Adventist, St. Joseph merger rejected by California regulators

https://www.beckershospitalreview.com/hospital-transactions-and-valuation/adventist-st-joseph-merger-rejected-by-california-regulators.html

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The California Department of Justice denied a proposed merger between nonprofits Adventist Health System/West and St. Joseph Health System Oct. 31, stating it’s not in the public’s interest.

The transaction would increase healthcare costs and possibly limit healthcare access in Northern California, the department determined.

In June 2018, Roseville, Calif.-based Adventist and Irvine, Calif.-based St. Joseph requested to form a joint operating company to integrate 10 select facilities in Northern California. At the time, the systems said their integration would improve healthcare access, especially for vulnerable and underserved patients. 

Sean McCluskie, chief deputy to California’s attorney general, disagreed with those predictions.

“The California Department of Justice is responsible for ensuring that any proposed sale or transfer of a nonprofit health facility protects the health and safety interests of the surrounding community. After careful review, we found this proposal falls short of protecting consumers,” he said.

In a joint statement to Becker’s, Adventist and St. Joseph expressed disappointment about the department’s decision.

“Our intent has always been to better serve our communities, increase access to services, and create a stronger safety net for families in Northern California,” they said. “At this time, our organizations will need to take a step back and determine implications of this decision. The well-being of our communities remains our top priority.”

 

Oregon insurer sues, says 3 health systems have locked it out of Portland market

https://www.beckershospitalreview.com/legal-regulatory-issues/oregon-insurer-sues-says-3-health-systems-have-locked-it-out-of-portland-market.html?oly_enc_id=2893H2397267F7G

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Trillium Community Health Plan has filed a federal antitrust suit against three of the largest hospital systems in Portland, Ore., claiming they colluded to block the insurer from operating in the area, according to The Oreonian. 

The Eugene, Ore.-based health plan filed the suit against Legacy Health, Providence Health and Services and OHSU Health System, all based in Portland. 

Trillium alleges that the Portland health systems have engaged in a “group boycott” that if left unchecked, “would have a significant negative impact on Oregon Health Plan members, limiting the healthcare choices of some of the most vulnerable members of Oregon’s community,” according to The Portland Business Journal. 

In July, the Oregon Health Authority named Trillium a “next generation” coordinated care organization and awarded it the contract to serve Medicaid patients in the Portland area. CCOs, as they are known as, work together to provide healthcare services and benefits to patients enrolled in the state’s Medicaid program.

Since then, Trillium claims that it “pursued every avenue” to work with the three health systems without success, and without them, it is unable to break into the metro area Medicaid market.

Legacy, Providence and OHSU are all founding members of Health Share, the existing CCO in the area that will compete against Trillium.

“The hospitals’ anticompetitive behavior leaves Trillium no choice but to file an antitrust action in the hopes that the collusion will stop and that Trillium will be granted the ability to work with the Portland area hospitals,” the suit reads, according to the Business Journal. 

 

Assessing Responses to Increased Provider Consolidation in Six Markets: Final Report

https://georgetown.app.box.com/s/65qfhbzz7fabx9oypsteg6d1aghz4fsj

INTRODUCTION

Few communities in the United States have been exempt from the recent wave of consolidation among health care providers, whether it is hospital-to-hospital mergers and acquisitions (horizontal consolidation) or hospital acquisitions of physician groups and other ambulatory service providers (vertical consolidation). Increased provider concentration has been demonstrated to lead to higher provider reimbursement rates and thus higher premiums for people with private insurance, although outcomes vary, market to market.

To examine the strategies that private insurance companies and employer-purchasers use to constrain health care cost growth and how they are affected by increased provider consolidation, we conducted six market level, qualitative case studies, focusing on mid-sized health care markets in which there had been recent consolidation activity

These are: Detroit, Michigan; Syracuse, New York; Northern Virginia; Indianapolis, Indiana; Asheville, North Carolina; and Colorado Springs, Colorado.

BACKGROUND

Hospital and hospital-physician consolidation has accelerated in recent years, creating dominant local and regional health care systems. In nine out of ten metropolitan areas, the provider market is considered highly concentrated. Although merging hospitals and health systems claim they can achieve greater efficiencies and better care coordination through their consolidation, the economic literature almost universally finds that hospitals that merge charge prices above those of surrounding hospitals. Indeed, hospital mergers have been found to increase the average price of hospital services by 6 to 40 percent.  Another study found that hospital acquisition of physician practices increased outpatient prices by 14 percent. At the same time, increased market concentration is strongly associated with lower quality care. There is also evidence that the prices of independent, non-acquired hospitals also increase in the wake of a rival’s acquisition.

Increases in provider prices have been a key factor driving the growth of commercial health insurance costs over the past decade. Annual family premiums have now surpassed $20,000, and the average annual deductible has increased 100 percent over the last 10 years. While policymakers have focused attention on rising health insurance premiums and out-of-pocket costs (for employers and employees alike), provider consolidation—and its role as a major health care cost driver—has received less attention in the media and among policymakers.

APPROACH

In a series of six market-level, qualitative case studies, we assessed the impact of recent provider consolidations, the resulting provider concentration, the ability of market participants (and, where relevant, regulators) to respond to those consolidations, and strategies for constraining cost growth while maintaining high-quality care. Our case studies focus on the employer-sponsored group insurance market, though we recognize that providers and insurers are often operating across multiple sources of insurance, including Medicare Advantage, Medicaid managed care, and the Affordable Care Act (ACA) marketplaces.  We do not attempt to quantify the effect of provider consolidation in these markets, such as through provider rate or premium changes.

For each case study, we conducted an environmental scan of local media and published literature about market conditions and structured interviews with insurer, provider, and employer representatives, as well as other experts on the health care market. We also interviewed 10 national experts on provider consolidation and payer-provider network negotiations. Over the six case studies, we conducted 77 interviews with local respondents. Each case study, as well as an interim cross-cutting report, can be found at https://chir georgetown edu/provider-consolidation-case-studies/ .

We focused on mid-sized markets that had experienced recent horizontal or vertical consolidation. We identified these through an environmental scan of local media and research literature and a review of trends in market concentration indices, primarily via the Herfindahl-Hirschman Index (HHI). The six study markets were chosen to reflect geographic diversity as well as a range of market dynamics (see Table).

In markets such as Asheville, for instance, hospital mergers and acquisitions over the last decade have left the Mission Health System virtually without competition.

Observers describe other markets, such as Colorado Springs and Detroit, as relatively competitive even with recent provider consolidation. Across all six markets, hospitals purchased or entered into clinical affiliations with physician group practices. In some markets, such as Northern Virginia and Colorado Springs, hospital systems faced competition for physician practices from outside private equity firms and practice management companies.

In four out of our six markets, the Blue Cross Blue Shield affiliate was the dominant insurer in the commercial group market, with well over half the market share. Their dominance extended to all types of employers, including for third-party administrator contracts with self-funded employer plans. In two of our markets, the local health care system or systems were the largest private employers. In the other four, the health systems were among the top three or four employers. The states in our case studies were evenly split in having Certificate of Need laws, the lack of which some stakeholders suggested contributed to significant health system construction and concomitant increases in utilization and, less intuitively, prices (explained further, below).

FINDINGS

1. Hospitals are in various phases of empire-building

Across the six markets, the hospitals’ motivations for consolidation are similar, with stakeholders reporting a pursuit of greater market share and a desire to increase their negotiating leverage with payers to demand higher reimbursement. These observations run counter to the justifications often cited by hospital systems that consolidation is needed to create efficiencies and improve care coordination. Following consolidation, the hospitals and hospital systems in our studied markets have engaged in various phases of empire building.

While approaches varied, providers had similar goals in expanding their empire: to increase their geographic footprint, acquire points of referral (such as free-standing emergency departments and physician practices), or build new facilities in areas with a higher proportion of commercially insured residents. In all study markets except Indianapolis, a larger multi-state health system acquired or merged with a local independent provider to gain new entry or additional market share in a particular region Hospital system expansion was also not limited only to study markets: many hospital systems were expanding their footprint across the state.

In addition to consolidation, hospitals have pursued other strategies to gain greater leverage in negotiations with payers. For example, the Syracuse hospital systems have developed clinical niches, so that they are perceived by local residents as the best facility for certain services, such as orthopedics or cancer care In Indianapolis, each of the four health systems carved out “mini-monopolies” within geographic boundaries that have historically been respected by the other systems. For many years, systems largely did not compete directly, although this de facto arrangement has broken down recently.

2. Providers are exercising their increased market clout

Consolidation appears to be having the providers’ desired effect in our study markets: hospital systems reportedly use their market clout to seek higher reimbursement from payers. For example, a payer representative in Colorado noted that when an independent hospital is acquired by one of the major health systems: “the next thing I know, I see a 100 percent increase [in prices] ”. Similarly, payers in Detroit noted a “toughened stance” from a local hospital system following a recent consolidation.  They, along with payers in other markets, also noted that when independent local hospitals are acquired by large national systems, negotiations shift from the local provider to the central corporate office, where there are fewer long-standing relationships, less understanding of local needs, and often a demand to take all or none of the hospitals in the system.

Even non-dominant hospitals appear to benefit from the consolidation of their rivals. For example, a small hospital in Northern Virginia was able leverage its position as an alternative to the dominant Inova Health System, effectively telling insurers: “If you think it’s healthy to have independent health systems in this market, then give us [higher prices] ”. In other cases, hospitals appear to use their market power to build more market power. For example, Asheville’s Mission hospital reportedly used its dominance to pressure physician groups to join their accountable care organization (ACO).

At the same time, our case studies provide examples of constraints on market power. The local nature of health care delivery sometimes demands that providers “play nice” in the sandbox. In Syracuse, executives of the providers and payers have longstanding personal and professional relationships. “Everyone knows each other and we all go to the same meetings,” said one observer, who believed the tight-knit nature of the community contributed to less-than-hardball tactics in the negotiating room. In Northern Virginia, some thought Inova, based just outside of D C , had been relatively restrained in its demands for increased reimbursement in part to avoid raising red flags with federal regulators.

3. Payers have tools to constrain cost growth, but lack the incentive and ability to deploy them effectively

As third-party administrators for self-insured employer-sponsored group health plans, insurers are typically paid a percentage of the overall cost of the plan. As a result, these insurers have a perverse incentive to keep costs high and growing, limiting their motivation to pursue aggressive strategies to reduce provider prices, a phenomenon one respondent called “middleman economics.” This incentive for payers is compounded by the fact that some of the more obvious strategies to contain costs (cutting or threatening to cut a high-cost hospital from their plan networks, for example) are likely to result in negative publicity and resistance from employers and their employees. The result is a strong incentive for commercial insurers to agree to providers’ demands for price increases each year, which employers and their employees will feel more gradually over time than a provider termination. The result is that employers and employees become the proverbial “frogs in the pot of water.”

Payers identify several cost containment strategies, but all come with downsides. Payers in our study markets do negotiate to limit price increases and are pursuing some cost containment strategies, but none identified a “magic bullet” approach that would moderate price growth while minimizing negative feedback from employers and employees.

Network design

One obvious strategy for insurers in response to a provider’s demand for a price increase would be to decline to contract with that provider and terminate them from their network. However, most payers and purchasers described this as a non-viable “nuclear option.” In addition to concerns about bad publicity, unhappy employer customers, and lost competitive advantage over other payers, quite often the provider at issue is essential to an adequate network, either because it is the sole provider within a reasonable geographic distance or because of its dominance in a particular clinical specialty.

Payers in several markets also noted that, more often than not, employers “don’t have their back” during provider negotiations, taking away their ability to credibly threaten to drop the provider from the network. Many large employers were loath to limit their employees’ choice of providers. Without the ability to credibly cite demand for lower prices from employers, insurers have less leverage in their negotiations with providers.

There are exceptions to this rule, but they were quite rare in the study markets. The only exception we observed was when Blue Cross Blue Shield of North Carolina (BCBSNC) terminated Mission Health System, Asheville’s only hospital system, from its network for two months in 2018. When BCBSNC, the dominant insurer in North Carolina, did so, it reportedly faced little public backlash. Rather, the public largely took BCBSNC’s side in the dispute Mission was forced to rejoin the network without the hoped-for price increases.

Designing “narrow” network product is another option for payers. By offering to drive more patient volume to a limited set of providers, payers can, in theory, extract greater price concessions. But payers across our study markets have found little interest among employer customers in narrow network products. As with the “nuclear option,” employers were typically not willing to restrict their employees’ choice, with several noting that the savings rarely outweigh the perceived limits on employees’ choices.  At the same time, several payers are successfully marketing narrow network products in the individual market, where consumers may be more price sensitive and appear more willing to accept a constraint on their choice of providers in exchange for a lower premium.

Provider tiering and centers of excellence

A few payers in our markets offer plans that tier providers based on cost and quality, so that enrollees who choose lower cost providers will pay lower cost-sharing. However, the strategy is limited to markets in which there is sufficient competition so that lower-cost options are available. Payers and purchasers also noted that they often lacked the necessary data to effectively tier providers, and that patients lacked access to real-time pricing tools to enable them to make cost-effective choices.

In Asheville, a tiering strategy is difficult because the Mission Health System is so dominant. However, at least one large, self-funded employer in Asheville has designated out-of-state “centers of excellence” hospital systems that can offer lower prices and high quality for certain elective procedures. Even after reimbursing enrollees’ travel costs, this employer said, it is still more cost effective than receiving the care at Mission. However, there is a small set of elective procedures that can be performed at these facilities, and the bulk of enrollees’ care must be delivered locally.

Risk-sharing arrangements

Payers in Detroit and Northern Virginia suggested they were pinning at least some cost-containment hopes on risk-sharing arrangements with providers. In this they are following the Medicare program, and several hospital systems in our study markets participate in Medicare risk-sharing programs. However, most payers acknowledged that risk-sharing arrangements they have implemented to date have had only a limited impact. Current arrangements have largely involved only upside risk for providers, with the aim of having the provider take on more downside financial risk at a future date. Payers reported deploying risk-sharing arrangements with physician group practices more than hospitals, likely because they have greater leverage with physicians in most of the studied markets. For example, while hospital executives in Northern Virginia told us they had been presented with possible risk-sharing payment models, they declined to participate due to their lack of “economic incentive.”

Provider-payer partnerships

In some cases, payers have taken a “if you can’t beat ‘em, join ‘em” tactic, by entering into partnerships or joint ventures with health systems. For example, in 2012 Aetna entered into a joint venture with Inova in Northern Virginia to create Innovation Health. More recently, the self-insured General Motors plan entered into an exclusive partnership with the Henry Ford Health System in Detroit. While it is too early to say what the impact of the GM-Henry Ford partnership will have, observers in Northern Virginia largely dismissed Innovation Health’s impact on the market, noting that Aetna had obtained no discernible competitive advantage from the venture.

4. Employers’ tools to help control costs are limited

Unable (or unwilling) to push back on high and rising provider prices, employers have historically looked elsewhere to contain costs. Across our six markets, the most widespread strategy among employers to constrain their health plan costs has been to shift them to employees, largely through higher deductibles Increasing deductibles and other enrollee cost-sharing has been an attractive strategy because it can be ratcheted up slowly over time, limiting employee pushback. At the same time, several employer respondents in our study markets observed that this cost-shifting strategy may have been tapped out, noting that many of their employees can no longer afford the deductibles. One also observed that, because of high provider prices, employees often exceed their deductible after just one imaging service or ER visit, limiting its utility as a cost-containment tactic.

Employers reported investing in employee wellness programs. However, they were unable to document whether these programs generated savings. This is not surprising given that the weight of the evidence to date suggests minimal, if any, return on investment. Employers also touted on-site primary care as a promising strategy in Indianapolis, in part because they offer a subscription-based (capitated) model for the delivery of primary care services. However, not all employers have the requisite size or centralized location to offer this service.

Another strategy, direct contracting, is similarly limited to employers with sufficient size and human resources capacity to bypass payers and negotiate with providers. But this trend may be catching on among some Large employers in both Detroit and Indianapolis are actively considering direct contracting, and as noted above, General Motors directly contracted with the Henry Ford system in 2018. In 2019, the Peak Health Alliance, a coalition of employers and citizens of Summit County, Colorado, successfully negotiated price discounts from local providers, lowering 2020 premiums an estimated 11 percent. It remains to be seen whether such efforts are replicable outside of Summit County and if employers will, over the long term, be able to strike better bargains than private payers.

Employers also differ dramatically in their level of engagement and willingness to push insurers to deliver lower prices. One significant impediment is the lack of access to claims data, which would enable them to identify and address cost drivers.  Indeed, in Indiana, a coalition of large, self-funded employers was forced to take Anthem to court in order to obtain access to their claims data, even though they bear the financial risk of their plans. For many other employers, the expertise and knowledge needed to negotiate effectively with sophisticated provider systems are well outside their core competency; they have delegated that responsibility to their third-party administrators and will continue to do so.

5. Public policy strategies have had limited effectiveness

Across our six markets, anti-trust and other public policy strategies have been deployed to constrain the ill-effects of market concentration, but they have had limited effectiveness.

Anti-trust enforcement

Stakeholders in Northern Virginia suggested that the Federal Trade Commission’s (FTC’s) intervention in Inova’s attempted acquisition of a smaller independent hospital in Prince William County has had a dampening effect on what had been a region-wide buying spree. However, respondents suggested perhaps the FTC intervention was too little, too late, noting that it would be hard for the “super concentrated” region to become any more concentrated. Nationwide, a lack of resources, a narrow focus on horizontal consolidation within local markets, and some negative court decisions have limited the FTC’s ability to be more than a speed bump to the consolidation boom of the past 10 years.

State attorneys general (AGs) have also played a role in our markets. When the for-profit hospital chain HCA acquired Mission Health System in Asheville, the state AG demanded a 10-year commitment that HCA will not close rural hospitals or require major cuts to services. Similarly, in the wake of Optum’s acquisition of the DaVita Medical Group, which owned many of the largest primary care practices in Colorado Springs, that state’s AG imposed time-limited restrictions on Optum and its owner UnitedHealthCare to mitigate anti-trust concerns in the Colorado Springs market. Specifically, UnitedHealthCare had to lift its exclusive Medicare Advantage contract with one of the two major hospital systems for at least 3.5 years and honor DaVita’s prior agreement with Humana (the main Medicare Advantage competitor in Colorado Springs) through at least 2020.

The “Certificate of Public Advantage” or COPA, has been another tool used by states to limit anti-competitive behavior, post-merger. A COPA allows a state, rather than the FTC, to oversee antitrust issues after a consolidation among providers. In North Carolina, the state legislature granted a COPA to Mission after it merged with the competing hospital system in Asheville in 1998. However, COPAs can be subject to “regulatory capture,” where regulators become overly influenced by the industry they are meant to police At least in North Carolina, the COPA appeared to do little to limit Mission’s acquisition of other nearby hospitals or physician groups. In 2015, Mission lobbyists convinced the legislature to repeal the COPA, paving the way for its purchase by the for-profit HCA system.

Certificate of Need laws

Stakeholders offered competing views on the value of state certificate of need (CON) laws. These laws generally require the state’s review and approval of new hospital facilities. Some observers argued that lifting these laws would encourage competing hospitals to enter the market, potentially putting pressure on the dominant hospital system to lower prices However, while Indianapolis experienced a hospital building boom after it repealed its CON law, payers and purchasers alike report that the increase in capacity not only led to a spike in utilization, it also, somewhat counterintuitively, drove hospitals to hike their unit prices. With more competition, hospitals had fewer patients but the same (or higher) overhead costs, leading them to demand higher prices from commercial insurers.

Rate setting and purchasing alliances

Market and public policy failure to adequately counter rising costs has prompted policymakers in some states to consider using the power of the government to set provider payment rates or to encourage the formation of multi-purchaser alliances to demand price concessions from providers. For example, a bill promoted by the Colorado insurance department would have linked some hospital reimbursement to the amount reimbursed by Medicare, while the administrator of North Carolina’s state employee health plan has proposed setting rates via reference to the Medicare program. Although Maryland was not part of our market case study, stakeholders in Northern Virginia attributed that state’s lower hospital prices to its all-payer rate setting program.

As noted above, Colorado leaders have also encouraged the formation of locally based purchasing alliances—built on the Peak Health Alliance model—that could combine the purchasing power of multiple employers to directly negotiate with hospitals.  Although a payer would be sought to administer the plan, their role in contracting with providers would be greatly diminished.  The concept of employer purchasing pools is not new: past efforts, such as California’s PacAdvantage program, ultimately floundered But it is too soon to tell if these nascent efforts to harness government—or employers’—purchasing power will generate significant cost savings or the type of political support needed to initiate and sustain them.

LOOKING AHEAD

As the literature and our case studies show, consolidation leads to higher provider prices and ultimately higher premiums for consumers. Any policy discussion about improving health care affordability will need to confront the limits of the market to constrain provider monopolies and their resulting increased negotiation leverage.

Misaligned incentives among commercial payers and the “must have” status of many hospital systems mean that market-based tools to hold health care costs down have been largely ineffective or difficult to replicate. And, with 90 percent of markets in the country already highly consolidated, the prospect of greater anti-trust enforcement is “too little, too late.”

In addition to the public policies discussed above, states have implemented or are considering requiring providers to work within cost growth targets and leveraging the power of state agencies to demand price concessions from providers. For example, Delaware and Massachusetts have set targets for annual increases in health care spending, while Montana’s state employee plan recently began setting a Medicare-based “reference price” for covered hospitalizations. In California, state agencies are consolidating their pharmacy purchasing authorities to negotiate lower drug prices, pursuant to a 2019 executive order by Governor Newsom. Also, in litigation that has been closely watched because it could embolden more post-consolidation anti-trust lawsuits nationwide, the California AG and a coalition of roughly 1,500 self-funded employers reached a settlement agreement with one of that state’s largest health systems, Sutter Health, over allegations that Sutter used its market power to drive up prices.

Policymakers can also do more to activate or assist employers in demanding lower prices. The first step is to help inform employers about the true drivers of health care costs by banning clauses in payer-provider contracts that prohibit the sharing of data on reimbursement rates. Employers, particularly those that self-fund their plans, should not have to sue their third-party administrator (as they did in Indiana) to gain access to their own data. Being able to clearly see the data on hospital prices has sparked a number of Indiana employers to demand change. However, if incremental steps such as data sharing don’t ultimately reduce provider prices, it could increase the support for more dramatic steps, such as rate-setting, in response to provider consolidation. “The status quo isn’t an option anymore,” one large employer told us. Indeed, the status quo is no longer an option for most employers, and certainly not for their employees, who are bearing an ever greater burden of the cost of care.

 

 

PBGH CEO ON SUTTER HEALTH ANTITRUST SETTLEMENT: ‘I DON’T THINK THIS ISSUE WILL GO AWAY’

https://www.healthleadersmedia.com/finance/pbgh-ceo-sutter-health-antitrust-settlement-i-dont-think-issue-will-go-away

Elizabeth Mitchell, CEO of the Pacific Business Group on Health, weighs in on the recent settlement between Sutter Health and the California Attorney General’s office.

Despite a recent settlement between Sutter Health and a group of self-funded employers along with the California Attorney General’s office, the issue of high healthcare costs and pricing concerns is likely to continue in the Golden State, according to an industry observer.

The Sutter Health antitrust case was settled in mid-October, bringing a sudden end to a healthcare trial that garnered widespread attention from provider organizations.

Sutter Health was accused of violating state antitrust laws by wielding its massive market power in Northern California to drive up prices. The Sacramento-based nonprofit health system, which reported an operating revenue of $13 billion in 2018, was expected to face up to $2.7 billion in damages before a settlement was reached just ahead of when opening arguments were slated to begin.

While the final details of the case have not been released yet, there is still interest in the healthcare industry about what concessions were made by each side in the case and how the settlement may impact the industry at large. 

Elizabeth Mitchell, CEO of the Pacific Business Group on Health (PBGH), told HealthLeaders that the case was another example of how important it is for employers to review pricing practices, especially for hospital services.

“We think that there will be a lot to be learned from this case when we understand what the injunctive release will include,” Mitchell said. “There is a need to ensure a functional marketplace for healthcare purchasing and this could create that opportunity for California and potentially the rest of the country.”

Provider consolidation has become a focus of California’s healthcare market in recent years, with several reports pointing to significant market concentrations in counties across the state.

A September 2018 study conducted by RAND Corporation and the Nicholas C. Petris Center on Health Care Markets and Consumer Welfare School of Public Health at the University of California, Berkeley found that more than a dozen California counties were deemed “hot spots,” or markets that deserve additional regulatory review.

Researchers urged state legislators to pass additional oversight measures to address the potential negative consequences of healthcare M&A activity.

As it relates to large employers, Mitchell said that businesses are continually looking for innovative arrangements that prioritize quality care options and affordability, which may require providers who have been “seeking to maximize prices” to rethink that approach.

She pointed to PBGH’s Employers Centers of Excellence Network, which has allowed businesses to contract with certain providers for affordable care options that improve health outcomes.

However, Mitchell said that some contracting practices from large integrated systems prohibit such approaches by employers to identify and discern quality variation, which ultimately impacts patients.

Despite the ruling in the Sutter case, Mitchell said that the larger issue around pricing for medical care in California is not fully resolved.  

“I don’t think this issue will go away, it will remain front and center for a lot of folks paying for medical care,” Mitchell said. “There’s a lot of interest in partnering with clinicians for high value care, but these anti-competitive practices really inhibit that.”

 

 

 

FTC to probe impacts of state antitrust protections for local hospital mergers

https://www.fiercehealthcare.com/hospitals-health-systems/ftc-to-probe-impacts-state-antitrust-protections-for-local-hospital?mkt_tok=eyJpIjoiT0RZNE4yTm1PV1psTmpNeSIsInQiOiJ5R3gxMEwrdUhPWUdZVlBTZ3NWWkdMV08xOCtObDdFaGdHaE1hN0o4Z2p5WnBaN3hjd2lDVm5ybnBhWUtUNFdlTW1LcndtaTN1WUtNVzg1NmUrQjJmWEhqTWpJR3BkUmVuZmVNS2FzdmRWdENuMEtNT0tJMXozUW93N0lVQmZ5WSJ9&mrkid=959610

The Federal Trade Commission (FTC) issued orders to five health insurance companies and two health systems seeking data to study the effects of state-level regulatory approvals known as certificates of public advantage (COPAs) that protect local hospital mergers from antitrust scrutiny.

Federal officials said they want to study the impact of COPAs and hospital consolidation on prices, quality, access, the innovation of healthcare services and employee wages.

The FTC issued orders to Aetna, Anthem, BlueCross BlueShield of Tennessee, Cigna and United Healthcare for patient-level commerical claims data. 

Orders were also issued to Ballad Health in Tennessee and Virginia as well as Cabell Huntington Hospital in West Virginia for aggregated patient billing and discharge data, along with health system employee wage data and other information relevant for analyzing the health systems’ prices, quality, access and innovation. Both health systems were approved for COPAs last year.

Ballad Health was formed in 2018 through the merger of Mountain States Health Alliance and Wellmont Health System. Under a COPA in Tennessee and a similar agreement in Virginia, officials said they agreed to serve oversight and enforceable commitments that include investing $308 million over 10 years to improve population health, expanding access to care and supporting health research and medical education.

Cabell Huntington Hospital was allowed to acquire nearby St. Mary’s Medical Center under a similar cooperative agreement with the state that was initially challenged by federal regulators.

Tennessee regulators describe COPAs as written approvals governing mergers among two or more hospitals that provide “state action immunity to the hospitals from state and federal antitrust laws by replacing competition with state regulation and active supervision. The goal of the COPA process is to protect the interests of the public in the region affected and the state.”

However, the feds say while COPAs “purport to immunize mergers and collaborations from antitrust scrutiny under the state action doctrine,” the approvals are in need of further study. As Kaiser Health News reported, the federal antitrust exemption dates back to a Supreme Court ruling in the 1940s and has been rarely used to allow hospital mergers. There has been little research (PDF) on the impacts of COPAs.

In June, the FTC held a public workshop examining research on the price effects of three COPAs approved in the 1990s—including Benefis Health System in Montana, Palmetto Health in South Carolina and Mission Health in North Carolina—to inform the current study design. Officials said they intend to collect information over the next several years to conduct retrospective analyses of the Ballad Health and Cabell COPAs.

Once the study is complete, the FTC intends to report publicly the study’s findings and will use them to help in future advocacy and enforcement by the agency and to better inform stakeholders about COPAs. 

 

 

 

Surprise Settlement In Sutter Health Antitrust Case

Surprise Settlement In Sutter Health Antitrust Case

Sutter Health has reached a tentative settlement agreement in a closely watched antitrust case brought by self-funded employers, and later joined by the California Attorney General’s Office. The agreement was announced in San Francisco Superior Court on Wednesday morning, just moments before opening statements were expected to begin.

While representatives for both sides confirmed they had reached a tentative settlement, they would not divulge details of the agreement, which must be approved by the court.  Superior Court Judge Anne-Christine Massullo told the jury impaneled for the case that details likely would be made public during approval hearings in February or March.

There were audible cheers from the jury following the announcement that the trial, which was expected to last three months, would not continue. Officials with the attorney general’s office and Sutter Health declined requests for comment.

Sutter stood accused of violating California’s antitrust laws by using its market power to illegally drive up prices. Health care costs in Northern California, where Sutter is dominant, are 20% to 30% higher than in Southern California, even after adjusting for cost of living, according to a 2018 study from the Nicholas C. Petris Center at the University of California-Berkeley that was cited in the complaint.

The case was a massive undertaking, encompassing years of work and millions of pages of documents, California Attorney General Xavier Becerra said beforehand. If the plaintiffs prevailed, Sutter was expected to face damages of up to $2.7 billion.

The nonprofit giant has 24 hospitals, 34 surgery centers and 5,500 physicians across Northern California, with $13 billion in operating revenue in 2018. The state’s lawsuit alleged Sutter has aggressively bought up hospitals and physician practices throughout the Bay Area and Northern California, and exploited that market dominance for profit.

Among other tactics, it accused Sutter of employing an “all-or-none” approach to contracting with insurance companies, demanding that an insurer that wanted to include any one of the Sutter hospitals or clinics in its network must include all of them — even if some of those facilities were more expensive than a competitor.

Sutter Health consistently denied the allegations, saying its large, integrated health system offers tangible benefits for patients, including more seamless, high-quality care and increased access for residents in rural areas. Sutter also disputed that its prices are higher than other major health care providers, saying its internal analyses tell a different story.

The case was expected to have nationwide implications on how hospital systems negotiate prices with insurers. Even with details of the agreement not yet public, attorneys and patient advocates said they expect the settlement to mark a pivotal moment.

David Balto, a former federal regulator who is now an antitrust lawyer in Washington D.C., called the developments “precedent-setting.”

“You have all these metropolitan markets where you have large hospital systems, but Sutter Health in the Bay Area is like the filet mignon of the problem,” Balto said. “The problems in San Francisco are bigger than anywhere else. And you see that in how Sutter has exploited its market power to the nth degree.”

Sutter’s tactics were hard to challenge under antitrust law, Balto added. But “what [Becerra] did was bring together hard facts with top-notch scholarship proving there was an overwhelming problem and that Sutter’s strong-arm tactics were the cause of the problem.”

Anthony Wright, executive director of the advocacy group Health Access California, said he wasn’t privy to the settlement details, but that he expected it to include “some meaningful remedies in terms of adjusting some of the anti-competitive practices and contract provisions that Sutter has advanced over the years.”

“While we await the details of the settlement,” he said, “the lawsuit itself sends a strong signal to hospital chains across the nation and all health care providers planning to adopt predatory prices.”

Jaime King, associate dean and a professor of law at UC Hastings College of the Law, said Sutter’s decision to settle “in some ways is not a surprise. On the eve of trial, we often see big settlements.”

Still, she said, it comes at a cost: “I think it’s a shame we won’t ever get to see the evidence that would have been brought forward in this case about Sutter’s contracting and pricing practices. There are a lot of very large health systems that are charging a lot of money for their services, and this case had the opportunity to give us much more insight into what we’re spending our health care dollars on.”

Sutter continues to face trial on a separate federal antitrust lawsuit.

 

 

 

 

If a medicine is too expensive, should a hospital make its own?

https://mosaicscience.com/story/price-essential-orphan-drug-self-compounding-pharmacy-leadiant-amsterdam-umc-ctx-cdca/?

When the price of an essential medicine rose to an unacceptable level, there was only one thing for pharmacist Marleen Kemper to do – start making it herself.

When Marleen Kemper was a child, she watched two of her primary-school classmates get ill. One had a brain tumour, and the other contracted an infection in his gut. Both of them died. Kemper was around ten at the time, and knew that she didn’t want to see another friend perish. She told her parents she wanted to do something that would prevent others dying. She wanted to be a doctor.

But training is hypercompetitive in the Netherlands, where Kemper was growing up. She didn’t quite have the grades. She liked chemistry, so chose a career in pharmacy instead. She studied for six years, and did a residency for another four. Today, she’s a highly respected hospital pharmacist based at Amsterdam UMC’s Academic Medical Center, a cavernous building crafted out of concrete on the south-east fringe of the Dutch capital.

To understand what happened next, you have to understand several things about Kemper. Two date back to her childhood. One was those early experiences of losing friends to illness, which ensured she’ll do everything she can to make sick people better.

The second is that, though she’s highly accomplished, Kemper is self-admittedly hard-headed, and has always had a rebellious streak. She once dyed her hair black to stand out from the crowd. Sometimes she likes to shock people.

Which leads into the third, more recent trait: a steely determination to do right by her patients, whatever the cost. And the cost can be great. In 2017, when the price of a drug to treat a rare genetic disorder skyrocketed, Kemper wasn’t happy. The result was a dispute that’s still going on today and has spread beyond the four walls of the UMC hospital. It’s spread beyond the city of Amsterdam. And it’s even spread beyond the borders of the Netherlands.

Most of us never have to worry about chenodeoxycholic acid (CDCA), one of the two primary bile acids produced by our livers. But for a tiny fraction of us, a rare genetic trait means we end up short.

Having this gene variant prevents the body from creating sterol 27-hydroxylase, a liver enzyme. Without it, the liver won’t convert enough cholesterol into CDCA. The result is an overabundance of other bile acids and substances, which then get pumped out of the liver and through the body, causing untold damage.

The illness that results is called cerebrotendinous xanthomatosis, or CTX. It can cause cataracts, dementia, neurological problems and seizures, but it can be treated. Since the 1970s, the pharma industry has been able to produce CDCA, and so people who need it can supplement their shortage. The system worked well; the drug was relatively cheap for such a niche illness. A year’s treatment cost around €30,000 per patient.

Until suddenly it didn’t. In 2017, Leadiant Biosciences, which was supplying CDCA to these patients in the EU, raised the price of its version of the drug – known as CDCA Leadiant – to over €150,000 per patient per year.

The price increase soon had an effect. The Netherlands has an insurance-based health system, and in April 2018, Dutch insurers – who had been paying for 50 or so patients across the country to receive the drug – balked at the fivefold increase, refusing to pay. Patients unable to pay themselves would have gone without treatment, so Kemper – whose hospital was one of the treatment centres for CTX – stepped in. Amsterdam UMC would produce the medicine for these patients itself, at cost price.

She was upset, she admits. “Patients have a medical need. If those patients with CTX don’t get their medication, they get neurological implications, they get complications with their cholesterol and dementia, epilepsy… it is an essential medicine.”

Anyone wanting to manufacture a drug must get a marketing authorisation to do so. But Leadiant had become the only game in town, the owner of exclusive rights to manufacture CDCA commercially in the EU.

Yet there was a solution. Under EU rules, pharmacies can make (or ‘compound’) a prescribed drug on a small scale for their patients.

So Kemper began researching where she could find the ingredients to make CDCA. It was difficult: in the pursuit of better margins, vast numbers of manufacturing companies have closed their factories across the world and concentrated their efforts in China, where the costs of producing pharmaceutical ingredients are lower. Just one European company manufactures the ingredients to EU standards.

Kemper approached them, and they declined to supply her the raw material. In the end, she found a Chinese manufacturer instead. She went to the hospital’s executive board and gained approval to manufacture the drug. It cost the pharmacy €28,000 per patient per year – pretty much exactly the same as the price of the drug beforehand.

CDCA wasn’t initially used to treat CTX. Originally it was developed to treat gallstones. This main use of the drug – which from the mid-1970s had been sold in the Netherlands as Chenofalk – became outmoded when the standard procedure to deal with troublesome gallstones became to just cut out the gallbladder entirely.

At the turn of the millennium, Dutch doctors started using Chenofalk off-label to treat CTX – a practice that carried on for several years. At this time, in the mid-2000s, a year’s supply of the drug cost less than €500.

But in 2008, Leadiant acquired the rights to Chenofalk. Then, nine days before Christmas 2014, it succeeded in getting its version of CDCA classified as an “orphan medicine” for treating CTX. That classification gave Leadiant the exclusive right to manufacture its CDCA drug commercially in Europe for the next ten years. Leadiant then took Chenofalk off the market in 2015.

Introduced by EU regulation in the year 2000, orphan drug classification is given to drugs that treat serious illnesses that affect fewer than five in every 10,000 people in the EU. Its purpose is to help companies recoup the costs of developing treatments that would otherwise be unlikely to generate a profit. Without it, the pharma industry wouldn’t be incentivised to seek new drugs for the rarest diseases.

But in this case, CDCA was already known as a CTX treatment, with Chenofalk having been used off-label to treat it for years. Kemper believes that Leadiant is getting the financial benefits of orphan designation, but for a drug that had gone through development and been released to market long ago. “There were publications already in the 1980s,” she says. “There’s no patents, nothing. It’s really bizarre.”

Kemper isn’t the only one concerned about the price rise and CDCA’s orphan drug status. In September 2018, a lobby group, the Dutch Pharmaceutical Accountability Foundation, asked the Dutch competition authority to investigate the price increase. And this spring Test Achats, a nonprofit consumer-protection organisation in neighbouring Belgium, lodged a complaint against Leadiant with the Belgian Competition Authority.

“We noticed that in 2005, the price for the treatment of a patient in one year was around €500. Now it’s more than €150,000,” explains Laura Marcus, legal counsel to Test Achats. “It’s bad for the sick person but also for the Belgian health system, which is paying most of the [cost of the] treatment.”

When a drug company raises the price of its treatment, and a hospital pharmacy decides not to accept the increase but instead endeavours to compound its own version, undercutting the drug company’s price, things tend to get interesting.

In June 2018, Kemper received a phone call from the Dutch health inspectorate. It had received a letter of concern – who it came from, Amsterdam UMC doesn’t know, though the health inspectorate has said it was acting in response to an enforcement request from Leadiant – with a long list of things for the investigators to check.

Kemper took the news in her stride. She had expected a rocky road. “As a pharmacist, I am a professional and I know what I’m doing, and we have standards for compounding,” she explains. So she wasn’t worried when a team of four inspectorate monitors turned up at the door of her pharmacy in Amsterdam that summer. Two were there to take samples of the raw materials she was using to compound CDCA, and to ensure that all the correct processes were being followed. They rifled through the reams of paperwork and procedures that Kemper had spent hours developing for her staff to follow, while the other two inspectors combed through coverage of the case to ensure that Kemper and her team weren’t advertising their work, which isn’t allowed for medicines that haven’t been given market authorisation.

The lab checked out: its processes were up to standard, and the paperwork was all in order. But in July Kemper got a phone call that floored her: the inspectorate’s analysis of the raw materials her pharmacy was using to compound the CDCA had discovered that they weren’t up to snuff. Two components found in it were above allowed limits.

“As a professional you think: what did I miss? It was very emotional, a bit heavy,” she says. With the board of directors at the hospital, Kemper decided to immediately withdraw the product from patients; the health insurers said they’d step in and cover putting the patients back on the Leadiant version of the drug.

Kemper personally called the 50 or so patients she was providing with the drug. “The first one was hard,” she admits. “I expected they’d be angry or something like that. But no, no one [was]. The patients said: ‘Well, please go on with this job.’”

The Dutch inspectorate has said that Kemper can resume compounding CDCA provided she can find a raw material that doesn’t contain impurities – something Kemper is keeping tight-lipped about.

So, if she can get the materials she needs, Kemper is hopeful to be able to continue compounding CDCA in the future.

But for now, it’s back to square one – paying the full price for CDCA Leadiant.

These events have had wider consequences. What was initially a dispute inside the Netherlands has bled across borders, with Belgian patients with CTX now being affected.

It started with a conversation between the Dutch and Belgian health ministers shortly after Kemper’s production of CDCA was halted, says Thomas De Rijdt, head of pharmacy at University Hospitals Leuven. The Dutch minister wanted to know from his Belgian counterpart why Belgian hospitals were able to make the same drug without any issues.

“For Belgium, we have about ten patients,” De Rijdt says. “So ten patients are helped with the preparations from our hospital and the University Hospital in Antwerp.”

These hospitals had been compounding CDCA capsules for CTX patients for years. Leuven had sourced raw materials that had been tested and approved by a laboratory accredited by the Belgian government. But when the case in the Netherlands started entering conversation at diplomats’ dinners, the Belgian government wanted to double-check that its raw materials were OK.

It ran a second battery of tests – with a different accredited laboratory – which came back with a problem. A single impurity was found. The government ordered a quarantine of the raw material and recalled all the CDCA it had made.

“The patients had to return all their medication,” says De Rijdt. Recalling every capsule of the drug from Belgium, and freezing the work of the only two suppliers in the country, meant that people with CTX were suddenly left without any medicine.

“If you know the disease, you know you can deteriorate very quickly,” says De Rijdt. This was a problem. So, he says, the hospital pharmacists, the National Institute for Health and Disability Insurance, the health minister and the pharmaceutical inspectorate hit upon a solution. For a year, the Belgian government would reimburse the costs of Leadiant’s drug, allowing those patients to still be treated (normally the government only reimburses a portion of a person’s health costs, with the rest being picked up by the patient or insurance). Over the course of that year, the relevant authorities would then work together to adapt the requirements a raw material must comply with – to allow versions of drugs with minor impurities, providing they pose no threat to the patient.

“We have bought time to find a solution with the compounding, because we think by compounding we can save healthcare a lot of money for the same quality of therapy,” says De Rijdt. He hopes to have a solution by the end of 2019.

But in early September, things took another turn. Wouter Beke, the Belgian consumer affairs minister, used his price-regulation powers to bring down the price of CDCA Leadiant to just over €3,600 a month – roughly a quarter of the amount Leadiant was charging. If the drug becomes more cheaply available in Belgium, says De Rijdt, then it could end up being exported and available at a lower price elsewhere.

But exactly how this will pan out remains unclear. In the meantime, Beke has urged the Belgian Competition Authority to prioritise investigating Leadiant, following the complaint lodged by Test Achats.

Debate over what constitutes a fair price for drugs isn’t anything new. Nor is it limited to Europe.

Because of his willingness to play the bad guy in the press (and an odd moment when he bought a Wu-Tang Clan record), Martin Shkreli has attracted more criticism on drug pricing than perhaps anyone else. In 2015, Turing Pharmaceuticals, of which Shkreli was CEO, raised the price of its recently acquired antimalarial drug Daraprim, also used to treat AIDS-related illnesses. A pill went from $13.50 to $750 overnight – a 55-fold increase.

Shkreli’s capitalist tendencies were criticised by almost everyone. This was unlike the situation with CDCA Leadiant – there was no argument that this increase was to cover Daraprim’s development costs – and Shkreli himself was unrepentant: “If there was a company that was selling an Aston Martin at the price of a bicycle, and we buy that company and we ask to charge Toyota prices, I don’t think that that should be a crime,” he told reporters.

But the Daraprim situation was just the highest-profile example of a contest that is going on constantly between big pharmaceutical companies seeking to profit from drugs and medical staff on the frontline who worry that such profit-seeking does damage to patients needing treatment. (For what it’s worth, a competitor to Turing Pharmaceuticals announced soon after that it would produce a compound drug containing the same active ingredient in Daraprim – pyrimethamine – for $1 a pill, rather than the $750 Shkreli wanted to charge.)

One front in this battle has recently opened up in the US. In May, more than 40 states filed an antitrust lawsuit against some of the world’s biggest manufacturers of generic drugs, alleging they that have colluded to fix the price of more than a hundred medicines over a number of years. When prices should go down after a drug’s market exclusivity ended, the antitrust lawsuit claims that many prices have instead shot up – in some cases by more than 1,000 per cent.

And back in Europe, the consumer organisation Euroconsumers – of which Test Achats is part – is investigating the prices of other drugs beyond CDCA. “We’ve noticed a few problems with a few other drugs,” says Laura Marcus of Test Achats. “It’s often about drugs that are able to cure or deal with rare diseases. For sure, it’s not only CDCA.”

No one doubts that developing drugs costs money. A 2016 paper in the Journal of Health Economics estimated that the average cost of developing a prescription drug to the point of reaching the market is nearly $2.6 billion.

But the lack of hard, openly available statistics on the cost of drug development is something that many people, including Marcus and Marleen Kemper, want to change. “In most of the cases, society is willing to pay some price,” says Kemper, “but now the discussion is: what is an acceptable price?”

Marcus acknowledges that Leadiant has to cover its costs, but she thinks that cannot explain the rise of CDCA to over €150,000 – “the profit cannot be that high”. When I ask her how much profit she thought Leadiant was making from the drug, she admits she doesn’t know. “Of course we don’t have access to those numbers,” she says. “That’s what the Belgian Competition Authority is opening an inquiry for – to know more about the figures and the costs the company has to bear.” However, when the price for CDCA has surged from €500 to over €150,000, “nothing justifies it, because there was no new research, no new nothing,” she says.

Leadiant rejects this. Although CDCA had been authorised in the past, the company says that “the active pharmaceutical ingredient as well as the manufacturing of the finished product needed to be upgraded” to make sure that its version was compliant with current EU standards. These, Leadiant says, are more extensive and significantly more strict today than they were when earlier CDCA drugs were developed.

Leadiant says that its CDCA “is not a ‘copy’ of an old product”. The very fact that it gained orphan drug status proves this, it argues. The company also says that “there was no robust evidence that CDCA was effective in CTX until Leadiant produced the data”. Demonstrating this, it says, required “entirely new studies, creating new data sets” – which make up “the largest ever collection of clinical data for CTX”.

“CDCA Leadiant has been developed and brought to market at substantial cost,” the company says. “Our pricing is justified by our costs and investments.”

But the problem is not just that Leadiant’s drug is so expensive: potential alteratives have disappeared. Willemijn van der Wel, a lawyer working at European law firm AKD, has written about Leadiant’s connection to competitors who previously produced CDCA. After buying the marketing authorisations for other products that contained CDCA, he says, “Leadiant began to withdraw these alternative CDCA products from the market, until only one CDCA medicinal product remained”. Marcus has also queried what has happened to these products that might have been competitors to Leadiant’s. But, she says, it’s not clear what is behind their CDCA monopoly.

Leadiant, though, says that it’s willing to negotiate a lower price for its drug with the Dutch Ministry of Health and Dutch insurance companies. “The only reason an improvement has not been determined yet, is that the insurers have been uninterested or unwilling to enter into any substantive negotiations,” it claims. (Leadiant did not respond to follow-up questions asking for more details of the negotiations, or what level of price reduction the company was offering.) It also emphasises that it has not taken legal action against the UMC hospital for seeking to compound its own CDCA, but that it is “involved in a legal discussion with the Dutch Inspectorate about the interpretation of EU and Dutch medicines law”.

Regardless of the outcome of such discussions, something needs to be done. Having pharmacies self-compound medicines is not a sustainable model – it might reduce incentives for developing drugs for rare conditions.

It also, Leadiant argues, exposes patients to risk. Pharmacies do not have to have their compounding processes checked by the European Medicines Agency or the national regulator. “There is no product control by any independent regulatory authority before or after compounding.”

When it comes to market authorisation and orphan drugs, Leadiant says, “it should not be about small or large scale, but safe scale”.

Marleen Kemper’s husband warned her that taking on Leadiant would be more difficult than she first thought. “He said, ‘With this initiative, don’t be naive’,” she recalls. “The pharmaceutical industry is very powerful, so you really have to have back-up from the [hospital] board” – which she had. More than a year into her attempt to make her own version of the drug, she’s recognising just how deeply dug in both sides are to their positions.

She’s at pains to point out that she’s not against the pharma industry. “What people forget is that the pharmaceutical industry is responsible for a lot of innovation.” But if drug pricing means that patients potentially get left behind? “Then I’m getting angry,” she says.

But righteous anger alone can’t sustain someone over a months-long case involving lawyers and regulators, not least when they’re also raising a family, running part of a pharmacy that’s actively studying hundreds of drugs, and doing their job keeping patients supplied with medicine. At times Kemper has felt frustrated and worn down by the effort of taking on the price rise – but she vows to continue.

“I’ve said that sometimes I’ve thought, well, I’ll stop and quit doing it because it’s too much work, too emotionally draining. But due to the support, I think we’ll go on. I’m patient,” she says. “It has to be solved, for the patients.”

Kemper’s determined that she’s going to provide affordable care for her patients by following the letter of the law. “I’m using the rules,” she says. “I’m not cheating.” Leadiant, she accepts, has used the rules and followed them to serve its own purposes. So she will too.

“I’m allowed to make medication for patients. They don’t like it? So what. I’m following the rules.”