With a closely divided Congress, President Biden has leaned heavily on regulatory actions to advance his healthcare priorities. With the midterm elections fast approaching, the graphic above assesses the impact of those actions, and outlines which legislative components Democrats may still try to pass before November.
From the start, the administration has signaled the importance of promoting competition in healthcare markets, and has devoted more scrutiny to hospital mergers—while leaving most attempts at vertical integration unchallenged. Through Medicaid waivers, it has worked to expand insurance coverage, rolling back Trump-era work requirements, expanding postpartum coverage, and encouraging states to experiment with public option plans on the Affordable Care Act (ACA) exchanges.
The Centers for Medicare and Medicaid Services (CMS) has continued the steady march toward value programs, revising the Direct Contracting model to factor in health equity. Despite these incremental moves, Medicare Advantage (MA) remains the focus of long-term efforts to control Medicare spending, and MA programs have seen payments boosts year-over-year.
Meanwhile, the fate of President Biden’s signature healthcare campaign promises remains in the hands of an intransigent Congress. Senate Democrats are currently trying to negotiate a deal on a bill allowing Medicare drug negotiations and extending ACA subsidies, an important provision to protect millions from receiving premium hike notices just weeks before Election Day.
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.
An analysis published in the Annals of Internal Medicine finds that if Medicare had purchased 77 common generic drugs from Mark Cuban’s Cost-Plus Pharmacy in 2020, it would have saved $3.6B dollars. That translates to more than a third of the $9.6B Medicare spent on generic drugs that year.
In January, Dallas Mavericks owner and billionaire Cuban launched the generic drug company as a transparency play, cutting out pharmacy benefit managers (PBMs), negotiating directly with manufacturers, and selling drugs at a flat 15 percent markup.
The Gist:This isn’t the first study to find that Medicare overpays for generic drugs, as it’s unable to negotiate drug prices under current law. Another recent analysis found that Costco can offer consumers lower prices than Medicare drug plans for half of the most common generic drugs.
The fact that both Costco’s and Cuban’s pharmacies, neither of which accepts health insurance, can offer consumers cheaper generics is another indication of how PBMs’ perverse incentives and opaque pricing and rebate models lead to consumers being steered to higher priced drugs. We’re hopeful that the FTC’s new investigation into PBMs will shed light on their pricing practices, and create a path for lawmakers to finally address unsustainably high prescription drug prices.
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 alawsuit 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.
Two lawsuits against hospital mergers announced the same day may look like the FTC under Chair Lina Khan (pictured) is flexing its muscle to restrain deals that raise prices. But those complaints are “more smoke than fire,” Ken Field, a former FTC lawyer and current co-chair of Jones Day’s global health care practice, told STAT’s Tara Bannow.
The real target shouldn’t be the mergers in Utah and New Jersey between hospitals, antitrust experts said, but something called vertical mergers, in which hospitals buy up physician groups. After such deals, doctors spent $73 million more on 10 common imaging and lab tests over four years, a 2021 Health Affairs study found.
An FTC spokesperson didn’t comment on the agency’s strategy with respect to hospital consolidation.
While healthcare is delivered locally, the business of healthcare is regional, and the regions are only getting bigger. Hospital and health system mergers alike have continued to shift from local to regional, and the recently announced merger between Advocate Aurora Health and Atrium Health clearly highlights that the regions are only getting bigger.
Advocate Aurora, with a presence in Illinois and Wisconsin, and Atrium Health, with a presence in North Carolina, South Carolina, Georgia, and Alabama, will combine to create a $27 billion health system that will span six states and make it one of the leading healthcare delivery systems in the country. The combined organization, which will transition to a new brand, Advocate Health, will operate 67 hospitals and over 1,000 sites of care, employ nearly 150,000 teammates, and serve 5.5 million patients. Together, Advocate Health will become the 6th largest system in the country behind Kaiser Permanente, HCA Healthcare, CommonSpirit Health, Ascension, and Providence.
We have seen a number of large health systems come together recently, including Intermountain Healthcare + SCL Health to create a $15 billion revenue system, Spectrum Health + Beaumont ($14 billion), NorthShore University Health System + Edward-Elmhurst Healthcare ($5 billion), LifePoint Health + Kindred Healthcare ($14 billion), and Jefferson Health + Einstein Healthcare Network ($8 billion).
The exact reasoning for each merger differs slightly, but one of the common threads across all is scale. But not scale in the traditional M&A sense. Rather, scale in covered lives; scale in physician infrastructure and alignment; scale in clinical and operational capabilities; scale in technology, innovation, and partnerships with non-traditional players; scale for capital access; and scale for insurance risk to compete in a value-based world. It is no longer the strong acquiring the weak. Rather, strong players are coming together to gain scale to face the headwinds in a unified manner.
For Advocate Aurora and Atrium, coming together is about leveraging their combined clinical excellence, advancing data analytics capabilities and digital consumer infrastructure, improving affordability, driving health equity, creating a next-generation workforce, research, and environmental sustainability. Together, they have pledged $2 billion to disrupt the root causes of health inequities across underserved communities and create more than 20,000 new jobs.
Both Advocate Aurora and Atrium are no strangers to mergers. Advocate and Aurora came together in 2018, and prior to that Advocate was intending to merge with NorthShore before being blocked due to anti-trust. Atrium has grown over the years, merging with systems such as Navicent Health in Georgia in 2018, Wake Forest Baptist Health in North Carolina 2020, and Floyd Health System in Georgia in 2021. In the newly proposed merger, Advocate Aurora and Atrium are coming together via a joint operating arrangement where each entity will be responsible for their own liabilities and maintain ownership of their respective assets but operate together under the new parent entity and board. This may allow the combined entity more flexibility in local decision-making. The current CEOs, Jim Skogsbergh and Eugene Woods will serve as co-CEOs for the first 18 months, at which point Skogsbergh will retire, and Woods will take over as the sole CEO.
Mergers can come in various shapes and structures, but the driving forces behind consolidation are not unique. With the need to compete in value-based care, adequately manage risk, gain scale across covered lives, physicians, and points of access, successfully deliver affordable high-quality care, and the need to deal with the vertical and horizontal consolidation of the large-scale payers, the markets that health systems operate in must be large enough to be effective and relevant. We fully expect to see more of these larger scale health system mergers in the near term.
The physical delivery of healthcare is local, but, again, the business of healthcare is not; it is regional, and the regions are only getting bigger.
RWJBarnabas Health (RWJBH) and Saint Peter’s Healthcare System’s proposed integration has received the blessing of New Jersey regulators, a key step forward as the systems look to form what they describe as the state’s “first premier academic medical center,” according to a Monday announcement.
The organizations are now awaiting a final approval from the Federal Trade Commission (FTC) before moving ahead with the deal.
“State approval now puts us on the cusp of being able to create New Jersey’s first multi-campus premier academic medical center that will draw top talent, increased research funding and more opportunities for groundbreaking clinical trials, while also enhancing specialized services and improving overall patient care,” Saint Peter’s President and CEO Leslie Hirsch said in a statement.
“New Jersey deserves to have a premier academic medical center of national distinction like many other states that will serve as a destination for patients from all walks of life to get lifesaving treatment for complex illnesses and as an anchor for medical innovation, educational opportunity and economic development,” Hirsch said.
The organizations said that in addition to increasing services and strengthening patient access, the premier academic medical center’s location in New Brunswick, New Jersey, would play a role in attracting more academic talent and research to nearby Rutgers University.
The systems’ announcement also cited affirmation from Superior Court Judge Lisa Vignuolo, who said when authorizing the transaction that the deal “will serve in the public interest and the public good.”
RWJBH is the larger of the pair, providing care to more than 3 million patients annually across 11 hospitals, four children’s hospitals and dozens of other centers. It’s already the largest academic health system in New Jersey thanks to a collaboration with Rutgers Robert Wood Johnson Medical Schools to train over 1,000 medical residents and interns across RWJBH hospitals yearly.
Formed in 2007, Saint Peter’s Healthcare System is a Catholic organization headlined by the 478-bed Saint Peter’s University Hospital in New Brunswick. It also operates a children’s hospital, primary and specialty care networks and a surgical center.
Under the previously announced terms of the agreement, Saint Peter’s would remain a full-service acute healthcare provider in New Jersey and continue to adhere to its Catholic healthcare mission. RWJBH would make significant strategic capital investments in St. Peter’s facilities, technology and innovation.
“This is a tremendous milestone in a years-long journey towards fulfilling our shared vision to bring transformative care to New Jersey,” RWJBH CEO Barry Ostrowsky said in a statement.
Regulators’ green light for RWJBH’s moves contrasts with the recent opposition to Hackensack Meridian Health and Englewood Health’s now-nixed merger plans. The FTC and half of the country’s state attorneys general fought the proposal due to concerns that it would remove competition and harm residents in New Jersey’s Bergen County.
The combined health system will become the sixth largest nationwide, with $27B in revenue and 67 hospitals across six Midwest and Southeast states. The system will be based in Charlotte, and known as Advocate Health, though Atrium will continue to use its name in its markets.
Atrium CEO Gene Woods is slated to ultimately lead the combined entity, after an 18-month co-CEO arrangement with Advocate Aurora CEO Jim Skogsbergh. While the cross-market merger is unlikely to create antitrust concerns about increased pricing leverage, the Biden administration has been making noises about applying stricter scrutiny to the impact of health system consolidation on labor market competition.
The Gist: Earlier this year, Utah-based Intermountain Healthcare and Colorado-based SCL Health combined to create a 33-hospital, $14B health system, which became the 11th largest nationwide. While these mega-mergers of regional systems can realize cost savings from back-office synergies, there is a significant opportunity to create larger “platforms” of care to win consumer loyalty, deploy digital capabilities, attract talent, and become more desirable partners for nontraditional players like Amazon, Walmart, and One Medical.
It will be critical to watch whether the governance and cultural challenges that often hinder health system mergers come into play here. Advocate Aurora has had two prospective mergers fall apart in recent years, the first with Chicago-based NorthShore University HealthSystem, and the second with Michigan-based Beaumont Health (who subsequently finalized a merger with Spectrum Health earlier this year).
But the combination with Atrium is structured as a joint operating agreement, essentially creating a new superstructure atop the two legacy systems. This may allow the combined entity more flexibility in local decision-making, but the ultimate question will be how the combined entity will create value for consumers. Time will tell.
The Federal Trade Commission and the Justice Department are seeking comments on ways merger guidelines should be updated, and physicians are raising concerns about private equity-backed buyouts of provider practices.
The FTC and the Justice Department announced in January that they’re seeking to revamp merger guidelines for businesses. Comments on how to “modernize the merger guidelines to better detect and prevent anticompetitive deals,” can be submitted to the agencies through April 21.
Comments are pouring in from physicians. Many of the comments are anonymous, but the commenters self-identify as physicians.
The physicians’ top concern are private equity-backed buyouts, according to an analysis by Law360. They’re also concerned by the profit-first attitude of healthcare and consolidation in the industry, according to the report.