On Monday, a federal judge denied the Department of Justice (DOJ)’s attempt to block UHG’s $13B purchase of Change Healthcare, a technology firm specializing in claims processing and data analytics.
The DOJ sought to block the purchase on antitrust grounds, arguing that UHG would have access to technologies that its rivals use to compete, but the judge, writing in a sealed ruling, found the DOJ’s case inadequate. It is unclear at this point whether the DOJ will appeal.
Change will now join UHG’s OptumInsight division, though in response to anticompetitive concerns, the ruling ordered UHG to sell part of Change’s claims payment and editing business, as it had already planned to do.
The Gist: Antitrust regulators have had much greater success at challenging horizontal healthcare mergers but have struggled to find solid footing to fight vertical deals.
The UHG-Change case was closely watched in part because of the precedent it would have set in terms of holding “platform” aggregators in check. As UHG and other healthcare titans continue to acquire assets up and down the value chain (physician practices, ambulatory surgery centers, clinics, telehealth capabilities, risk products), it’s increasingly clear that the government will face an uphill climb to question the competitive effects of these vertical M&A activities.
A lawsuit filed last week accuses RWJBarnabas Health of “a years-long systemic effort” to hamper competition and monopolize acute care hospital services in northern New Jersey.
The case brought by CarePoint Health to a U.S. District Court accuses the state’s largest integrated healthcare delivery system of “aiming to destroy the three hospitals operated by CarePoint as independent competitors” with the support of healthcare real estate investors and Horizon Blue Cross Blue Shield, the state’s largest health insurer.
CarePoint Health includes the 349-bed Christ Hospital, 224-bed Bayonne Medical and 348-bed Hoboken University Medical Center (HUMC).
The group said RWJBarnabas intended to force the first two hospitals to shut down but acquire the third due to its more profitable payer mix.
“RWJBarnabas Health’s] goal explicitly disregarded the needs of the poor, underinsured and charity care patients which CarePoint serves in its role as the safety net hospital system in Jersey City and surrounding areas,” CarePoint wrote in the lawsuit.
The slew of alleged tactics listed in the lawsuit largely surround RWJBarnabas Health’s “serial acquisitions” of hospitals, providers and real estate that “has gone unchecked by the state and [New Jersey Department of Health],” CarePoint wrote.
This included an alleged bad faith proposal to acquire Christ Hospital and HUMC, the true intent of which CarePoint said was to “gain market knowledge and gather competitive intelligence, and use this newly-acquired information to freeze programmatic growth and any significant hiring or construction at Christ Hospital.” The process had a negative impact on CarePoint’s employee retention and staffing, according to the suit.
The plaintiff also alleged that RWJBarnabas used its political connections to influence whether state departments granted CarePoint Certificates of Need for multiple revenue-generating projects as well as COVID-19 relief funding.
Further, CarePoint accused RWJBarnabas of strategically adjusting its service offerings in competitive markets to drive uninsured or underinsured patients to CarePoint facilities while using its relationships with Horizon and ambulance operators to drive emergency room traffic and well-insured patients, respectively, to competing locations.
These collective actions constitute violations of the Sherman Antitrust Act as well as the New Jersey Antitrust Act, CarePoint wrote.
“The idea that [RWJBarnabas Health] would use its influence to jeopardize the health of that community and the care providers of a competing hospital not only directly contradicts its own vision, but clearly demonstrates that [RWJBarnabas Health] is far more interested in anti-competitive and predatory business activities than serving the New Jersey community,” CarePoint wrote.
RWJBarnabas Health discounted the allegations in an email statement.
“This is yet another in a series of baseless complaints filed by CarePoint, an organization whose leadership apparently prefers to assign blame to others rather than accept responsibility for the unsatisfactory results of their own poor business decisions and actions over the years,” a spokesperson for the system told Fierce Healthcare. “RWJBarnabas Health has a longstanding commitment to serve the residents of Hudson County, and is proud of the significant investments we have made in technology, facilities and clinical teams as we advance our mission.”
RWJBarnabas Health treats over 3 million patients per year and employs 37,000 people. The academic healthcare system runs 12 acute care hospitals and four specialty hospitals alongside other locations and services. It disclosed more than $6.6 billion in total operating revenues across 2021.
The system’s merger and acquisition activity placed it in the federal spotlight this past year after the Federal Trade Commission moved to block its planned integration of New Brunswick-based Saint Peter’s Healthcare System. The deal was called off in June.
A recent JAMA study of 578 US dermatology, gastroenterology, and ophthalmology practices acquired by PE firms from 2016 to 2020 found a steady rise in spending in the two years after acquisition, indicating that the average charge per commercial claim increased 20 percent, and the average allowed amount per claim rose 11 percent. It also found that, compared to a large control group with similar patient risk scores, PE-acquired practices saw new patient visits increase by 38 percent and total visit volume increase by 16 percent.
The Gist: While the study’s authors note that these findings could be explained by changes in practice operations or management, they point out they could also be caused by an overutilization of profitable services not tied to an increase in value or benefit to the patient.
We think the latter is likely the case here, and that this study provides evidence of PE-induced overutilization aimed at meeting aggressive growth targets.
But this is just the latest wave of ownership-induced overutilization: 20 years ago the same spotlight was on physician-owned imaging, cardiac, and other outpatient diagnostics, with several studies then documenting higher utilization in these facilities. Nonetheless, this latest trend is an important one to document and quantify, as the number of physicians working in PE-backed organizations continues to rise.
MercyOne Health System is now a full member of Livonia, Mich.-based Trinity Health.
Trinity Health completed its acquisition about five months after entering into an agreement with CommonSpirit Health to acquire all facilities and assets of Iowa-based MercyOne. MercyOne was founded in 1998 through a collaboration between Catholic Health Initiatives, now CommonSpirit, and Trinity Health.
“For close to 25 years, we have served Iowa communities. With MercyOne now fully part of Trinity Health, we are a stronger and more unified system that will strengthen MercyOne’s ability to serve our patients, colleagues, and communities,” said Mike Slubowski, president and CEO of Trinity Health, in a news release.
Intermountain Healthcare reported net income of $2.7 billion in the first six months of the year, despite a heavy loss on investments and flagging operating income.
The 46% year-over-year jump in net income for the Utah-based nonprofit was spurred by more than $4 billion in contribution from its merger with SCL Health that closed in April, according to recent financial documents.
Intermountain and SCL entered into a merger agreement to combine their health systems in December. The merger was completed in April, creating a $12 billion system and expanding Intermountain’s reach into Colorado.
In its first financial filing since the affiliation, 33-hospital Intermountain, which also manages hundreds of clinics across seven states, reported revenues of $6.5 billion in the first six months of 2022, up 25% year over year.
Expenses climbed 31% to $5.9 billion, driven primarily by growth in employee compensation and benefits and increasingly pricey supplies.
Net operating income was $285 billion, down 38% year over year.
Intermountain’s inpatient admissions and hospital outpatient visits ticked down 1% and 7% respectively, though its emergency rooms visits climbed 11%. Visits at the system’s non-hospital clinics were also up 11%.
Inpatient surgeries were down 2% while outpatient surgeries were up 4%, suggesting a broader shift away from care being delivered in the hospital setting.
Intermountain’s results mirror those of other large U.S. systems in 2022 so far, as major for-profit chains report lower operating income and admissions. Tight competition for labor amid ongoing workforce shortages has resulted in skyrocketing labor expenses while inflation and supply chain pressures has ratcheted up the cost of hospital supplies needed to provide patient care.
On Tuesday, ratings agency Fitch said its outlook for nonprofit hospitals is “deteriorating” amid elevated expense pressures, along with investment losses.
On Friday, Intermountain named Lydia Jumonville as interim CEO after Marc Harrison announced plans to depart the Salt Lake City-based system for the venture capital firm General Catalyst. Intermountain’s board is conducting a national search for a permanent chief executive, which it hopes to complete by the fall.
ChristianaCare signed a letter of intent in February to acquire Crozer Health from Prospect Medical Holdings. The health systems announced Aug. 18 that the deal will not move forward.
Wilmington, Del.-based ChristianaCare and Los Angeles-based Prospect Medical Holdings said significant changes in the economic landscape since the letter of intent was signed in February impacted the ability of the deal to move forward.
“Both organizations worked very hard to reach a final agreement and have significant respect for each other, and remain committed to caring for the health of those in Delaware County,” ChristianaCare and Prospect Medical Holdings said in a joint news release.
Springfield, Pa.-based Crozer Health includes four hospitals and was acquired by Prospect Medical Holdings in 2016.
According to a Wall Street Journal report, CVS is expected to submit a bid to purchase Dallas-based Signify Health, which supports physicians, payers, and health systems with tools and technology to provide in-home care. Signify acquired accountable care organization manager Caravan Health earlier this year. Last week, the Journalreported that Signify, valued at more than $4B, was looking for buyers. While CVS is said to be interested, so are private equity firms and other managed care companies.
The Gist: CVS CEO Karen Lynch told investors during last week’s earnings call that the company plans to grow its primary care and home health offerings through mergers and acquisitions. The Signify bid, along with reports that CVS considered acquiring concierge primary care company One Medical, suggests that the retail pharmacy and insurance giant is charging ahead with its strategy of creating a vertically-integrated healthcare company.
As several newly public digital health and value-based care companies have seen share prices plummet and capital dry up in a cooling economy, they are becoming targets for large insurers and tech companies who have seen their own fortunes grow during the pandemic. Watch for more announcements from these “platform assemblers” in the months to come.
While Amazon has been amassing a range of healthcare assets in recent years, including an online pharmacy, virtual and in-home care capabilities, and even diagnostics, this marks the e-commerce giant’s first significant push into bricks-and-mortar healthcare delivery.
One Medical, which went public in 2020, operates 182 medical offices in 25 markets, and acquired Medicare-focused primary care provider Iora Health last year. It offers an access-forward, concierge-lite model to employer clients and individual consumers, and more recently has pursued a partnership strategy with anchor health systems in the markets where it operates.
The Gist:Amazon’s pricey purchase of One Medical, for which it will pay a 77 percent premium over market value, is sure to set the healthcare punditocracy afire—even more than its earlier, ill-fated arrangement with JPMorgan Chase and Berkshire Hathaway.
Clearly, Amazon is shifting from a build-and-tinker to a buy-and-scale approach to its Amazon Care business, which has been slow off the mark since the company first started selling its own employee clinic services to other employers. With One Medical, Amazon gets thousands more employer relationships, a much larger physical footprint, and a buzzy brand in primary care.
But the deal is less “disruptive” than it might first appear. There is still a missing piece—namely, a risk model that lets Amazon profit from managing patients in the primary care setting. One Medical’s model is expensive—it has yet to turn a profit—and despite the acquisition of Iora’s population health platform, it has doubled down on creating linkages with high-cost health systems rather than truly investing in care management.
Primary care on its own is not an attractive growth business, even in a hybrid virtual/in-person model, even at Amazon’s scale. To truly disrupt healthcare, Amazon will need to wade into the risk business, either by partnering with a health plan or creating its own risk arrangements with employer clients.
That’s going to be hard, for all the same reasons that Haven was hard—entrenched payer relationships, slow-moving benefits managers, and a murky and conflicted broker channel. We’d love to be proven wrong, but this deal feels less like true innovation and more like a frothy story for slide decks and conference panels.
Healthcare mergers reached a record-high $19.2 billion in total transacted revenue in the second quarter of this year, led by the planned tie-up of Advocate Aurora Health and Atrium Health and several other large deals, according to the latest quarterly M&A report from Kaufman Hall.
Still, the number of healthcare transactions announced during the second quarter remained below pre-pandemic levels at just 13 deals, one more than the record-low total seen in the first quarter of this year. Activity so far in 2022 underscores what could be a longer-term shift toward fewer but larger hospital deals, the industry consultants said.
Kaufman Hall also predicted continued interest in partnerships between health systems and skilled nursing facilities that can offer new services or more specialized care. Such facilities can support patients’ earlier discharge from inpatient care to a lower-cost setting and can help reduce hospital re-admissions, the report said.
Dealmaking in the first half of the year continues a sluggish pace established in 2021, when just 49 health system mergers were announced all year. Last year’s tally marked the lowest annual deal total in a decade, according to Kaufman Hall.
But deals are getting larger. The second quarter’s $19.2 billion in transacted revenue is more than double the total of $8.5 billion seen in the second quarter of 2021, when a similar number of transactions was announced.
Megamergers, in which the seller’s annual revenue tops $1 billion, remain an ongoing trend. Kaufman Hall tracked two such deals in the second quarter: the Advocate-Atrium transaction and Trinity Health’s planned acquisition of Iowa-based MercyOne.
The second quarter saw two additional transactions with smaller-party revenue above $500 million: Bellin Health System’s merger with Gundersen Health System and George Washington University Hospital’s combination with Universal Health Services.
All told, the average size of the smaller party in a deal reached a record $1.5 billion in the second quarter. This was more than double 2021’s record average size of $619 million, Kaufman Hall found.
A couple of recent transactions illustrate the trend toward partnerships with skilled nursing facilities, the report noted. Hackensack Meridian Health announced in late March that the majority of its long-term care facilities would be acquired by Complete Care, and in April, Virtua Health announced the sale of its two skilled nursing facilities to Tryko Partners. Kaufman Hall advised Virtua Health in the transaction.
Nonprofit hospitals are reporting thinner margins this year, stretched by rising labor, supply and capital costs, and will be pressed to make big changes to their business models or risk negative rating actions, Fitch Ratings said in a report out Tuesday.
Warning that it could take years for provider margins to recover to pre-pandemic levels, Fitch outlined a series of steps necessary to manage the inflationary pressures. Those moves include steeper rate increases in the short term and “relentless, ongoing cost-cutting and productivity improvements” over the medium term, the ratings agency said.
Further out on the horizon, “improvement in operating margins from reduced levels will require hospitals to make transformational changes to the business model,” Fitch cautioned.
It has been a rough year so far for U.S. hospitals, which are navigating labor shortages, rising operating costs and a rebound in healthcare utilization that has followed the suppressed demand of the early pandemic.
Fitch said the majority of the hospitals it follows have strong balance sheets that will provide a cushion for a period of time. But with cost inflation at levels not seen since the late 1970s and early 1980s, and the potential for additional coronavirus surges this fall and winter, more substantial changes to hospitals’ business models could be necessary to avoid negative rating actions, the agency said.
Providers will look to secure much higher rate increases from commercial payers. However, insurers are under similar pressures as hospitals and will push back, using leverage gained through the sector’s consolidation, the report said.
As a result, commercial insurers’ rate increases are likely to exceed those of recent years, but remain below the rate of inflation in the short term, Fitch said. Further, federal budget deficits make Medicare or Medicaid rate adjustments to offset inflation unlikely.
Inflation is pushing more providers to consider mergers and acquisitions to create economies of scale, Fitch said. But regulators are scrutinizing deals more strenuously due to concerns that consolidation will push prices even higher. With increased capital costs, rising interest rates and ongoing supply chain disruptions, hospitals’ plans for expansion or renovations will cost more or may be postponed, the report said.