The Federal Trade Commission announced Oct. 25 it is restoring its practice of requiring companies that previously pursued an anticompetitive merger to get prior approval for future transactions.
Six things to know:
1. The FTC will now require companies to get prior approval from the agency for any transaction “affecting each relevant market for which a violation was alleged” for at least 10 years.
2. The FTC said in some situations it may seek prior approval provisions that cover broader geographic markets beyond just the relevant markets affected by the merger. The agency will consider several factors to make the determination, including the level of market concentration, the degree to which the transaction increases concentration and evidence of anticompetitive market dynamics.
3. The FTC is less likely to pursue a prior approval provision against merging companies that abandon their transaction, the commission said.
4. The FTC is reinstating the prior approval practice after the commission voted in July to repeal a 1995 policy statement that prevented the agency from imposing these merger restrictions.
5. The agency said it has already implemented the policy by imposing strict limits on future acquisitions by Denver-based DaVita after the company’s acquisition of University of Utah Health’s dialysis clinics.
6. “The FTC should not have to waste valuable time and resources investigating clearly anticompetitive deals that should have died in the boardroom,” Holly Vedova, director of the agency’s bureau of competition, said in a news release. “Restoring the long-standing prior approval policy forces acquisitive firms to think twice before going on a buying binge because the FTC can simply say no.”
3. North Carolina system severs ties with Atrium, joins UNC Health Carolinas HealthCare System Blue Ridge, a two-campus system in Morganton, N.C., cut ties with Atrium Health and partnered with UNC Health. Carolinas HealthCare System Blue Ridge and UNC Health finalized their management services agreement Oct. 1. Under the partnership, Blue Ridge will be renamed UNC Health Blue Ridge.
6. LifePoint, Prisma Health call off hospital sale A deal to sell the three hospitals in South Carolina fell through. Brentwood, Tenn.-based LifePoint inked a deal to sell the three hospitals and an ER to Greenville, S.C.-based Prisma Health, but the parties canceled the deal April 9. The health systems said significant delays and challenges with the Federal Trade Commission “made it prohibitive to move forward.” Medical University of South Carolina in Charleston later purchased the three hospitals.
7. Sentara, Cone Health nix merger Norfolk, Va.-based Sentara Healthcare and Greensboro, N.C.-based Cone Health have abandoned plans to merge into an $11.5 billion system, the organizations said in a joint statement June 2.
More than three years after signing a letter of intent to merge, Jefferson Health and Einstein Healthcare Network have finalized the deal.
The combination of the Philadelphia-based organizations brings together two academic medical centers and creates an integrated 18-hospital system with more than 50 outpatient and urgent care locations.
“The culmination of the multiyear process of bringing two great organizations with more than 300 combined years of service, clinical excellence and academic expertise is not just a merger,” said Stephen Klasko, MD, president of Thomas Jefferson University and CEO of Jefferson Health. “Einstein and the new Jefferson together represent an opportunity for the Philadelphia region to creatively construct a reimagining of healthcare, education, discovery, equity and innovation that will have national and international reverberations.”
The merger had previously faced antitrust scrutiny and delays from legal challenges. In particular, both the Federal Trade Commission and Pennsylvania’s attorney general sued the health systems in attempts to block the deal.
The FTC sued in February 2020, arguing that the combination of the two systems would reduce competition in both Philadelphia and Montgomery counties “to the detriment of patients.” An appellate court denied the FTC’s attempt to block the merger in December 2020, and the FTC officially dropped its challenge to the transaction in February 2021.
The Pennsylvania attorney general also dropped his opposition to the merger in January 2021 after the FTC lost its case.
Ken Levitan will continue serving as president and CEO of Einstein and add the role of executive vice president at Jefferson Health. In his new role, he will help guide the integration efforts.
About 73% of health insurance markets are highly concentrated, and in 46% of markets, one insurer had a share of 50% or more, a new report from the American Medical Association shows. The report comes a few months after President Joe Biden directed federal agencies to ramp up oversight of healthcare consolidation.
The majority of health insurance markets in the U.S. are highly concentrated, curbing competition, according to a report released by the American Medical Association.
For the report, researchers reviewed market share and market concentration data for the 50 states and District of Columbia, and each of the 384 metropolitan statistical areas in the country.
They found that 73% of the metropolitan statistical area-level payer markets were highly concentrated in 2020. In 91% of markets, at least one insurer had a market share of 30%, and in 46% of markets, one insurer had a share of 50% or more.
Further, the share of markets that are highly concentrated rose from 71% in 2014 to 73% last year. Of those markets that were not highly concentrated in 2014, 26% experienced an increase large enough to enter the category by 2020.
In terms of national-level market shares of the 10 largest U.S. health insurers, UnitedHealth Group comes out on top with the largest market share in both 2014 and 2020, reporting 16% and 15% market share, respectively. Anthem comes in second with shares of 13% in 2014 and 12% in 2020.
But the picture looks different when it comes to the market share of health insurers participating in the Affordable Care Act individual exchanges. In 2014, Anthem held the largest market share among the top 10 insurers on the exchanges, with a share of 14%. By 2020, Centene had taken the top spot, with a share of 18%, while Anthem had slipped to fifth place, with a share of just 4%.
Another key entrant into the top 10 list in 2020 was insurance technology company Oscar Health, with 3% of the market share in the exchanges at the national level.
“These [concentrated] markets are ripe for the exercise of health insurer market power, which harms consumers and providers of care,” the report authors wrote. “Our findings should prompt federal and state antitrust authorities to vigorously examine the competitive effects of proposed mergers involving health insurers.”
The payer industry hit back. In a statement provided to MedCity News, America’s Health Insurance Plans, a national payer association, said that Americans have many affordable choices for their coverage, pointing to the fact that CMS announced average premiums for Medicare Advantage plans will drop to $19 per month in 2022 from $21.22 this year.
“Health insurance providers are an advocate for Americans, fighting for lower prices and more choices for them,” said Kristine Grow, senior vice president of communications at America’s Health Insurance Plans, in an email. “We negotiate lower prices with doctors, hospitals and drug companies, and consumers benefit from lower premiums as a result.”
Further, the report does not mention the provider consolidation that also contributes to higher healthcare prices. Mergers and acquisitions among hospitals and health systems have continued steadily over the past decade, remaining relatively impervious to even the Covid-19 pandemic.
Scrutiny around consolidation in the healthcare industry may grow. In July, President Joe Biden issued an executive order urging federal agencies to review and revise their merger guidelines through the lens of preventing patient harm.
The Federal Trade Commission has already said that healthcare businesses will be one of its priority targets for antitrust enforcement actions.
Salt Lake City-based Intermountain Healthcare announced plans to merge with Broomfield, CO-based SCL Health to form a 33-hospital, $11B dollar system working in six states. The combined system will keep the Intermountain name, be based in Salt Lake City, and be led by Intermountain CEO Dr. Marc Harrison.
Harrison said that the merger will accelerate the evolution toward population health and value, and “swiftly advance that cause across a broader geography”—a similar value proposition to the system’s previously proposed combination with South Dakota-based Sanford Health, which fell apart last December after Sanford’s CEO stepped down following his controversial comments about mask-wearing.
Intermountain has long been regarded as a national leader in clinical quality, and its integrated payer-provider approach is often cited as a model for US healthcare. The merger with SCL Health will enable expansion of its SelectHealth insurance plan and integrated care model into Colorado, Montana and Kansas, including the fast-growing Denver metropolitan area, making the combined system a formidable player across the Mountain West.
But as we’ve written before, achieving that vision will require a level of integration not often realized in similar mergers, and the burden of proof is on health systems to demonstrate that the merger will create meaningful value for patients and consumers.
We’ll be watching closely to better understand their plans for lowering costs and improving access and quality for patients across the region.
Contrary to what health care executives advertise, hospital mergers and acquisitions aren’t good for patients. They rarely improve access to health care or its quality, and they don’t reduce prices. But the system in place to stop them is often more bark than bite.
In 2018, the last year for which complete data are available, 72% of hospitals and more than 90% of hospital beds were affiliated with a health care system. Mergers and acquisitions are increasing the number of health care systems while decreasing the number of independently operated hospitals.
When hospitals buy provider practices, it leads to more unnecessary care and more expensive care, which increases overall spending. The same thing happens when hospitals merge or acquire other hospitals. These deals often increase prices and they don’t improve care quality; patients simply pay more for the same or worse care.
Mergers and acquisitions can negatively affect clinician morale as well. Some argue they lead to providers’ loss of autonomy and increase the emphasis on financial targets rather than patient care. They can also contribute to burnout and feeling unsupported.
Considerable machinery is in place at both the federal and state levels to stop “anticompetitive” mergers before they happen. But that machinery is limited by a lack of follow through.
The Federal Trade Commission (FTC) and the U.S. Department of Justice have always had broad authority over mergers. By law, one or both of these entities must review for any antitrust concerns proposed deals of a certain size before the deals are finalized. After a preliminary review, if no competition issues are identified, the merger or acquisition is allowed to proceed. This is what happens in most cases. If concerns are raised, however, the involved parties must submit additional information and undergo a second evaluation.
Some health care organizations seem willing to challenge this process. Leaders involved in a pending merger between Lifespan and Care New England in Rhode Island — which would leave 80% of the state’s inpatient market under one company’s umbrella — are preparing to move forward even if the FTC deems the deal anticompetitive. The companies will simply ask the state to approve the merger despite the FTC’s concerns.
The reality is that the FTC’s reach is limited when it comes to nonprofits, which most hospitals are. While the FTC can oppose anticompetitive mergers involving nonprofits, it cannot enforce action against them for anticompetitive behavior. So if a merger goes through, the FTC has limited authority to ensure the new entity plays fairly.
What’s more, the FTC has acknowledged it can’t keep up with its workload this year. It modified its antitrust review process to accommodate an increasing number of requests and its stagnant capacity. In July, the Biden administration issued an executive order about economic competition that explicitly acknowledges the negative impact of health care consolidation on U.S. communities. This is encouraging, signaling that the government is taking mergers seriously. Yet it’s unclear if the executive order will give the FTC more capacity, which is essential if it is to actually enforce antitrust laws.
At the state level, most of the antitrust power lies with the attorney general, who ultimately approves or challenges all mergers. Despite this authority, questionable mergers still go through.
In 2018, for example, two competing hospital systems in rural Tennessee merged to become Ballad Health and the only source of care for about 1.2 million residents. The deal was opposed by the FTC, which deemed it to be a monopoly. Despite the concerns, the state attorney general and Department of Health overrode the FTC’s ruling and approved the merger. (This is the same mechanism the Rhode Island hospitals hope to employ should the FTC oppose their merger.) As expected, Ballad Health then consolidated the services offered at its facilities and increased the fees on patient bills.
It’s clear that mechanisms exist to curb potentially harmful mergers and promote industry competition. It’s also clear they aren’t being used to the fullest extent. Unless these checks and balances lead to mergers being denied, their power over the market is limited.
Experts have been raising the alarm on health care consolidation for years. Mergers rarely lead to better care quality, access, or prices. Proposed mergers must be assessed and approved based on evidence, not industry pressure. If nothing changes, the consequences will be felt for years to come.
Two of the best-known companies in the virtual mental health space announced plans to merge this week, creating a $3B player poised to dominate this fast-growing segment of healthcare demand.
Headspace, a direct-to-consumer provider of app-based “mindfulness” meditation programs, will combine with Ginger, which sells text- and video-based coaching and therapy services to employers and insurers. Between them, the two companies claim to serve over 100M users worldwide.
Headspace is best known as a consumer-focused app, while Ginger largely serves business and payer clients. The combined company, to be called Headspace Health, will surely look to consolidate offerings into a comprehensive mental health service for employees, targeting a benefits market that is rapidly becoming overwhelmed with startup providers of virtual point solutions.
Behavioral health telemedicine utilization skyrocketed during last year’s COVID surge, and has been the one area of virtual care not to fall back to earth since—we’ve learned that virtual is often a superior approach for many mental health services.
Two questions arose in our minds after the Headspace/Ginger merger was announced. First, does the combined company bring a broad enough value proposition to overcome employer frustration with a highly fragmented market, or will the new Headspace Health eventually need to be part of a larger insurer platform to capture the opportunity in front of it? And second, does “mindfulness” even work?
The academic evidence is decidedly mixed, but the popularity of Headspace and other meditation apps, especially among Millennial consumers, might make that question moot. The mindfulness “wrapper” on more traditional mental health services may prove to be very popular with employees, and could become a must-have element of employers’ benefit packages.
The Federal Trade Commission has been hit by a “tidal wave” of merger filings and cannot review them all before required deadlines.
The FTC is now sending letters to merging entities warning them that the agency may deem a combination unlawful even if the companies decide to merge.
“Companies that choose to proceed with transactions that have not been fully investigated are doing so at their own risk,” the regulator said in a statement Tuesday.
The alert may give pause to hospitals merging at a steady clip. Unwinding deals once they’re already consummated can be costly and complex. The premerger filings give regulators a chance to stop anticompetitive mergers before a deals closes, preventing harm to consumers and businesses in the meantime.
The FTC received 343 premerger filings in the month of July, more than three times the amount from July of last year, when 112 transactions were submitted for review.
So far this year, more than 2,000 transactions have been submitted through the month of July, according to figures with the FTC, eclipsing the 815 filings over the same time period last year.
Federal regulators have forced hospital to unwind mergers before.
The FTC forced ProMedica to unwind its buyup of St. Luke’s Hospital in the Toledo area after alleging the deal would severely hinder competition. The FTC later approved a divestiture plan in 2016 after a long battle in court.
It came even as the FTC had signaled it plans to prioritize enforcement in a number of key industries including healthcare.
Plus, last year the FTC said it was expanding a key tool in its arsenal to potentially help police future deals.
Mergers that exceed a certain threshold — currently $92 million — are required to submit a premerger filing with the FTC per the Hart-Scott-Rodino Act.
The filing initiates a review period in which the FTC and Department of Justice investigate the deal.
Typically, the agencies have 30 days to determine whether additional information is needed. If so, the deal is on hold until the companies respond with the needed information, and after that the agencies have a limited number of days to file a challenge if they deem the tie-up unlawful.
The FTC can also terminate the waiting period early, allowing the deal to proceed.
However, the agency maintains the right to challenge any deal regardless of whether it was reviewed or not.
One of the underappreciated ways in which health systems create value in our healthcare economy, as was recently the topic of discussion with the CEO of an organization we work with, is their role as a “safety net”. We weren’t talking about safety-net providers in the traditional sense—those which serve low-income populations. Rather, we were talking about the ability of larger health systems to acquire and invest in smaller hospitals that might otherwise risk going out of business entirely due to economic pressures.
When economic shocks hit, as was recently the case with COVID, we often see firms close; think of all the restaurant and hospitality businesses forced to shut down over the past year. As the economy rebounds, new business spring up to take their places—that kind of “creative destruction” is commonplace in the larger economy. But when a hospital is forced to shut its doors, it’s a different story, one that could be potentially disastrous for the community.
Often the most economically vulnerable hospitals are sole providers for their communities; without them, critical medical services could be much less accessible for patients. Enter multi-hospital health systems, which have often stepped in to acquire hospitals in jeopardy.
By providing access to capital, technology, and management infrastructure, systems have probably kept hundreds of such smaller hospitals in business over the past several decades. Policy analysts are quick to criticize health systems for value destruction: leveraging scale to raise prices, and so forth.
Often valid criticism, but it would be myopic to overlook the fact that systems have also allowed many vulnerable communities to retain access to a viable local hospital. The pushback is often to posit that we simply have too many hospitals to begin with—but try telling that to patients and communities who have lost access to their local source of care.
An estimate from the Partnership for America’s Healthcare Future predicts that nearly four out of five 60- to 64-year-olds would enroll in Medicare, with two-thirds transitioning from existing commercial plans, if “Medicare at 60” becomes a reality.
In the graphic above, we’ve modeled the financial impact this shift would have on a “typical” five-hospital health system, with $1B in revenue and an industry-average two percent operating margin.
If just over half of commercially insured 60- to 64-year-olds switch to Medicare, the health system would see a $61M loss in commercial revenue.
There would be some revenue gains, especially from patients who switch from Medicaid, but the net result of the payer mix shift among the 60 to 64 population would be a loss of $30M, or three percent of annual revenue, large enough to push operating margin into the red, assuming no changes in cost structure. (Our analysis assumed a conservative estimate for commercial payment rates at 240 percent of Medicare—systems with more generous commercial payment would take a larger hit.)
Coming out of the pandemic, hospitals face rising labor costs and unpredictable volume in a more competitive marketplace. While “Medicare at 60” could provide access to lower-cost coverage for a large segment of consumers, it would force a financial reckoning for many hospitals, especially standalone hospitals and smaller systems.