Medical group deals face growing antitrust scrutiny as price worries rise

https://www.modernhealthcare.com/legal/medical-group-deals-face-growing-antitrust-scrutiny-price-worries-rise?utm_source=modern-healthcare-daily-finance&utm_medium=email&utm_campaign=20190708&utm_content=article1-readmore

Recent actions by antitrust enforcers and courts to block or regulate purchases of physician practices by hospitals and insurers may signal increasing scrutiny for such deals as policymakers intensify their focus on boosting competition to reduce healthcare prices.

Last month, the Federal Trade Commission announced a settlement with UnitedHealth Group and DaVita unwinding United’s acquisition of DaVita Medical Group’s Las Vegas operations.

At the same time, Colorado Attorney General Phil Weiser separately reached a deal imposing conditions on UnitedHealth’s acquisition of DaVita’s physician groups in Colorado Springs.

Also in June, the 8th U.S. Circuit Court of Appeals upheld a District Court ruling blocking Sanford Health’s proposed 2015 acquisition of the multispecialty Mid Dakota Clinic in the Bismarck, N.D., area. That antitrust case originally was filed by the FTC and North Dakota Attorney General Wayne Stenehjem in 2017.

And in May, Washington Attorney General Bob Ferguson settled an antitrust lawsuit with CHI Franciscan setting conditions on the health system’s 2016 affiliation with the Doctors Clinic, a multispecialty group, and its purchase of WestSound Orthopaedics, both in Kitsap County. CHI Franciscan will pay up to $2.5 million, distributed to other healthcare organizations to increase access to care.

The cases represent the most significant antitrust developments involving physician acquisitions since federal and state antitrust enforcers won9th U.S. Circuit Court of Appeals ruling in 2015 upholding a lower-court decision forcing Idaho’s St. Luke’s Health System to unwind its 2012 acquisition of Saltzer Medical Group.

The agreements with UnitedHealth in Nevada and Colorado show a new willingness by federal and state antitrust enforcers to use seldom-cited vertical merger theory. Under that theory, acquisitions of physician groups by insurers or hospitals may foreclose competition by making it more difficult or costly for rivals to obtain physician services.

“I am concerned about the state of consolidation,” Weiser said in an interview. “Healthcare costs in Colorado have risen at an alarming rate. Protecting competition needs to be a central part of our strategy to provide affordable and quality healthcare.”

These recent antitrust actions come as concerns mount over the growing consolidation of hospitals and physician practices and the impact on prices and total health spending. Sixty-five percent of metropolitan statistical areas are highly concentrated for specialist physicians, while 39% are highly concentrated for primary-care doctors, according to Martin Gaynor, a health economist at Carnegie Mellon University.

Hospital acquisitions of physician practices have led to higher prices and health spending, researchers have found. Average outpatient physician prices in 2014 ranged from 35% to 63% higher, depending on physician specialty, in highly concentrated California markets compared with less-concentrated markets, according to a 2018 study by researchers at the University of California at Berkeley. The link between physician market concentration and prices is similar across the country, experts say.

Market consolidation in California

That’s why some elected officials and antitrust attorneys say it’s past time to step up oversight of physician practice acquisitions by hospitals, insurers and private-equity firms. These deals traditionally have received less scrutiny than hospital and insurance mergers, partly because they are smaller transactions that federal and state antitrust enforcement agencies may not have known about beforehand.

The recent cases suggest state attorneys general may play a growing role in policing physician acquisition deals by hospitals and insurers, given that they are in a better position than the feds to find out about brewing local deals. Most of the growth in physician group size has come from piecemeal acquisitions of small group practices, a Health Affairs studyfound last year.

Washington and at least two other states have passed laws requiring healthcare providers to give state officials advance notice before finalizing a merger or acquisition. That gives state AGs another advantage over the FTC, which under federal rules only must receive advance notice of deals exceeding $78.2 million in value. Few physician acquisitions meet that threshold.

Others worry, however, that the absence of clear federal guidelines for challenging vertical mergers between hospitals and physicians has made the FTC and the courts overly cautious, and that it now may be too late because many physician markets are already highly concentrated. In March, the FTC and the Justice Department said they were working on new vertical merger guidelines, which were last updated in 1984.

“The horse may be out of the barn in a number of markets where there have been very large acquisitions of physician practices,” said Tim Greaney, a visiting professor at the University of California Hastings College of Law. “It’s not clear what you can do about that.”

But hospitals, insurers and other physician aggregators argue that making it harder to buy physician groups would hamper their ability to establish cost-saving, high-quality delivery models emphasizing care coordination.

That’s how Sanford Bismarck President Dr. Michael LeBeau responded to last month’s 8th Circuit ruling against his organization’s merger with Mid Dakota Clinic. “Sanford continues to believe that combining with Mid Dakota Clinic would lead to the enhanced provision of and access to healthcare for patients in central and western North Dakota,” he said in a written statement.

Researchers have raised doubts, however, about whether hospital acquisitions of medical practices have truly achieved efficiencies and cost savings, and whether any cost savings have been passed on to payers and patients.

Going forward, hospitals, insurers and other healthcare organizations need to prepare themselves for an era of closer state and federal examination of physician acquisition deals, antitrust experts agree. That also may apply to private-equity firms, which have accelerated their investment in physician groups and have sought to build market power in particular specialties.

The FTC did not respond to requests for an interview.

Healthcare organizations pursuing physician deals must be ready to cite circumstances where competition continues to thrive following a merger. But that may not be easy, conceded Lisa Gingerich, an antitrust attorney at Michael Best & Friedrich.

“The challenge now is there has been so much consolidation that it’s harder and harder to find those circumstances,” she said.

Scaling back integration in Nevada and Colorado

The UnitedHealth Group-DaVita case may present the clearest warning shot to organizations contemplating large physician acquisitions, attracting both federal and state attention.

The FTC argued that the proposed acquisition by United’s OptumCare of DaVita’s HealthCare Partners of Nevada would result in a near-monopoly controlling more than 80% of the market for services delivered by managed-care provider organizations to Medicare Advantage plans.

The merger would be both horizontal—combining OptumCare’s and DaVita’s competing physician groups—and vertical, as it would combine a Medicare Advantage insurer and a physician group. That, the FTC said, would increase costs and decrease competition on quality, services and amenities by forcing rival Medicare Advantage plans to pay more for physician services.

Under the FTC settlement, UnitedHealth agreed to sell DaVita’s Nevada medical group to Intermountain Healthcare, which offers a Medicare Advantage product in Las Vegas through its SelectHealth insurance arm.

Colorado’s terms

Meanwhile, under a separate consent judgment with Attorney General Phil Weiser in Colorado, UnitedHealth will lift its exclusive contract with Centura Health for at least 31/2 years, expanding the provider network available to other Medicare Advantage plans. In addition, DaVita Medical Group’s agreement with Humana, United’s main competitor in Colorado Springs, will be extended through at least 2020.

All four FTC commissioners approved the enforcement action in Nevada. But the two Republican-appointed commissioners and the two Democratic-appointed commissioners disagreed on whether to ask a judge to block United’s acquisition of DaVita’s medical group in Colorado, a purely vertical merger. The 2-2 split meant no federal action was taken.

The Democratic commissioners. Rebecca Kelly Slaughter and Rohit Chopra, said the merger would harm competition and consumers, and welcomed the Colorado attorney general’s remedial conditions. “We hope all state attorneys general actively enforce the antitrust laws to protect their residents from harmful mergers and anticompetitive practices,” they wrote.

But the Republican commissioners, Noah Joshua Phillips and Christine Wilson, opposed action in Colorado on the grounds that the law on vertical mergers is “relatively underdeveloped” and that there was mixed evidence on whether the Colorado merger was pro- or anti-competitive.

Weiser said his office had to intervene to protect the ability of Humana and other Medicare Advantage insurers to compete with United by having access to physicians and hospitals. “State attorneys general will be a critical part of protecting competition, both because we’re close to our citizens and because of a lack of action by the federal government,” he said.

To other observers, the Nevada and Colorado agreements were notable because they invoked seldom-used vertical merger theory, which the FTC has been reluctant to use because it generally saw vertical mergers as helping reduce costs and increase competition.

“This shows that in the proper case, the FTC won’t hesitate to pursue vertical theory to reverse the course of” a physician group acquisition, said Douglas Ross, a veteran antitrust attorney at Davis Wright Tremaine in Seattle.

A muddier outcome in Washington state

Washington Attorney General Bob Ferguson’s settlement of his antitrust case against CHI Franciscan was less definitive than the outcomes in the other recent cases.

He had accused the hospital system of engineering the purchase of WestSound Orthopaedics and the affiliation with the Doctors Clinic to capture a large share of orthopedists and other physicians in Kitsap County, fix prices at a higher level, and shift more services to its Harrison Medical Center in Bremerton. But the settlement left in place CHI Franciscan’s purchase of WestSound and its tight professional services agreement with the Doctors Clinic, while placing relatively modest conditions on joint contracting by the hospital system and the clinic.

Ferguson’s bargaining position was weakened by a federal District Court decision in March granting CHI Franciscan’s motion to summarily dismiss his allegation that the acquisition of WestSound reduced competition and violated antitrust law. That may be the first time since the 1990s that a defendant won summary judgment on a horizontal merger claim in an antitrust case, one expert said.

In addition, the judge required the parties to go to trial on whether the transaction between CHI Franciscan and the Doctors Clinic was a true merger, as the two organizations claimed, or whether they remained two competing provider groups. If Ferguson lost on that issue, his antitrust case would be dead because a merged entity cannot be cited for price-fixing.

The attorney general settled that claim with CHI Franciscan and the clinic by requiring a $2.5 million payment to other healthcare providers and expanding the types of value-based contracts they could participate in. But the two sides differed sharply in their characterization of the settlement.

“This was a matter where we identified anticompetitive effects and ongoing harm to consumers and saw a need to act quickly,” said Jonathan Mark, senior assistant attorney general in Washington. “We believe the remedies in the consent decree are sufficient to address the anticompetitive effects we alleged.”

For its part, CHI Franciscan said there never was any court judgment or admission that it engaged in anticompetitive conduct, noting that the settlement preserved its deals with WestSound and the Doctors Clinic. It was particularly important for hospitals all over the country that Ferguson failed to establish that a professional services agreement with a physician group constituted price-fixing, an attorney for the hospital system said.

“The AG lost this lawsuit and is now twisting the facts to match his baseless allegations,” said Cary Evans, the hospital system’s vice president for government affairs. “Had we not affiliated, the closing of the Doctors Clinic and WestSound would have resulted in less choice, decreased access, and high costs for residents.”

A classic example in North Dakota

The outcome in the North Dakota case was more conventional than the others.

There, the 8th U.S. Circuit Court of Appeals affirmed the District Court’s preliminary injunction blocking Sanford Health’s acquisition of Mid Dakota Clinic as a horizontal merger.

That was fairly predictable because of the huge physician market share Sanford—whose physician group competed with the clinic—would capture if it completed the deal, experts said.

Sanford would control 99.8% of general surgeon services, 98.6% of pediatric services, 85.7% of adult primary-care services, and 84.6% of OB-GYN services in the Bismarck-Mandan market, the 8th Circuit panel found.

The appeals court also upheld the lower court’s finding that a competitor, Catholic Health Initiatives’ St. Alexius Health, would not be able to enter the market quickly after the merger, at least partly because it faced difficulty recruiting physicians in the Bismarck-Mandan area.

“That case really seemed like a no-brainer to me,” said Tim Greaney, a visiting professor at the University of California Hastings College of Law.

A key takeaway was the 8th Circuit’s rejection of Sanford’s “powerful buyer” defense. Sanford had argued that Blue Cross and Blue Shield of North Dakota, the state’s dominant insurer, had enough market power to resist any price increases sought by the newly merged entity.

But analysis of claims data and testimony by a Blues plan representative demonstrated that the merged provider would have the market power to force the insurer to raise prices or leave the market, the 8th Circuit panel wrote.

“If antitrust authorities see someone getting more bargaining power and being able to charge higher prices, that’s something they’ll worry about, even if the (payer) has significant bargaining power as well,” said Debbie Feinstein, a former top Federal Trade Commission official who heads Arnold & Porter’s global antitrust group.

Sanford didn’t say whether it planned to abandon the deal.

 

 

 

Medical monopoly: An unusual hospital merger in rural Appalachia leaves residents with few options

https://www.tennessean.com/story/news/health/2019/06/23/ballad-health-merger-rural-hospital-closures/1342608001/

Protest organizer Dani Cook of Kingsport, Tennessee, conducts a Facebook Live outside Holston Valley Medical Center in Kingsport on May 7. The merger of Mountain State Health Alliance and Wellmont has led to the downgrading of the area's NICU and trauma center.

KINGSPORT, Tenn. – Molly Worley is an angry grandma.

For weeks she has stubbornly occupied a folding lawn chair on a grassy median outside Holston Valley Medical Center, sheltered from sweltering Appalachian summer sun by a thin tarp and flanked by a rotating crew staging a round-the-clock protest since May 1.

Behind them is the state-of-the-art neonatal intensive care unit where Worley’s newborn grandson spent his first weeks of life treated for opioid exposure.

In the same building is a Level I trauma center to respond to the most critical emergencies.

Both facilities will downgraded in the coming months, diverting the sickest babies and adults elsewhere.

The cuts are the latest fallout from an unusual and controversial merger between two former rival hospital systems headquartered in northeast Tennessee.

The newly formed company, Ballad Health, is now the sole hospital provider for a region the size of New Jersey. For nearly 1.2 million people people living in a largely rural stretch of 29 counties in northeast Tennessee and nearby parts of Virginia, North Carolina and Kentucky, Ballad hospitals are the only inpatient option.

Mergers involving hospitals that compete for same patients face opposition from the Federal Trade Commission, which can block mergers on the grounds the combined company can limit patient choices, cut services, raise prices and diminish quality.

Ballad officials found a way to bypass FTC rules. They turned to Tennessee state Sen. Rusty Crowe, R-Johnson City, who successfully carried legislation making the merger possible. Crowe is a longtime paid consultant with Ballad hospitals. 

Only a handful of other states have exempted similar hospital mergers from FTC anti-monopoly rules. Ballad’s is the largest.

CEO Alan Levine said the merger lets the hospital system save money and keep rural hospitals afloat in a state that is already No. 2 in the nation for closures.

Eliminating overlapping staff and services, including the trauma center and NICU, will free funds to invest in other public health initiatives. Ballad pledged to keep open all of its rural hospitals for five years and to invest $308 million in public health, medical education and other initiatives.

“Every decision we make starts and ends with how can we best serve the community and what does the evidence show will lead to the best possible outcome,” Levine said.

“You don’t want a trauma center on every corner and you don’t want a NICU on every corner because it dilutes volume and hurts quality,” he said.

No rural hospitals owned by Ballad have been closed. 

Some residents, doctors, nurses, EMS workers and public officials say the changes by Ballad expose the dangers of a single system imposing decisions on health care services on a captive audience that has no other options. More than 23,000 people have signed a petition opposing Ballad’s proposed changes.

“Never ever have I been this outspoken about anything,” said Worley, 60. “This NICU saved my grandson’s life. With Ballad we have no other choice. They have a monopoly at every level of health care.”

As hospital systems across the country struggle to stay afloat, particularly in rural areas, Ballad’s plan is being closely watched by other states weighing whether to allow other hospitals to take a similar approach.

 

 

 

Healthcare consolidation goes beyond usual players

https://www.modernhealthcare.com/mergers-acquisitions/healthcare-consolidation-goes-beyond-usual-players?utm_source=modern-healthcare-daily-finance&utm_medium=email&utm_campaign=20190610&utm_content=article1-readmore

Consolidation in the health system and health insurance industries has been a focus for years. But a new report sheds light on how the “bigger is better” mantra has taken hold in companies that make syringes, X-ray machines or other healthcare products.

The report, prepared by the Open Markets Institute using data from IBISWorld, shows a small handful of companies dominate their respective markets in certain healthcare sectors that tend to get less of a spotlight than their payer and provider counterparts. The largest three pharmacy and drugstore companies represent 67% of market share and the largest two ambulance manufacturers represent 83% of market share. Just two dialysis providers dominate 76% of market share.

Open Markets has released data on monopolization in other sectors of the economy, and Phil Longman, the group’s policy director, said with healthcare approaching 20% of the U.S. gross domestic product, it’s important to direct attention there, too.

“Pretty much anywhere you go in this economy, whether it’s eyeglasses or beer or automobiles or airplanes, if you ask the right questions, you’ll find it’s much more concentrated than it was before,” he said. “That’s true in healthcare, including all of its component parts.”

Pharmacy benefit management draws $453.4 billion in revenue, according to the report, and just four companies hold three-quarters of its market share: CVS, Express Scripts, UnitedHealth and Humana. The four largest healthcare consulting firms represent 76% of their sector, which draws $6 billion in revenue.

Two companies, LabCorp and Quest, have 37% of diagnostic and medical laboratory market share, a $52.6 billion industry, the report said. And three of the largest medical patient financing companies, Synchrony, Citigroup and Wells Fargo, make up 77% of that market, which draws $4.1 billion in revenue.

The report highlighted consolidation across several different healthcare manufacturers, including those that produce hospital beds, surgical apparel, PET imaging, pacemakers and wheelchairs. Three firms own 88% of the $10.6 billion orthopedic products manufacturing sector: Stryker Corp., Zimmer Holdings and Johnson & Johnson.

Healthcare in the U.S. costs more than in other countries because the prices are higher, Longman said. That’s almost always because there is a barrier to entry that thwarts competition. Longman noted that health systems typically purchase the supplies they need, from bed sheets to bandages, from group purchasing organizations.

“That adds up to serious money,” he said.

One of the factors driving consolidation across these subsectors of healthcare is the continued decline in government and commercial health insurance reimbursement for medical products and services, which puts the squeeze on the associated costs like equipment and doctor’s fees, said Beth Everett, managing director of healthcare banking and head of middle-market healthcare with MUFG in New York. Consolidation may help achieve healthcare cost reduction by creating economies of scale, she said. Whether this ultimately happens is “the million-dollar question,” Everett said.

Greater consolidation and integration in the healthcare system is widely recognized as necessary for improving patient care, Longman said. But it should come with some means of regulation to ensure the benefits of the resulting efficiencies go to the consumer. In this case, that hasn’t happened, and monopolistic corporations are holding the benefits of greater scale, efficiencies and coordination of care rather than passing them along.

“We’ve just really mismanaged competition policy in healthcare,” Longman said.

 

More Aggressive Review of Hospital Mergers Needed, Says FTC Commissioner

https://www.healthleadersmedia.com/strategy/more-aggressive-review-hospital-mergers-needed-says-ftc-commissioner?spMailingID=15662786&spUserID=MTg2ODM1MDE3NTU1S0&spJobID=1641165714&spReportId=MTY0MTE2NTcxNAS2

The problems include ‘a legal shield’ enjoyed by nonprofit hospitals, and the solutions include more retrospective analysis of close calls, says Rebecca Kelly Slaughter.


KEY TAKEAWAYS

The FTC is prohibited from enforcing antitrust laws against nonprofits, which poses a challenge, Slaughter said.

The commission should conduct another round of retrospective study on closed healthcare mergers, she said.

Commissioners should be ‘as aggressive as possible’ moving forward to preserve healthcare competition, she added.

Federal Trade Commissioner Rebecca Kelly Slaughter told a liberal think tank Tuesday that antitrust regulators should take a more assertive approach to protect competitive forces among healthcare providers.

Slaughter, a Democrat appointed to the FTC by President Trump and confirmed last year, made the remarks in a speech at the Center for American Progress in Washington, D.C., where she took issue with what she described as “a legal shield for anticompetitive conduct” at nonprofit hospitals.

The FTC is allowed to review all hospital mergers, but it cannot enforce antitrust laws against nonprofits, including more than 45% of U.S. hospitals, she said.


“So, for example, if a non-profit hospital merger itself is not anticompetitive, but the newly merged entity engages in anticompetitive practices, the FTC is stuck on the sidelines,” Slaughter said in her prepared remarks.

“In effect, this means that all of the healthcare industry expertise that the FTC has worked for decades to, and continues to, develop cannot be deployed alongside the DOJ and state enforcers to stop anticompetitive practices by roughly half of all hospitals nationwide,” she added. “This is a significant lost opportunity.”

Slaughter called for greater scrutiny of horizontal and vertical mergers alike both in the future and in the past.

“I believe that the FTC should conduct a new round of retrospectives of healthcare provider mergers,” Slaughter said.

Studying the past has led the FTC to some of its biggest improvements in understanding market forces, as was the case with former Chairman Timothy J. Muris’ retrospective analysis of hospital mergers in the early 2000s, Slaughter said.

Moving forward, Slaughter said, the FTC should take another look at recently cleared “close-call hospital mergers” and those that were shielded from antitrust scrutiny by state laws despite posing significant concerns. This is consistent, she said, with a statement the FTC issued last fall when it decided not to challenge a proposed affiliation involving CareGroup Inc., Lahey Health System Inc., Seacoast Regional Health System, and others.

The FTC should also consider taking another look at vertical integration among healthcare providers, such as transactions involving hospitals and physician groups, she said.

“[W]e should be as aggressive as possible in challenging the mergers we encounter today, especially where the proposed consolidation involves new structural arrangements rather than traditional horizontal concerns,” Slaughter added. “It is important for parties considering mergers to know we will not shy away from challenging, for example, anticompetitive vertical organizations.”

“I am sensitive to the concern that we might lose litigation,” she added, “but our obligation is to identify the right outcome and fight for it.”