|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—but systems 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.
Eliminating the exemption undermines the goal of affordable coverage by adding administrative red tape and reducing market competition, according to Matt Eyles, president and CEO of America’s Health Insurance Plans.
“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:
- DOACs: 0.98
- 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 policy in 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 Federal Trade Commission sent orders to six health insurance companies to obtain patient-level claims data for inpatient, outpatient, and physician services from 2015 to 2020, the agency said Thursday.
- 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.
“Important step to advance FTC’s understanding of the market and could improve their ability to win cases,” Emily Gee, a health economist at the Center for American Progress, tweeted.
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.
The agency has traditionally focused on how healthcare tie-ups affect prices. But the agency has signaled that it is increasingly interested in how mergers and acquisitions ultimately affect workers’ wages, including nurses.
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.
In 2019, the agency sent orders to five insurance companies seeking data to study the impact of COPAs.
Congress passed a bill that would end an antitrust exemption for health insurers, and the legislation is expected to be signed by President Donald Trump, according to The National Law Review.
On Sept. 21, 2020, the U.S. House of Representatives passed the Competitive Health Insurance Reform Act of 2020, with the Senate passing the Act on Dec. 22, 2020.
The bill would repeal parts of the McCarran-Ferguson Act that exempt insurance businesses from most federal regulation, including antitrust regulation. When the bill passed the House, Rep. Peter DeFazio, D-Ore., who introduced the bill, said, “As long as this exemption is still on the books, health insurance companies legally can, and do, collude to drive up prices, limit competition, conspire to underpay doctors and hospitals, and overcharge consumers.”
Proponents of the McCarran-Ferguson Act have said it sets up important state authorities. The National Association of Insurance Commissioners has said, “The McCarran-Ferguson Act is as relevant today as it was when it was adopted. It contains the basic delegation of authority from Congress to the states with respect to the regulation and taxation of the business of insurance. It has been affirmed as the law of the land in the Gramm-Leach-Bliley Act and in the Dodd-Frank Act.”
The Competitive Health Insurance Reform Act of 2020 was presented to President Trump for his signature on Jan. 1. He was expected to sign the legislation before pro-Trump rioters stormed the Capitol Jan. 6.
The Federal Trade Commission is revamping a key tool in its arsenal to police competition across a plethora of industries, a development that could have direct implications for future healthcare deals.
In September, the FTC said it was expanding its retrospective merger program to consider new questions and areas of study that the bureau previously has not researched extensively.
One avenue it will zero in on is labor markets, including workers and their wages, and how mergers may ultimately affect them.
It’s an area that could be ripe for scrutinizing healthcare deals, and the FTC has already begun to use this argument to bolster its case against anticompetitive tie-ups. Prior to this new argument, the antitrust agency — in its legal challenges and research — has primarily focused on how healthcare mergers affect prices.
The retrospective program is hugely important to the FTC as it is a way to examine past mergers and produce research that can be used as evidence in legal challenges to block future anticompetitive deals or even challenge already consummated deals.
“I do suspect that healthcare is a significant concern underlying why they decided to expand this program,” Bill Horton, an attorney with Jones Walker LLP, said.
So far this year, the FTC has tried to block two proposed hospital mergers. The agency sued to stop a proposed tie-up in Philadelphia in February between Jefferson Health and Albert Einstein Healthcare Network.
More recently, the FTC is attempting to bar Methodist Le Boneheur in Memphis from buying two local hospitals from Tenet Health in a $350 million deal.
In both cases, the agency alleges the deals will end the robust competition that exists and harm consumers in the form of higher prices, including steeper insurance premiums, and diminished quality of services.
The agency has long leaned on the price argument (and its evidence) to challenge proposed transactions. However, recent actions signal the FTC will include a new argument: depressed wages, particularly those of nurses.
In a letter to Texas regulators in September, the FTC warned that if the state allowed a health system to acquire its only other competitor in rural West Texas, it would lead to limited wage growth among registered nurses as an already consolidated market compresses further.
As part of its arguments, the FTC pointed to a 2020 study that researched the effects on labor market concentration and worker outcomes.
Last year, the agency sent orders to five health insurance companies and two health systems to provide information so it could further study the affect COPAs, or Certificates of Public Advantage, have on price and quality. The FTC also noted it was planning to study the impact on wages.
FTC turned to review after string of defeats
A number of losses in the 1990s led the agency to conduct a hospital merger retrospective, Chris Garmon, a former economist with the FTC, said. Garmon has helped conduct and author retrospective reviews.
Between 1994 and 2000, there were about 900 hospital mergers by the U.S Department of Justice’s count. The bureau lost all seven of the cases they attempted to litigate in that time period, according to the DOJ.
The defendants in those cases succeeded by employing two types of defenses. The nonprofit hospitals would argue they would not charge higher prices because as nonprofits they had the best interests of the community in mind. Second, hospitals tried to argue that their markets were much larger than the FTC’s definition, and that they compete with hospitals many miles away.
Retrospective studies found evidence that undermined these claims. That’s why the studies are so important, Garmon said.
“It really is to better understand what happens after mergers,” Garmon said. It’s an evaluation exercise, given many transaction occur prospectively or before a deal is consummated. So the reviews help the FTC answer questions like: “Did we get it right? Or did we let any mergers we shouldn’t let through?”
- The Federal Trade Commission is suing to block New Jersey’s largest health system, Hackensack Meridian Health, from acquiring a close competitor, Englewood Health. That system operates Englewood Hospital, an independent hospital and one of the last in the area, according to the Star-Ledger.
- After the tie-up, Hackensack would control three of the six acute care hospitals in Bergen County, the most populated county in the state.
- The loss of competition between the two would leave insurers with few options and would allow Hackensack to obtain higher prices from insurers, leading to higher premiums and higher out-of-pocket costs for consumers, the FTC alleged in a statement Thursday.
In each case, the FTC has argued the deals would eliminate close competitors and lead to higher costs and lower quality of care.
Hackensack Meridian Health announced the intent to merge in October 2019.
At the time, Hackensack said Englewood would become a tertiary hub for Hackensack with a focus on a slew of services lines including cardiovascular care, neurosciences and oncology. Englewood said it would also benefit from the affiliations Hackensack enjoyed with Memorial Sloan Kettering Cancer Center.
As part of the announcement, Hackensack committed to invest $400 million in Englewood Health.
Hackensack operates its flagship hospital, Hackensack University Medical Center, and partially owns Pascack Valley Medical Center, which are both within 10 miles of Englewood Hospital, according to the FTC.