On Thursday, Grand Rapids-based Spectrum Health and Southfield-based Beaumont Health signed a letter of intent to merge, in a combination that would create a 22-hospital, $12B company that would become Michigan’s largest health system.
Spectrum CEO Tina Freese Decker will lead the combined company, while Beaumont CEO John Fox will assist with the merger, then depart. The proposed deal would not only create a system spanning much of Michigan, but would also allow for theexpansion of Spectrum’s health plan, Priority Health, which accounted for more than $5B of the system’s $8B in revenue, into the Detroit market.
This is the third proposed merger since 2019 for Beaumont, which saw its planned combinations with Ohio-based Summa Health fall apart early in the pandemic; the system’s planned merger with Illinois-based Advocate-Aurora Health was called off in 2020 amid pushback from the system’s medical staff. Both deals fell apart due to challenges in communication and cultural compatibility—which will likely also be the greatest potential stumbling blocks for a Spectrum-Beaumont partnership.
The recently abandoned combination between NC-based Cone Health and VA-based Sentara Healthcare also appears to have fallen apart due to cultural challenges, as have many other recent health system deals. Yet despite a string of cautionary tales, health system mergers continue apace—a sign of the pressure industry players are under to seek scale in order to contend with the growing ranks of disruptive (and well-funded) competitors.
Surgical Care Affiliates, which is part of UnitedHealth Group’s Optum division, hit back at the Department of Justice’s defense of a federal case accusing SCA of agreeing with competitors to not poach senior-level employees.
In a May 14 proposed reply brief supporting its bid to dismiss the case, SCA argued the Justice Department’s defense is unlawful and violates due process rights.
“The government seeks to criminally prosecute as a per se Sherman Act violation an alleged agreement not to solicit another company’s employees, even though no court in history has ever definitively found such an agreement unlawful under any mode of analysis,” according to the proposed reply brief. “Not only is this kind of agreement not illegal per se, but subjecting a practice to per se condemnation for the first time in a criminal prosecution would violate bedrock guarantees of due process.” [emphasis in original]
In January, a federal grand jury charged SCA and its related entities, which own and operate outpatient medical care centers, with entering and engaging in conspiracies with other healthcare companies to suppress competition between them for the services of senior-level employees.
In an email statement to Becker’s Hospital Review, SCA said at the time of the charges: “This matter involves alleged conduct seven years before UnitedHealth Group acquired SCA and does not involve any SCA ambulatory surgery centers, their joint owners, physician partners, current leadership or any other UnitedHealth Group companies. SCA disagrees with the government’s position, and will vigorously defend itself against these unjustified allegations.”
The charges are the first from the department’s antitrust division in its ongoing investigation into employee allocation agreements. Violators of the Sherman Act can face a maximum $100 million fine, or twice the gain derived from the crime or twice the loss suffered by victims if the amount is greater than the maximum.
Optum, a subsidiary of UnitedHealth, provides data analytics and infrastructure, a pharmacy benefit manager called OptumRx, a bank providing patient loans called Optum Bank, and more.
It’s not often that the American Hospital Association—known for fun lobbying tricks like hiring consultants to create studies showing the benefits of hospital mergers—directly goes after another consolidation in the industry.
But when the AHA caught wind of UnitedHealth Group subsidiary Optum’s plans, announced in January 2021, to acquire data analytics firm Change Healthcare, they offered up some fiery language in a letter to the Justice Department. “The acquisition … will concentrate an immense volume of competitively sensitive data in the hands of the most powerful health insurance company in the United States, with substantial clinical provider and health insurance assets, and ultimately removes a neutral intermediary.”
If permitted to go through, Optum’s acquisition of Change would fundamentally alter both the health data landscape and the balance of power in American health care. UnitedHealth, the largest health care corporation in the U.S., would have access to all of its competitors’ business secrets. It would be able to self-preference its own doctors. It would be able to discriminate, racially and geographically, against different groups seeking insurance. None of this will improve public health; all of it will improve the profits of Optum and its corporate parent.
Despite the high stakes, Optum has been successful in keeping this acquisition out of the public eye.Part of this PR success is because few health care players want to openly oppose an entity as large and powerful as UnitedHealth. But perhaps an even larger part is that few fully understand what this acquisition will mean for doctors, patients, and the health care system at large.
If regulators allow the acquisition to take place, Optum will suddenly have access to some of the most secret data in health care.
UnitedHealth is the largest health care entity in the U.S., using several metrics. United Healthcare (the insurance arm) is the largest health insurer in the United States, with over 70 million members, 6,500 hospitals, and 1.4 million physicians and other providers. Optum, a separate subsidiary, provides data analytics and infrastructure, a pharmacy benefit manager called OptumRx, a bank providing patient loans called Optum Bank, and more. Through Optum, UnitedHealth also controls more than 50,000 affiliated physicians, the largest collection of physicians in the country.
While UnitedHealth as a whole has earned a reputation for throwing its weight around the industry, Optum has emerged in recent years as UnitedHealth’s aggressive acquisition arm. Acquisitions of entities as varied as DaVita’s dialysis physicians, MedExpress urgent care, and Advisory Board Company’s consultants have already changed the health care landscape. As Optum gobbles up competitors, customers, and suppliers, it has turned into UnitedHealth’s cash cow, bringing in more than 50 percent of the entity’s annual revenue.
On a recent podcast, Chas Roades and Dr. Lisa Bielamowicz of Gist Healthcare described Optum in a way that sounds eerily similar to a single-payer health care system. “If you think about what Optum is assembling, they are pulling together now the nation’s largest employers of docs, owners of one of the country’s largest ambulatory surgery center chains, the nation’s largest operator of urgent care clinics,” said Bielamowicz. With 98 million customers in 2020, OptumHealth, just one branch of Optum’s services, had eyes on roughly 30 percent of the U.S. population. Optum is, Roades noted, “increasingly the thing that ate American health care.”
Optum has not been shy about its desire to eventually assemble all aspects of a single-payer system under its own roof. “The reason it’s been so hard to make health care and the health-care system work better in the United States is because it’s rare to have patients, providers—especially doctors—payers, and data, all brought together under an organization,” OptumHealth CEO Wyatt Decker told Bloomberg. “That’s the rare combination that we offer. That’s truly a differentiator in the marketplace.” The CEO of UnitedHealth, Andrew Witty, has also expressed the corporation’s goal of “wir[ing] together” all of UnitedHealth’s assets.
Controlling Change Healthcare would get UnitedHealth one step closer to creating their private single-payer system. That’s why UnitedHealth is offering up $13 billion, a 41 percent premium on the public valuation of Change. But here’s why that premium may be worth every penny.
Change Healthcare is Optum’s leading competitor in pre-payment claims integrity; functionally, a middleman service that allows insurers to process provider claims (the receipts from each patient visit) and address any mistakes. To clarify what that looks like in practice, imagine a patient goes to an in-network doctor for an appointment. The doctor performs necessary procedures and uses standardized codes to denote each when filing a claim for reimbursement from the patient’s insurance coverage. The insurer then hires a reviewing service—this is where Change comes in—to check these codes for accuracy. If errors are found in the coded claims, such as accidental duplications or more deliberate up-coding (when a doctor intentionally makes a patient seem sicker than they are), Change will flag them, saving the insurer money.
The most obvious potential outcome of the merger is that the flow of data will allow Optum/UnitedHealth to preference their own entities and physicians above others.
To accurately review the coded claims, Change’s technicians have access to all of their clients’ coverage information, provider claims data, and the negotiated rates that each insurer pays.
Change also provides other services, including handling the actual payments from insurers to physicians, reimbursing for services rendered. In this role, Change has access to all of the data that flows between physicians and insurers and between pharmacies and insurers—both of which give insurers leverage when negotiating contracts. Insurers often send additional suggestions to Change as well; essentially their commercial secrets on how the insurer is uniquely saving money. Acquiring Change could allow Optum to see all of this.
Change’s scale (and its independence from payers) has been a selling point; just in the last few months of 2020, the corporation signed multiple contracts with the largest payers in the country.
Optum is not an independent entity; as mentioned above, it’s owned by the largest insurer in the U.S. So, when insurers are choosing between the only two claims editors that can perform at scale and in real time, there is a clear incentive to use Change, the independent reviewer, over Optum, a direct competitor.
If regulators allow the acquisition to take place, Optum will suddenly have access to some of the most secret data in health care. In other words, if the acquisition proceeds and Change is owned by UnitedHealth, the largest health care corporation in the U.S. will own the ability to peek into the book of business for every insurer in the country.
Although UnitedHealth and Optum claim to be separate entities with firewalls that safeguard against anti-competitive information sharing, the porosity of the firewall is an open question. As the AHA pointed out in their letter to the DOJ, “[UnitedHealth] has never demonstrated that the firewalls are sufficiently robust to prevent sensitive and strategic information sharing.”
In some cases, this “firewall” would mean asking Optum employees to forget their work for UnitedHealth’s competitors when they turn to work on implementing changes for UnitedHealth. It is unlikely to work. And that is almost certainly Optum’s intention.
The most obvious potential outcome of the merger is that the flow of data will allow Optum/UnitedHealth to preference their own entities and physicians above others. This means that doctors (and someday, perhaps, hospitals) owned by the corporation will get better rates, funded by increased premiums on patients. Optum drugs might seem cheaper, Optum care better covered. Meanwhile, health care costs will continue to rise as UnitedHealth fuels executive salaries and stock buybacks.
UnitedHealth has already been accused of self-preferencing. A large group of anesthesiologists filed suit in two states last week, accusing the company of using perks to steer surgeons into using service providers within its networks.
Even if UnitedHealth doesn’t purposely use data to discriminate, the corporation has been unable to correct for racially biased data in the past.
Beyond this obvious risk, the data alterations caused by the Change acquisition could worsen existing discrimination and medical racism. Prior to the acquisition, Change launched a geo-demographic analytics unit. Now, UnitedHealth will have access to that data, even as it sells insurance to different demographic categories and geographic areas.
Even if UnitedHealth doesn’t purposely use data to discriminate, the corporation has been unable to correct for racially biased data in the past, and there’s no reason to expect it to do so in the future. A study published in 2019 found that Optum used a racially biased algorithm that could have led to undertreating Black patients. This is a problem for all algorithms. As data scientist Cathy O’Neil told 52 Insights, “if you have a historically biased data set and you trained a new algorithm to use that data set, it would just pick up the patterns.” But Optum’s size and centrality in American health care would give any racially biased algorithms an outsized impact. And antitrust lawyer Maurice Stucke noted in an interview that using racially biased data could be financially lucrative. “With this data, you can get people to buy things they wouldn’t otherwise purchase at the highest price they are willing to pay … when there are often fewer options in their community, the poor are often charged a higher price.”
The fragmentation of American health care has kept Big Data from being fully harnessed as it is in other industries, like online commerce. But Optum’s acquisition of Change heralds the end of that status quo and the emergence of a new “Big Tech” of health care. With the Change data, Optum/UnitedHealth will own the data, providers, and the network through which people receive care. It’s not a stretch to see an analogy to Amazon, and how that corporation uses data from its platform to undercut third parties while keeping all its consumers in a panopticon of data.
The next step is up to the Department of Justice, which has jurisdiction over the acquisition (through an informal agreement, the DOJ monitors health insurance and other industries, while the FTC handles hospital mergers, pharmaceuticals, and more). The longer the review takes, the more likely it is that the public starts to realize that, as Dartmouth health policy professor Dr. Elliott Fisher said, “the harms are likely to outweigh the benefits.”
There are signs that the DOJ knows that to approve this acquisition is to approve a new era of vertical integration. In a document filed on March 24, Change informed the SEC that the DOJ had requested more information and extended its initial 30-day review period. But the stakes are high. If the acquisition is approved, we face a future in which UnitedHealth/Optum is undoubtedly “the thing that ate American health care.”
When Jeff Goldsmith and Ian Morrison talk, people listen (apologies to E.F. Hutton…Goldsmith and Morrison are old enough to get that reference, anyway). These two lions of health policy and strategy came together recently to pen an editorial in Health Affairs examining the impact of large integrated health systems on the nation’s response to COVID-19. Morrison and Goldsmith admit to often finding themselves on opposite sides of consolidation issue, but looking back over the past year, both agree the scale systems have built over decades has been foundational to their effective and rapid response to the pandemic, which they rate as “better than just about any other element of our society”.
Larger health systems were able to mobilize the resources to secure protective gear as supplies dwindled.They responded at a speed many would have thought impossible, doubling ICU capacity in a matter of days, and shifting care to telemedicine, implementing their five-year digital strategies during the last two weeks of March.
This kind of innovation would have been impossible without the investments in IT and electronic records enabled by scale—butsystems also exhibited an impressive degree of “systemness”, making important decisions quickly, and mobilizing across regional footprints. Given the financial stresses experienced by smaller providers, consolidation is sure to increase. And the Biden healthcare team will likely bring more scrutiny to health system mergers.
Morrison and Goldsmith urge regulators to reconsider the role of health systems. The government should continue to pursue truly anticompetitive behavior that raises employer and consumer prices. But lawmakers should focus less on the sheer size of health systems and rather on their behavior, considering the potential societal impact a combined system might deliver—and creating policy that takes into account the role health systems have played in bolstering our public health infrastructure.
A San Francisco Superior Court judge has granted preliminary approval of the $575 million settlement agreement Sutter Health reached in the antitrust case that alleges it drove up healthcare prices in Northern California through anticompetitive practices.
A hearing for final approval of the settlement has been set for July 19, according to the judge’s order issued Tuesday.
Now, class members, or certain self-funded payers in California, will be notified of the preliminary approval and may object to part or all of the settlement agreement.
This preliminary approval comes more than a year after Sutter Health first agreed to settle the case with the plaintiffs, including California Attorney General Xavier Becerra, now nominee for HHS secretary, and a grocer’s union.
To put the settlement and all its elements in motion, it must first be approved by a judge. Tuesday’s order moves the case one step closer to final approval.
That 2019 settlement came on the eve of a court case that was supposed to lay out in open court how the regional powerhouse’s practices led to higher healthcare costs.
Even though the settlement averted a trial, it was designed to force Sutter to change some of these practices. As part of the settlement, Sutter agreed to stop “all-or-nothing” contracting and instead allow insurers and other payers to contract with some, but not all, of Sutter’s facilities.
The settlement is also designed to limit what patients pay out-of-network in an effort to shield them from exorbitant, surprise medical bills.
Sutter Health has tried to delay the $575 million antitrust settlement, citing the fallout from the novel coronavirus that has squeezed providers, including Sutter.
The health system, though battered by the pandemic’s fallout, was still able to post net income of $134 million for 2020, in part thanks to investment income. However, it did report an operating loss of $321 million as expenses outpaced revenue. Sutter said it was launching a sweeping review of its finances and operations as a result.
The litigation was first initiated in 2014 when the grocer’s union, joined by other plaintiff’s, filed suit against Sutter’s practices. It ultimately drew the attention of Becerra’s office.
Health insurers are no longer immune from federal antitrust scrutiny for conduct considered the business of insurance.
The Competitive Health insurance Reform Act of 2020 became law on January 13, a move praised by the Department of Justice but opposed by health insurers.
Health insurers are no longer immune from federal antitrust scrutiny for conduct considered the business of insurance and regulated by state law.
With enactment of the Competitive Health Insurance Reform Act, the DOJ and Federal Trade Commission have expanded authority to prosecute alleged anticompetitive behavior, including data sharing between insurers.
The McCarran-Ferguson Act previously afforded immunity by exempting from federal antitrust laws certain conduct considered the “business of insurance.” This exemption has sometimes been interpreted by courts to allow a range of what the Justice Department considered “harmful” anticompetitive conduct in health insurance markets.
The new law aims to promote more competition in health insurance markets by limiting the scope of conduct that’s exempt from antitrust laws. This move was praised by the Trump Justice Department shortly before the former president left office.
WHAT’S THE IMPACT?
The antitrust scrutiny is coming at a time when insurers are under a deadline to meet interoperability standards to share information with patients that meet Fast Healthcare Interoperability Resources, or FHIR, standards.
“The McCarran-Ferguson Act recognized that all healthcare is local, and that states should be able to govern their own health insurance markets,” Eyles said in December. “Removal of this exemption adds tremendous administrative costs while delivering absolutely no value for patients and consumers. It will unnecessarily add layers of bureaucracy, destabilize markets, create conflicting federal and state oversight requirements, and lead to costly litigation.”
The National Association of Insurance Commissioners sent a letter to Senate leaders on December 2 voicing its concern for the bill’s passage.
“The premise of the Competitive Health Insurance Reform Act is that collusion among health insurance companies is permitted under state law and that the McCarran-Ferguson Act somehow currently protects these practices. This is not true. The McCarran-Ferguson antitrust exemption for health insurance does not allow or encourage conspiratorial behavior but simply leaves oversight of insurance, including health insurance, to the states – and state laws do not allow collusion,” commissioners said.
“The potential for bid rigging, price-fixing and market allocation is of great concern to state insurance regulators and we share your view that such practices would be harmful to consumers and should not be tolerated. However, we want to assure you that these activities are not permitted under state law,” commissioners wrote.
While insurers have not been thrilled with the move, Consumer Reports said the legislation is good for providers who have felt pressured into contract terms that benefit insurers.
THE LARGER TREND
The Justice Department has a track record of successfully enforcing the antitrust laws against health insurers. Over the past five years, the department has enforced the antitrust laws against health insurers involved in transactions valued at over $160 billion.
The Act will help the department build on those successes by requiring health insurers to play by the same rules as competitors in other industries. It will clarify when health insurers qualify for the McCarran-Ferguson exemption, and it will enable the Antitrust Division to spend resources more efficiently to achieve desired results, the Justice Department said.
On January 13, Trump signed into law the Competitive Health Insurance Reform Act of 2020, which limits the antitrust exemption available to health insurance companies under the McCarran-Ferguson Act. The act, sponsored by Rep. Peter DeFazio (D-Ore), passed the House of Representatives on Sept. 21, 2020 and passed the Senate on Dec. 22.
As happened with cars in the 1960s, price competition among brand-name drugs is hard to find.
Before 1973, when the Arab oil embargo upended the U.S. auto industry, Americans witnessed an annual ritual by carmakers. In the late summer, the Big Three — Ford, Chrysler, and General Motors — would release sticker prices for their products, always showing increases, of course.
Almost always, the increases from each company for similar models were nearly identical. If one company’s was out of line — substantially bigger or smaller than its erstwhile competitors’ — it quickly made an adjustment. Explicit collusion to fix prices was never proven, but the effect for consumers was the same.
Now, researchers report that something very similar seems to be occurring for big-market brand-name drugs, including anti-diabetic medications and blood thinners.
Average wholesale prices for products in five classes — direct-acting oral anticoagulants (DOACs), P2Y12 inhibitors, glucagon-like peptide-1 (GLP-1) agonists, dipeptidyl dipeptidase-4 (DPP-4) inhibitors, and sodium-glucose transport protein-2 (SGLT-2) inhibitors — increased in “lock-step” each year from 2015 to 2020, according to Joseph Ross, MD, of Yale University in New Haven, Connecticut, and colleagues writing in JAMA Network Open.
These increases ranged from annual averages of 6.6% for DDP4 inhibitors to 13.5% for P2Y12 inhibitors — far outpacing not only inflation in general, but even the 2.1% average for all prescription drugs.
Within each class, Kendall τb correlation coefficients for average wholesale prices were as follows:
SGLT-2 inhibitors: 0.98
DPP-4 inhibitors: 0.96
GLP-1 agonists: 0.92
P2Y12 inhibitors: 0.75
“These results suggest there was little price competition among the sponsors of these products,” Ross and colleagues wrote.
Although the analysis came with significant limitations — it didn’t account for rebates or other discounts, for example — the researchers said some patients must suffer from these increases.
“Rebates, list prices, and net prices have been growing for brand-name medications, and rebate growth has been shown to positively correlate with list price growth, thereby impacting costs faced by patients paying a percentage of (or the full) list price,“ the group noted. “Therefore, the lock-step price increases of brand-name medications, without evidence of price competition, raise concerns and would be expected to adversely affect patient adherence to medications and thus clinical outcomes.”
For the car buyers, the solution to lock-step price increases was imposed from outside: soaring gas prices in the mid-1970s prompted demand for vehicles with better fuel economy than domestic makers were prepared to sell. That opened the market to Japanese cars that not only got better mileage, but were also more reliable and (in many cases) cheaper than Big Three products. Thus ended Detroit’s ability to set prices.
How to rein in Big Pharma is less clear. For their part, Ross and colleagues suggested policies to limit such lock-step price hikes, shortened patent exclusivity periods, and faster introduction of generic equivalents.
UnitedHealth Group, both the nation’s largest health insurer and largest employer of physicians, just announced plans to continue to rapidly grow the number of physicians in its Optum division.
This week CEO Dave Wichmann told investors in the company’s fourth quarter earnings call that Optum entered 2021 with over 50,000 employed or affiliated physicians, and expects to add at least 10,000 more across the year.(For context,HCA Healthcare, the largest for-profit US health system, employs or affiliates with roughly 46,000 physicians, and Kaiser Permanente employs about 23,300.) Optum is already making progress toward its ambitious goal with the announcement last week that the company is in talks to acquire Atrius Health, a 715-physician practice in the Boston area.
As was the case with other health plans, United’s health insurance business took an expected hit last quarter due to increased costs from COVID testing and treatment, combined with rebounding healthcare utilization. Optum, however, saw revenue up over 20 percent, which drove much of the company’s overall fourth quarter growth.
Expect United, and other large insurers, flush with record profits from last year, to continue to expand their portfolio of care, digital and analytics assets(see also Optum’s recently announced plan to acquire Change Healthcare for $13B) as they looks to grow integrated insurance and care delivery offerings.
It’s part of what we expect to be a 2021 “land grab” for strategic advantage in healthcare, as providers, health plans, and disruptors look to create comprehensive platforms to secure long-term consumer loyalty.
Beyond the initiatives directly tied to COVID relief, President Biden’s healthcare agenda includes a broader bolstering of the protections and coverage mechanisms in the Affordable Care Act (ACA), as well as the rollback of several of the previous administration’s regulatory changes. We’ve outlined that agenda in the graphic below, as well as highlighting key members of the Biden healthcare team.
While much will depend on how the COVID pandemic continues to unfold, and how successful Biden is at striking bipartisan compromises with a closely divided Congress, we’re watching closely for the answers to several key questions:
(1) how aggressive can and will the new administration be in unwinding Trump-era reforms, particularly regarding Medicaid work requirements;
(2) what will be the thrust of Biden’s antitrust policyin the healthcare space;
(3) how hard will Biden be willing to push for expanded subsidies for individuals purchasing insurance on the ACA exchanges;
(4) how will the Biden team build on the transparency measures implemented by the Trump administration; and
(5) how will the new administration use payment reforms and other regulations to address racial and other disparities in healthcare?
All of that preceded by one burning question that has us holding our breath: who will Biden pick to run the all-important Centers for Medicare and Medicaid Services?
The FTC wants to figure out how hospitals’ acquisitions of physician practices has affected competition.
The agency sent orders to some of the nation’s largest insurance companies, including UnitedHealthcare, Anthem, Aetna, Cigna, Florida Blue and Health Care Service Corporation.
This action is part of a larger effort underway at the agency to consider new questions and areas of study to help it understand the ultimate impact of mergers. The hope is that those studies will yield evidence to better equip the agency to legally challenge mergers in the future.
Health economists cheered the news online following the FTC’s Thursday’s announcement about studying physician practice buy-ups.
Martin Gaynor, former director of FTC’s Bureau of Economics, tweeted: “This is a big deal – a huge # of physician practices are now owned by hospitals.” Gaynor is a health economist at Carnegie Mellon.
In the orders, the FTC asks the insurers for data such as the total billed charges of all health providers, total deductibles, copays and coinsurance paid by the patient. It also asks for data tied to each inpatient admission and outpatient and physician episodes during the time period in question, which will likely result in a barrage of data for the agency to review.
“The study results should aid the FTC’s enforcement mission by providing much more detailed information than is currently available about how physician practice mergers and healthcare facility mergers affect competition,” the agency said in a statement.
This area of study expands the agency’s current work. One area already of interest within this broader retrospective merger review program is the scrutiny of labor markets.
One area of concern for the FTC is states’ willingness to greenlight COPAs, or certificates of public advantage (COPAs), which essentially shield mergers from federal antitrust regulators in exchange for prolonged state oversight.