Category Archives: Market Share

Wall Street Yawned as Congress Grilled UnitedHealth’s CEO but Went Ballistic on CVS/Aetna Over Medicare Advantage Claims

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After UnitedHealth Group CEO Andrew Witty’s appearances at two congressional committee hearings last week, I had planned to write a story about what the lawmakers had to say. One idea I considered was to publish a compilation of some of the best zingers, and there were plenty, from Democrats and Republicans alike. 

I reconsidered that idea because I know from the nearly half-century I have spent on or around Capitol Hill in one capacity or another that those zingers were carefully crafted by staffers who know how to write talking points to make them irresistible to the media. As a young Washington correspondent in the mid-to-late’70s, I included countless talking points in the stories I wrote for Scripps-Howard newspapers. After that, I wrote talking points for a gubernatorial candidate in Tennessee. I would go from there to write scads of them for CEOs and lobbyists to use with politicians and reporters during my 20 years in the health insurance business. 

I know the game. And I know that despite all the arrows 40 members of Congress on both sides of the Hill shot at Witty last Wednesday, little if anything that could significantly change how UnitedHealth and the other big insurers do business will be enacted this year. 

Some reforms that would force their pharmacy benefit managers to be more “transparent” and that would ban some of the many fees they charge might wind up in a funding bill in the coming months, but you can be sure Big Insurance will spend millions of your premium dollars to keep anything from passing that might shrink profit margins even slightly.

Money in politics is the elephant in any Congressional hearing room or executive branch office you might find yourself in (and it’s why I coauthored Nation on the Take with Nick Penniman).

You will hear plenty of sound and fury in those rooms but don’t hold your breath waiting for relief from ever-increasing premiums and out-of-pocket requirements and the many other barriers Big Insurance has erected to keep you from getting the care you need.

It is those same barriers doctors and nurses cite when they acknowledge the “moral injury” they incur trying to care for their patients under the tightening constraints imposed on them by profit-obsessed insurers, investors and giant hospital-based systems. 

Funny not funny

Cartoonist Stephan Pastis captured the consequences of the corporate takeover of our government, accelerated by the Supreme Court’s 2010 landmark Citizens United vs. Federal Election Commission ruling, in his Pearls Before Swine cartoon strip Sunday. 

Rat: Where are you going, Pig?

Pig: To a politician’s rally. I’m taking my magic translation box.

Rat: He doesn’t speak English?

Pig: He speaks politicianish. This translates it into the truth. Come see.

Politician: In conclusion, if you send me to Washington, I’ll clean up this corrupt system and fight for you everyday hard-working Americans. God bless you. God bless the troops. And God bless America.

Magic translation box: I am given millions of dollars by the rich and the powerful to keep this rigged system exactly as it is. Until you change that, none of this will ever change and we’ll keep hoping you’re too distracted to notice. 

Politician’s campaign goon: We’re gonna need a word with you.

Magic translation box: This is too much truth for one comic strip. Prepare to be disappeared.

Rat: I don’t know him.   

Back to Sir Witty’s time on the hot seat. It attracted a fair amount of media coverage, chock full of politicians’ talking points, including in The New York Times and The Washington Post. (You can read this short Reuters story for free.) Witty, of course, came equipped with his own talking points, and he followed his PR and legal teams’ counsel: to be contrite at every opportunity; to extol the supposed benefits of bigness in health care (UnitedHealth being by far the world’s largest health care corporation) all the while stressing that his company is not really all that big because it doesn’t, you know, own hospitals and pharmaceutical companies [yet]; and to assure us all that the fixes to its hacked claims-handling subsidiary Change Healthcare are all but in.

Congress? Meh. Paying for care? WTF!

Wall Street was relieved and impressed that Witty acquitted himself so well. Investors shrugged off the many barbs aimed at him and his vast international empire. By the end of the day Wednesday, the company’s stock price had actually inched up a few cents, to $484.11. A modest 2.7 million shares of UnitedHealth’s stock were traded that day, considerably fewer than usual. 

Instead of punishing UnitedHealth, investors inflicted massive pain on its chief rival, CVS, which owns Aetna. On the same day Witty went to Washington, CVS had to disclose that it missed Wall Street financial analyst’s earnings-per-share expectations for the first quarter of 2024 by several cents. Shareholders’ furor sent CVS’ stock price tumbling from $67.71 to a 15-year low of $54 at one point Wednesday before settling at $56.31 by the time the New York Stock Exchange closed. An astonishing 65.7 million shares of CVS stock were traded that day. 

The company’s sin: paying too many claims for seniors and disabled people enrolled in its Medicare Advantage plans. CVS’s stock price continued to slide throughout the week, ending at $55.90 on Friday afternoon. UnitedHealth’s stock price kept going up, closing at $492.45 on Friday. CVS gained a bit on Monday, closing at $55.97. UnitedHealth was up to $494.38.

Postscript: I do want to bring to your attention one exchange between Witty and Rep. Buddy Carter (R-Ga.) during the House Energy and Commerce committee hearing. Carter is a pharmacist who has seen firsthand how UnitedHealth’s virtual integration–operating health insurance companies with one hand and racking up physician practices and clinics with the other–and its PBM’s business practices have contributed to the closure of hundreds of independent pharmacies in recent years. He’s also seen patients walk away from the pharmacy counter without their medications because of PBMs’ out-of-pocket demands (often hundreds and thousands of dollars). And he’s seen other patients face life-threatenng delays because of industry prior authorization requirements. Carter was instrumental in persuading the Federal Trade Commission to investigate PBMs’ ownership and business practices. He told Witty: 

I’m going to continue to bust this up…This vertical integration in health care in general has got to end.

More power to you, Mr. Carter. 

Hospital and Health System M&A: Q1 2024 Review

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M&A Volume Up in Q1 2024 vs. Q1 2023: $10 billion Target Revenues


The number of hospital and health system M&A deals announced in the first quarter of 2024 was significantly higher than in the same period in 2023: 18 announced transactions with $10 billion in total revenues for the targets vs. 12 deals in Q1 2023 with a total of $3.4 billion in revenues for the targets. The 81 deals announced in the last 12 months is the highest it
has been over the last few years, building upon the recent momentum of hospital and health system mergers, acquisitions, and divestitures across the country.

Other observations by the Cain Brothers M&A team:

  • Significant number of for-profit conversions to not-for-profit (e.g., divestitures by Tenet and HCA)
  • Significant number of divestitures by national systems to regional health systems
  • Accelerated closing timeline for 3 deals in CA: closed in 30-60 days — prior to new hospital merger review process going into effect April 1, 2024 in CA
  • Q1 2024 total volume of 18 transactions with $10 billion in revenues for targets vs. $3.4 billion for Q1 2023
    This quarter saw transformative deals that may reshape how healthcare is delivered, reflecting creative partnerships that continue to form in a changing healthcare environment. Academic medical centers continue to make investments in assets
    of high strategic value to expand their clinical, teaching, and research capabilities. Large regional systems were quite active, with large cross regional mergers and smaller strategic acquisitions. With the Consumer Price Index (CPI) holding steady with the previous quarter, alleviation of supply cost pressures will benefit health system financials and allow them to deploy more capital.

In early January, General Catalyst’s healthcare investment subsidiary, Health
Assurance Transformation Corporation (“HATCo”), announced its intent to
acquire Summa Health, one of the largest integrated health delivery systems in
Ohio. This announcement made waves in the healthcare industry, not just
because of the size of the acquisition, but because it is the first major health system
investment for newly formed HATCo. General Catalyst, a venture capital firm
formed in 2000, is known for its investments in global companies including Airbnb,
Warby Parker, Snap, and Kayak. General Catalyst launched HATCo in October
2023 as a vehicle to enable health systems to enhance technological health
capabilities, improve financial results, and assist in meeting the shift to value based care, creating a sustainable and quality-driven healthcare model for providers and patients.

Under the terms of the deal, Summa Health will become a subsidiary of HATCo
and transition from a not-for-profit to a for-profit corporation. A community
foundation will be formed to continue to invest in the social determinants of health
to enhance community outcomes in the Akron-Canton region. With its first
acquisition, HATCo aims to become a chassis for future acquisitions and growth
for General Catalyst. The deal is expected to close by the end of 2024.

Academic medical centers were active acquirers in the first quarter of 2024. On
the West Coast, two University of California systems announced acquisitions from
for-profit operators. In January, UCLA Health announced it is the process to
acquire West Hills Hospital and Medical Center from HCA. The 260-bed hospital
is located in the San Fernando Valley, north of Los Angeles, and will be UCLA’s
first acute care hospital in the area. In February, UC Irvine Health signed a
definitive agreement to acquire Tenet’s Pacific Coast Network, which include
four hospitals in Los Angeles and Orange counties (see below for transaction
multiples). The acquisition greatly expands UCI Health’s presence and inpatient
bed capacity to complement their flagship UCI Medical Center in Orange. These
deals come off the heels of two other University of California deals announced in
2023; UC San Diego Health’s acquisition of Alvarado Hospital from Prime
Healthcare, and UCSF’s announcement to acquire two San Francisco hospitals
from Dignity Health, further demonstrating the UC system’s mandate to grow and
provide greater access to care in California.


Further east, the University of Minnesota announced in February its intent to
reacquire the University of Minnesota Medical Center from Fairview Health.
The University of Minnesota Regents voted to support a nonbinding letter of intent
with Fairview that would provide the ability for the University’s eventual ownership
of the medical center by 2027. The University of Minnesota previously sold the
medical center to Fairview in 1997.


In January, Penn Medicine announced it intends to acquire Doylestown Health,
a single-hospital system in Bucks County, PA. The seventh hospital for Penn
Medicine, the acquisition of Doylestown Health follows a trend of expansion for
Penn Medicine, with the acquisition of Chester County Hospital, Lancaster General
Health, and Princeton Health all within the past 10 years. The transactions by
academic health systems this quarter continue to follow the trend of AMC
expansion through development of new entry points into their care network,
investments in community health, and developing the ability to expand their
teaching and research capabilities.

In addition to the sale of its Pacific Coast Network to UC Irvine Health, Tenet also
sold Sierra Vista Regional Medical Center and Twin Cities Community
Hospital to Adventist Health in California. The two hospitals, located in San Luis
Obispo County in Central California, were sold to Adventist Health for
approximately $550 million, implying a Revenue and EBITDA multiple of 1.6x and
14.5x, respectively. The Pacific Coast Network transaction to UCI Health
announced in February came with a $975 million price tag, reflecting a 1.0x
multiple of revenue and 13.7x multiple of EBITDA. These transactions follow trends
of Tenet’s strategic divestitures in high value deals and reflect a broader trend of
acquisitions of targets of high strategic value to health systems. It is worth noting
that part of the reason for higher multiples in these California transactions is that
buying is still cheaper than the high cost to build.


Regional expansion continued this quarter in the Northeast with Nuvance Health’s
announcement in February that it will be joining Northwell Health. With seven
hospitals in Nuvance and the largest in the State of New York with Northwell, the
organizations would merge to form an integrated healthcare delivery system of 28
hospitals, 15,000 physicians, and over 1,000 care sites. In July 2023, Nuvance
received a credit downgrade from Moody’s driven by weakened operating
performance and reduced liquidity. As stated by both organizations, the merger
also allows Northwell to expand into Connecticut while making significant
investments in Nuvance’s existing clinical care footprint.


On the other hand, a number of regional mergers in recent years have been called
off, including this quarter with the cancellation of the proposed merger between
Essential Health and Marshfield Clinic. Previously announced in July 2023, the
health systems formally ended merger discussions in January, determining that
the affiliation was not the right path for the organizations. Marshfield previously
paused merger discussions with Gundersen Health System in 2019.

There were also a number of single hospital acquisitions and tuck-in transactions for larger systems. Below are highlights of a few other notable transactions announced this quarter:

In February, St. Louis- based Mercy announced its plans to acquire Via Christi Hospital, its
related physicians and other ancillary healthcare locations from Ascension. 152-bed Via Christi
hospital will be Mercy’s third hospital in Kansas, as Mercy continues to grow westward. In 2023,
Mercy acquired SoutheastHEALTH followed by its acquisition of Hermann Area District Hospital.

In January, Northern New Jersey health systems, CarePoint Health and Hudson Regional
Hospital announced they are seeking to form a new combined entity that will merge the for-profit and not-for-profit hospitals together. Hudson Health System will be the new namesake of the four hospital system. Under the proposed agreement, two of the four hospitals will remain not-for-profit safety net hospitals. The unique arrangement comes after the New Jersey Department of Health confirmed that CarePoint was in financial distress and began to work with local government leaders on a solution. CarePoint executive leaders confirmed the arrangement with Hudson Regional will improve the organization’s operational and financial strength.

Also in New Jersey, Atlantic Health System announced in January its intent to merge with Saint
Peter’s Healthcare. Atlantic Health, located in Morristown, NJ, is a seven-hospital health system
with locations across New Jersey and Pennsylvania. Saint Peter’s Healthcare is a catholic not-forprofit system with a 478-bed flagship hospital in New Brunswick, NJ. The announcement follows a 2022 judgment by the FTC to block a proposed merger between Saint Peter’s Healthcare and RWJBarnabas Health, citing the deal would cause anti-competitive concerns with merging New Brunswick’s only two hospitals.

WellSpan Health signed a definitive agreement to acquire Evangelical Community Hospital, a
131-bed acute care hospital in Lewisburg, PA. With the pending acquisition, the hospital will
become WellSpan Evangelical Hospital and will continue to serve the Central Susquehanna Valley. WellSpan is an eight-hospital system, serving six counties in Pennsylvania and two counties in Maryland. The deal is expected to close in July.

Each quarter, health system acquirers typically cite the need to grow and the desire to enchance clinical outcomes as motivating factors for deal activity. On the other hand, as we are seeing play out in real time, financial challenges area key driver of M&A for sellers. California-based Pipeline Health faces financial challenges as it retrenches its existing portfolio. In late 2023, Pipeline exited the Texas market driven by unsustainable financial losses. This example highlights the need for health systems to match mission-driven growth objectives with the reality of a harsh and volitile operating environment.


Portfolio rationalization, AMCs with the capital to make big bets, and inter-regional consolidations are major trends that will continue into 2024. With an election looming and an uncertain healthcare and regulatory landscape, affiliation opportunities will need to be thoughtful and metric driven.

Hospitals’ forced makeover

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Hospitals’ business models are being upended by fundamental changes within the health care system, including one that presents a pretty existential challenge: People have far more options to get their care elsewhere these days.

Why it matters: 

Health systems’ responses to major demographic, social and technological change have been controversial among policymakers and economists concerned about the impact on costs and competition.

  • Communities depend on having at least some emergency services available, making the survival of hospitals’ core services crucial.
  • But without adaptation — which is already underway in some cases — hospitals may be facing deep red balance sheets in the not-too-distant future, leading to facility closures and shuttered services.

The big picture: 

Many hospitals have recovered from the sector’s post-pandemic financial slump, which was driven primarily by staffing costs and inflation. But systemic, long-term trends will continue to challenge their traditional business model.

  • Many of the services that are shifting toward outpatient settings — like oncology, diagnostics and orthopedic care — are the ones that typically make hospitals the most money and effectively subsidize less profitable departments.
  • When hospitals lose these higher-margin services, “you’re starving the system that needs profits to provide services that we all might need, but particularly uninsured or underinsured people might need,” said UCLA professor Jill Horwitz.

And hospitals have long claimed that much higher commercial insurance rates make up for what they say are inadequate government rates.

  • But as the population ages and moves out of employer-sponsored health plans, fewer people will have commercial insurance, forcing hospitals to either cut costs or find new sources of revenue.

By the numbers: 

Consulting firms are projecting a bleak decade for health systems.

  • Oliver Wyman recently predicted that under the status quo, hospitals will need to reduce their expenses by 15-20% by 2030 “to stay viable.”
  • Boston Consulting Group last year projected that health systems’ annual financial shortfall will total more than $200 billion by 2027, and their operating margins will have dropped by 10 percentage points.
  • To break even in 2027, a “typical” health system would need payment rate increases of between 5-8% annually — twice the rate growth over the last decade, according to BCG. If the load is borne solely by private insurers, hospitals will need a 10-16% year-over-year increase.

Between the lines: 

This is the lens through which to view health systems’ spree of mergers and acquisitions, which have increasingly drawn criticism from policymakers, regulators and economists as being anticompetitive.

  • For better or worse, when hospitals have a larger market share, they are in a better position to negotiate and bring in more patients, and they can dilute some of the financial pain of poorer-performing facilities.
  • And when they acquire physician practices or other outpatient clinics, they’re still getting paid for delivering care even when patients aren’t receiving it in a traditional hospital setting.
  • “I think the hospitals have sort of said … ‘We can keep doing things the same way and we can just merge and get higher markups,'” said Yale economist Zack Cooper. “That push to consolidate is saying, ‘Let’s not move forward, let’s dig in.'”

Yes, but: 

A big bonus of outpatient care is that it’s supposed to be cheaper. But when hospitals charge more for care than an independent physician’s office would have, or they tack on facility fees, costs don’t go down.

  • And there’s a growing body of research showing that when hospitals consolidate, costs go up.
  • “They’ve protected their portfolio, and that’s added to the cost of health care,” said Johns Hopkins professor Gerard Anderson.

The other side: 

Hospitals are typically on the losing end of negotiations with insurers right now, thanks to how large insurers have become, and are “in an extremely difficult competitive position,” said Ken Kaufman, co-founder of consulting agency Kaufman Hall.

  • Criticizing their mergers and acquisitions as anticompetitive is a “complete misunderstanding of the situation,” he said, and moving toward a new care model will take “an incredible amount of resources.”

Reality check: 

Hospitals account for 30% of the country’s massive health spending tab, and they’ll have to be at the forefront of any real efforts to contain costs.

  • They’re also anchors in their communities and are powerful lobbyists, which helps explain why Congress has struggled to modestly reduce what Medicare pays hospital outpatient departments.

Where Does Medicare Go From Here: Profit-Driven Chaos or Patient-Centered Community?

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After covering the Medicare privatization crisis for over two years, an investigative reporter takes a step back and examines what’s at stake.

Medicare, the country’s largest and arguably most successful health care program, is under duress, weakened by decades of relentless efforts by insurance companies to privatize it.

A rapidly growing Medicare Advantage market — now 52% of Medicare beneficiaries, up from 37% in 2018 — controlled by some of the largest and most powerful corporations in the world, threatens to both drain the trust fund and eliminate Medicare’s most important and controversial component: its ability to set prices. 

It is not an overstatement to call it a heist of historic proportions, endangering the health not only of the more than 65 million seniors and people with disabilities who depend on Medicare but all Americans who benefit from the powerful role that Medicare has historically played in reining in health care costs.

The giant corporations that dominate Medicare Advantage have rigged the system to maximize payments from our government to the point that they are now being overpaid between $88 billion and $140 billion a year. The overpayments could soar to new heights if the insurers get their way and eliminate traditional Medicare.

All of America’s seniors and disabled people who depend on Medicare could soon be moved to a managed care model of ever-tightening networks, relentless prior authorization requirements and limited drug formularies. The promise of a humane health care system for all would be sacrificed at the altar of the almighty insurer dollar. 

The Medicare Payments Advisory Commission (MedPAC), the independent congressional agency tasked with overseeing Medicare, last month released a searing report which found that Medicare spends 22% more per beneficiary in Medicare Advantage plans than if those beneficiaries had been enrolled in traditional fee-for-service Medicare. That’s up from a 6% estimate in the prior year.  

A similar cost trend exists for diagnosis coding.

Medicare Advantage plans and their affiliated providers increasingly upcoded diagnoses to get higher reimbursements. In 2024, overpayments due to upcoding could total $50 billion, according to MedPAC, up from $23 billion in 2023. These enormous overpayments drive up the cost of premiums — MedPAC’s conservative estimate is that the premiums paid to Medicare out of seniors’ Social Security checks will be $13 billion higher in 2024 because of those overpayments. 

There is evidence that Americans and lawmakers are starting to wake up.

Medicare Advantage enrollment growth slowed considerably in 2023. Support within the Democratic Party for Medicare Advantage is cratering. In 2022, 147 House Democrats signed an industry-backed letter supporting Medicare Advantage. This year, just 24 House Democrats signed the letter. Earlier this month, the Biden administration cut Medicare Advantage base payments for the second year in a row (while still increasing payments overall), over the fierce opposition of the insurance lobby. The investment bank Stephens called Biden’s decision a “highly adverse” outcome for insurers. Wall Street has taken note, punishing the stock price of the largest Medicare Advantage insurers, with Barron’s noting that Wall Street’s “love affair” with Humana is “ending in tears.” The cargo ship is turning. It is up to us to determine if that will be enough. 

We can’t attack a problem if we don’t know how to diagnose it. I spoke with some of the most knowledgeable critics of Medicare Advantage about the danger the rapid expansion of Medicare privatization presents to the American public.

Rick Gilfillan is a medical doctor who in 2010 became the first director of the Center for Medicare and Medicaid Innovation (CMMI). He would go on to serve as CEO of Trinity Health from 2013 to 2019. In 2021 he launched an effort to halt the involuntary privatization of Medicare benefits. 

“Right now, all investigations are finding tremendous overpayments,” Gilfillan said. “The overpayments are based on medical diagnoses that may or may not be meaningful from a patient care standpoint. Insurers are using chart reviews, nurse home visits and AI software to find as many diagnoses as possible and thereby inflate the health risks of the patients and the premium they get from Medicare. The overpayments are just outrageous,” he said.

The problem could get worse if the Supreme Court curtails the powers of regulatory agencies, as it may do this year.  “It would make a huge difference in what CMS would be able to do,” Gilfillan said.

The logic behind Medicare privatization is that seniors and people with disabilities use too much care, egged on by their doctors. If true, a solution could have been to enforce the Stark Law, which bans physicians from having financial relationships with providers they refer to, or other anti-kickback statutes. States could also enforce laws 33 of them have enacted that prohibit the “corporate practice of medicine.” 

Instead, health insurers were invited and incentivized by previous administrations to compete with the original Medicare program and “manage” beneficiaries’ care. Under this model— set in its modern form in 2003 — Medicare Advantage insurers are paid a rate based on a complex risk modeling process and estimated costs.

But Medicare Advantage plans have never been cheaper than traditional Medicare, as MedPAC has repeatedly pointed out.  

This is a far more complex approach than the fee-for-service model in which CMS sets prices in health care in a public and transparent manner, Gilfillan notes. The prices negotiated by Medicare Advantage companies, by contrast, are not disclosed.

“With fee-for-service, a patient is provided a service, treatment or medication. The physician who provides the service charges a specific amount for that service,” Gilfillan said. “And then Medicare  pays whatever it decided it was worth for that service. The benefit is you pay for what you get.”

Some Medicare Advantage plans use a “capitated” approach in paying primary care physicians. The amount is based on the premium they receive for the patient. The more codes submitted, the higher the capitation, the greater the profit. That approach is having far-reaching economic impacts on health care, said Hayden Rooke-Ley, an Oregon-based lawyer and health care consultant who co-authored a recent New England Journal of Medicine article on the corporatization of primary care. It is the capitation model, he says, that drives the rampant upcoding among Medicare Advantage plans. 

From Horizontal to Vertical

“An undercovered aspect of Medicare Advantage is the way it is fueling vertical consolidation” in the insurance business, Rooke-Ley added, noting that until recent years, insurers bulked up by buying smaller competitors (known as horizontal integration). “With so much government money, we’re seeing insurance companies restructuring themselves as vertically integrated conglomerates [through the acquisition of physician practices, clinics and pharmacy operations] to become even more profitable, especially in Medicare Advantage.”

“A key part of this strategy is to own primary care practices,” he said, citing Humana’s partnership with the private-equity firm Welsh Carson to become the largest owner of Medicare-based primary care, CVS/Aetna’s acquisition of Oak Street, and UnitedHealth’s roll up of doctors practices across the country.

As Rooke-Ley explained, control of primary care allows insurance companies to more easily manipulate “risk scores” to increase payments from the government by claiming patients are in worse health than they really are.

“The easiest way to increase risk scores, short of simply fabricating diagnosis codes, is to control the behavior of physicians and other clinicians,” he said. 

“When an insurance company owns the physician practice, it can configure workflows, technology, and incentives to drive risk coding.

UnitedHealth, for example, can preferentially schedule Medicare Advantage patients – and it can choose to reach out to health plan enrollees it identifies with its data as having high ‘coding opportunities.’ It can require its doctors to go to risk-code training, and it can prohibit doctors from closing their notes before they address all the ‘suggested’ diagnosis codes.” 

“While Medicare Advantage insurance companies tout all their provider acquisitions as investments in value-based care, the concern is that it’s really just looking like a game of financialization,” Rooke-Ley said. “MA was supposed to save Medicare money, but the exact opposite has happened.

According to MedPAC, the government will over-subsidize MA to the tune of $88 billion this year, with $54 billion of that due to excess risk coding relative to what we see in traditional Medicare. That’s a staggering amount of money that could go directly to patients and clinicians by strengthening traditional Medicare.”   

Two Possible Futures

There are two options for the future of Medicare, said Dr. Ed Weisbart, former chief medical officer of the pharmacy benefit manager Express Scripts, which Cigna bought in 2018, who now leads the Missouri chapter of Physicians for a National Health Program.

In one future, he said, “We will change the trajectory and get rid of the profiteers, and manage to divert the funds that are being profiteered to patient care.”

In another future, the business practices of Medicare Advantage plans “will be unfettered and more damaging and harmful than they are today,” he said. “If we continue on this course we’ll find an increasingly polarized health care system that caters increasingly to the wealthy and privileged. The barriers to care will be worse.” 

Hospitals declare War on Corporate Insurance: Handicapping the Players

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Hospitals declare War on Corporate Insurance: Handicapping the Players

At the Annual Meeting of the American Hospital Association in DC last week, its all-out attack on “corporate insurance” was a prominent theme. In the meeting recap, AHA CEO Rick Pollack made the influential organization’s case:

“This year, there was special focus on educating policymakers that our health care system is suffering from multiple chronic conditions. These include continued government underpayment, cyberattacks, workforce shortages, broken supply chains, access to behavioral health, and irresponsible behavior by corporate commercial health insurance companies, among others — that put access to services in serious jeopardy.”

The AHA’s declaration of war came on the heels of last week’s Congressional investigation of Change Healthcare’ (UnitedHealth Group subsidiary) cybersecurity breech and the widely-noticed earnings release by Elevance (aka Anthem) that featured prominently its plans to build a $4 billion business unit focused on primary care and chronic care management. Per company CEO Gail Boudreaux:

“This will help us continue through having a focus on advanced primary care; it’s still very much focused on our chronic patients and complex patients. We are still building specialty care enablement, which is another very important component of what we’re trying to prime through… In time, Elevance Health will have full ownership of what we expect will be a leading platform for value-based care delivery and physician enablement at scale.”

To industry watchers, the war is no surprise.

It’s been simmering for years but most recently inflamed as operating margins for most hospitals eroded while profits among corporate insurers led by Big 6 (UnitedHealth, Humana, CVS-Aetna, Elevance, Cigna, Centene) swelled at double-digit rates.

To outsiders, it’s not quite so clear.

Big names (Brands) are prominent in both. Corporatization seems embedded in the business models for both. And both appear complicit in well-documented beliefs that the health system is failing as unnecessary higher costs make it less accessible, affordable and effective.

As the War intensifies, each combatant is inclined to make their cases aggressively contrasting “us” against “them.” Here’s where things stand today:

ConsiderationHospitalsCorporate InsurersAdvantage
Public StandingHospitals enjoy relatively strong public support but growing discontent about their costs, prices and household affordability. Hospitals blame insurers & drug companies for increasing health costs.Increased attention to affordability, value and low prices is a threat.Insurers enjoy reasonably high support among middle & high-income consumers who think it necessary to their financial security. Insurers blame drug companies, hospitals and unhealthy consumer behaviors for increased health costs.It’s a tossup. Though polls show trust in hospitals is higher than insurers, both are declining especially among younger, urban and low-middle income consumers
Regulatory positioningScrutiny of business practices & the impact of consolidation on consumer prices, workforce wage compression, competition et al is significant and increasing in 5 Congressional Committees and 3 Federal agencies. Hospitals also face state and local regulatory challenges around pricing, community benefits, et al.Compliance with plan transparency rules, prior authorization requirements, Medicare Advantage marketing & coverage, and antitrust are targets. Levels of Congressional attention to business practices are relatively low. Insurers are primarily overseen by states, so the regulatory landscape varies widely except.Insurers enjoy regulatory advantages today not withstanding current attention to UnitedHealth Group.  Hospitals are “soft targets” for state legislatures, Congress and investigators in state and federal agencies.
Confidence of capital markets in their core businesses: Hospitals: inpatient, outpatient careInsurers: group & individual coverage, claims data commercializationThe acute sector, especially rural & systems operating in low-growth markets, face insurmountable headwinds due to reimbursement cuts, value-based purchasing initiatives by Medicare and private insurers and clinical innovations that drive demand away from inpatient care. Hospital Outpatient services are profitable for the near term despite growing competition from privately investors.  The consolidation of power, financial strength & influence among the corporate insurers is assuring to lenders & investors who value their performance and support their vertical integration expansion role.  Lenders and investors favor “corporate insurers” over others. The potential (likelihood) that hospitals will lose on high profile revenue-enhancer issues (facility fees, site neutral payments, et al) and restrict tax exemptions for NFP hospital operators is concerning to the capital markets.  
Relationships with Physicians Hospitals employ 58% of physicians directly & relate to all. Regulations (i.e. Stark Laws, et al), capital deployment for hospital programs and administrative overhead are factors of high importance to physicians seeking clinical autonomy & financial security.  Hospitals are a viable option to physicians seeking income security though not without concern.Insurers employment of physicians plus contractual relationships with network physicians are transactional. Physicians inclined toward business relationships with “corporate insurers” believe their role in healthcare’s future is more stable than that of hospitals based on the belief hospitals are wasteful and non-responsive to physician input.Hospitals enjoy a relationship advantage with most physicians. Corporate insurers enjoy a transactional relationship with physicians that’s premised on shared views about the future of the system vs. hospitals that focus on protecting the past. Hospitals enjoy a near-term advantage but the long-term is uncertain.
Unity of voiceRelatively strong around “chronic ailments” of the system but unclear about long-term destination and limited to universal hospital concerns (i.e. 340B) vs. cohort issues (tax exemptions for not for profits). The delineations between not-for-profit, investor-owned and public/government restricts the strength of hospital voice overall as each seeks unique recognition and regulatory protections.Corporate insurers have corporate boards, broader membership, stronger balance sheets and scale. Their messaging is customized to their key customers and influencers and aligned with but not controlled by their trade groups. And they direct considerable resources to their proprietary messaging strategies.Corporate insurers have fewer constraints in their messaging and enjoy an advantage in opining to issues that resonate with consumers (prices, quality, value).
Long-term Vision for the U.S. Health SystemA private connected system of health in which hospitals coordinate and provide services for patients across the continuum of their care: preventive, chronic, acute and long-term.A private system of comprehensive, customized products and services that operates efficiently, effectively and in the interests of all consumers.The public and Congress aren’t sure which is better positioned to develop a “new” system of health.

This war has been simmering. It’s now a blaze. The outcome is uncertain despite the considerable resources both will spend to win.

Stay tuned.

Paul

P.S. Last week, I participated in Scottsdale Institute’s Annual Leadership Summit in Arizona. It’s 62 institutional members and corporate partners include most of the major not-for-profit health systems and the biggest names in healthcare information technology solutions.

I left with two strong impressions I’ll share:

1-How GenAI and HCIT influence the future of healthcare services delivery is very much speculative but no-less certain. It’s a work in process for everyone.

2- To navigate its evolution, knowledge sharing (and mistake sharing) among those in the trenches is essential. SI afforded a great venue for both, and also a platform for those of us who are easily overwhelmed by all this to ask honest questions and get candid answers.

Check it out. http://www.scottsdaleinstitute.org.

The Five Most Interesting Transactions Announced in 2023

Posted on by • Posted in Health System, Hospital, Hospital Industry, Market Consolidation, Market Power, Market Share, Market Trends, Market Value, Mergers & Acquisitions, Value-Based Healthcare • Leave a comment
https://www.kaufmanhall.com/insights/article/five-most-interesting-transactions-announced-2023?utm_source=mkto&utm_campaign=pma-article&utm_medium=em&utm_term=240131&mkt_tok=NjU0LUNOWS0yMjQAAAGRACJYydhInPFOmrAoAb7xrAOnXOnCmHwKCpcVEWNFfrlQ1em92hEIxV4eaGVgxFIoSIPi2AC9hEuKAGMSkwcDyVKr_HfX3IqUnuIMWZ52KbQ-

Earlier this month, we released our year-end report on hospital and health system M&A activity in 2023. As a follow-up to that report, here are our thoughts on the five most interesting transactions announced in the past year.[1]

  1. The creation of Risant Health and its planned acquisition of Geisinger Health. This was the transaction that created the most buzz in 2023, promising the formation of a platform—supported by Kaiser Permanente—dedicated to the advancement of value-based care. Risant Health will be created by the Kaiser Foundation Hospitals and will acquire Geisinger as its first member. It will seek to add additional systems to the platform once the acquisition of Geisinger has been finalized.
  2. Novant Health’s acquisition of three hospitals from Tenet Healthcare. This transaction represented several of the 2023 M&A trends highlighted in our year-end report. It offers an example of for-profit health system portfolio realignment: Tenet announced that the proceeds of the sale—a pre-tax book gain of approximately $1.6 billion—will be used primarily for debt retirement. It also offers an example of regional market development, as Novant continues to expand its network in North and South Carolina. And with a valuation of the deal at 16 times adjusted EBITDA—based on the $2.4 billion sale price and $150 million adjusted EBITDA reported in the press release—this transaction reflects the value of investing in high-growth markets: in this case, coastal South Carolina.
  3. Henry Ford Health System’s joint venture with Ascension. Offering another example of regional market development, this transaction, when finalized, would also provide an example of how secular and faith-based organizations can work together in partnership. The press release announcing the transaction noted that both organizations “are committed to working to maintain the Catholic identity of the Ascension Michigan facilities included in the transaction.”
  4. The combination of BJC Health System and Saint Luke’s Health System. This transaction, announced in May 2023, closed on January 1, 2024, and provides an example of the cross-market transactions that have emerged as a significant trend in hospital and health system M&A. Also—given the relatively close geographic alignment of the two systems—it provides another example of regional market development. It is the largest of the regional development transactions called out in our year-end report: others included the Novant/Tenet transaction described above, as well as the combination of Froedtert Health and ThedaCare in eastern Wisconsin and Vandalia Health’s development of a statewide network in West Virginia.[2]
  5. Centura Health’s acquisition of Steward Health’s Utah care sites. In another example of a for-profit system divesting its interest in a geographic market, Steward Health announced the sale of its Utah care sites—including five hospitals and more than 35 medical group clinics—to Centura Health, which is part of CommonSpirit Health. CommonSpirit will own the assets, which will be managed by Centura Health. For Centura, the transaction offers an opportunity to enter the growing Utah market, which has demographics similar to its home base in Colorado.

We are early in the year, but 2024 has started with a bang: the announced acquisition of Summa Health, based in Akron, Ohio, by General Catalyst’s Healthcare Assurance Transformation Corporation (HATCo).[3]  The acquisition, when completed, would launch HATCo on its path to fulfill one of the three goals set forth during the October 2023 announcement of its formation: “acquiring and operating a health system for the long term where we can demonstrate the blueprint of [healthcare] transformation for the rest of the industry.”

Nurse sues UPMC over alleged labor abuses

Posted on by • Posted in Antitrust, Class Action Lawsuit, Health System, Hospital, Hospital Industry, Labor Abuses, Labor Relations, Labor Spend Management, Lawsuit, Market Consolidation, Market Power, Market Share, Mergers & Acquisitions, Monopoly, Monopoly Behavior, Nurses, Unfair Business Practices, Unfair Labor Practices • Leave a comment
https://www.healthcaredive.com/news/nurse-sues-upmc-monopoly-labor-abuse-pennsylvania/705287/?utm_source=Sailthru&utm_medium=email&utm_campaign=Issue:%202024-01-23%20Healthcare%20Dive%20%5Bissue:58423%5D&utm_term=Healthcare%20Dive

The lawsuit filed in federal court seeks to represent thousands of other UPMC employees.

Dive Brief:

  • A nurse is suing the University of Pittsburgh Medical Center for allegedly leveraging its monopoly control over the employment market in Pennsylvania to keep wages down and prevent workers from leaving for competitors, all while increasing their workload.
  • The lawsuit, filed late last week in a federal court, seeks class action status to represent other staff at the nonprofit health system. Plaintiff Victoria Ross, who worked as a nurse at UPMC Hamot in Erie, Pennsylvania, seeks damages and is asking the judge to enjoin UPMC from continuing its unfair business practices.
  • If granted class action status, the lawsuit could represent thousands of current and former UPMC workers, including registered nurses, medical assistants and orderlies. UPMC has denied the allegations in statements to other outlets but did not respond to a request for comment by time of publication.

Dive Insight:

UPMC has grown steadily over the past few decades into the largest private employer in Pennsylvania, employing 95,000 workers overall.

From 1996 to 2018, the system acquired 28 competing healthcare providers, greatly expanding its market power, according to the lawsuit. The acquisitions also shrunk the availability of healthcare services. Over the same period, UPMC closed four hospitals and downsized operations in three other facilities, eliminating 1,800 full- and part-time jobs, the lawsuit said.

UPMC relied on “draconian” mobility restrictions and labor law violations to lock employees into lower pay and subcompetitive working conditions, according to the 44-page complaint.

Specifically, the system enacted restraints like noncompete clauses and “do-not-rehire blacklists” to stop workers from leaving. Meanwhile, UPMC allegedly suppressed workers’ labor law rights to prevent them from unionizing.

“Each of these restraints alone is anticompetitive, but combined, their effects are magnified. UPMC wielded these restraints together as a systemic strategy to suppress worker bargaining power and wages,” the lawsuit said. “As a result, UPMC’s skilled healthcare workers were required to do more while earning less — while they were also subjected to increasingly unfair and coercive workplace conditions.”

According to the complaint, UPMC has faced 133 unfair labor practice charges since 2012, and 159 separate allegations. Roughly 74% of the violations were related to workers’ efforts to unionize, the lawsuit said.

Meanwhile, UPMC workers’ wages have fallen at a rate of 30 to 57 cents per hour on average compared to other hospital workers for every 10% increase in UPMC’s market share, said the lawsuit, citing a consultant’s economic analysis.

The lawsuit also noted that UPMC’s staffing ratios have been decreasing, even as staffing ratios on average have increased at other Pennsylvania hospitals.

The alleged labor abuses and UPMC’s market power are linked, according to the complaint.

“Had UPMC been subject to competitive market forces, it would have had to raise wages to attract more workers and provide higher staffing levels in order to avoid degrading the care it provided to its patients, and in order to prevent losing patients to competitors who could provide better quality care,” the lawsuit said.

UPMC is facing similar labor allegations. In May, two unions filed a complaint asking the Department of Justice to investigate labor abuses at the nonprofit.

Hospitals were plagued by staffing shortages during the COVID-19 pandemic. Many facilities still bemoan the difficulty of hiring and retaining full-time workers, and point to shortages (of nurses in particular) as the reason for overworked employees and poor staffing ratios.

Yet some studies suggest that’s not the case. One recent analysis of Bureau of Labor Statistics data found employment in hospitals — including registered nurses — is now slightly higher than it was at the start of the pandemic.

Despite the controversy, UPMC — which now operates 40 hospitals with annual revenue of $26 billion — continues to try and expand its market share. Late last year, the system signed a definitive agreement to acquire Washington Health Care Services, a Pennsylvania system with more than 2,000 employees and two hospitals. The deal faces pushback from local unions.

Will health system M&A soar or dive?

Posted on by • Posted in Academic Medical Center, Acquisition, Collaboration, Critical Thinking, Divestitures, Health System, Hospital, Hospital Industry, Innovation, Joint Venture, Market Consolidation, Market Power, Market Share, Market Trends, Mergers & Acquisitions • Leave a comment
https://www.beckershospitalreview.com/finance/will-health-system-m-a-soar-or-dive.html?origin=CFOE&utm_source=CFOE&utm_medium=email&utm_content=newsletter&oly_enc_id=2893H2397267F7G

The health system deal market heated up in 2023.

Big, industry-shaking acquisitions including Oakland, Calif.-based Kaiser Permanente’s purchase of Danville, Pa.-based Geisinger, could redefine healthcare delivery with an eye toward value. Regional deals, such as Detroit-based Henry Ford Health’s planned joint venture with Ascension Michigan and St. Louis-based BJC HealthCare’s plan to acquire Saint Luke’s Health System to create a $10 billion organization, have also made waves.

There were 18 hospital and health system transactions announced in the third quarter, up from 10 transactions over the same time period in 2022, according to Kaufman Hall’s third quarter M&A report. Financial pressures with inflation catapulting staffing and supply costs, and reimbursement rates growing much more slowly, have forced some systems to look for a buyer while others aim to increase market share.

Academic health systems are also seeking community partners at a higher rate than in the past, according to the Kaufman Hall report.

But not all announced deals have gone according to plan.

The Federal Trade Commission is scrutinizing deals more closely than ever before to ensure costs don’t increase after an acquisition in some cases. In other cases, the two partners aren’t able to agree upon the details after announcing their plans. The dissolved merger between Sioux Falls, S.D.-based Sanford Health and Minneapolis-based Fairview Health Services fell apart amid contention in Minnesota, and West Des Moines, Iowa-based UnityPoint Health’s plans to merge with Presbyterian Healthcare Services in Albuquerque, N.M., was halted without a publicly stated reason.

Will there be more or fewer health system deals in the next three years?

Seth Ciabotti, CEO of MSU Health Care at Michigan State University in East Lansing, thinks so, at least when it comes to academic medical centers.

“There will be more consolidation to mitigate risk,” he told Becker’s. “I believe we are heading down a path of having only a dozen or so non-academic medical centers/health systems being left in the near future in the U.S.”

Mark Behl, president and CEO of NorthBay Health in Fairfield, Calif., has a similar outlook for the next three years.

“I suspect we will see more mergers and acquisitions with a continued desire to grow larger and remain relevant,” he told Becker’s. “Independent regional health systems will fight for relevance, and sometimes survival.”

And health systems won’t be the only buyers. Private equity, health insurers and non-traditional owners are on the hunt for health systems. General Catalyst has strengthened its healthcare presence recently and announced it plans to acquire a system in the near future.

“I believe that over the next three years, the landscape of acquisitions, divestitures and joint ventures will continue to reshape the healthcare industry,” said Dennis Sunderman, system director of HR M&A, non-employee and provider services at CommonSpirit Health, told Becker’s. “Current and proposed legislation, the continued evolution of ownership groups, nonprofit, for profit, and private equity, and the drive to hire and retain exceptionally talented teams, will lead to new innovations and an enhanced focus on the associates affected by the transaction.”

Health systems will need to optimize their operations to expand their value-based care efforts and digital transformation, including telehealth and remote patient monitoring services. Not all systems have the expertise and resources to fully make this transition, but with the right partners and strategic alignments, they can accelerate care transformation.

“There will likely be more collaborations and partnerships to expand services and increase access versus brick and mortar acquisitions,” said Cliff Megerian, MD, CEO of University Hospitals in Cleveland. “Innovative thinking is critical for success and quite frankly survival in our industry, so health systems should already be investing in growing in-house expertise dedicated to ideating new models of care, but in three years, these efforts should be producing tangible results.”

Michelle Fortune, BSN, CEO of Atrium St. Luke’s Hospital in Columbus, N.C., pointed to recent collaborations between Mercy, Microsoft and Mayo Clinic as examples of how health systems can partner on important initiatives such as improved data sharing, generative AI, digital transformation and more.

“I expect to see an increase in collaborations and connections between health systems to a degree that has never existed before as part of the focus on bringing the right care to people across the full continuum, when and where they need it,” she said.

Kaufman Hall sees more minority ownership deals ahead, which allows the smaller system to maintain near-autonomy while benefiting from the resources of a larger system.

“Health systems are also engaging in creative transaction structures that allow partners to maintain their independence while building strategic alliances that enhance access to care,” the report notes. “Announced transactions in Q3 included [Charlottesville, Va.-based] UVA Health’s acquisition of 5% ownership interest in [Newport News, Va.-based] Riverside Health System as part of a strategic alliance design ‘to expand patient access to innovative care for complex medical conditions, transplantation, and the latest clinical trials.'”

Jefferson, Lehigh Valley Health plan to merge into 30-hospital system

Posted on by • Posted in Antitrust, Competition, Federal Trade Commission, Federal Trade Commission (FTC), Health System, Hospital, Hospital Industry, Market Consolidation, Market Power, Market Share, Market Trends, Mergers & Acquisitions • Leave a comment
https://www.beckershospitalreview.com/hospital-transactions-and-valuation/jefferson-lehigh-valley-health-plan-to-merge-into-30-hospital-system.html?origin=CEOE&utm_source=CEOE&utm_medium=email&utm_content=newsletter&oly_enc_id=2893H2397267F7G

Pennsylvania health systems Jefferson and Lehigh Valley Health Network have signed a non-binding letter of intent to combine.

Philadelphia-based Jefferson and Allentown, Pa.-based LVHN announced the letter Dec. 19 in a news release, with expectations to close the transaction in 2024. Combined, Jefferson and LVHN would form a system with 30 hospitals, more than 700 sites of care and more than 62,000 employees. 

Jefferson CEO Joseph Cacchione, MD, will serve as CEO of the expanded system — dubbed for now as Jefferson Enterprise — and LVHN President and CEO Brian Nester, DO, will serve as its executive vice president and COO. Dr. Nester will also serve as president of the legacy LVHN, reporting directly to Dr. Cacchione. An integrated board of trustees and leadership team will be made up of members from both systems, specifics of which are expected in the definitive agreement.

“The healthcare landscape and our communities’ needs are changing; it is critical leading systems evolve and make investments in the future of care and wellness — growing and protecting access to enhanced, affordable, high-quality and innovative care, particularly for historically underserved patients,” Dr. Cacchione said in the release. 

The merger is another development out of Jefferson, which has seen a year of change. Dr. Cacchione assumed the CEO post in September 2022, and the system has since welcomed a new president, CFO, and dean of its medical school and physicians group. Earlier this year, Jefferson rolled out a reorganization plan to operate as three divisions instead of five, which involved layoffs affecting executives and a later workforce reduction of about 400 positions.  

Cost-cutting has been in effect at LVHN, too. The 13-hospital system, which includes nearly 3,000 physicians and advanced practice clinicians, eliminated approximately 240 positions as part of restructuring this fall. 

“In Jefferson, we have found an ideal partner that shares our culture and commitment to excellence in clinical care and a learning environment, and that has done a fabulous job in establishing a highly successful health plan with a sharp focus on the well-being of Medicaid and Medicare beneficiaries,” Dr. Nester said. “The expertise derived from these operations is becoming a crucial competency for health systems to deliver on their mission, and Jefferson Health Plans will help drive improvements in health outcomes, especially in vulnerable populations. We are also very excited about the opportunity to expand academic and talent development programs that will further bolster our provider pipeline and enhance our ability to attract and retain top talent to the benefit of the communities we both serve.”