Sanford, Fairview health systems agree to merge

https://mailchi.mp/4b683d764cf3/the-weekly-gist-november-18-2022?e=d1e747d2d8

47-hospital Sanford Health, based in Sioux Falls, SD, and 11-hospital Fairview Health Services, based in Minneapolis, MN, have signed a letter of intent to form a combined $14B health system that would retain Sanford’s name. Sanford has been seeking a health system partner for several years; most recently it was in talks with Intermountain Health, before they ended the process following a COVID-masking controversy with Sanford’s then-CEO. An announced merger with Iowa-based UnityPoint Health was also called off in 2019. Sanford had earlier attempted to combine with Fairview, in 2013, but abandoned plans after receiving pushback from Minnesota’s Attorney General, who was concerned that services could be cut, and that the system’s long-term partnership with University of Minnesota could be at risk. 

The Gist: Perhaps Sanford has finally found its dance partner, one that gives it access to the booming Minneapolis metropolitan area, which the largely rural health system lacks. Like many recent mergers, the deal brings together two systems across non-overlapping markets, making it likely to pass antitrust scrutiny. 

Fairview has posted losses for the last two consecutive years, making it an easier pickup for Sanford, which can now introduce its 220K member health plan to a new market. We expect more health system mergers like this in 2023, as margin pressures are motivating many to seek the promise of shelter in scale. 

Questioning the motives behind UnitedHealth Group (UHG)’s acquisition of Change Healthcare

https://mailchi.mp/4b683d764cf3/the-weekly-gist-november-18-2022?e=d1e747d2d8

UHG closed its $13B acquisition of data analytics company Change in early October, just weeks after the Justice Department failed in its bid to block the sale on antitrust grounds. In court proceedings, UHG denied it intended to use Change data to give its insurance arm, UnitedHealthcare, a competitive advantage against the rival insurers who use Change as an electronic data interchange clearinghouse.

But a new ProPublica report highlights how communications between UHG and consulting firm McKinsey & Co. point to this potential data advantage as one of the clear upsides from acquiring Change. The McKinsey report was explicitly dismissed by the US District Court judge who, in his ruling in UHG’s favor, was persuaded by testimony from senior executives and evidence of UHG’s history of maintaining internal data firewalls.

The Gist: UHG has a longstanding business interest in maintaining the trust of rival insurers that use its data analytics unit, OptumInsight. Voluntary and internally imposed firewalls between the UHG’s insurance arm and its other businesses are key to maintaining this trust. Although Justice Department lawyers could not provide convincing evidence that UHG has or intends to breach its firewalls, there is still reason to monitor any such activity closely. 

The failure of the McKinsey report to sway the court against the deal illustrates how difficult it is for the Justice Department to challenge vertical mergers, even when there is compelling evidence that such deals may impact competition.

Amazon to acquire One Medical in $3.9B deal

Amazon plans to acquire virtual and in-person primary care company One Medical, the online retailer said July 21.  

In a cash deal valued at $3.9 billion, the aim is to combine One Medical’s technology and team with Amazon, it said in a news release. The goal of the acquisition, according to the two companies, is to offer more convenient and affordable healthcare in-person and virtually.

“The opportunity to transform healthcare and improve outcomes by combining One Medical’s human-centered and technology-powered model and exceptional team with Amazon’s customer obsession, history of invention and willingness to invest in the long-term is so exciting,” said Amir Dan Rubin, CEO of One Medical, in a company news release. “There is an immense opportunity to make the healthcare experience more accessible, affordable, and even enjoyable, for patients, providers and payers. We look forward to innovating and expanding access to quality healthcare services together.”

Amazon will acquire One Medical for $18 per share.

Completion of the transaction is subject to customary closing conditions, including approval by One Medical’s shareholders and regulatory approval. 

If the acquisition is approved, Mr. Rubin will remain CEO of One Medical. 

Primary care companies attract growing interest from insurers

https://mailchi.mp/9e0c56723d09/the-weekly-gist-july-8-2022?e=d1e747d2d8

Concierge primary care company One Medical is reportedly considering a sale after receiving interest from CVS Health, according to Bloomberg. While talks with CVS are no longer active, sources familiar with the situation say the company is weighing offers from other suitors. Also this week, there were rumors that Humana is interested in acquiring Florida-based Cano Health, which provides comprehensive care to over 200K seniors enrolled in Medicare Advantage plans across six states. 

The Gist: We’ve long thought that the ultimate buyer for these primary care startups would be large, vertically integrated insurers, as many have struggled to achieve profitability while maintaining strong enrollment growth.

Competition among insurers to acquire care delivery assets has intensified, as payers look to Medicare Advantage as their primary growth vehicle, and aim to amass primary care networks capable of managing their growing senior care businesses. 

Setting the post-COVID agenda for health systems

https://mailchi.mp/9e0c56723d09/the-weekly-gist-july-8-2022?e=d1e747d2d8

As the economic situation has worsened over the past few months, we’ve been working with several health systems to recalibrate strategy. For many, the anticipated “post-COVID recovery” period has turned into a struggle to reverse declining (often negative) margins, while still scrambling to address mounting workforce shortages. All this amid continued pressure from disruptive competitors and ever-rising consumer expectations.

In the graphic above, we’ve pulled together some of the most important changes we believe health systems need to make. These range from improvements to the operating model (shifting to a team-based approach to staffing, greater use of automation where appropriate, and moving to asset-light capital strategies) to transformations of the clinical model (moving care into lower-cost outpatient and community settings, integrating virtual care into clinical delivery, and creating tighter alignment with key physicians).

In general, the goal is to deliver lower-cost care in less expensive settings, using less expensive staff. 

But those cost-saving strategies will need to be coupled with a new go-to-market approach, including new payment models that reward systems for shifting away from high-cost (and highly reimbursed) care models. 

Employers and consumers will expect more solution-based offerings, which integrate care across the continuum into coherent bundles of service. This will require a more deliberate focus on service line strategies, moving away from a fragmented, inpatient-centric model.

Contracting approaches must align payment with this shift, changing incentives to reward coordinated, cost-effective, outcomes-driven care. 

A key insight from our discussions with health system leaders: short-term cost-cutting initiatives to “stop the bleed” won’t suffice—instead, more permanent solutions will be required that address not only the core operating model, but also the approach to revenue generation. 

The post-COVID environment is turning out to be a lot tougher than many had expected, to say the least.

Do Higher Hospital Prices Reflect Greater Investments in Quality?

Private insurers pay high and rising prices to hospitals. But whether this is “good” or “bad” depends on what’s behind this phenomenon. Do high prices reflect investments in quality? Or do they instead reflect issues like lack of competition due to hospital consolidation? The answer matters for efforts to reduce health care spending.

In a new paper in the Journal of Health Economics, Craig Garthwaite, Christopher Ody and Amanda Starc investigated whether the prospect of financial rewards drove differences in hospital quality measures — including things like mortality rates, patient experience, technology adoption and emergency department wait times. Specifically, the authors’ examined whether hospitals are more likely to invest in quality if they will be rewarded through higher prices. This is more feasible if they’re serving lots of commercially insured patients, since private insurers may pay higher rates if patients value those hospitals. But that strategy may not be successful in areas with large shares of the population on Medicare and Medicaid, which do not negotiate prices. 

The researchers found that:

  • Hospitals in areas with more privately insured patients had higher quality scores compared to hospitals with more publicly insured patients.
  • Hospitals targeting more privately insured patients also had higher costs than those relying more on payers like Medicare and Medicaid.

These results suggest hospitals make strategic investments in quality to attract privately insured patients. This is consistent with what one might expect from market competition and the results of other recent research. These findings do not, however, imply that prices are “optimal.” Prices also reflect factors like provider consolidation that have little observable effects on quality. Indeed, hospital prices likely reflect a mix of valuable and wasteful spending.

The analysis does have limitations. The authors used the demographics of the areas around the hospital instead of each hospital’s actual potential mix of patients. In addition, it is possible that some quality differences across hospitals actually reflect differences between patients with private and public insurance which aren’t easy to capture in data. However, the authors’ results were similar across several quality measures, including those where this is less of a concern.

These results can help better inform efforts to reduce health care costs. Policymakers interested in reducing hospital prices should be aware that doing so might reduce investments in quality. This suggests placing a greater emphasis on policies that target prices stemming from clear sources of inefficiencies, like consolidation, since such tradeoffs are likely smaller.

Two more hospital mergers scrapped after federal antitrust scrutiny

https://mailchi.mp/3390763e65bb/the-weekly-gist-june-24-2022?e=d1e747d2d8

Steward Health Care is abandoning its proposal to sell five Utah hospitals to HCA Healthcare, and New Jersey-based RWJBarnabas Health dropped its plan to purchase New Brunswick, NJ-based Saint Peter’s Healthcare System. These pivots come just weeks after the Federal Trade Commission (FTC) filed suits to block the transactions, saying they would reduce market competition. The FTC said in a statement that these deals “should never have been proposed in the first place,” and “…the FTC will not hesitate to take action in enforcing the antitrust laws to protect healthcare consumers who are faced with unlawful hospital consolidation.” 

The Gist: These latest mergers follow the fate of the proposed Lifespan and Care New England merger in Rhode Island, and the New Jersey-based Hackensack Meridian Health and Englewood Health merger, which were both abandoned after FTC challenges earlier this year.

Antitrust observers find these recent challenges unsurprising, as all were horizontal, intra-market deals of the kind that commonly raise antitrust concerns. What will be more telling is whether antitrust regulators can successfully mount challenges of cross-market mergers, or vertical mergers between hospitals, physicians, and insurers. 

Philanthropist backs antitrust lawsuits against large health systems

https://mailchi.mp/8e26a23da845/the-weekly-gist-june-17th-2022?e=d1e747d2d8

 Consumers and employers recently filed lawsuits against Hartford HealthCare, HCA Healthcare, and Advocate Aurora Health, accusing the health systems of using their market power to increase prices through anticompetitive contracting practices. New reporting from the Wall Street Journal finds that all three suits are receiving funding from billionaire John Arnold, through his charitable foundation Arnold Ventures, which has sponsored several efforts to reduce healthcare spending. While the health systems say that the claims are baseless, the law firm leading the suits, Fairmark Partners, says that it’s attempting to enforce antitrust laws through the courts.

The Gist: Amid the Biden administration’s increased scrutiny of health system anticompetitive behavior, state governments and philanthropic groups are also taking a more active role in challenging hospital deals and contracting practices. 

While these groups have targeted hospital prices because they’re a significant source of increased healthcare spending, these lawsuits do little to address the perverse underlying incentives that push hospitals to seek higher prices from commercial patients, to cross-subsidize what they view as insufficient pricing from public payers.

The Federal Trade Commission (FTC) wants more information on UnitedHealth’s $5.4B LHC deal

https://mailchi.mp/8e26a23da845/the-weekly-gist-june-17th-2022?e=d1e747d2d8

LHC, a postacute care behemoth with several hundred home health and hospice locations, as well as a dozen long-term care hospitals, would greatly expand Optum’s ability to provide home-based and long-term care. The FTC’s second request for information threatens to delay the deal, which was set to close in the latter half of this year. 

The Gist: The LHC deal is the second UnitedHealth Group (UHG) transaction that antitrust regulators have targeted recently. The Department of Justice filed a lawsuit earlier this year to block UHG’s acquisition of Change Healthcare, alleging that acquiring a direct competitor for claims solutions would reduce competition. 

The FTC has historically focused its efforts on horizontal integration, but the LHC scrutiny, in combination with a recent inquiry into pharmacy benefit managers, indicates its focus may be expanding to vertical integration.

Hospitals scooping up physician practices increases health care prices

https://mailchi.mp/tradeoffs/research-corner-5222129?e=ad91541e82

This week’s contributor is Aditi Sen, the Director of Research and Policy at the Health Care Cost Institute. Her work uses HCCI’s unique data resources to conduct analyses that inform policy to promote a sustainable, accessible and high-value health care system.

High health care prices in the U.S. make it hard for people to access care, difficult for employers to provide insurance, and challenging for policymakers to balance health care spending with other budgetary priorities. That’s why it’s important to understand what drives prices higher and identify policies to keep prices from getting so high.

In a new paper in Health Affairs, Vilsa Curto, Anna Sinaiko and Meredith Rosenthal examined whether hospital and health systems’ acquisition of and contracting with physician practices – two forms of what is often called vertical integration – has led to higher prices for physician services. The researchers combined four sets of data from Massachusetts from 2013-2017 for their analysis.

They found that: 

  • The percent of physicians who joined health systems grew meaningfully: The percent of primary care physicians who remained independent dropped from 42% in 2013 to 31.5% in 2017, and the percent of independent specialists fell from 26% to 17%.
  • Over this same period, prices for physician services rose. Price increases were especially large – 12% for primary care physicians and 6% for specialists – when physicians joined health systems that had a high share of admissions in their area. 

This study stands out for several reasons. First, it shows vertical integration drives up health care prices. Second, the authors highlight actions states can and are considering taking to monitor and curb vertical integration, including antitrust enforcement and enacting laws to promote competition.

Finally, the Massachusetts data allow the public to better appreciate what’s happening across the state. Many earlier studies on health care consolidation have been limited to a subset of insurers, physicians or patients. Massachusetts is a leader when it comes to creating and sharing its data thanks to its all-payer claims database, which pulls together all the health care bills from private insurers and public programs like Medicare and Medicaid in the state. This critical information helps to illuminate patterns of care and prices and connect them to issues like consolidation and competition. Neither the federal government nor most states track how vertical integration mergers influence health care prices.

As these findings demonstrate, acquisitions and other forms of vertical integration impact what people pay for health care services. Given that prices in this sector continue to climb, this paper underscores the need for more state and national data to understand the downstream effects on all of us who use and participate in the U.S. health care system.