Category Archives: Federal Trade Commission (FTC)

Healthcare Regulators’ Outdated Thinking Will Cost American Lives

Posted on by • Posted in Addiction, Artificial Intelligence, Buprenorphine, ChatGPT, Drug Enforcement Administration (DEA), Federal Trade Commission (FTC), Innovation, Med-PaLM 2, Medical Licensing, Mindset, Public Health Emergency (PHE), Thinking in the Past, Virtual Healthcare, Virtual Office, Virtual Visit • Leave a comment
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In a matter of months, ChatGPT has radically altered our nation’s views on artificial intelligence—uprooting old assumptions about AI’s limitations and kicking the door wide open for exciting new possibilities.

One aspect of our lives sure to be touched by this rapid acceleration in technology is U.S. healthcare. But the extent to which tech will improve our nation’s health depends on whether regulators embrace the future or cling stubbornly to the past.

Why our minds live in the past

In the 1760s, Scottish inventor James Watt revolutionized the steam engine, marking an extraordinary leap in engineering. But Watt knew that if he wanted to sell his innovation, he needed to convince potential buyers of its unprecedented power. With a stroke of marketing genius, he began telling people that his steam engine could replace 10 cart-pulling horses. People at time immediately understood that a machine with 10 “horsepower” must be a worthy investment. Watt’s sales took off. And his long-since-antiquated meaurement of power remains with us today.

Even now, people struggle to grasp the breakthrough potential of revolutionary innovations. When faced with a new and powerful technology, people feel more comfortable with what they know. Rather than embracing an entirely different mindset, they remain stuck in the past, making it difficult to harness the full potential of future opportunities.

Too often, that’s exactly how U.S. government agencies go about regulating advances in healthcare. In medicine, the consequences of applying 20th-century assumptions to 21st-century innovations prove fatal.  

Here are three ways regulators do damage by failing to keep up with the times:

1. Devaluing ‘virtual visits’

Established in 1973 to combat drug abuse, the Drug Enforcement Administration (DEA) now faces an opioid epidemic that claims more than 100,000 lives a year.

One solution to this deadly problem, according to public health advocates,  combines modern information technology with an effective form of addiction treatment.

Thanks to the Covid-19 Public Health Emergency (PHE) declaration, telehealth use skyrocketed during the pandemic. Out of necessity, regulators relaxed previous telemedicine restrictions, allowing more patients to access medical services remotely while enabling doctors to prescribe controlled substances, including buprenorphine, via video visits.

For people battling drug addiction, buprenorphine is a “Goldilocks” medication with just enough efficacy to prevent withdrawal yet not enough to result in severe respiratory depression, overdose or death. Research from the National Institutes of Health (NIH) found that buprenorphine improves retention in drug-treatment programs. It has helped thousands of people reclaim their lives.

But because this opiate produces slight euphoria, drug officials worry it could be abused and that telemedicine prescribing will make it easier for bad actors to push buprenorphine onto the black market. Now with the PHE declaration set to expire, the DEA has laid out plans to limit telehealth prescribing of buprenorphine.

The proposed regulations would let doctors prescribe a 30-day course of the drug via telehealth, but would mandate an in-person visit with a doctor for any renewals. The agency believes this will “prevent the online overprescribing of controlled medications that can cause harm.”

The DEA’s assumption that an in-person visit is safer and less corruptible than a virtual visit is outdated and contradicted by clinical research. A recent NIH study, for example, found that overdose deaths involving buprenorphine did not proportionally increase during the pandemic. Likewise, a Harvard study found that telemedicine is as effective as in-person care for opioid use disorder.

Of course, regulators need to monitor the prescribing frequency of controlled substances and conduct audits to weed out fraud. Furthermore, they should demand that prescribing physicians receive proper training and document their patient-education efforts concerning medical risks.

But these requirements should apply to all clinicians, regardless of whether the patient is physically present. After all, abuses can happen as easily and readily in person as online.

The DEA needs to move its mindset into the 21st century because our nation’s outdated approach to addiction treatment isn’t working. More than 100,000 deaths a year prove it.

2. Restricting an unrestrainable new technology

Technologists predict that generative AI, like ChatGPT, will transform American life, drastically altering our economy and workforce. I’m confident it also will transform medicine, giving patients greater (a) access to medical information and (b) control over their own health.

So far, the rate of progress in generative AI has been staggering. Just months ago, the original version of ChatGPT passed the U.S. medical licensing exam, but barely. Weeks ago, Google’s Med-PaLM 2 achieved an impressive 85% on the same exam, placing it in the realm of expert doctors.

With great technological capability comes great fear, especially from U.S. regulators. At the Health Datapalooza conference in February, Food and Drug Administration (FDA) Commissioner Robert M. Califf emphasized his concern when he pointed out that ChatGPT and similar technologies can either aid or exacerbate the challenge of helping patients make informed health decisions.

Worried comments also came from Federal Trade Commission, thanks in part to a letter signed by billionaires like Elon Musk and Steve Wozniak. They posited that the new technology “poses profound risks to society and humanity.” In response, FTC chair Lina Khan pledged to pay close attention to the growing AI industry.

Attempts to regulate generative AI will almost certainly happen and likely soon. But agencies will struggle to accomplish it.

To date, U.S. regulators have evaluated hundreds of AI applications as medical devices or “digital therapeutics.” In 2022, for example, Apple received premarket clearance from the FDA for a new smartwatch feature that lets users know if their heart rhythm shows signs of atrial fibrillation (AFib). For each AI product that undergoes FDA scrutiny, the agency tests the embedded algorithms for effectiveness and safety, similar to a medication.

ChatGPT is different. It’s not a medical device or digital therapy programmed to address a specific or measurable medical problem. And it doesn’t contain a simple algorithm that regulators can evaluate for efficacy and safety. The reality is that any GPT-4 user today can type in a query and receive detailed medical advice in seconds. ChatGPT is a broad facilitator of information, not a narrowly focused, clinical tool. Therefore, it defies the types of analysis regulators traditionally apply.

In that way, ChatGPT is similar to the telephone. Regulators can evaluate the safety of smartphones, measuring how much electromagnetic radiation it gives off or whether the device, itself, poses a fire hazard. But they can’t regulate the safety of how people use it. Friends can and often do give each other terrible advice by phone.  

Therefore, aside from blocking ChatGPT outright, there’s no way to stop individuals from asking it for a diagnosis, medication recommendation or help with deciding on alternative medical treatments. And while the technology has been temporarily banned in Italy, that’s unlikely to happen in the United States.  

If we want to ensure the safety of ChatGPT, improve health and save lives, government agencies should focus on educating Americans on this technology rather than trying to restrict its usage.

3. Preventing doctors from helping more people

Doctors can apply for a medical license in any state, but the process is time-consuming and laborious. As a result, most physicians are licensed only where they live. That deprives patients in the other 49 states access to their medical expertise.

The reason for this approach dates back 240 years. When the Bill of Rights passed in 1791, the practice of medicine varied greatly by geography. So, states were granted the right to license physicians through their state boards.

In 1910, the Flexner report highlighted widespread failures of medical education and recommended a standard curriculum for all doctors. This process of standardization culminated in 1992 when all U.S. physicians were required to take and pass a set of national medical exams. And yet, 30 years later, fully trained and board-certified doctors still have to apply for a medical license in every state where they wish to practice medicine. Without a second license, a doctor in Chicago can’t provide care to a patient across a state border in Indiana, even if separated by mere miles.

The PHE declaration did allow doctors to provide virtual care to patients in other states. However, with that policy expiring in May, physicians will again face overly restrictive regulations held over from centuries past.

Given the advances in medicine, the availability of technology and growing shortage of skilled clinicians, these regulations are illogical and problematic. Heart attacks, strokes and cancer know no geographic boundaries. With air travel, people can contract medical illnesses far from home. Regulators could safely implement a common national licensing process—assuming states would recognize it and grant a medical license to any doctor without a history of professional impropriety.

But that’s unlikely to happen. The reason is financial. Licensing fees support state medical boards. And state-based restrictions limit competition from out of state, allowing local providers to drive up prices.

To address healthcare’s quality, access and affordability challenges, we need to achieve economies of scale. That would be best done by allowing all doctors in the U.S. to join one care-delivery pool, rather than retaining 50 separate ones.

Doing so would allow for a national mental-health service, giving people in underserved areas access to trained therapists and helping reduce the 46,000 suicides that take place in America each year.

Regulators need to catch up

Medicine is a complex profession in which errors kill people. That’s why we need healthcare regulations. Doctors and nurses need to be well trained, so that life-threatening medications can’t fall into the hands of people who will misuse them.

But when outdated thinking leads to deaths from drug overdoses, prevents patients from improving their own health and limits access to the nation’s best medical expertise, regulators need to recognize the harm they’re doing.  

Healthcare is changing as technology races ahead. Regulators need to catch up.

Regulation of Consolidation

Posted on by • Posted in Antitrust, Federal Trade Commission (FTC), Health Insurance Industry, Health Policy, Health System, Hospital, Hospital Industry, Market Consolidation, Market Power, Market Share, Market Trends, Monopoly, Monopoly Behavior • Leave a comment

Jaime King On Consolidation and Competition — The Trials and Triumphs of Health Care Antitrust Law New England Journal of Medicine March 18, 2023; 388:1057-1060 DOI: 10.1056/NEJMp2201629

 “Over the past 30 years, health care consolidation has gone largely unchecked by federal and state antitrust enforcers, which has resulted in higher prices, stagnant quality of care, and limited access to care for patients. Similarly, consolidation has contributed to the availability of fewer employment options, limited wage growth, longer hours, and staff shortages for health care providers.

Antitrust law is designed to prevent such harms, but its failure to evolve alongside the health care industry has led to pervasive consolidation, which now necessitates regulation in some markets to address market-power abuses that competitive forces can no longer govern…

Although mergers are often justified with promises of improved quality or patient access, evidence supporting these claims is lacking.

Clinical integration as envisioned in accountable care organizations, for example, requires substantial oversight, training, and investment that goes well beyond the financial integration involved in most mergers. Most studies have found either no changes or a reduction in quality after provider mergers. Consolidation can also limit access to care; post-merger facility closures, reductions in charity care, and elimination of abortion and other reproductive health services have often occurred.

Consolidation among insurers also affects health care prices and quality. Insurers with market power can increase premiums above competitive levels by exercising monopoly power or can push provider payments below competitive levels by exercising monopsony power. Lower premiums are commonly found in areas with more insurers, whereas in the absence of competition, insurers that obtain price concessions from providers may not pass savings on to consumers.4 Some evidence suggests, however, that moderate amounts of insurer consolidation may be associated with improved patient experience, since providers in such markets have an incentive to compete on quality.

Given the health care industry’s growing complexity, future oversight could involve a combination of more responsive antitrust enforcement and creative regulatory interventions. Combining competitive and regulatory forces may offer the only hope for controlling health care prices, restoring high-quality care, protecting health care workers, and preserving and expanding access to care.”

Biden Administration withdraws permissive hospital antitrust guidance

Posted on by • Posted in Accountable Care Organization (ACO), Antitrust, Dept of Justice (DOJ), Federal Trade Commission (FTC), Health System, Hospital, Hospital Industry • Leave a comment

https://mailchi.mp/12e6f7d010e1/the-weekly-gist-february-24-2023?e=d1e747d2d8

 Earlier this month, the Department of Justice (DOJ) and the Federal Trade Commission (FTC) quietly released joint revisions to three healthcare antitrust policy statements which it now considers “overly permissive”. While two of the policies date back to the 1990s and relate to information sharing, the most significant, published in 2011, stated that certain ACOs were “highly unlikely to raise significant competitive concerns”. Instead, the FTC and DOJ say their policy will be to review these arrangements on a case-by-case basis. 

The Gist: While unlikely to alter the ACO landscape significantly, this new guidance signals a departure from Obama-era policies that gave outsized priority to ACO development in cost-reduction efforts. Until now, ACOs were passed over for scrutiny, while regulators focused on more traditional hospital mergers in an attempt to prevent outsized market leverage.

Moving forward, the Biden administration must strike a delicate balance between policies that encourage greater coordination amongst independent healthcare entities working together to improve patient care and lower costs, and the market leverage that such coordination can generate. 

CommonSpirit to acquire 5 Steward hospitals, expanding reach into Utah

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

https://www.healthcaredive.com/news/commonspirit-acquire-steward-utah/642917/

Dive Brief:

  • CommonSpirit Health announced Wednesday that it will acquire regional health system Steward Health Care in Utah for $685 million.
  • The deal marks CommonSpirit’s entry into Utah, expanding the hospital operator’s footprint to a total of 22 states.
  • CommonSpirit will acquire five hospitals from Steward, along with more than 40 clinics and other ambulatory services, the system said. The deal is expected to close later this year. CommonSpirit’s Centura Health will manage the Utah sites.

Dive Insight:

The acquisition comes on the heels of a thwarted attempt by HCA to purchase Steward Health Care last year.

The Federal Trade Commission was successful in blocking the deal after the agency alleged that a tie-up between the head-to-head competitors would harm patients around Salt Lake City by raising prices and lowering care quality.

CommonSpirit said the deal represents a “significant long-term growth opportunity” and extends the system’s reach into a new region that already has an established presence with a variety of services, including acute, post-acute and ambulatory care.

The Catholic health system released financial results Wednesday for the period ended Dec. 31, the nonprofit’s second quarter, which showed a $474 million operating loss. The system said labor shortages, higher staffing costs and a recent ransomware attack dragged on its results.

“CommonSpirit is taking a number of steps to bolster its financial sustainability,” the system said Wednesday.

But officials would not comment on whether those steps may include job cuts.

So far, the ransomware incident has cost the system $150 million, it said Wednesday. The figure includes lost revenue due to the interruption to business and costs to remediate the issue.

CommonSpirit said it is working with insurance carriers but is unable to predict the timing or amount it may receive following the cyber incident.

Cyberattackers gained access to CommonSpirit’s network last fall in a breach that interrupted access to electronic health records and delayed patient care in multiple regions. CommonSpirit later told regulators that the breach exposed the private health information of more than 623,000 people.

Wednesday’s acquisition news follows CommonSpirit’s recent announcement that it is dissolving its long-term joint venture with AdventHealth. For more than two decades, the two operated hospitals in Colorado and western Kansas. The two will now manage their respective hospitals.

U.S. healthcare: A conglomerate of monopolies

Posted on by • Posted in Competition, Cost Management, Cost Reduction, Dept of Justice (DOJ), Economies of Scale, Federal Trade Commission, Federal Trade Commission (FTC), Health System, Hospital, Hospital at Home, Hospital Industry, Innovation, Lack of Quality Improvement, Leadership, Market Consolidation, Mergers & Acquisitions, Monopoly, Monopoly Behavior, Quality Measures, Quality of Care, Seven-Day Hospital • 1 Comment
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The Taylor Swift ticketing debacle of 2022 left thousands of frustrated ‘Swifties’ without a chance to see their favorite artist in concert. And it also highlighted the trouble that arises when companies like Ticketmaster gain monopolistic control.

In any industry, market consolidation limits competition, choice and access to goods and services, all of which drive up prices.

But there’s another—often overlooked—consequence.

Market leaders that grow too powerful become complacent. And, when that happens, innovation dies. Healthcare offers a prime example.

And industry of monopolies

De facto monopolies abound in almost every healthcare sector: Hospitals and health systems, drug and device manufacturers, and doctors backed by private equity. The result is that U.S. healthcare has become a conglomerate of monopolies.  

For two decades, this intense concentration of power has inflicted harm on patients, communities and the health of the nation. For most of the 21st century, medical costs have risen faster than overall inflation, America’s life expectancy (and overall health) has stagnated, and the pace of innovation has slowed to a crawl.

 This article, the first in a series about the ominous and omnipresent monopolies of healthcare, focuses on how merged hospitals and powerful health systems have raised the price, lowered the quality and decreased the convenience of American medicine.

Future articles will look at drug companies who wield unfettered pricing power, coalitions of specialist physicians who gain monopolistic leverage, and the payers (businesses, insurers and the government) who tolerate market consolidation. The series will conclude with a look at who stands the best chance of shattering this conglomerate of monopolies and bringing innovation back to healthcare.

How hospitals consolidate power

The hospital industry is now home to a pair of seemingly contradictory trends. On one hand, economic losses in recent years have resulted in record rates of hospital (and hospital service) closures. On the other hand, the overall market size, value and revenue of U.S. hospitals are growing.

This is no incongruity. It’s what happens when hospitals and health systems merge and eliminate competition in communities.  

Today, the 40 largest health systems own 2,073 hospitals, roughly one-third of all emergency and acute-care facilities in the United States. The top 10 health systems own a sixth of all hospitals and combine for $226.7 billion in net patient revenues.

Though the Federal Trade Commission and the Antitrust Division of the DOJ are charged with enforcing antitrust laws in healthcare markets and preventing anticompetitive conduct, legal loopholes and intense lobbying continue to spur hospital consolidation. Rarely are hospital M&A requests denied or even challenged.

The ills of hospital consolidation

The rapid and recent increase in hospital consolidation has left hundreds of communities with only one option for inpatient care.

But the lack of choice is only one of the downsides.

Hospital administrators know that state and federal statutes require insurers and self-funded businesses to provide hospital care within 15 miles of (or 30 minutes from) a member’s home or work. And they understand that insurers must accept their pricing demands if they want to sell policies in these consolidated markets. As a result, studies confirm that hospital prices and profits are higher in uncompetitive geographies.

These elevated prices negatively impact the pocketbooks of patients and force local governments (which must balance their budgets) to redirect funds toward hospitals and away from local police, schools and infrastructure projects.

Perhaps most concerning of all is the lack of quality improvement following hospital consolidation. Contrary to what administrators claim, clinical outcomes for patients are no better in consolidated locations than in competitive ones—despite significantly higher costs.

How hospitals could innovate (and why they don’t)

Hospital care in the United States accounts for more than 30% of total medical expenses (about $1.5 trillion). Even though fewer patients are being admitted each year, these costs continue to rise at a feverish pace.

If our nation wants to improve medical outcomes and make healthcare more affordable, a great place to start would be to innovate care-delivery in our country’s hospitals.

To illuminate what’s possible, below are three practical innovations that would simultaneously improve clinical outcomes and lower costs. And yet, despite the massive benefits for patients, few hospital-system administrators appear willing to embrace these changes.

Innovation 1: Leveraging economies of scale

In most industries, bigger is better because size equals cost savings. This advantage is known as economies of scale.

Ostensibly, when bigger hospitals acquire smaller ones, they gain negotiating power—along with plenty of opportunities to eliminate redundancies. These factors could and should result in lower prices for medical care.

Instead, when hospitals merge, the inefficiencies of both the acquirer and the acquired usually persist. Rather than closing small, ineffective clinical services, the newly expanded hospital system keeps them open. That’s because hospital administrators prefer to raise prices and keep people happy rather than undergo the painstaking process of becoming more efficient.

The result isn’t just higher healthcare costs, but also missed opportunities to improve quality.

Following M&A, health systems continue to schedule orthopedic, cardiac and neurosurgical procedures across multiple low-volume hospitals. They’d be better off creating centers of excellence and doing all total joint replacements, heart surgeries and neurosurgical procedures in a single hospital or placing each of the three specialties in a different one. Doing so would increase the case volumes for surgeons and operative teams in that specialty, augmenting their experience and expertise—leading to better outcomes for patients.

But hospital administrators bristle at the idea, fearing pushback from communities where these services close.   

Innovation 2: Switching to a seven-day hospital

When patients are admitted on a Friday night, rather than a Monday or Tuesday night, they spend on average an extra day in the hospital.

This delay occurs because hospitals cut back services on weekends and, therefore, frequently postpone non-emergent procedures until Monday. For patients, this extra day in the hospital is costly, inconvenient and risky. The longer the patient stays admitted, the greater the odds of experiencing a hospital acquired infection, medical error or complications from underlying disease.

It would be possible for physicians and staff to spread the work over seven days, thus eliminating delays in care. By having the necessary, qualified staff present seven days a week, inpatients could get essential, but non-emergent treatments on weekends without delay. They could also receive sophisticated diagnostic tests and undergo procedures soon after admission, every day of the week. As a result, patients would get better sooner with fewer total inpatient days and far lower costs.  

Hospital administrators don’t make the change because they worry it would upset the doctors and nurses who prefer to work weekdays, not weekends.

Innovation 3: Bringing hospitals into homes

During Covid-19, hospitals quickly ran out of staffed beds. Patients were sent home on intravenous medications with monitoring devices and brief nurse visits when needed.

Clinical outcomes were equivalent to (and often better than) the current inpatient care and costs were markedly less.

Building on this success, hospitals could expand this approach with readily available technologies.

Whereas doctors and nurses today check on hospitalized patients intermittently, a team of clinicians set up in centralized location could monitor hundreds of patients (in their homes) around the clock.

By sending patients home with devices that continuously measure blood pressure, pulse and blood oxygenation—along with digital scales that can calibrate fluctuations in a patient’s weight, indicating either dehydration or excess fluid retention—patients can recuperate from the comforts of home. And when family members have questions or concerns, they can obtain assistance and advice through video.

Despite dozens of advantages, use of the “hospital at home” model is receding now that Covid-19 has waned.

That’s because hospital CEOs and CFOs are paid to fill beds in their brick-and-mortar facilities. And so, unless their facilities are full, they prefer that doctors and nurses treat patients in a hospital bed rather than in people’s own homes.

Opportunities for hospital innovations abound. These three are just a few of many changes that could transform medical care. Instead of taking advantage of them, hospital administrators continue to construct expensive new buildings, add beds and raise prices.

FTC proposes banning noncompete agreements

Posted on by • Posted in American Hospital Association (AHA), Competition, Federal Trade Commission, Federal Trade Commission (FTC), Health System, Hospital, Hospital Industry, Non-Compete Agreements, Physician, Physician Compensation, Physician Employment, Private Equity • Leave a comment

https://mailchi.mp/59374d8d7306/the-weekly-gist-january-13-2023?e=d1e747d2d8

Last Thursday, the Federal Trade Commission (FTC) released a proposed rule that would ban employers from imposing noncompete agreements on their employees. Noncompetes affect roughly 20 percent of the American workforce, and healthcare providers would be particularly impacted by this change, as far greater shares of physicians—at least 45 percent of primary care physicians, according to one oft-cited study—are bound by such agreements.

The rulemaking process is expected to be contentious, as the US Chamber of Commerce has declared the proposal “blatantly unlawful”. While it is unclear whether the rule would apply to not-for-profit entities, the American Hospital Association has released a statement siding with the Chamber of Commerce and urging that the issue continue to be left to states to determine.

The Gist: Should this sweeping rule go into effect, it would significantly shift bargaining power in the healthcare sector in favor of doctors, allowing them the opportunity to move away from their current employers while retaining local patient relationships.

The competitive landscape for physician talent would change dramatically, particularly for revenue-driving specialists, who would have far greater flexibility to move from one organization to another, and to push aggressively for higher compensation and other benefits.

Given that the FTC cited suppressed competition in healthcare as an outcome of current noncomplete agreements, the burden will be on organizations that employ physicians—including health systems and insurers, as well as private equity-backed corporate entities—to prove that physician noncompetes are essential to their operations and do not raise prices, as the FTC has suggested.

10 Key Medtech Themes for 2023

Posted on by • Posted in Aging Population, Antitrust, Artificial Intelligence, Chronic Care Management, Chronic Diseases, Competition, Data Privacy, Data Security, Digital Health, European Medicines Agency (“EMA”), the Medicines and Healthcare Products Regulatory Agency (MHRA), European Medicines Agency (EMA), Federal Trade Commission, Federal Trade Commission (FTC), Food and Drug Administration (FDA), Market Consolidation, Medicines and Healthcare Products Regulatory Agency (MHRA), Medtech, Mergers & Acquisitions, Private Equity, Tech-Enabled Care, Telehealth - Remote Monitoring, Virtual Care Strategy, Virtual Healthcare, Virtual Office, Virtual Visit, Womens Health, Workforce Shortages • Leave a comment

https://medcitynews.com/2023/01/10

We expect 2023 to be a pivotal year for the industry, as the accelerated acceptance of virtual care and demographic trends, such as an aging population, increasing chronic illnesses and healthcare worker shortages, sustain demand for medtech-enabled solutions.

The combination of rapid developments in novel healthcare technology and heightened demand for integrated tech-enabled care has continued to fuel innovation in the medtech industry.  At the same time, medtech innovators – whether in digital health, wearables and AI-driven offerings in healthcare, or diagnostics, telemedicine and health IT solutions – continue to face a patchwork of laws, rules and norms across the world. Life sciences and healthcare innovators and regulators are also looking to medtech to increase access to care and health equity. Here are ten global medtech themes we are tracking in the coming year:

Focus on digital tuck-in acquisitions in medtech M&A

Despite continued uncertainty in the overall financial market, medtech M&A activity continued at a steady pace in 2022.  This year witnessed a rise in tuck-in acquisitions of smaller companies that can be easily integrated into buyers’ existing infrastructure and product offerings, as opposed to significantly sized takeovers of businesses that aren’t squarely aligned with buyers’ existing businesses lines.  Medtech acquirers have been particularly focused on developing their digital capabilities to innovate and reach customers in new ways.  As digitization continues to transform the industry, we expect acquirers to continue to prioritize the value of digital and data assets as they evaluate potential targets.

Continued interest by private equity and other financial sponsors

Private equity firms, healthcare-focused funds and other financial sponsors have continued to display a strong appetite for investing in Medtech companies, with top targets in subsectors such as diagnostics and healthcare IT solutions.  Later-stage medtech companies in particular are gaining a larger share of venture capital funding, as later-stage investments allow financial sponsors to focus on businesses with higher yields, as well as less time to market and capital reimbursement.  Demographic trends, including an aging population and the increasing prevalence of chronic diseases, coupled with healthcare technology advancements have created robust demand for medtech-enabled solutions.  Additionally, medtech offerings have broad applications that can extend beyond stakeholders in a specific therapy area, product category or care setting, offering the ability to satisfy unmet needs with large patient bases.

Strategic medtech collaborations as the new norm

Strategic medtech collaborations and partnerships have become the new norm in our increasingly connected digital healthcare ecosystem.  In response to heightened consumer demand for tech-enabled care, pharmaceutical and medtech companies are collaborating to use digital technologies to engage with consumers, unlocking a vast range of treatments such as personalized medicine.  Additionally, as the market rapidly evolves towards data-driven healthcare, we expect medtech companies to continue to work collaboratively to address existing barriers to data sharing and promote interoperability of healthcare data.

Continued scrutiny by antitrust and competition authorities 

As expected, global antitrust and competition authorities continued to focus on the tech, life sciences and medtech sectors in 2022.  The US, UK and EU authorities have stepped up efforts to investigate and challenge conduct by large pharma and technology companies pursuing mergers and acquisitions.  We expect these authorities to assess similar concerns in the digital health context in an effort to account for the value of combined datasets and the interoperability of various offerings that could be derived from digital health mergers and acquisitions.  Furthermore, geopolitical tensions have resulted in new and expanded foreign investment regimes to improve the resilience of domestic healthcare systems.  Notably this year, the UK government implemented the National Security and Investment Act that allows it to restrict transactions that may threaten national security, including in the AI and data infrastructure sectors.  Sensitive data continues to be a recurring theme for foreign investment review for Committee on Foreign Investment in the US  and that of the EU as well.

Growing importance of data privacy and security

Increasing regulatory attention to sensitive health data and the escalating rise of ransomware attacks has made data privacy and security more important than ever for medtech innovators.  The Federal Trade Commission has issued several statements about its willingness to “fully” enforce the law against the illegal use and sharing of highly sensitive data.  Additionally, several state privacy laws coming into effect in 2023 create new categories of sensitive personal data, including health data, and impose novel obligations on innovators to obtain data-related consents.  As ransomware continues to pose security-related threats, the US Department of Health and Human Services renewed calls for all covered entities and business associates to prioritize cybersecurity.  New standards, such as cybersecurity label rating programs for connected devices, aim to address security risks.  In the EU, medtech providers will need to consider how the launch of the European Health Data Space and newly proposed data regulation, such as the Data Act and AI Act, could impact their data use and sharing practices.

More active engagement with FDA/EMA/MHRA

We expect companies active in the medtech sector, particularly those that make use of AI and other advanced technologies, to continue their conversations with the U.S. Food and Drug Administration (“FDA”), the European Medicines Agency (“EMA”), the Medicines and Healthcare Products Regulatory Agency (“MHRA”) and other regulators as such companies grow their medtech business lines and establish their associated regulatory compliance infrastructure. Given the unique regulatory issues arising from the implementation of digital health technologies, we expect the FDA, EMA and MHRA to provide additional guidance on AI/ML-based software-as-a-medical device and the remote management of clinical trials.  2022 saw stakeholders in the life sciences and medtech industries collaborate with regulatory authorities to push forward the acceptance of digital endpoints that rely on sensor-generated data collected outside of a clinical setting.  As the industry shifts to decentralized clinical trials, we expect both innovators and regulators to work together to evaluate the associated clinical, privacy and safety risks in the development and use of such digital endpoints.

Increasing medtech localization in the Asia Pacific region

2022 saw multinational companies (“MNCs”), including American pharma/device makers make an active effort to expand their medtech business lines in the Asia Pacific region.   At the same time, government authorities in the region have been increasingly focused on incentivizing local innovation, approving government grants and prohibiting the importation of non-approved medical equipment. In light of MNCs’ market share of the medical device market in the Asia Pacific region, especially in China, we expect the emergence of the domestic medtech industry to prompt discussions among MNCs, local innovators and government authorities over the long-term development of the global market for medical technology.

Long-term adoption of telehealth and remote patient monitoring technologies 

The Covid-19 pandemic saw the rise of telehealth and remote patient monitoring technologies as key modes of healthcare delivery.  The telehealth industry remains focused on enabling remote consultations and long-term patient management for patients with chronic conditions.  Looking forward, we expect to see increased innovation in non-invasive technologies that can provide early diagnostics and ongoing disease management in a low-friction manner.  At the same time, we anticipate telehealth companies to face increasing scrutiny from regulatory authorities around the world for fraud and abuse by patients and providers.  Consumer and patient data privacy and security in connection with telehealth and remote patient monitoring continue to remain top of mind for regulators as well.

Women’s health and privacy concerns for medtech

We expect to see increased consumer health tech adoption for reproductive care, especially in light of the U.S. Supreme Court’s decision to overturn Roe v. Wade.  Following the Dobbs decision, a number of states introduced or passed legislation that prohibits or restricts access to reproductive health services beyond abortion.  In response, women’s health-focused companies are expanding their virtual fertility and pregnancy, telemedicine and other services to patients.  At the same time, such companies need to assess the legal risks stemming from the collection and storage of their customers’ personal health information, which could then be used as evidence to prosecute customers for obtaining illegal reproductive health services.  We expect companies active in this space to take steps to navigate the patchwork of data privacy and security laws across jurisdictions while establishing clear digital health governance mechanisms to safeguard their customers’ data privacy and security.

Addressing inequities in the implementation of digital healthcare technologies

Medtech innovators and regulators have been increasingly focused on addressing inequities in the healthcare system and the data used to train AI and ML-based digital healthcare technologies.  In 2022, a number of medtech companies collaborated to provide technologies that result in improved patient outcomes across all populations, as well as boost participation of diverse populations in clinical trials.  In parallel, we are seeing increased interest from regulators to reduce bias in digital health technologies and the accompanying datasets, as evidenced by the EU’s proposed AI Act and the UK’s health data strategy. In the US, which currently lacks comprehensive government regulation of AI in healthcare, there have been increasing calls for institutional commitments in the area of algorithmovigilance.  Because of the inaccurate conclusions that may result from biased technologies and data, MedTech companies must prioritize health equity in the implementation of digital healthcare technologies so that everyone can benefit from the latest scientific advances.

In conclusion, the medtech industry has remained resilient amidst the challenging macroeconomic environment.  We expect 2023 to be a pivotal year for the industry, as the accelerated acceptance of virtual care and demographic trends, such as an aging population, increasing chronic illnesses and healthcare worker shortages, sustain demand for medtech-enabled solutions.  At the same time, the rapidly changing legal and regulatory landscape will continue to be a key issue for medtech innovators moving forward. Adopting a global, forward-thinking regulatory compliance strategy can help MedTech companies stay competitive and ultimately, achieve better outcomes for patients.

Why large health insurers are buying up physicians

Posted on by • Posted in Antitrust, Competition, Federal Trade Commission (FTC), Health Insurance Industry, Market Consolidation, Market Power, Market Share, Mergers & Acquisitions, Monopoly Behavior, Physician, Physician Strategy, Physician Workforce, Vertical Consolidation, Vertical Integration, Vertical Merger • Leave a comment

https://mailchi.mp/3a7244145206/the-weekly-gist-december-9-2022?e=d1e747d2d8

An enlightening piece published this week in Stat News lays out exactly how UnitedHealth Group (UHG) is using its vast network of physicians to generate new streams of profit, a playbook being followed by most other major payers. Already familiar to close observers of the post-Affordable Care Act healthcare landscape, the article highlights how UHG can use “intercompany eliminations”—payments from its UnitedHealthcare payer arm to its Optum provider and pharmacy arms—to achieve profits above the 15 to 20 percent cap placed on health insurance companies.

So far in 2022, 38 percent of UHG’s insurance revenue has flowed into its provider groups, up from 23 percent in 2017. And UHG expects next year’s intercompany eliminations to grow by 20 percent to a total of $130B, which would make up over half of its total projected revenue.

The Gist:

The profit motive behind payer-provider vertical integration is as clear as it is concerning for the state of competition in healthcare. 

UHG now employs or affiliates with 70K physicians—10K more than last year—seven percent of the US physician workforce, and the largest of any entity. 

Given the weak antitrust framework for regulating vertical integration, the federal government has proven unable to stop the acquisition of providers by payers. Eventually, profit growth for these vertically integrated payers will have to come from tightening provider networks, and not just acquiring more assets. That could prompt regulatory action or consumer backlash, if the government or enrollees determine that access to care is being unfairly restricted.

Until then, the march of consolidation is likely to continue.

Private equity’s power in healthcare continues to grow, raising concerns: KHN report

Posted on by • Posted in Antitrust, False Claims Act, Federal Trade Commission (FTC), For-Profit, Healthcare Private Equity Association, Market Consolidation, Market Power, Market Share, Market Trends, Mergers & Acquisitions, Private Equity, Profit Motive, Transparency, Whistleblower Lawsuit • Leave a comment
https://www.beckershospitalreview.com/finance/private-equity-s-power-in-healthcare-continues-to-grow-raising-concerns-khn-report.html?utm_medium=email&utm_content=newsletter

Private equity groups have invested about $1 trillion into nearly 8,000 healthcare transactions in the past decade, and some experts are pushing for more scrutiny of its increasing influence on the industry amid concern it may be causing higher medical bills and diminished quality of care, a Nov. 14 Kaiser Health News report said.

Because such investment groups typically invest less than $101 million, such transactions do not attract automatic antitrust reviews at the federal level, the report continued. That represents more than 90 percent of private equity investments in the industry.

Nevertheless, companies owned or managed by private equity groups have agreed to pay fines of more than $500 million since 2014 in over 30 lawsuits under the False Claims Act, which deals with false billing submissions, KHN’s investigation found.

The problem may be most acute in certain specialist fields and in certain metropolitan areas. While private equity, for example, plays a role in just 14 percent of gastroenterology practices nationwide, it controls about 75 percent of that market in at least five metropolitan areas across five states, including Texas and North Carolina, according to research from UC Berkeley’s Nicholas C. Petris Center. 

And private equity pockets may be getting deeper. In 2021 alone, over $206 billion was invested by such groups in healthcare, and there is plenty of “dry powder” around for more, KHN reported. The Healthcare Private Equity Association, for example, which boasts about 100 investment companies as members, says the firms have $3 trillion in assets awaiting allocation.

Private equity, like everything else, may have some poor performers but it doesn’t help to generalize as groups “vary tremendously” in how they operate their healthcare investments, Robert Homchick, a Seattle attorney, told KHN.

“Private equity has some bad actors, but so does the rest of the [healthcare] industry,” he said. “I think it’s wrong to paint them all with the same brush.”

Concerns remain, however, that, at least in some cases, private equity involvement is simply a vehicle for maximizing returns, often at the expense of patients. In addition to the $500 million fines, there is also evidence of some private equity groups pushing through additional testing and mandated patient numbers to boost returns, often in medically questionable scenarios, the report said, citing the example of National Spine and Pain Centers previously owned by private equity group Sentinel Partners.

In that case, National Spine paid $3.3 million in a whistleblower case related to allegations of unnecessary treatment and testing, KHN said.

The scope of such private equity dominance in some markets worries many industry observers, and much more needs to be done to help reel in such potential abuses, they say.

“We’re still at the stage of understanding the scope of the problem,” said Laura Alexander, former vice president of policy at the nonprofit American Antitrust Institute, which collaborated on the Petris Center research. “One thing is clear: Much more transparency and scrutiny of these deals is needed.”

Federal Trade Commission (FTC) probing large anesthesia group

Posted on by • Posted in Federal Trade Commission, Federal Trade Commission (FTC), Market Consolidation, Market Power, Market Share, Mergers & Acquisitions, Monopoly, Monopoly Behavior, No Surprises Act, Private Equity • Leave a comment

https://mailchi.mp/b1e0aa55afe5/the-weekly-gist-october-7-2022?e=d1e747d2d8

The FTC is investigating US Anesthesia Providers (USAP), a private equity (PE)-backed group with 4.5K physicians working in nine states, over concerns of monopoly power in certain markets. The inquiry is focused on USAP’s acquisition history, which has followed the PE “playbook” of rolling up small anesthesiology groups into a single entity large enough to exert leverage in contract negotiations. USAP’s presence in Texas and Colorado is likely to be of particular interest, as it controls at least 30 percent of the anesthesiology market in both states. 

The Gist: Like many other PE-backed physician groups, USAP achieved market power mostly through myriad acquisitions too small to warrant regulatory attention on their own. The probe is in line with recent government scrutiny of private equity influence in the healthcare sector, and will no doubt be closely watched by investors and PE-backed groups.

If USAP is forced to divest from certain markets, the precedent could prove especially damaging to other rapidly growing investor-backed physician groups, particularly those staffing hospital functions, who are already being rocked by ramifications of the No Surprises Act.