Category Archives: Federal Trade Commission (FTC)

State Protections Against Medical Debt: A Look at Policies Across the U.S.

Posted on by • Posted in Affordability, Bankruptcy, Community Benefit, Consumer Financial Protection Bureau, Fair Credit Reporting Act, Federal Debt Collection Practices Act, Federal Trade Commission (FTC), Health System, High Deductible Health Plans, Hospital, Hospital Industry, Medical Debt, Medical Debt Financing, Rev Cycle Management, Revenue Cycle, Underinsured, Uninsured • Leave a comment
https://www.commonwealthfund.org/publications/fund-reports/2023/sep/state-protections-medical-debt-policies-across-us?utm_campaign=Controlling%20Health%20Care%20Costs&utm_medium=email&_hsmi=273390498&_hsenc=p2ANqtz-_GvewDO7oUUI_AgyC_0aCCFmHn7qQI24sUA2ruC6txDzqbNNsdcT7PB3NE2MhyB0fKRsLKiG4w9EzXla4ZCPrhs-B27A&utm_source=alert

Abstract

  • Issue: Medical debt negatively affects many Americans, especially people of color, women, and low-income families. Federal and state governments have set some standards to protect patients from medical debt.
  • Goal: To evaluate the current landscape of medical debt protections at the federal and state levels and identify where they fall short.
  • Methods: Analysis of federal and state laws, as well as discussions with state experts in medical debt law and policy. We focus on laws and regulations governing hospitals and debt collectors.
  • Key Findings and Conclusion: Federal medical debt protection standards are vague and rarely enforced. Patient protections at the state level help address key gaps in federal protections. Twenty states have their own financial assistance standards, and 27 have community benefit standards. However, the strength of these standards varies widely. Relatively few states regulate billing and collections practices or limit the legal remedies available to creditors. Only five states have reporting requirements that are robust enough to identify noncompliance with state law and trends of discriminatory practices. Future patient protections could improve access to financial assistance, ensure that nonprofit hospitals are earning their tax exemption, and limit aggressive billing and collections practices.

Introduction

Medical debt, or personal debt incurred from unpaid medical bills, is a leading cause of bankruptcy in the United States. As many as 40 percent of U.S. adults, or about 100 million people, are currently in debt because of medical or dental bills. This debt can take many forms, including:

  • past-due payments directly owed to a health care provider
  • ongoing payment plans
  • money owed to a bank or collections agency that has been assigned or sold the medical debt
  • credit card debt from medical bills
  • money borrowed from family or friends to pay for medical bills.

This report discusses findings from our review of federal and state laws that regulate hospitals and debt collectors to protect patients from medical debt and its negative consequences. First, we briefly discuss the impact and causes of medical debt. Then, we present federal medical debt protections and discuss gaps in standards as well as enforcement. Then, we provide an overview of what states are doing to:

  • strengthen requirements for financial assistance and community benefits
  • regulate hospitals’ and debt collectors’ billing and collections activities
  • limit home liens, foreclosures, and wage garnishment
  • develop reporting systems to ensure all hospitals are adhering to standards and not disproportionately targeting people of color and low-income communities.

(See the appendix for an overview of medical debt protections in all 50 states and the District of Columbia.)

Impact of Medical Debt

More than half of people in medical and dental debt owe less than $2,500, but because most Americans cannot cover even minor emergency expenses, this debt disrupts their lives in serious ways. Fear of incurring medical debt also deters many Americans from seeking medical care. About 60 percent of adults who have incurred medical debt say they have had to cut back on basic necessities like food or clothing, and more than half the adults from low-income households (less than $40,000) report that they have used up their savings to pay for their medical debt.

A significant amount of medical debt is either sold or assigned to third-party debt-collecting agencies, who often engage in aggressive efforts to collect on the debt, creating stress for patients. Both hospitals and debt collectors have won judgments against patients, allowing them to take money directly from a patient’s paycheck or place liens on a patient’s home. In some cases, patients have also lost their homes. Medical debt can also have a negative impact on a patient’s credit score.

Key Terms Related to Medical Debt

  • Financial assistance policy: A hospital’s policy to provide free or discounted care to certain eligible patients. Eligibility for financial assistance can depend on income, insurance status, and/or residency status. A hospital may be required by law to have a financial assistance policy, or it may choose to implement one voluntarily. Financial assistance is frequently referred to as “charity care.”
  • Bad debt: Patient bills that a hospital has tried to collect on and failed. Typically, hospitals are not supposed to pursue collections for bills that qualify for financial assistance or charity care, so bad debt refers to debt owed by patients ineligible for financial assistance.
  • Community benefit requirements: Nonprofit hospitals are required by federal law and some state laws to provide community benefits, such as financial assistance and other investments targeting community need, in exchange for a tax exemption.
  • Debt collectors or collections agencies: Entities whose business model primarily relies on collecting unpaid debt. They can either collect on behalf of a hospital (while the hospital still technically holds the debt) or buy the debt from a hospital.
  • Sale of medical debt: Hospitals sometimes sell the debt patients owe them to third-party debt buyers, who can be aggressive in seeking repayment of the debt.
  • Creditor: A party that is owed the medical debt and often wants to collect on the medical debt. This can be a hospital, a debt collector acting on behalf of a hospital, or a third-party debt buyer.
  • Debtor: A patient who owes medical debt over unpaid medical bills.
  • Wage garnishment: The ability of a creditor to get a court order that would allow them to deduct a portion of a debtor-patient’s paycheck before it reaches the patient. Federal law limits how much can be withheld from a debtor’s paycheck, and some states exceed this federal protection.
  • Placing a lien: A legal claim that a creditor can place on a patient’s home, prohibiting the patient from selling, transferring, or refinancing their home without first paying off the creditor. Most states require creditors to get a court order before placing a lien on a home.
  • Foreclosure or forced sale: A creditor can repossess and sell a patient’s home to pay off their medical debt. Often, creditors are required to obtain a court order to do so.

Perhaps what is most troubling is that the burden of medical debt is not borne equally: Black and Hispanic/Latino adults and women are much more likely to incur medical debt. Black adults also tend to be sued more often as a result. Uninsured patients, those from low-income households, adults with disabilities, and young families with children are all at a heightened risk of being saddled with medical debt.

Causes of Medical Debt

Most people — 72 percent, according to one estimate — attribute their medical debt to bills from acute care, such as a single hospital stay or treatment for an accident. Nearly 30 percent of adults who owe medical debt owe it entirely for hospital bills.

Although uninsured patients are more likely to owe medical debt than insured patients, having insurance does not fully shield patients from medical debt and all its consequences. More than 40 percent of insured adults report incurring medical debt, likely because they either had a gap in their coverage or were enrolled in insurance with inadequate coverage. High deductibles and cost sharing can leave many exposed to unexpected medical expenses.

The problem of medical debt is further exacerbated by hospitals charging increasingly high prices for medical care and failing to provide adequate financial assistance to uninsured and underinsured patients with low income.

Key Findings

Federal Medical Debt Protections Have Many Gaps

At the federal level, the tax code, enforced by the Internal Revenue Service (IRS), requires nonprofit hospitals to broadly address medical debt. However, these requirements do not extend to for-profit hospitals (which make up about a quarter of U.S. hospitals) and have other limitations.

Further, the IRS does not have a strong track record of enforcing these requirements. In the past 10 years, the IRS has not revoked any hospital’s nonprofit status for noncompliance with these standards.

The Consumer Financial Protection Bureau and the Federal Trade Commission have additional oversight authority over credit reporting and debt collectors. The Fair Credit Reporting Act regulates credit reporting agencies and those that provide information to them (debt collectors and hospitals). Consumers have the right to dispute any incomplete or inaccurate information and remove any outdated, negative information. In some cases, patients can directly sue hospitals or debt collectors for inaccurately reporting medical debt to credit reporting agencies. In addition, the Federal Debt Collection Practices Act limits how aggressive debt collectors can be by restricting the ways and times in which they can contact debtors, requiring certain disclosures and notifications, and prohibiting unfair or deceptive practices. Patients can directly sue debt collectors in violation of the law. This law, however, does not limit or prohibit the use of certain legal remedies, like wage garnishment or foreclosure, to collect on a debt.

Many states have taken steps to fill the gaps in federal standards. Within a state, several agencies may play a role in enforcing medical debt protections. Generally speaking:

  • state departments of health are the primary regulators of hospitals and set standards for them
  • state departments of taxation are responsible for ensuring nonprofit hospitals are earning their exemption from state taxes
  • state attorneys general protect consumers from unfair and deceptive business practices by hospitals and debt collectors.

Fewer Than Half of States Exceed Federal Requirements for Financial Assistance, Protections Vary Widely

Federal law requires nonprofit hospitals to establish and publicize a written financial assistance policy, but these standards leave out for-profit hospitals and lack any minimum eligibility requirements. As the primary regulators of hospitals, states have the ability to fill these gaps and require hospitals to provide financial assistance to low-income residents. Twenty states require hospitals to provide financial assistance and set certain minimum standards that exceed the federal standard.

All but three of these 20 states extend their financial assistance requirements to for-profit hospitals. Of these 20 states, four states — Connecticut, Georgia, Nevada, and New York — apply their financial assistance requirements only to certain types of hospitals.

Policies also vary among the 31 states that do not have statutory or regulatory financial assistance requirements for hospitals. For example, the Minnesota attorney general has an agreement in place with nearly every hospital in the state to adhere to certain patient protections, though it falls short of requiring hospitals to provide financial assistance. Massachusetts operates a state-run financial assistance program partly funded through hospital assessments. Other states use far less prescriptive mechanisms to try to ensure that patients have access to financial assistance, such as placing the onus of treating low-income patients on individual counties or requiring hospitals to have a plan for treating low-income and/or uninsured patients without setting any specific requirements.

Enforcement of state financial assistance standards.

The only way to enforce the federal financial assistance requirement is to threaten a hospital’s nonprofit status, and the IRS has been reluctant to use this authority. Among the 20 states that have their own state financial assistance standards, 10 require compliance as a condition of licensure or as a legal mandate. These mandates are often coupled with administrative penalties, but some states have established additional consequences. For example, Maine allows patients to sue noncompliant hospitals.

Six states make compliance with their financial assistance standards a condition of receiving funding from the state. Two other states use their certificate-of-need process (which requires hospitals to seek the state’s approval before establishing new facilities or expanding an existing facility’s services) to impose their financial assistance mandates.

Setting eligibility requirements for financial assistance.

The federal financial assistance standard sets no minimum eligibility requirements for hospitals to follow. However, the 20 states with financial assistance standards define which residents are eligible for aid.

One way for states to ensure that financial assistance is available to those most in need is to prevent hospitals from discriminating against undocumented immigrants. Four states explicitly prohibit such discrimination in statute and regulation. Most states, however, are less explicit. Thirteen states define eligibility broadly, basing it most frequently on income, insurance status, and state residency. However, it is unclear how hospitals are interpreting this requirement when it comes to patients’ immigration status. In contrast, three states explicitly exclude undocumented immigrants from eligibility.

States also vary widely in terms of which income brackets are eligible for financial assistance and how much financial assistance they may receive.

At least three of the 20 states with financial assistance standards allow certain patients with heavy out-of-pocket medical expenses from catastrophic illness or prior medical debt to access financial assistance. Many states also require hospitals to consider a patient’s insurance status when making financial assistance determinations. At least six states make financial assistance available for uninsured patients only, while at least eight others also make financial assistance available to underinsured patients.

Standardizing the application process.

Cumbersome applications can discourage many patients from applying for financial assistance. Five states have developed a uniform application form, while three others have set minimum standards for financial assistance applications. Eleven states require hospitals to give patients the right to appeal a denial of financial assistance.

States Split in Requiring Nonprofit Hospitals to Invest in Community Benefits

Federal and state policymakers also can require nonprofit hospitals to invest in community benefits in return for tax exemptions. Federal law requires nonprofit hospitals to produce a community health needs assessment every three years and have an implementation strategy. Almost all states exempt nonprofit hospitals from a host of state taxes, including income, property, and/or sales taxes. However, only 27 impose community benefit requirements on nonprofit hospitals.

Community benefits frequently include financial assistance but also investments that address issues like lack of access to food and housing. In the long run, these investments can reduce medical debt burden by improving population health and the financial stability of a community. Most states that require nonprofit hospitals to provide community benefits allow nonprofit hospitals to choose how they invest their community benefit dollars. This hands-off approach has given rise to concerns about the lack of transparency in community benefit spending as well as questions about whether hospitals are investing this money in ways that are most helpful to the community, such as in providing financial assistance.

Applicability of community benefit standards.

Nineteen states impose community benefit requirements on all nonprofit hospitals in the state, but three states further limit these requirements to hospitals of a certain size. At least six states have extended these requirements to for-profit hospitals as well. Of these six, the District of Columbia, South Carolina, and Virginia have incorporated community benefit requirements into their certificate-of-need laws instead of their tax laws. As a result, any hospital seeking to expand in these states becomes subject to their community benefit requirement.

Interaction between financial assistance and community benefits.

The federal standard allows nonprofit hospitals to report financial assistance as part of their community benefit spending. Most states with community benefit requirements also allow hospitals to do this. However, only seven states require hospitals to provide financial assistance to satisfy their community benefit obligations.

Setting quantitative standards for community benefit spending.

Only seven states set minimum spending thresholds that hospitals must meet or exceed to satisfy state community benefit standards. For example, Illinois and Utah require nonprofit hospitals’ community benefit contributions to equal what their property tax liability would have been. Unique among states, Pennsylvania gives taxing districts the right to sue nonprofit hospitals for not holding up their end of the bargain, which has proven to be a strong enforcement mechanism.

Fewer Than Half the States Exceed Federal Standards for Billing and Collections

Hospital billing and collections practices can significantly increase the burden of medical debt on patients. However, the current federal standard does not regulate these practices beyond imposing waiting periods and prior notification requirements for certain extraordinary collections actions (ECAs), such as garnishing wages or selling the debt to a third party.

Requiring hospitals to provide payment plans.

Federal standards do not require hospitals to make payment plans available. However, a few states do require hospitals to offer payment plans, particularly for low-income and/or uninsured patients. For example, Colorado requires hospitals to provide a payment plan and limit monthly payments to 4 percent of a patient’s monthly gross income and to discharge the debt once the patient has made 36 payments.

Limiting interest on medical debt.

Federal law does not limit the amount of interest that can be charged on medical debt. However, eight states have laws prohibiting or limiting interest for medical debt. Some states like Arizona have set a ceiling for interest on all medical debt. Others like Connecticut further prohibit charging interest to patients who are at or below 250 percent of the federal poverty level and are ineligible for public insurance programs.

Though many states do not have specific laws prohibiting or limiting interest that hospitals or debt collectors can charge on medical debt, all states do have usury laws, which limit the amount of interest than can be charged on any oral or written agreement. Usury limits are set state-by-state and can range anywhere from 5 percent to more than 20 percent, but most limits fall well below the average interest rate for a credit card (around 24%). At least one state, Minnesota, has sued a health system for charging interest rates on medical debt that exceeded the allowed limit in the state’s usury laws.

Interactions between hospitals, third-party debt collectors, and patients.

Unlike hospitals, debt collectors do not have a relationship with patients and can be more aggressive when collecting on the debt. Federal law neither limits when a hospital can send a bill to collections, nor does it require hospitals to oversee the debt collectors it uses. Most states (37) also do not regulate when a hospital can send a bill to collections, although some states have developed more protective approaches.

For example, Connecticut prohibits hospitals from sending the bills of certain low-income patients to collections, and Illinois requires hospitals to offer a reasonable payment plan first. Additionally, five states require hospitals to oversee their debt collectors.

Sale of medical debt to third-party debt buyers.

Hospitals sometimes sell old unpaid debt to third-party debt buyers for pennies on the dollar. Debt buyers can be aggressive in their efforts to collect, and sometimes even try to collect on debt that was never owed. Federal law considers the sale of medical debt an ECA and requires nonprofit hospitals to follow certain notice and waiting requirements before initiating the sale. Most states (44) do not exceed this federal standard.

Only three states prohibit the sale of medical debt. Two other states — California and Colorado — regulate debt buyers instead. For example, California prohibits debt buyers from charging interest or fees, and Colorado prohibits them from foreclosing on a patient’s home.

Reporting medical debt to credit reporting agencies.

Federal law considers reporting medical debt to a credit reporting agency to be an ECA and requires nonprofit hospitals to follow certain notice and waiting requirements beforehand. Most states (41) do not exceed this federal standard.

Of the 10 states that do go beyond the federal standard, a few like Minnesota fully prohibit hospitals from reporting medical debt. Most others require hospitals, debt collectors, and/or debt buyers to wait a certain amount of time before reporting the debt to credit agencies (Exhibit 8). Two states directly regulate credit agencies: Colorado prohibits them from reporting on any medical debt under $726,200, while Maine requires them to wait at least 180 days from the date of first delinquency before reporting that debt.

States Vary Widely on Patient Protections from Medical Debt Lawsuits

Federal law considers initiating legal action to collect on unpaid medical bills to be an extraordinary collections action and also limits how much of a debtor’s paycheck can be garnished to pay a debt.

In most states, hospitals and debt buyers can sue patients to collect on unpaid medical bills. Three states limit when hospitals and/or collections agencies can initiate legal action. Illinois prohibits lawsuits against uninsured patients who demonstrate an inability to pay. Minnesota prohibits hospitals from giving “blanket approval” to collections agencies to pursue legal action, and Idaho prohibits the initiation of lawsuits until 90 days after the insurer adjudicates the claim, all appeals are exhausted, and the patient receives notice of the outstanding balance.

Liens and foreclosures.

Most states (32) do not limit hospitals, collections agencies, or debt buyers from placing a lien or foreclosing on a patient’s home to recover on unpaid medical bills. However, almost all states provide a homestead exemption, which protects some equity in a debtor’s home from being seized by creditors during bankruptcy. The amount of homestead exemption available to debtors varies from state to state, ranging from just $5,000 to the entire value of the home. Seven states have unlimited homestead exemptions, allowing debtors to fully shield their primary homes from creditors during bankruptcy. Additionally, Louisiana offers an unlimited homestead exemption for certain uninsured, low-income patients with at least $10,000 in medical bills.

Ten states prohibit or set limits on liens or foreclosures for medical debt. For example, New York and Maryland fully prohibit both liens and foreclosures because of medical debt, while California and New Mexico only prohibit them for certain low-income populations.

Wage garnishment.

Under federal law, the amount of wages garnished weekly may not exceed the lesser of: 25 percent of the employee’s disposable earnings, or the amount by which an employee’s disposable earnings are greater than 30 times the federal minimum wage. Twenty-one states exceed the federal ceiling for wage garnishment. Only a few states go further to prohibit wage garnishment for all or some patients. For example, New York fully prohibits wage garnishment to recover on medical debt for all patients, yet California only extends this protection for certain low-income populations. While New Hampshire does not prohibit wage garnishment, it requires the creditor to keep going back to court every pay period to garnish wages, which significantly limits creditors’ ability to garnish wages in practice.

Many States Have Hospital Reporting Requirements, But Few Are Robust

Federal law requires all nonprofit hospitals to submit an annual tax form including total dollar amounts spent on financial assistance and written off as bad debt. However, these reporting requirements do not extend to for-profit hospitals and lack granularity. States, as the primary regulators of hospitals, would likely benefit from more robust data collection processes to better understand the impact of medical debt and guide their oversight and enforcement efforts.

Currently, 32 states collect some of the following:

  • financial data, including the total dollar amounts spent on financial assistance and/or bad debt
  • financial assistance program data, including the numbers of applications received, approved, denied, and appealed
  • demographic data on the populations most affected by medical debt
  • information on the number of lawsuits and types of judgments sought by hospitals against patients.

Fifteen states explicitly require hospitals to report total dollar amounts spent on financial assistance and/or bad debt, while 11 states also require hospitals to report certain data related to their financial assistance programs. Most of these 11 states limit the data they collect to the numbers of applications received, approved, denied, and appealed. However, a handful of them go further and ask hospitals to report on the amount of financial assistance provided per patient, number of financial assistance applicants approved and denied by zip code, number of payment plans created and completed, and number of accounts sent to collections.

Five states require hospitals to further break down their financial assistance data by race, ethnicity, gender, and/or preferred or primary language. For example, Maryland requires hospitals to break down the following data by race, ethnicity, and gender: the bills hospitals write off as bad debt and the number of patients against whom the hospital or the debt collector has filed a lawsuit.

Only Oregon asks hospitals to report on the number of patient accounts they refer for collections and extraordinary collections actions.

Discussion and Policy Implications

In 2022, the federal government announced administrative measures targeting the medical debt problem, which included launching a study of hospital billing practices and prohibiting federal government lenders from considering medical debt when making decisions on loan and mortgage applications. Although these measures will help some, only federal legislation and enhanced oversight will likely address current gaps in federal standards.

States can also fill the gaps in federal patient protections by improving access to financial assistance, ensuring that nonprofit hospitals are earning their tax exemption, and protecting patients against aggressive billing and collections practices. States also can leverage underutilized usury laws to protect their residents from medical debt.

Finding the most effective ways to enforce these standards at the state level could also protect patients. Absent oversight and enforcement, patients from underserved communities continue to face harm from medical debt, even when states require hospitals to provide financial assistance and prohibit them from engaging in aggressive collections practices. Bolstering reporting requirements alone would not likely ensure compliance, but states could protect patients by strengthening their penalties, providing patients with the right to sue noncompliant hospitals, and devoting funding to increase oversight by state agency officials.

To develop a comprehensive medical debt protection framework, states could also bring together state agencies like their departments of health, insurance, and taxation, as well as their state attorney general’s office. Creating an interagency office dedicated to medical debt protection would allow for greater efficiency and help the state build expertise to take on the well-resourced debt collection and hospital industries.

Still, these measures only address the symptoms of the bigger problem: the unaffordability of health care in the United States. Federal and state policymakers who want to have a meaningful impact on the medical debt problem could consider the protections discussed in this report as part of a broader plan to reduce health care costs and improve coverage.

Some states back hospital mergers despite record of service cuts, price hikes

Posted on by • Posted in Federal Trade Commission (FTC), Health System, Market Consolidation, Market Power, Market Trends, Mergers & Acquisitions, Monopoly, Monopoly Behavior • Leave a comment
https://stateline.org/2023/09/07/some-states-back-hospital-mergers-despite-record-of-service-cuts-price-hikes/?utm_source=Sailthru&utm_medium=email&utm_campaign=Issue:%202023-09-07%20Healthcare%20Dive%20%5Bissue:54287%5D&utm_term=Healthcare%20Dive

In much of the country, a single hospital system now accounts for most hospital admissions.

Some illnesses and injuries — say, a broken ankle — can send you to numerous health care providers. You might start at urgent care but end up in the emergency room. Referred to an orthopedist, you might eventually land in an outpatient surgery center.

Four different stops on your road to recovery. But as supersized health care systems gobble up smaller hospitals and clinics, it’s increasingly likely that all those facilities will be owned by the same corporation.

Hospital trade groups say mergers can save failing hospitals, especially rural ones. But research shows that a lack of competition often leads to fewer services at higher costs. In recent years, federal regulators have been taking a harder look at health care consolidation.

Yet some states, notably those in the South, are paving the way for more mergers.

Mississippi passed a law this year that exempts hospital acquisitions from state antitrust laws, while North Carolina considered legislation to do the same for the University of North Carolina’s health system. Louisiana officials approved a $150 million hospital acquisition late last year that has ignited a legal battle with the Federal Trade Commission over whether they allowed a monopoly.

States including South Carolina, Tennessee, Texas and Virginia have certificate of public advantage (COPA) laws that let state agencies determine whether hospitals can merge, circumventing federal antitrust laws. And large hospital systems wield significant political power in many state capitals.

‘A tool in the tool belt’

Nearly half of Mississippi’s rural hospitals are at risk of closing, according to a report from the Center for Healthcare Quality & Payment Reform, a nonprofit policy research center.

Mississippi leaders hope easing restrictions on hospital mergers could be a solution. A new law exempts all hospital acquisitions and mergers from state antitrust laws and classifies community hospitals as government entities, making them immune from antitrust enforcement.

We saw primary care offices get shut down. We’ve seen our specialists leave for out of state. Several of the outlying hospitals saw services cut even though they were told it wouldn’t happen.

– Kerri Wilson, a registered nurse in North Carolina

Mississippi, one of the poorest states in the nation, is also one of the least healthy, with high rates of chronic conditions like heart disease and diabetes. It is one of 10 states that haven’t expanded Medicaid under the Affordable Care Act, and has one of the nation’s highest percentages of people without health insurance.

“Like many states in a similar socioeconomic status, Mississippi has difficulties with patients that are either not insured or underinsured,” said Ryan Kelly, executive director of the nonprofit Mississippi Rural Health Association. Food insecurity and lack of reliable transportation mean rural residents tend to be sicker and more expensive to treat.

That’s part of the reason why so many Mississippi hospitals operate in the red. The largest hospital in the Mississippi Delta region, Greenwood Leflore, is at immediate risk of closure even after hospital leaders shuttered unit after unit — including labor and delivery, and intensive care — in an effort to remain solvent.

A deal for the University of Mississippi Medical Center to purchase Greenwood Leflore fell through last year. Now, with the new law in effect, the hospital’s owners — the city and county — are soliciting new bidders and offering them the option to buy the hospital outright.

Kelly said he expects to see more Mississippi hospitals consolidate over the coming decade. Some have already had conversations around merger possibilities after the new law went into effect, though talks are in early days.

“It’s a tool in the tool belt,” he said of the new law. “I think it could be a saving grace for some of our hospitals that are perennially struggling but still serve with good purpose. They could be part of a larger system that could help offset their costs so they’re able to be a little leaner but still provide services in their community.”

Leaders in some states think consolidation could solve their health care woes, but studies indicate it has a negative impact.

“There’s a large body of research showing that health care consolidation leads to increases in prices without clear evidence it improves quality,” said Zachary Levinson, a project director at KFF, a nonprofit health care policy research organization, who analyzes the business practices of hospitals and other providers and their impact on costs.

When researchers studied how affiliation with a larger health system affected the number of services a rural hospital offered, they found most of the losses in service occurred in hospitals that joined larger systems, according to a 2023 study from the Rural Policy Research Institute at the University of Iowa.

Even when an acquisition by a larger health system helps a struggling hospital keep its doors open, “there can be potential tradeoffs,” Levinson said.

“There’s some concern that, for example, when a larger health system buys up a smaller independent hospital in a different region, that hospital will become less attentive to the specific needs of the community it serves,” and may cut services the community wants because they’re not deemed profitable enough, he said.

Most research suggests hospital consolidation does lead to higher prices, according to a sweeping 2020 report from MedPAC, an independent congressional agency that advises Congress on issues affecting Medicare. The report found that patients with private insurance pay higher prices for care and for insurance in markets that are dominated by one health care system. And when hospitals acquire physician practices, taxpayer and patient costs can double for some services provided in a physician’s office, the report found.

Kelly said he’s not as concerned with consolidation raising costs for Mississippi’s rural residents because so many qualify for subsidized care, but he does think mergers could eliminate some jobs in the health care sector.

“It’s hard to say for sure,” he said. “It is a risk, no question. But I still think it’s a net positive.”

A ‘hospital cartel’

When HCA Healthcare purchased a North Carolina hospital system in 2019, registered nurse Kerri Wilson wasn’t prepared for how much would change — and how quickly — at her hospital in Asheville.

“Once the sale was final in 2019, that’s when it was like the ball dropped and we started seeing staffing cuts,” said Wilson, an Asheville native who has worked in the cardiology stepdown unit at Mission Hospital since 2016.

“We saw our nurse-patient ratios change,” Wilson said. “We saw primary care offices get shut down. We’ve seen our specialists leave for out of state. Several of the outlying hospitals saw services cut even though they were told it wouldn’t happen.”

In the four years since HCA Healthcare bought Mission Health, North Carolinians have hit the nation’s largest health system with multiple antitrust lawsuits, including one that asserts HCA operates an unlawful health care monopoly through Mission Health, and another filed by city and county governments that says HCA’s corporate practices have decimated local health care options and raised costs.

HCA Healthcare did not immediately respond to a request for comment. However, when the second lawsuit was filed, HCA/Mission Health spokesperson Nancy Lindell called it “meritless.”

“Mission Health has been caring for Western North Carolina for more than 130 years and our dedication to providing excellent health care to our community will not waiver [sic] as we vigorously defend against this meritless litigation,” Lindell said in a statement to the Mountain Xpress newspaper. “We are disappointed in this action and we continue to be proud of the heroic work our team does daily.”

Mission’s nurses voted in 2020 to join National Nurses Organizing Committee, an affiliate of National Nurses United, the nation’s largest nursing union, to advocate for higher pay and safer working conditions.

Meanwhile, North Carolina leaders such as Republican State Treasurer Dale Folwell and Democratic Attorney General Josh Stein have spoken out against HCA’s practices. Folwell likened the merger to a “hospital cartel” and both officials filed amicus briefs supporting the plaintiffs in the antitrust lawsuits.

“We have a situation with the cartel-ization of health care in North Carolina where people have to drive miles just to get basic services, and this is unacceptable,” Folwell told Stateline. He said many North Carolinians, particularly those with low incomes, fear seeking medical help because of sky-high medical bills that he said are a result of massive health care systems with little state oversight.

Folwell has publicly criticized the power that the North Carolina Health Care Association, the state’s hospital trade group, wields in the legislature. He calls the group the “leader of the [hospital] cartel.”

Industry groups spent more than $141 million nationwide lobbying state officials on health issues in 2021. And out of that $141 million, the hospital and nursing home industry spent the most, accounting for nearly 1 out of every 4 dollars spent on lobbying state lawmakers over health issues.

“This is not a Republican or Democrat issue,” said Folwell, who has lent his support to a bipartisan bill that would limit the power of large hospitals to charge interest rates and rein in medical debt collection tactics. “It’s a moral issue.”

North Carolina Democratic state Sen. Julie Mayfield, who was on the Asheville City Council when HCA acquired Mission Health, sponsored a bill earlier this year that would have curbed hospital consolidations.

In a social media post introducing the bill, Mayfield said she hoped it would “prevent other communities from suffering what we have suffered in the wake of the Mission sale — loss of nursing and other staff, loss of physicians, closure of facilities, and the resulting lower quality of care many people have experienced in Mission hospitals over the last four years.”

Even the Federal Trade Commission jumped in, urging legislators to “reconsider” a bill that would have greenlighted UNC Health’s expansion, saying it could “lead to patient harm in the form of higher health care costs, lower quality, reduced innovation and reduced access to care.” That bill ultimately failed in the state House, as sentiment among some North Carolina leaders had already soured on hospital mergers.

In most U.S. markets, a single hospital system now accounts for more than half of hospital inpatient admissions. Federal regulators have been scrutinizing health care mergers more carefully in recent years, said KFF’s Levinson. The FTC has both sued and been sued by health care systems in Louisiana this year, and recently released a draft version of new guidelines on anti-competitive practices.

“People have viewed those guidelines as indicating the FTC and [the U.S. Department of Justice] will be more interested in aggressively challenging anti-competitive practices than in the past,” Levinson said.

Both the Trump and Biden administrations issued executive orders directing federal agencies to focus on promoting competition in health care markets. President Joe Biden’s order noted that “hospital consolidation has left many areas, particularly rural communities, with inadequate or more expensive healthcare options.”

In Mississippi, the hospital mergers law received widespread support from most of the state’s GOP leaders. But the state’s far-right Freedom Caucus came out against it, with Republican state Rep. Dana Criswell, the chair of the caucus, calling it “an attempt at a complete government takeover” of Mississippi’s hospitals.

Criswell said allowing the University of Mississippi Medical Center to buy smaller hospitals “will create a huge government protected monopoly, driving out competition and ultimately putting private hospitals out of business.”

‘Trying something different’

Wilson, the Asheville nurse, said she used to have three or four patients per shift before the merger; now she typically has five. That gives her an average of 10 minutes per patient per hour. It’s not enough time, she said, to give patients their medication, answer questions and perform other tasks that she said nurses often take on because other departments are short-staffed.

Sometimes, she said, those tasks include helping patients go to the bathroom because there aren’t enough nursing assistants or taking out the trash because of a shortage of cleaning staff. Meanwhile, the waiting rooms are overflowing.

Wilson joined the new Mission Hospital nurses union, which was able to negotiate raises for its members. The union continues to protest working conditions, including staff-patient ratios.

But Kelly, of the Mississippi Rural Health Association, said that in his state, mergers are an opportunity for positive change.

“It’s not like health care in Mississippi is at the top of the list for good things,” he said. “I think this is an example of trying something different and seeing if it works.”

When private equity and doctors break up

Posted on by • Posted in Federal Trade Commission, Federal Trade Commission (FTC), Health System, Hospital, Hospital Industry, Non-Compete Agreements, Physician, Physician Arms Race, Physician Coverage, Private Equity, Specialty Care • Leave a comment

https://mailchi.mp/c02a553c7cf6/the-weekly-gist-july-28-2023?e=d1e747d2d8

We recently spoke with a health system COO who wanted help playing out scenarios regarding the relationship between specialist physicians and their private equity (PE) partners. The system is located in one of the markets referenced in a recent study that has some of the highest levels of private equity ownership in the country. One physician group, whose doctors provide almost all the system’s coverage for a key specialty, has worked with PE partners for five years, and the relationship is not going well. “We’re hearing that many of the younger doctors want to leave. And many of the others are close to retirement,” he shared. 

“We’re really concerned about what could happen if the group implodes.” The key issue: the doctors signed very restrictive noncompete agreements when they sold their practice, which could prohibit them from working in the market. 

The health system would consider bringing some of the doctors into their employed medical group, but executives are worried this might be impossible for the duration of the noncompete agreements. “If these doctors can’t stay locally, we might have to rebuild that specialty from scratch. And I can’t imagine how disruptive that would be,” he worried.
 
When the FTC announced a proposed rule earlier this year that would ban employers from imposing noncompete agreements, many health systems reacted with alarm, fearing the that the freedom to move would lead to frequent bidding wars, ultimately driving up the cost of physician talent in the market.

But the situation shows how perspectives would change depending on who holds the noncompete.

Mid-sized markets like this one, where coverage for several specialties may come from single groups, are particularly vulnerable. Regardless, this situation highlights the need to diversify physician relationships to guard against getting caught in a “coverage crisis”.

New antitrust merger guidelines could further slow healthcare deals

Posted on by • Posted in Antitrust, Federal Trade Commission, Federal Trade Commission (FTC), Health System, Hospital, Hospital Industry, Market Consolidation, Market Power, Mergers & Acquisitions • Leave a comment

https://mailchi.mp/c02a553c7cf6/the-weekly-gist-july-28-2023?e=d1e747d2d8

Last week the Department of Justice (DOJ) and the Federal Trade Commission (FTC) proposed thirteen new merger guidelines that, if finalized, would provide federal regulators greater ability to scrutinize mergers across all industries, including healthcare.

The guidelines expand which mergers could be potentially illegal and therefore worth probing, including those with lower monetary value and those in which the newly combined organization would control 30 percent or greater market share, and  would increase scrutiny on transactions that are part of a series of multiple acquisitions by an organization. They also seek to limit the ability of an organization to justify an acquisition on the grounds that the weaker party in the deal would be unable to continue to operate. Comments on the guidelines are being accepted until September 18.

The Gist: To date, federal regulators have struggled to prevent non-traditional mergers between companies that provide different services, operate in different markets, or are below the monetary threshold for review. 

The proposed guidelines would significantly increase FTC and DOJ scrutiny at all levels of hospital mergers, and also jeopardize physician and other care asset acquisitions by health systems, payers, and private equity-backed organizations. They are the latest from the Biden Administration in a recent, multi-part push to reduce consolidation through greater antitrust enforcement. 

This effort includes last month’s proposal to add additional reporting requirements for mergers outlined in the Hart-Scott-Rodino Act, as well as the FTC’s move earlier this month to withdraw two antitrust policy statements focused on healthcare markets that both agencies say are now “outdated.” Those now-rescinded statements provided guidance on antitrust safety zones, including for accountable care organizations participating in the Medicare Shared Savings Program and for mergers between two hospitals in which one is much smaller.

The Four Issues that will Impact Healthcare Services Providers and Insurers Most in the Last Half of 2023 and First Half of 2024

Posted on by • Posted in Artificial Intelligence, Board, Board Engagement, Charity Care, Competition, Dept of Justice (DOJ), Executive Compensation, Federal Trade Commission, Federal Trade Commission (FTC), Health System, Hospital, Hospital Industry, Leadership Plan, Leadership Vision, Long Term Planning, Long Term Strategy, Non-Profit Healthcare Industry, Private Equity Maturity Wall, Regulation, Regulatory Pressures • Leave a comment
The Four Issues that will Impact Healthcare Services Providers and Insurers Most in the Last Half of 2023 and First Half of 2024

As first half 2023 financial results are reported and many prepare for a busy last half, strategic planning for healthcare services providers and insurers point to 4 issues requiring attention in every boardroom and C suite:

Private equity maturity wall: 

The last half of 2023 (and into 2024) is a buyer’s market for global PE investments in healthcare services: 40% of PE investments in hospitals, medical groups and insurtech will hit their maturity wall in the next 12 months. Valuations of companies in these portfolios are below their targeted range; limited partner’ investing in PE funds is down 28% from pre-pandemic peak while fund raising by large, publicly traded, global funds dominate fund raising lifting PE dry powder to a record $3.7 trillion going into the last half of 2023.

In the U.S. healthcare services market, conditions favor well-capitalized big players—global private equity funds and large cap aggregators (i.e., Optum, CVS, Goldman Sachs, Blackstone et al) who have $1 trillion to invest in deals that enhance their platforms. Deals done via special purpose acquisition corporations (SPACS) and smaller PE funds in physicians, hospitals, ambulatory services and others are especially vulnerable. (see Bain and Pitchbook citations below). Addressing the growing role of large-cap PE and strategic investors as partners, collaborators, competitors or disruptors is table stakes for most organizations recognizing they have the wind at their backs.

Consolidation muscle by DOJ and FTC: 

Healthcare is in the crosshair of the FTC and DOJ, especially hospitals and health insurers.  Hospital markets have become increasingly concentrated: only 12% of the 306 Hospital Referral Regions is considered unconcentrated vs. 23% in 2008. In the 384 insurance markets, 23% are unconcentrated, down from 35% in 2020. Wages for healthcare workers are lower, prices for consumers are higher and choices fewer in concentrated markets prompting stricter guidelines announced last week by the oversight agencies. Big hospitals and big insurers are vulnerable to intensified scrutiny. (See Regulatory Action section below).

Defamatory attacks on nonprofit health systems: 

In the past 3 years, private, not-for-profit multi-hospital systems have been targeted for excess profits, inadequate charity care and executive compensation.  Labor unions (i.e., SEIU) and privately funded foundations (i.e., West, Arnold Venture, Lown Institute) have joined national health insurers in claims that NFP systems are price gaugers undeserving of the federal, state and local tax exemptions they enjoy. It comes at a time when faith in the U.S. health system is at a modern-day low (Gallup), healthcare access and affordability concerns among consumers are growing and hospital price transparency still lagging (36% are fully compliant with the 2021 Executive Order).

Notably, over the last 20 years, NFP hospitals have become less dominant as a share of all hospitals (61% in 2002 vs. 58% last year) while investor-owned hospitals have shown dramatic growth (from 15% in 2002 to 24% last year). Thus, the majority of local NFP hospitals have joined systems creating prominent brands and market dominance in most regions. But polling indicates many of these brands is more closely associated with “big business” than “not-for-profit health” so they’re soft targets for critics. It is likely unflattering attention to large, NFP systems will increase in the next 12 months prompting state and federal regulatory actions and erosion of public support.  (See New England Journal citation in Quotables below)

Campaign 2024 healthcare rhetoric: 

Republican candidates will claim healthcare is not affordable and blame Democrats. Democrats will counter that the Affordable Care Act’s expanded coverage and the Biden administration’s attack on drug prices (vis a vis the Inflation Reduction Act) illustrate their active attention to healthcare in contrast to the GOP’s less specific posturing.

Campaigns in both parties will call for increased regulation of hospitals, prescription drug manufacturers, health insurers and PBMs. All will cast the health industry as a cesspool for greed and corruption, decry its performance on equitable access, affordability, price transparency and improvements in the public’s health and herald its frontline workers (nurses, physicians et al) as innocent victims of a system run amuck.

To date, 16 candidates (12 R, 3 D, 1 I) have announced they’re candidates for the White House while campaigns for state and local office are also ramping up in 46 states where local, state and national elections are synced. Healthcare will figure prominently in all. In campaign season, healthcare is especially vulnerable to misinformation and hyper-attention to its bad actors. Until November 5, 2024, that’s reality.

My take:

These issues frame the near-term context for strategic planning in every sector of U.S. healthcare. They do not define the long-term destination of the system nor roles key sectors and organizations will play. That’s unknown.

  • What’s known for sure is that AI will modify up to 70% of the tasks in health delivery and financing and disrupt its workforce.
  • Black Swans like the pandemic will prompt attention to gaps in service delivery and inequities in access.
  • People will be sick, injured, die and be born.
  • And the economics of healthcare will force uncomfortable discussions about its value and performance.

In the U.S. system, attention to regulatory issues is a necessary investment by organizations in every state and at the federal level. Details about these efforts is readily accessible on websites for each organization’s trade group. They’re the rule changes, laws and administrative actions to which all are attentive. They’re today’s issues.

Less attention is given the long-term. That focus is often more academic than practical—much the same as Robert Oppenheimer’s early musings about the future of nuclear fusion. But the Manhattan Project produced two bombs (Little Boy and Fat Man) that detonated above the Japanese cities of Hiroshima and Nagasaki in 1945, triggering the end of World War II.

The four issues above should be treated as near and present dangers to the U.S. health system requiring attention in every organization. But responses to these do not define the future of the U.S. system. That’s the Manhattan Project that’s urgently needed in our system.

Quantifying private equity’s takeover of physician practices

Posted on by • Posted in Antitrust, Federal Trade Commission (FTC), Health Policy, Health System, High Prices, Hospital, Hospital Industry, Market Consolidation, Market Power, Mergers & Acquisitions, Physician Acquisition, Physician Employment, Physician Practice Acquisition, Private Equity • Leave a comment

https://mailchi.mp/cc1fe752f93c/the-weekly-gist-july-14-2023?e=d1e747d2d8

A detailed report, published by a group of organizations including the American Antitrust Institute, provides one of the highest-quality examinations of the growth of private equity (PE)-backed physician practices, and the impact of this growth on market competition and healthcare prices.

From 2012 to 2021, the annual number of practice acquisitions by private equity groups increased six-fold, and the number of metropolitan areas in which a single PE-backed practice held over 30 percent market share rose to cover over one quarter of the country. (Check out figure 3B at the bottom of page 20 in the report to see if you live in one of those markets.)

The study also found an association between PE practice acquisitions and higher healthcare prices and per-patient expenditures. In highly concentrated markets, certain specialties, like gastroenterology, saw prices rise by as much as 18 percent.

The Gist: As the report highlights, one of the greatest barriers to assessing PE’s impact on physician practices is the lack of transparency around acquisitions and ownership structures. This analysis brings us closer to understanding the scope of the issue, and makes a strong case for regulatory and legislative intervention. 

Recent proposed changes to federal premerger disclosure requirements offer a good start, but many practice acquisitions are still too small to flag review, and slowing future acquisitions will do little to unwind the market concentration already emerging. 

PE is also not the sole actor contributing to healthcare consolidation, and proposed remedies may target the activities of payers and health systems considered anti-competitive as well.

Pennsylvania unions file antitrust complaint against UPMC

Posted on by • Posted in Antitrust, Dept of Justice (DOJ), Federal Trade Commission (FTC), Health System, Hospital, Hospital Industry, Labor Spend Management, Labor Union, Labor Union Grievance, Market Consolidation, Market Power, Monopoly, Monopoly Behavior, Retention, Staffing Ratios, Staffing Shortages, Talent Management • Leave a comment

https://www.healthcaredive.com/news/upmc-unions-antitrust-complaint-doj-workers/650739/

Dive Brief:

  • Pennsylvania unions have filed a complaint with the Department of Justice alleging integrated hospital giant UPMC is abusing its dominant market position to suppress wages and retain workers.
  • On Thursday, SEIU Healthcare Pennsylvania and a coalition of labor unions filed a 55-page complaint against UPMC, the largest private employer in the state, saying the hospital system’s size has allowed it to stamp out wage growth, “drastically increase” workload and keep workers from departing to other jobs.
  • The unions are asking federal regulators to investigate UPMC for antitrust violations, citing its dominance of the healthcare market in select regions of Pennsylvania. UPMC denied allegations of wage suppression.

Dive Insight:

The Pittsburgh-based system has seen a rise in labor complaints, according to the unions, as the system has grown into its 41-hospital footprint through a series of mergers and acquisitions. UPMC, which also operates 800 doctors offices and clinics and a handful of health insurance offerings, reported $26 billion in operating revenue last year.

Attempts in the last decade to organize UPMC’s hourly workers have been unsuccessful, according to SEIU.

Matt Yarnell, president of SEIU Healthcare Pennsylvania, called the complaints groundbreaking on a Thursday call with reporters, saying that no entity has ever filed a complaint arguing that mobility restrictions and labor violations are anticompetitive, and in violation of antitrust law.

The complaint alleges that, for every 10% increase in market share, the wages of UPMC workers falls 30 to 57 cents an hour on average. UPMC hospital workers face an average 2% wage gap compared to non-UPMC facilities, according to a study cited in the complaint.

In addition, the labor groups allege that UPMC’s staffing ratios have fallen over the past decade, resulting in its staffing ratios being 19% lower on average compared with non-UPMC care sites as of 2020.

The unions are going after UPMC for being a “monopsony,” or a company that controls buying in a given marketplace, including controlling a large number of jobs. UPMC has some 92,000 workers, according to the complaint, and has cut off avenues of competition through non-compete agreements, in addition to preventing employees from unionizing.

“If, as we believe, UPMC is insulated from competitive market pressures, it will be able to keep workers’ wages and benefits — and patient quality — below competitive levels, while at the same time continually imposing further restraints and abuses on workers to maintain its market dominance,” the complaint states. “Because we believe this conduct is contrary to Section 2 of the Sherman Act, we respectfully urge the Department of Justice to investigate UPMC and take action to halt this conduct.”

In response to the allegations, UPMC said it has the highest entry-level pay of any provider in the state, and offers “above-industry” employee benefits. UPMC’s average wage is more than $78,000, Paul Wood, UPMC’s chief communications officer, told Healthcare Dive in a statement.

“There are no other employers of size and scope in the regions UPMC serves that provide good paying jobs at every level and an average wage of this magnitude,” Wood said.

Healthcare workers are increasingly pushing for better working conditions and pay amid the COVID-19 pandemic, as hospitals grapple with recruitment and retention issues driven by burnout and heightened labor costs.

Kaiser+Geisinger: Our take on the formation of Risant Health

Posted on by • Posted in Federal Trade Commission (FTC), Health System, Hospital, Hospital Industry, Kaiser Permanente, Market Consolidation, Market Trends, Mergers & Acquisitions, Value Based Care Model, Value-Based Healthcare • Leave a comment
https://www.advisory.com/daily-briefing/2023/04/27/kaiser-geisinger?utm_source=member_db&utm_medium=email&utm_campaign=2023apr27&utm_content=member_headline_final_x_x_x_x&elq_cid=4838956&x_id=0033b00002owB9sAAE

Kaiser Permanente  on Wednesday announced it is acquiring Geisinger Health, and Geisinger will operate independently under a new subsidiary of Kaiser called  Risant Health.

Deal details

The combination of the two companies will need to be reviewed by federal and state agencies, but if approved, the two companies will have more than $100 billion in combined annual revenue.

Geisinger will operate independently as part of Risant Health, which will be headquartered in Washington, D.C. and will be led by Geisinger president and CEO Jaewon Ryu. The health systems said they intend to acquire four or five more hospital systems to fold into Risant in an effort to reach $30 billion to $35 billion in total revenue over the next five years.

In an interview, Ryu and Kaiser chair and CEO Greg Adams said Risant will specifically target hospital systems already working to move into value-based care.

According to Adams, Risant Health “is a way to really ensure that not-for-profit, value-based community health is not only alive but is thriving in this country.”

“If we can take much of what is in our value-based care platform and extend that to these leading community health systems, then we extend our mission,” Adams said. “We reach more people, we drive greater affordability for health care in this country.”

Why we’re ‘cautiously optimistic’ about this acquisition 

Just when you thought healthcare couldn’t get more interesting, Kaiser and Geisinger announce their union through newly established Risant Health. At first pass, it is hard to see a downside with this deal — and that’s something that raises my “spidey-senses.”

Kaiser and Geisinger are coming together through a vehicle that could allow them to clear an increasingly skeptical  Federal Trade Commission. It affords two health systems — both in comparatively weaker financial positions than before the pandemic — the ability to get bigger through the merger. Its pitch is decidedly hospital- (and in the future provider) led, with Geisinger retaining its brand and elevating its CEO to the head of Risant. It also gives Geisinger and future partners the latitude to pursue their own payer relationships.

In addition, it is ostensibly a play to increase providers’ control over the nature and pace of value-based care (VBC) adoption. In its press release, Kaiser acknowledges that its closed network model of care management hasn’t scaled well to other markets. And Geisinger, with its own health plan and a track-record of developing its own VBC incentives, is no neophyte and brings a clear wealth of expertise.

Without a doubt, the offer to future partners is compelling: “Come for the size and stay for the value-based care.” But like all things in life, it’s all in the details. And that’s where my “spidey-sense” kicks in.

Partnership and affiliation models alone do not make the hard work of VBC easier. While this emerging group could become a valuable, provider-led clearing house for VBC concepts, applying them in communities remains a stubborn challenge that requires individual work and leadership.

The true test of the concept will come when the first new partner joins. How they decide to participate and whether the model has the right mix of scale and flexibility is what I’ll be watching closely. The overall objective and success measure of this endeavor remains somewhat opaque, but I would say that the concept has real legs here. Right now, I’m leaning toward “cautiously optimistic.”

‘The false choice of sitting back’: A conversation with Bill Gassen and James Hereford

Posted on by • Posted in Antitrust, CEO, Complex Care, Cost Management, False Choices, Federal Trade Commission (FTC), Health System, Hospital, Hospital Industry, Innovation, Integrated Delivery System, Leadership, Leadership Alignment, Market Consolidation, Market Power, Mergers & Acquisitions, Payvider, Scale, Strategy • Leave a comment
https://www.advisory.com/blog/2023/04/gassen-hereford?utm_source=member_db&utm_medium=email&utm_campaign=2023apr19&utm_content=member_headline_atest_x_x_x_x&elq_cid=4778863&x_id=

Welcome to the “Lessons from the C-suite” series, featuring Advisory Board President Eric Larsen’s conversations with the most influential leaders in healthcare.

In this edition, Bill Gassen, President and CEO of Sanford Health and James Hereford, President and CEO of Fairview Health Services talk with Eric about the planned merger that will create the 11th largest health system in the United States that would span North Dakota, South Dakota, Iowa, and Minnesota.

The two CEOs describe the urgency and intent behind the merger, why not all disruptors are equally disruptive, and why it takes more than size to harness scale in healthcare.

Question: Bill and James, let’s jump right in. The two of you are architecting one of the most significant health system mergers of 2023 — a combination of Sanford Health and Fairview, which on its completion, will result in the 11th largest health system in the US. The discussions have attracted, understandably, a lot of interest and scrutiny not just in each of your communities, but nationally. Some may not be aware, but this is not the first time that Sanford and Fairview have considered coming together. Bill, let’s start with you – why is this time different?

Gassen: Eric, you’re right. This is not the only time our two organizations have considered the idea of merging. James and I, and our respective boards and organizations, have examined every element of the union and are confident that this is the right time to proceed. We have executed a Letter of Intent (LOI) and submitted an HSR filing that has been reviewed by the Federal Trade Commission (FTC). The parties provided substantial amounts of information to the FTC and the HSR process and it is now complete. There is an unwavering commitment from our respective leaders and our organizations to see this through.

It is a false choice for anyone to believe that James or I or anybody else has the benefit of sitting back and saying, well, maybe I’ll just maintain the world that I live in today. The healthcare status quo is gone. What is in front of us is taking the steps needed to ensure that we can continue to provide the best possible service for our patients, employees, and communities. Taking control over our destiny. We want to come together in a merger between our two organizations to put us in a position to fundamentally change and to be an agent for the modernization of the way care is delivered into the future. Our organizations exist only to serve patients, employees, and our communities. That is not up for debate. What we have in front of us is a decision to make that better for generations to come.

Hereford: I think Bill articulated that very well. Our purpose is to combine to improve and sustain our ability to offer world class healthcare. It is not simply a function of scale, you have to combine that with an intent to drive change, to improve value, and to innovate. And that’s a rare thing to have that intent. We have that intent today.

Avoiding the ‘Noah’s Ark’ problem

Q: Let’s go a bit deeper into the horizontal consolidation among health systems. This isn’t a new phenomenon — in fact, our $1.4 trillion hospital sector is already massively consolidated, with the top 100 systems controlling almost $900 billion in revenue. But with this degree of concentration, a lot of disillusionment: we just haven’t seen compelling or provable quality improvements, let alone the scale of cost reductions projected. Some of this might be what I call the “Noah’s Ark” problem—two of everything (two CEOs, two headquarters, two EHRs, etc.) … in other words, very little rationalization of back-office infrastructure or staffing.

I think about the proposed Sanford-Fairview merger differently. I might even characterize it as more a “vertical” merger, instead of “horizontal” — a combination of different and complementary capabilities instead of overlapping or competing ones — including Sanford’s proprietary health plan and virtual hospital investments, bringing Fairview’s specialty pharmacy and post-acute companies into the combination — for example. Am I thinking about this the right way?

Gassen: I think your characterization is right, Eric. We are different but very complementary organizations. We are contiguous as it relates to geography, but there is no overlap. We serve distinctly different populations in a similar part of the country. Roughly two-thirds of the patients who have been served today at Sanford Health come to us from a rural community. While most of those who Fairview serves come from much more densely populated urban communities. Both of those subsets of our population are experiencing similar challenges. There’s a need for financial sustainability, both on the provider side as well as on the patient side of the house.

When you think about our service mix, there are a number of complementary areas that make our union additive. Specialty and subspecialty expertise at Fairview coupled with a robust primary care backbone from Sanford plus our Virtual Care initiative and significant philanthropic investment will come together to create powerful healthcare solutions.

The fact that at Sanford alone we have $350 million solely dedicated to, and available for, scaling virtual care is amazing. And when you think about applying that investment to Sanford and Fairview, the opportunities are limitless. We’re going to be able to serve both our rural and urban communities, allowing us to truly transform the way in which healthcare is delivered and experienced in this part of the country.

And for those outside our orbit, they’ll say, “I want to partner with a combined Sanford Fairview” because that is much more attractive. And at the end of the day, partnering with us means that we’re all in a better position to transform the way in which we deliver care, how care is accessed, and how quality is improved. And do it in a financially sustainable way that allows us to deliver equitable care to more people in the upper Midwest.

Hereford: Here’s why scale matters: If you’re one hospital and you drive an innovation that requires a capital of investment of $1 million, that’s an expensive solution. But if you’ve got 100 hospitals, the size of that investment you made on a scale basis is much smaller. Therefore, your ability to drive the needed level of innovation is expanded significantly. To truly improve healthcare delivery, we must challenge ourselves to do things differently, but you have to have a certain level of scale to be able to do that.

Health system transformation must happen now

Q: I want to expand on the earlier point you made that the old health system status quo is forever gone. 2022, for health systems, was something of an Armageddon year — the worst on record with 11 out of 12 months with negative margins; supply chain costs up 17% versus pre-pandemic; health systems collectively spending an extra $125 billion on Labor last year compared to 2021. So not a great “state of the union” for acute-care centric health systems. How does this macroeconomic backdrop factor into your planning?

Hereford: Conceptually, cognitively, I would offer that hospital CEOs probably all know that the good old days are gone. But you don’t see organizations responding as if they’re gone. And we’re on the precipice of a significant cliff. The fundamental things that have defined healthcare and not-for-profit healthcare for decades have fundamentally shifted. We need to change in response.

We’re going to have 80,000 people when we combine. The challenge for us as leaders is going to be how do we shift the mindset and change the way we think about care delivery while maintaining essential services that persist with challenging economics. We are a high capital, low margin business that is critical to society.

Gassen: James, it’s as you and I talk about a lot. We don’t get the benefit of hitting pause, taking a year to revamp the industry because it’s 24 by 7 by 365. There are no breaks.

And while we’re doing that and while we are delivering essential services, the 45,000 incredible caregivers at Sanford and the 35,000 incredible caregivers at Fairview, collectively, are going to figure out how we evolve together as a unified organization to continue to elevate that critical work of patient care. And we don’t get reimbursed for a lot of those services. But those are essential services that people need.

If we want to be able to meet the needs of vulnerable patients and communities, we must face the increased pressure to lower costs and increase scale to drive positive margins. Those areas are few and far between in not-for-profit healthcare delivery. So, it necessitates that we continue to evolve and think differently about the work that we do driving down costs.

Larsen: And that’s increasingly becoming difficult — even for big players. I’ve been writing ruefully about the “billion-dollar club” — preeminent health systems like Ascension, MGB and Cleveland Clinic each posting more than a billion dollars in total losses (and even more in some cases, e.g., $4.5 billion for Kaiser). But Sanford, in contrast, is one of just a small handful of health systems that somehow managed to end 2022 in the black, with a $188 million operating income last year. Bill, any reflections on how you and the team did that?

Gassen: We count ourselves very, very blessed to be among the few who had the opportunity to experience positive margins in 2022. I would give first and foremost credit to an exceptionally talented team inside and outside the organization. They do a wonderful job of focusing their attention on that which matters most, which is patient care.

It’s also a very well-constructed organization from the ground up. We benefit coming into both the pandemic and then through the financial headwinds in 2022 with a well-diversified set of assets and geographies. On the acute side it’s largely contained across Iowa, South Dakota, and North Dakota.

In Minnesota, and across those above geographies, we have a great complement of assets across our provider sponsored health plan, hospitals, clinics, post-acute care, as well as our research enterprise, all of which, collectively, allowed us to do a better job than some of our peers at weathering that “economic storm” you mentioned earlier.

But, most importantly, it’s just the time that we’ve had to mature as an organization. And with that time, we’ve integrated more deeply as one singular operating company. Sanford Health is not a holding company. The decisions that we make, we make as one singular integrated system and that is a part of that special sauce that’s allowed us to be successful.

Everything that I’ve described has just given us a little bit of a head start and now it’s incumbent upon us to maximize that time.

The imagined and real disruption in healthcare

Q: Bill, you mentioned time is of the essence. And so far, we’ve mostly localized our discussion today talking about health system-specific competitive issues, which makes sense. But it also makes sense to lift up and survey the healthcare ecosystem outside of health systems and note the fact that even when Sanford and Fairview combine and represent $14 billion in revenue, it will still be comparatively tiny to some of the non-traditional players seeking to disrupt healthcare. We have trillion-dollar market cap companies like Amazon investing aggressively into the primary care, pharmacy, and home enablement spaces. We have Fortune 10 companies like UnitedHealth Group and CVS-Aetna vertically integrating and building out sophisticated ambulatory delivery systems. And we have retailers like Walmart and Best Buy transitioning into parts of the healthcare delivery chain as well. So, while Sanford-Fairview will be sizable by most conventional healthcare metrics, it has some pretty formidable competition. How do you assess the new competitive landscape emerging?

Hereford: So, I thought a lot about this because I do think it’s one of the most significant aspects of our industry right now. The opportunity for a CVS-Aetna is that they are proximate to a lot of people in the US. And there’s a lot of things that they could do for patients with a simple presentation of acute symptoms or for fairly simple chronic disease and stabilization. But that is not what drives the cost of health care in the US. It’s when people get very sick.

People receiving specialist care in hospitals are having complex procedures. They’re being treated for complex cancers. And we’re doing an amazing job of advancing the science and the technologies that we can apply to that. But that doesn’t happen in a drug store. That does not happen in a store front primary care office. That happens in organizations like ours. Our challenge is to create the same level of convenience, the same level of access, or partner in a smart way to achieve that.

Our job is to think about total cost of care within the context of delivering very complex care. That isn’t simply a function of primary care and that, I think, is our fundamental challenge. We can translate that into real total cost of care savings.

Gassen: For James and me, in our respective roles and responsibilities, this is our incredibly rewarding and incredibly difficult work. Because those other organizations aren’t required to provide care to everyone. They’re not required to provide free care. They’re not required to be able to provide services for which there is no margin. We don’t get to cherry pick.

It’s our responsibility to really be all things from a healthcare delivery perspective to all people, which means that we are always going to be challenged with how we do that in a financially sustainable way. I think it’s the beauty of where we find ourselves as an industry because out of that necessity comes that innovation that we’ve been talking about here because we can’t continue at current course and speed.

Larsen: When we start to talk about giants in healthcare we tend to index on their size and market cap and, as a result, we lump vertically integrating players and technology companies under the same umbrella. I think that’s a mistake. You have focused healthcare payers like CVS Aetna and UHG that are combining their underwriting business (and ownership of the premium dollar) with an ambulatory delivery network, with an emphasis on home and virtual care. To me that’s a very real and consequential development – and very different from what Big Tech is aspiring to do in our space.

Hereford: Eric, I agree.The world is so clearly changing and that is where the market and a number of very large healthcare organizations are betting. I do think that people who see the overall size of the healthcare marketplace and say “we want to be a part of that” but without any clear way of making sustainable margins.

Gassen: In contrast with the large public companies, as a not-profit health care system, it’s a fact of life that we operate on thin margins. But there are a lot of dollars floating around for other players in the healthcare ecosystem. Which to your point, is why people get enticed to enter into the healthcare space. Our goal with the transaction is to remain financially solid, with the resources needed to invest in our communities, while staying true to our non-profit mission.

Larsen: Your comments, Bill, underscore the power of being a ‘payvider’ in healthcare, which of course Sanford is. You’re in rarefied company — only a dozen or so health systems can claim this, and they have one thing in common — a very mature health plan function (average age of 44 years). So Intermountain, Geisinger, Kaiser, Sentara, Sanford and a small handful of others fit this bill.  I presume a major part of the envisioned benefit of the merger is extending Sanford Health plan into Fairview. Can I get you both to comment on that?

Gassen: I certainly agree with you Eric about the importance of being a “payvider.”  And of course, I’d also say there is a scale component to that, too. Today our health plan only has 220,000 covered lives. But it is a very valuable and strategic component of the larger Sanford Health system.

As we come together with Fairview into a combined system, we now have the opportunity to bring the Sanford Health plan and its additional options and opportunities for members to a much larger community. And one that’s backed by a combined system. It offers greater choices for the two million people across North Dakota, South Dakota, and Western Minnesota.

When we do that, it puts us in the best possible position to coordinate care that allows for the best outcomes, and as a consequence, also results in a better financial position for us. And so, when we think ahead to the opportunity to now apply the infrastructure that we’ve built to the greater Twin Cities market and beyond to bring that together with the care delivery assets and expertise of Fairview Health Services, we get really excited about the opportunities we unlock not just for the combined organization, but for importantly, for all the members within that community.

Healthcare’s technology paradox

Q: The above commentary on scaling out to wider geographies and connecting and transforming care brings me to the paradox of digital health. One of the only bright lights to come out of the pandemic was what I would characterize as a “Renaissance moment” in digital health — unprecedented funding ($72 billion globally in 2021 alone) fueling the creation of almost 13,000 digital startups, spanning new diagnostics, therapeutics, clinical/non-clinical workflow, care augmentation, you name it. And while we’re now seeing a rough contraction, with lots of companies starved for capital and struggling to sell into healthcare incumbents, we are going to see some winners and some transformational platforms emerge.

The question is, will healthcare incumbents like health systems be able to take advantage of this?  The data are sobering — it takes an estimated 23 months for a health system to deploy a digital health technology (once it signs a contract). And while technology tends to be deflationary — lowers costs as it augments productivity — that just hasn’t happened in healthcare, as costs inexorably keep going up. How will the combined Sanford-Fairview tackle this? Who wants to go first?

Hereford: Let me start because I want to respond to something you said, Eric. You’re right, technology has been deflationary in other sectors but only since about 1995. In the 1990s many books in that period were asking “why are we investing all this money in technology across all sectors and we’re not seeing productivity improvements?”

But out of that question came reengineering — where companies started to reconfigure processes and workflows as opposed to just applying technologies. Only then did they see the deflationary benefits of greater efficiencies from technologies. So, I think that has a lot to do with how we’ve applied technology. We’ve had federal stimulus to apply technology, but it’s to apply technology for its own sake. Not to challenge how we use technology to make it easier to be a doctor or nurse. How do we use technology to make people more effective and therefore more efficient?

Gassen: I think that change, especially fundamental shifts, and changes to a business won’t happen until you absolutely have to. And that’s human nature.

The challenge ahead of us is to interrogate how we as an industry interact with our patients and ask, “How can we fundamentally tear that down to the studs and rebuild it better and fit for today?”

But I also want to be clear about why we’re here as a health system. Our reality is that there is a patient at the end of every single decision that we make. So, we must be extremely careful about how we look at processes and implement change. We know they’re rarely perfect, but oftentimes we do deliver the best outcome for the patient. Our job is to be able to make the right change without causing harm.

Larsen: Bill, we’ve made the argument together in past conversations that this same creation moment for digital health solutions beautifully aligns to address the conventional disadvantages of American rural medicine: insufficient infrastructure (hospitals, surgery centers, etc.) and a scarcity of clinicians and non-clinicians for the workforce. Digital health holds the promise to turn those deficits into advantages. And, you know, Sanford’s been a pioneer in launching a $350 million virtual hospital. Perhaps you can unpack this.

Gassen: I’d say our work here really has its origins in the unwavering belief that one zip code should not determine the level of care that a person receives. Every patient has the right to access world class care. So, it’s incumbent upon us, those of us who find ourselves in the privileged position to be in leadership in healthcare delivery organizations like Sanford and Fairview, to take the necessary steps to deploy the appropriate resources and to find the right partners to ensure that whether you’re living in the most rural parts of the heartland or an urban center, you get the best quality care possible.

We take great pride in the fact that our organization was built on the belief that we know many of our patients choose to live in rural America. Two-thirds of the patients today at Sanford Health, whom we have the privilege of serving, come to us from rural America.

It’s with that front and center, the Virtual Care initiative at Sanford Health is allowing us the opportunity to deliver world class care. It’s about making certain that through basically all facets of digital transformation, we leverage our resources to extend excellence in primary care, in specialty and subspecialty care, and offer those individuals access to that care close to home.

The vision for us is to ensure that those who choose to live in rural America are not forced to sacrifice access to high quality, dependable care. That’s at the core of both our beliefs and actions.

Larsen: And James, I think you’ve been one of the most progressive CEOs in the industry on thinking about capitalizing on digital health, innovation and partnering with capital allocators. And we talked about a few of them — leading VCs like Thrive or SignalFire who are partnering broadly with health systems — and finding ways to shorten the innovation cycle.

Hereford: It comes back to intent and purpose. Our job is to make sure that everybody can access high quality care and so the opportunity is to really think about the commonalities and leverage that across both rural America, urban communities, suburbs, exurbs, etc. The other thing that I think is often overlooked in your Cambrian explosion is the volume of scientific advancements over the last two decades.

I love the hypothetical of a medical student who learned everything about medicine in 1950 and how fast the volume of clinical knowledge would have doubled then. They would have had about 50 years before the knowledge base doubled. Today, an amazing medical student with the ambition to learn the entire body of clinical knowledge would have about seven months to see it doubled. That’s how fast medicine is advancing.

We built this industry based on highly specialized, incredibly smart, incredibly committed people who can master these topics. This volume of information on clinical care theory, the body of knowledge on clinical application, all layered on to how the business of care works is cognitive overload. We have got to give them better tools. We have got to help support them. I think we’re in a unique place to be able to really do something about it and create real solutions for people.

Gassen: Where we’re at right now necessitates that. And again, thinking a level deeper as it relates to rural America, the opportunity is so incredibly ripe because it’s necessary. The only way that we’re going to be able to scale to the level we need is to leverage and maximize technology. And so therein creates that opportunity and that necessity makes us a very fertile ground for organizations to come in and partner with us, to be able to extend those services.

The current deal’s state of play

Q: So, we started our conversation about the merger and went broad to talk about industry trends and the wider landscape. But I do want to circle back to a couple of the outstanding specifics of the merger. Sanford and Fairview are merging. What will the University of Minnesota’s relationship be with the merged organization?

Gassen: Both James and I firmly believe, and have articulated in our conversation with you today, the virtues of bringing Sanford Health and Fairview Health services together are absolutely essential to ensuring the delivery of world class healthcare in the upper Midwest. And we are committed to creating the right relationship with the University of Minnesota for it to pursue its mission.

Hereford: We’ve always said that we wanted the University to be part of what we’re building. And, the University of Minnesota has indicated their desire to purchase the academic assets of the system and we stand ready to engage with them to support that. If that is the path that they pursue and can get state funding to support, then we can work with them to determine the nature of the relationship between the new system and the University of Minnesota.

Larsen: And how about the other partners and players in the landscape? I’m thinking of the Minnesota Attorney General, the FTC, etc.

Gassen: We’ve engaged the elected officials across the states of North Dakota, South Dakota, and Minnesota, and we’ve continued to keep them apprised. We’ve also worked very closely with regulators and are happy to report that following its review, the Federal Trade Commission cleared the transaction and the HSR process is complete.

At this point in time, we are working closely with Attorney General Keith Ellison’s office in the state of Minnesota to ensure that he has sufficient information to complete his analysis under antitrust and charities laws to ensure that he’s continuing to protect the interests of all Minnesotans. We remain very engaged and look forward to the conclusion of that work.

The future focus of leadership

Q: Ok, I’d like to round out this conversation with a look to the future. Can you foreshadow your division of labor…where you will be converging and where will you be dividing and conquering as CEOs?

Hereford: One of the great positives of this deal and one of the great signals of the quality of the rationale here is that Bill and I went into this with the question: How do we set this up to be successful over the long term?

You may have noticed Bill and I are different ages. Bill has a lot more runway than I have, so it was not a difficult decision on my part to say “look, it’s important for me to help with the transition because it’s a big deal, right? And it’s not going to be over in a year.” But I can be that bridging function to help support the transition. This is a long-term play and Bill’s the person who’s going to be able to be in the seat to really see that through.

And given my interests I can take on the innovation that we’re talking about and how we make the membrane of this organization a little more permeable and a little bit more friendly to partners, while also being very demanding of partners in terms of the value they create, and we create within the system.

I’m really excited about the opportunity to do that. I do think the way that we have approached this is a very enlightened approach.

Gassen: Standing on the shoulders of James’ comments, one of the many aspects that makes this merger unique is the collegiality and foresight from our respective boards that see how incredibly valuable it is to be able to have co-CEOs working together, focusing first and foremost on ensuring that we’re bringing together the two organizations as one integrated, transformative healthcare delivery organization. I think James and I get up every morning with the goal of making sure that that happens every single day.

And it’s not just that James will work on the innovation piece because it brings him joy and energy but also, it’s where he has a deep level of experience and expertise. I get to focus more of my time and energy on the day-to-day of the two organizations coming together.

Together, James and I will be able to jointly balance the combination of the two organizations with day-to-day delivery and the transformative opportunities for us because of the unique nature of our backgrounds and expertise.

Hereford: And I think that’s a real advantage for the organization. I’m sure there are going be times when I’ll say “Bill, we’ve got to change. You’ve got to do this”. And he’s going to say “yeah, but I can’t do that. I can’t make that kind of change.”

But that’s the kind of dialogue that this structure sets up for us to hold that tension productively as opposed to responding to the tyranny of the urgent, which is ever present in a large health care delivery system. Transformation of care delivery systems will require the ability to manage those competing dynamics. I really appreciate both the structure but also how Bill is approaching this.

Gassen: I do think that what we just described here will prove to be one of the finer distinguishing factors that allows us to really be successful. Because you do oftentimes find yourself with a choice between A or B. And for us we get to choose C — “all of the above” — and go forward and do that. 

UnitedHealth Group (UHG) quietly acquired Crystal Run Healthcare

Posted on by • Posted in Accountable Care Organization (ACO), Antitrust, Federal Trade Commission (FTC), Market Consolidation, Market Power, Market Share, Mergers & Acquisitions, Physician Acquisition, Physician Aggregator, Physician Arms Race, UnitedHealth Group • Leave a comment

https://mailchi.mp/5e9ec8ef967c/the-weekly-gist-april-14-2023?e=d1e747d2d8

 In late February, Crystal Run Healthcare, a Middletown, NY-based physician group with nearly 400 providers, became part of UHG’s Optum division. 

A local paper broke the news after obtaining an email from Crystal Run’s CEO, as neither company issued a press release, though UHG has since confirmed the acquisition. In addition to pandemic-related financial difficulties, Crystal Run recently shuttered its health plan after large losses, and its Medicare accountable care organization failed to earn savings in 2021.

Crystal Run expands Optum’s footprint in the Hudson Valley region north of New York City, following the acquisition of Mount Kisco, NY-based Caremount Medical in 2022. The company’s broader New York metro area footprint includes Connecticut-based ProHEALTH and New Jersey-based Riverside Medical Group, the three of which Optum has since integrated into a single tri-state medical group. 

The Gist: Optum continues to secure its place as the country’s largest aggregator of physicians, now employing or aligning with over 70,000 doctors nationwide. 

Not only does every new deal by UHG bolster its vertical integration strategy, but they also shine a light on gaps in federal antitrust regulations. UHG must only disclose deals that comprise a “significant” portion of its business, a threshold that excludes physician groups as large as Crystal Run—making it difficult to fully examine transactions that are subscale according to regulations, but may be significant for healthcare delivery in a local market. 

Some state governments, including New York, are exploring ways to increase state antitrust scrutiny of provider acquisitions. But in multi-state markets where only the federal government has the authority for full oversight, UHG’s acquisition strategies are proving difficult to even monitor, much less intervene.