressive stance in blocking some of these megamergers, but in this case he is doing right by the American public. He is taking on an important issue that many of his predecessors have been unwilling or afraid to address, and for that he deserves our thanks. We can only hope that the agencies responsible for reviewing these mergers and acquisitions will be able to follow his lead.

Dr. Sreedhar Potarazu is an acclaimed ophthalmologist and entrepreneur who has been recognized as an international visionary in the business of medicine and health information technology. He is the founder of VitalSpring Technologies Inc., a privately held enterprise software company focused on providing employers with applications to empower them to become more sophisticated purchasers of health care. Dr. Potarazu is the founder and chairman of WellZone, a social platform for driving consumer engagement in health.