On Tuesday, health system leaders testified before the House Energy and Commerce Subcommittee onOversight and Investigations about potential changes to the 340B Drug Pricing Program.
The committee was receptive to witnesses’ claims that the program is essential to the financial survival of many systems, but representatives stated that “the status quo is not acceptable” and that they had a responsibility to “step in and provide oversight.”
There was little interest expressed in broad overhauls to the program, but both witnesses and representatives focused on how it could benefit from greater transparency, for example requiring hospitals to disclose 340B revenue, how savings are used, and which patient populations are served through the program.
Meanwhile, Republicans and Democrats in both houses have introduced multiple bills this session that focus on various aspects of the 340B program, including transparency.
The Gist: It’s encouraging to see members of congress recognize how essential the 340B program is to health system finances, and of the potential reforms on the table, increased transparency is a relatively palatable option.
Congress is exploring statutory tweaks to the program in response to the myriad legal challenges concerning it, many of which involve the Department of Health and Human Services. Several of these lawsuits stem from more than 20 major drugmakers restricting 340B discounts at contract pharmacies, which has led multiple states to enact legislation protecting these discounts, in turn prompting further lawsuits.
The mess of conflicting rulings these cases have produced so far is a clear sign that the 340B statute will be amended, and health system advocates should continue working with Congress to find solutions that preserve the integrity of the program.
This week’s graphic looks at the plethora of state-level mergers and acquisitions (M&A) oversight laws that are now in place, part of a recent trend that adds further scrutiny to healthcare consolidation.
Thirty-five states currently have laws that require not-for-profit healthcare entities that meet certain requirements, usually based on revenue size, to report M&A activity to state regulators. Fourteen of these states extend these requirements to for-profit healthcare entities as well.
These state laws vary in scope but generally target healthcare deals that fall below the federal reporting threshold for transaction size, updated to $119.5M in 2024.
Two states with particularly strong healthcare M&A oversight laws are Oregon and Minnesota. The Oregon Health Authority must pre-approve any healthcare transaction of at least $35M in size.
Passed in 2023, Minnesota’s healthcare antitrust law sets the deal size reporting requirements at $10M,
but the state commissioner of health and the attorney general do not have to pre-approve all healthcare mergers. Minnesota also requires merging parties to disclose extensive details on the transaction agreement, market impact, service cuts, and more to state regulators, who have broad authority to block mergers on public interest grounds.
Although some believe that these state laws will help preserve healthcare competition and access, they will increase the complexity, cost, and timeline for healthcare entities seeking to merge and could make survival for smaller providers even more difficult.
Published in Health Affairs last month, this piece explores the history of hospital at home (HaH) programs and examines some of the barriers currently limiting their growth.
HaH programs were introduced in the US back in the 1990s but remained rare due to a lack of reimbursement. That changed in 2020 when the Centers for Medicare and Medicaid Services (CMS) introduced the Acute Hospital Care at Home waiver, which allows fee-for-service Medicare reimbursement for providing inpatient-level care at home, prompting the number of HaH programs nationwide to swell from about 20 to more than 320 today.
Although early findings from this initiative have been positive, the future of many of HaH programs is in doubt, as the waiver is set to expire at the end of 2024, barring congressional action.
The authors argue that making the Medicare waiver program permanent is essential to overcome HaH’s “common agency problem,” which prevents many hospitals from building out their home-based programs to scale if they cannot receive reimbursement for all eligible patients.
The Gist: The Medicare waiver program has incubated many new HaH programs, but most of these programs remain very small; even for systems with the most robust programs, HaH volume only represents a sliver of their total inpatient volume.
Without guaranteed fee-for-service Medicare reimbursement, the average health system will find it difficult to devote the significant resources and investment that program creation and expansion requires.
If Congress moves to make the waiver program permanent, or at least extends it for several more years, state Medicaid programs and private payers may be more incentivized to follow suit and provide reimbursement for the care model.
Although legislation has been introduced to this end in Congress, action on this front in an election year is going to be challenging.
West Reading, Pa.-based Tower Health has secured more than $142 million through a debt refinancing deal with bondholders, nearly doubling its days of cash on hand to almost 60 days, a spokesperson for the health system confirmed to Becker’s.
The deal buys Tower more time to execute its financial turnaround and meet its objective of returning to profitability this fiscal year.
“This agreement secures substantial liquidity support and provides a longer-term window to advance our continued financial turnaround efforts,” Tower said in a statement shared with Becker’s. “These efforts are already gaining traction and yielding significant positive outcomes.”
As part of its turnaround efforts, Tower has closed two hospitals, laid off workers, and sold or closed multiple urgent care centers in Pennsylvania. It also will transition revenue cycle operations, patient access services, utilization review and physician advisors to Ensemble, effective July 1. The move will see about 675 Tower employees move to Ensemble.
The health system reported a $27.4 million operating loss for the nine months ending March 31, improving on the $122.8 million loss reported during the same period the prior year. Its long-term debt stands at more than $1.2 billion, according to its most recent quarterly report.
The refinancing was backed by the “vast majority” of Tower’s bondholders, a significant endorsement of its financial recovery plan, according to the nonprofit health system. Tower did not disclose a specific bondholder, but said the group represents some of the largest institutional asset managers in the U.S.
“[The refinancing deal] underscores their confidence in our strategy and affirms that we are on a positive trajectory,” according to the health system.
Tower was formed in 2017 after the formerly named Reading Health System acquired five Pennsylvania hospitals from Franklin, Tenn.-based Community Health Systems. The transaction included Reading Hospital in West Reading; Brandywine Hospital in Coatesville; Chestnut Hill Hospital in Philadelphia; Jennersville Hospital in West Grove; Phoenixville Hospital in Phoenixville; and Pottstown Hospital in Pottstown.
Tower recently closedBrandywine Hospital and Jennersville Hospital. Its plan to sell Brandywine Hospital to Philadelphia-based Penn Medicine fell through earlier this year.
The health system now includes more than 1,200 beds across its remaining hospitals as well as St. Christopher’s Hospital for Children in Philadelphia, in partnership with Drexel University, according to its website.
Hundreds of nurses at University Hospitals are facing a decrease in pay as the Cleveland-based health system pivots from its COVID-19 pandemic model, cleveland.com reported.
A spokesperson told Becker’s the pay adjustment is effective June 16 and applies to 350 Enterprise Staffing Services nurses.
“UH’s Enterprise Staffing Services is an in-house staffing agency formed in response to the once-in-a-lifetime global health pandemic that stretched our resources and workforce to the extreme,” a UH statement shared with Becker’s said. “During the pandemic, hospitals across the country (including UH) increased their use of agency nurses to fill gaps in staffing with government funding assistance, with agency costing up to twice as much or more than our hospital-based full-time nurses.
“Nurses are the heartbeat of our health system and we will never be able to thank them enough for their commitment and dedication to our patients during the pandemic. Unfortunately, the pandemic care model is not sustainable in today’s environment.”
The statement said those affected by the pay adjustment, representing 1% of the health system’s workforce, will still be paid about twice the national average.
Pay for staffing services nurses on night shift will decrease from $75 to $65 an hour, a 13% cut, UH said, according to cleveland.com, which obtained a health system memo related to the change. Pay for staffing services nurses on day shift will decrease 8%, from $60 to $55 an hour.
Pay for a new staffing services job without benefits will be $75 per hour for night shift, and $65 per hour for day shift, UH said in the memo, which also encouraged staffing services nurses to apply for other health system roles, according to cleveland.com.
“As we continue to exit from our pandemic model, external nursing staffing agencies and internal hospital nurse staffing agencies nationwide are adjusting pay accordingly,”
UH’s statement said. “We have provided cutting-edge, compassionate care to our neighbors in Northeast Ohio since 1866. We’re taking the appropriate steps to ensure we can continue fulfilling our mission for future generations.”
Manatee Memorial Hospital in Bradenton, Fla., is revising its charity care policies due to funding shortfalls, a move the investor-owned hospital called a “difficult, yet responsible, fiscally prudent decision,” according to a June 3 report by the Sarasota Herald-Tribune.
Part of King of Prussia, Pa.-based Universal Health Services, Manatee Memorial Hospital is a 300-bed facility staffed by over 800 physicians, residents, and allied health professionals.
In May, the hospital informed stakeholders it would no longer accept patients enrolled in Manatee County’s healthcare plan or unfunded referrals from the We Care Manatee nonprofit for uninsured, low-income county residents, effective June 1, the Sarasota Herald-Tribune reported.
Emergency room access will be maintained in compliance with the federal Emergency Medical Treatment and Labor Act.
“Our projected deficit from unfunded care, beyond charity care, amounts to several millions of dollars,” Manatee Memorial wrote in a May letter to stakeholders, as reported by the Sarasota Herald-Tribune. “The significant cost of unreimbursed care is unsustainable. We continue to be a supportive community partner and will maintain open discussions with Manatee County regarding solutions, however, we need to make this difficult, yet responsible, fiscally prudent decision.”
In April, Manatee Memorial Hospital CEO Tom McDougal indicated the hospital’s funding for indigent care services was unsustainable. He noted that the hospital’s costs for charity, indigent and uninsured care rose by 47% over two years, reaching $21.2 million in 2023, with an additional $2.9 million in uncollectable care. Last year, the hospital received $2.7 million in indigent funding from Manatee County.
“Ladies and gentlemen, I simply can’t afford to keep doing this without being compensated for it,” Mr. McDougal said at the April 16 public county commission meeting. “It takes away care from other patients.”
McDougal made his remarks at a commission meeting focused on undocumented immigration, acknowledging that specific figures linking undocumented immigrants to the rise in charity care costs were not available. Six percent of patients in the hospital emergency room self-disclosed their status as undocumented immigrants, which Mr. McDougal believes is an undercount.
The latest changes follow Mr. McDougal’s “very uncomfortable decision,” as he put it, in February to stop oncology services and some surgeries for Manatee County health plan enrollees, as the hospital’s costs under the program reached $9 million in 2023, compared to the $2.7 million reimbursement from the county.
Nonprofit hospital margins hit 4.3% in April, up 33% year over year, according to Kaufman Hall’s “National Hospital Flash Report” released June 3.
Kaufman Hall examined data from 1,300 hospitals in Syntellis Performance Solutions’ database and found that while hospital margins are improving overall, so is the gap between the highest and lowest performing hospitals. The best performing hospitals had a margin of 28.9%, compared to -16.1% for the worst performing hospitals.
“While financial performance looks solid on the surface, a closer examination of the data shows a greater divide between high- and low-performing hospitals,” said Erik Swanson, senior vice president of data and analytics at Kaufman Hall. “Forty percent of hospitals in the United States are losing money.
Organizations who have weathered the challenges of the last few years have adopted a wide range of proactive and growth-related strategies, including improving discharge transitions and building a larger outpatient footprint.”
Operating margins were up 7% month over month and year to date operating margins were 21% higher than in 2023. Operating EBITDA margin year to date was up 14% over the same period last year, and flat with hospital performance in 2021.
Net operating revenue per calendar day jumped 9% year to date in April compared, and 5% over March 2024. Inpatient revenue climbed 12 percent year over year in April.
Hospital operating margin index also increased in April to 4.3% after three months of decline.
Of note, the data revealed:
1. Outpatient revenue increased 10% year over year in April. 2. Average length of stay dropped 4% year over year in April. 3. Emergency department visits increased to hit pre-pandemic levels.
Here are 37 health systems with strong operational metrics and solid financial positions, according to reports from credit rating agencies Fitch Ratings and Moody’s Investors Service released in 2024.
AdventHealth has an “AA” rating and stable outlook with Fitch. The rating is based on the Altamonte Springs, Fla.-based system’s competitive market position — especially in its core Florida markets — and its financial profile, Fitch said.
Advocate Health members Advocate Aurora Health and Atrium Health have “Aa3” ratings and positive outlooks with Moody’s. The ratings are supported by the Charlotte, N.C-based system’s significant scale, strong market share across several major metro areas and good financial performance and liquidity, Moody’s said.
Avera Health has an “AA-” rating and a stable outlook with Fitch. The rating reflects the Sioux Falls, S.D.-based system’s strong operating risk and financial profile assessments, and significant size and scale, Fitch said.
Carilion Clinic has an “Aa3” rating and stable outlook with Moody’s. The rating reflects the Roanoke, Va.-based system’s scale, regional significance as a tertiary referral system with broad geographic capture, and a highly integrated physician base with a well-defined culture, Moody’s said.
Cedars-Sinai Health System has an “AA-” rating and a stable outlook with Fitch. The rating reflects the Los Angeles-based system’s consistent historical profitability and its strong liquidity metrics, historically supported by significant philanthropy, Fitch said.
Children’s Health has an “Aa3” rating and stable outlook with Moody’s. The rating reflects the Dallas-based system’s continued strong performance from a focus on high margin and tertiary services, as well as a distinctly leading market share, Moody’s said.
Children’s Hospital Medical Center of Akron (Ohio) has an “Aa3” rating and stable outlook with Moody’s. The rating reflects the system’s large primary care physician network, long-term collaborations with regional hospitals and leading market position as its market’s only dedicated pediatric provider, Moody’s said.
Children’s Hospital of Orange County has an “AA-” rating and a stable outlook with Fitch. The rating reflects the Orange, Calif.-based system’s position as the leading provider for pediatric acute care services in Orange County, a position solidified through its adult hospital and regional partnerships, ambulatory presence and pediatric trauma status, Fitch said.
Children’s Minnesota has an “AA” rating and stable outlook with Fitch. The rating reflects the Minneapolis-based system’s strong balance sheet, robust liquidity position and dominant pediatric market position, Fitch said.
Cincinnati Children’s Hospital Medical Center has an “Aa2” rating and stable outlook with Moody’s. The rating is supported by its national and international reputation in clinical services and research, Moody’s said.
Cleveland Clinic has an “Aa2” rating and stable outlook with Moody’s. The rating reflects the system’s strength as an international brand in highly complex clinical care and research and centralized governance model, the ratings agency said.
Cook Children’s Medical Center has an “Aa2” rating and stable outlook with Moody’s. The ratings agency said the Fort Worth Texas-based system will benefit from revenue diversification through its sizable health plan, large physician group, and an expanding North Texas footprint.
El Camino Health has an “AA” rating and a stable outlook with Fitch. The rating reflects the Mountain View, Calif.-based system’s strong operating profile assessment with a history of generating double-digit operating EBITDA margins anchored by a service area that features strong demographics as well as a healthy payer mix, Fitch said.
Hoag Memorial Hospital Presbyterian has an “AA” rating and stable outlook with Fitch. The Newport Beach, Calif.-based system’s rating is supported by its strong operating risk assessment, leading market position in its immediate service area and strong financial profile,” Fitch said.
Inspira Health has an “AA-” rating and stable outlook with Fitch. The rating reflects Fitch’s expectation that the Mullica Hill, N.J.-based system will return to strong operating cash flows following the operating challenges of 2022 and 2023, as well as the successful integration of Inspira Medical Center of Mannington (formerly Salem Medical Center).
JPS Health Network has an “AA” rating and stable outlook with Fitch. The rating reflects the Fort Worth, Texas-based system’s sound historical and forecast operating margins, the ratings agency said.
Mass General Brigham has an “Aa3” rating and stable outlook with Moody’s. The rating reflects the Somerville, Mass.-based system’s strong reputation for clinical services and research at its namesake academic medical center flagships that drive excellent patient demand and help it maintain a strong market position, Moody’s said.
McLaren Health Care has an “AA-” rating and stable outlook with Fitch. The rating reflects the Grand Blanc, Mich.-based system’s leading market position over a broad service area covering much of Michigan, the ratings agency said.
Med Center Health has an “AA-” rating and stable outlook with Fitch. The rating reflects the Bowling Green, Ky.-based system’s strong operating risk assessment and leading market position in a primary service area with favorable population growth, Fitch said.
Memorial Hermann Health System has an “Aa3” rating and stable outlook with Moody’s. The rating reflects the Houston-based system’s leading and expanding market position and strong demand in a growing region, Moody’s said.
Nationwide Children’s Hospital has an “Aa2” rating and stable outlook with Moody’s. The rating reflects the Columbus, Ohio-based system’s strong market position in pediatric services, growing statewide and national reputation and continued expansion strategies.
Nicklaus Children’s Hospital has an “AA-” rating and stable outlook with Fitch. The rating is supported by the Miami-based system’s position as the “premier pediatric hospital in South Florida with a leading and growing market share,” Fitch said.
Novant Health has an “AA-” rating and stable outlook with Fitch. The ratings agency said the Winston-Salem, N.C.-based system’s recent acquisition of three South Carolina hospitals from Dallas-based Tenet Healthcare will be accretive to its operating performance as the hospitals are highly profited and located in areas with growing populations and good income levels.
Oregon Health & Science University has an “Aa3” rating and stable outlook with Moody’s. The rating reflects the Portland-based system’s top-class academic, research and clinical capabilities, Moody’s said.
Orlando (Fla.) Health has an “AA-” rating and stable outlook with Fitch. The rating reflects the health system’s strong and consistent operating performance and a growing presence in a demographically favorable market, Fitch said.
Presbyterian Healthcare Services has an “AA” rating and stable outlook with Fitch. The Albuquerque, N.M.-based system’s rating is driven by a strong financial profile combined with a leading market position with broad coverage in both acute care services and health plan operations, Fitch said.
Rush University System for Health has an “AA-” rating and stable outlook with Fitch. The rating reflects the Chicago-based system’s strong financial profile and an expectation that operating margins will rebound despite ongoing macro labor pressures, the rating agency said.
Saint Francis Healthcare System has an “AA” rating and stable outlook with Fitch. The rating reflects the Cape Girardeau, Mo.-based system’s strong financial profile, characterized by robust liquidity metrics, Fitch said.
Saint Luke’s Health System has an “Aa2” rating and stable outlook with Moody’s. The Kansas City, Mo.-based system’s rating was upgraded from “A1” after its merger with St. Louis-based BJC HealthCare was completed in January.
Salem (Ore.) Health has an”AA-” rating and stable outlook with Fitch. The rating reflects the system’s dominant marketing positive in a stable service area with good population growth and demand for acute care services, Fitch said.
Seattle Children’s Hospital has an “AA” rating and a stable outlook with Fitch. The rating reflects the system’s strong market position as the only children’s hospital in Seattle and provider of pediatric care to an area that covers four states, Fitch said.
SSM Health has an “AA-” rating and stable outlook with Fitch. The St. Louis-based system’s rating is supported by a strong financial profile, multistate presence and scale with good revenue diversity, Fitch said.
St. Elizabeth Medical Center has an “AA” rating and stable outlook with Fitch. The rating reflects the Edgewood, Ky.-based system’s strong liquidity, leading market position and strong financial management, Fitch said.
Stanford Health Care has an “Aa3” rating and positive outlook with Moody’s. The rating reflects the Palo Alto, Calif.-based system’s clinical prominence, patient demand and its location in an affluent and well insured market, Moody’s said.
UChicago Medicine has an “AA-” rating and stable outlook with Fitch. The rating reflects the system’s strong financial profile in the context of its broad and growing reach for high-acuity services, Fitch said.
University of Colorado Health has an “AA” rating and stable outlook with Fitch. The Aurora-based system’s rating reflects a strong financial profile benefiting from a track record of robust operating margins and the system’s growing share of a growth market anchored by its position as the only academic medical center in the state, Fitch said.
Willis-Knighton Medical Center has an “AA-” rating and positive outlook with Fitch. The outlook reflects the Shreveport, La.-based system’s improving operating performance relative to the past two fiscal years combined with Fitch’s expectation for continued improvement in 2024 and beyond.
Chicago-based CommonSpirit is concerned about Medicaid funding across many of the states in which it operates, but “doubly concerned” about California, its strongest market and the state in which about 30% of its business occurs, CFO Dan Morissette said during a May 23 investor call.
Earlier this month, California Gov. Gavin Newsom outlined plans to divert more than $7 billion in funding from the healthcare sector to address a major funding deficit.
The governor’s proposal would reallocate $6.7 billion from Medi-Cal provider rate increases set for Jan. 1, 2025, to balance the state budget, which is facing a shortfall of $27.6 billion this year and a projected deficit of $28.4 billion in 2025.
“We’re doubly concerned given the state budget,” Mr. Morissette said. “Lean times create new concerns for us as it relates to Medicaid funding, which does not cover even the direct cost of care for the various ministries that we serve.”
California’s $6.7 billion funding proposal was generated by the managed care organization tax that was expected to provide $19.4 billion in federal funding through 2026. In 2024, rates rose to at least 87.5% of Medicare rates for primary care, maternity care and nonspecialty mental health providers. According to Politico, these rates will continue, but no more workers will be added under the revised plan.
CommonSpirit executives said that the health system is out of network with only one major payer in California — an unnamed Medicaid provider in the north of the state.
“All other payer arrangements have either just been signed or we were out of network for a short period of time and have successfully rejoined the network,” Mr. Morissette said. “We always find it disruptive — as all providers do — to be out of network, but sometimes we don’t have much choice given our need for the cross-subsidy where the commercial insurers do provide a substantial amount of our EBIDA margins. It’s a really difficult and delicate balance.”
CommonSpirit said it receives about $600 million in California provider fees — a permanent program through Proposition 52 — and these funds will not be affected because they are not part of the general fund.
“However, we always include a 0% increase in our budget and long-range financial planning when it comes to the Medicaid rate because that’s what we’ve been experiencing,” said Benjie Loanzon, senior vice president, finance and corporate controller. “We don’t expect an increase in the Medicaid rate with this proposal.”
With a single ruling, the Federal Trade Commission removed the nation’s occupational handcuffs, freeing almost all U.S. workers from non-compete clauses. The medical profession will never be the same.
On April 23, the FTC issued a final rule, affecting not only new hires but also the 30 million Americans currently tethered to non-compete agreements. Scheduled to take effect in September—subject to the outcome of legal challenges by the U.S. Chamber of Commerce and other business groups—the ruling will dismantle longstanding barriers that have kept healthcare professionals from changing jobs.
The FTC projects that eliminating these clauses will boost medical wages, foster greater competition, stimulate job creation and reduce health expenditures by $74 billion to $194 billion over the next decade. This comes at a crucial moment for American healthcare, an industry in which 60% of physicians report burnout and 100 million people (41% of U.S. adults) are saddled with medical bills they cannot afford.
Like all major rulings, this one creates clear winners and losers—outcomes that will reshape careers and, potentially, alter the very structure of U.S. healthcare.
Winners: Newly Trained Clinicians
Undoubtedly, the FTC’s ruling is a win for younger doctors and nurses, many of whom join hospitals and health systems with the promise of future salary increases and more autonomy. However, by agreeing to stringent non-compete clauses, these newly trained clinicians have little choice but to place their trust in employers that, shielded by air-tight agreements, have no fear of breaking their promises.
Most newly trained clinicians enter the medical job market in their late 20s and early 30s, carrying significant student-loan debt—nearly $200,000 for the average doctor. Eager for stable, well-paying positions, these young professionals quickly settle into their careers and communities, forming strong relationships with friends and patients. Many start families.
But when these clinicians realize their jobs are falling short of the promises made early on, they face a tough decision: either endure subpar working conditions or uproot their lives. Taking a new job 25 or 50 miles away or moving to a different state are often are only options to avoid breaching a non-compete clause.
In a 570-page supplement to its ruling, the FTC published testimonials from dozens of healthcare professionals whose lives and careers were harmed by these clauses.
“Healthcare providers feel trapped in their current employment situation, leading to significant burnout that can shorten their career longevity,” said one physician working in rural Appalachia.
By banning non-competes, the FTC’s rule will boost career mobility for all clinicians within their own communities. This change will likely spur competition among employers—leading to improved pay and benefits to attract and, equally important, retain top talent. And with the reassurance that they can easily switch jobs if their current employer falls short of expectations, clinicians will enjoy greater professional satisfaction and less burnout.
Winners: Patients In Competitive Markets
Benefits that accrue to doctors and nurses from the FTC’s ban will translate directly to improved outcomes for patients. For example, we know that physicians who report symptoms of burnout are twice as likely to commit a serious medical error. Studies have shown the inverse is true, as well: healthcare providers who are satisfied with their jobs tend to have lower burnout rates, which is positively correlated with improved patient outcomes.
Once freed from restrictive non-compete clauses, many clinicians will practice elsewhere within the community. To attract patients, they will have to offer greater access, lower prices and more personalized service. Others with the freedom to choose will join outpatient centers that offer convenient and efficient alternatives for diagnostic tests, surgery and urgent medical care, often at a fraction of the cost of traditional hospital services. In both cases, increased competition will give patients improved medical care and added value.
Losers: Large Health Systems
Large health systems, which encompass several hospitals in a geographic area, have traditionally relied on non-compete agreements to maintain their market dominance. By barring high-demand medical professionals such as radiologists and anesthesiologists from joining competitors or starting independent practices, these systems have been able to suppress competition and force insurers to pay more for services.
Currently, these systems can demand high reimbursement rates from insurers while also maintaining relatively low wages for staff, creating a highly profitable model. Yale economist Zack Cooper’s research shows the consequence of the status quo: prices go up and quality declines in highly concentrated hospital markets.
The FTC’s ruling challenges those conditions, potentially dismantling monopolistic market controls. As a result, insurers will no longer be forced to contend with a single, dominant provider. And with health systems pushed to offer better wages and benefits to retain their top talent, bottom lines will shrink.
While nonprofit hospitals and health systems are not currently under the FTC’s jurisdiction, the agency has pointed out that these facilities might be at “a self-inflicted disadvantage in their ability to recruit workers.” Moreover, as Congress intensifies scrutiny on the nonprofit status of U.S. health systems, hospitals that do not voluntarily align with the FTC’s guidelines may find themselves compelled to do so through legislative actions.
Losers: Hospital Administrators
Individual hospitals have faced a unique challenge over the past decade. Across the country, inpatient numbers are falling, which makes it harder for hospital administrators to fill beds overnight. This trend has been driven by advancements in medical technology and new practices that enable more outpatient procedures, along with changes in insurance reimbursements favoring less costly outpatient care. As a result, hospital administrators have been compelled to adapt their financial strategies.
Nowadays, outpatient services account for about half of all hospital revenue. These range from physician consultations to specialized procedures like radiological and cardiac diagnostics, chemotherapy and surgeries.
Medicare and other insurers typically pay hospitals more for these outpatient services than they pay local doctors and other facilities. Knowing this, hospitals are hiring community doctors and acquiring diagnostic and procedural facilities, then boosting profitability by charging the higher hospital rates for the same services.
Hospital administrators know that this strategy only works if the newly hired clinicians are prohibited from quitting and returning to practice within the same community. If they do, their patients are likely to go with them. This is why the non-compete clauses are so essential to a hospital’s financial success.
As expected, the American Hospital Association opposes the FTC’s rule, arguing that non-compete clauses protect proprietary information. In practice, most of the doctors affected by the ban are providing standard medical care and have no proprietary knowledge that requires protection.
Looking Ahead
Today’s hospital systems are starkly divided between haves and have-nots. Facilities in affluent areas often enjoy high reimbursement rates from private insurers, boosting financial success and administrator salaries. In contrast, rural hospitals grapple with low patient volumes while facilities in economically disadvantaged, high-population areas face greater financial difficulties.
The current model is not working. The old ways of doing things—enforcing non-competes, charging higher fees for identical services and promoting market consolidation to hike prices—are not sustainable solutions.
The abolition of non-compete agreements will produce both winners and losers. In the healthcare sector, the ultimate measure of a policy’s impact should be its effect on patients—and the overwhelming evidence suggests that eliminating these clauses will benefit them greatly.
HENRY KOTULA 