The Federal Trade Commission has closed its investigation of the merger between Atrium Health Navicent and Houston Healthcare System following news the two have abandoned their plans for a deal.
FTC staff had recommended commissioners challenge the merger on grounds that it would have led to “significant harm” for area residents and businesses in the form of higher healthcare costs, the FTC alleged.
The tie-up between two of the largest systems in central Georgia would also hamper investment in facilities, technologies and expanded access to services, according to a statement released Wednesday.
FTC Acting Chairwoman Rebecca Kelly Slaughter said in the statement, “This is great news for patients in central Georgia.”
When the deal was originally announced, Atrium Health Navicent promised to spend $150 million on Houston over a decade, earmarking the money for routine capital expenditures and strategic growth initiatives, according to a previous review of the transaction by the state attorney general’s office.
After engaging with consultants at Kaufman Hall in 2017, leaders at Houston, an independent system, decided they needed to find a strategic partner to weather long-term challenges and ultimately picked Navicent.
Navicent recently merged with North Carolina-based Atrium Health, formerly known as Carolinas HealthCare System. At the time, the deal gave Atrium a foothold in the state of Georgia.
Healthcare consolidation has continued at a steady clip despite the pandemic, and the FTC will be closely investigating any deal involving close competitors. The agency is seeking to expand its arsenal to block future mergers by researching new theories of harm.
The FTC attempted to block a hospital deal in Philadelphia last year but has since abandoned its challenge after a series of setbacks in court. The judge was not swayed that the consolidation of providers would lead to an increase in prices given the plethora of healthcare options in the area.
Employers — including companies, state governments and universities — purchase health care on behalf of roughly 150 million Americans. The cost of that care has continued to climb for both businesses and their workers.
For many years, employers saw wasteful care as the primary driver of their rising costs. They made benefits changes like adding wellness programs and raising deductibles to reduce unnecessary care, but costs continued to rise. Now, driven by a combination of new research and changing market forces — especially hospital consolidation — more employers see prices as their primary problem.
By amassing and analyzing employers’ claims data in innovative ways, academics and researchers at organizations like the Health Care Cost Institute (HCCI) and RAND have helped illuminate for employers two key truths about the hospital-based health care they purchase:
1) PRICES VARY WIDELY FOR THE SAME SERVICES
Data show that providers charge private payers very different prices for the exact same services — even within the same geographic area.
For example, HCCI found the price of a C-section delivery in the San Francisco Bay Area varies between hospitals by as much as:$24,107
Data show that hospitals charge employers and private insurers, on average, roughly twice what they charge Medicare for the exact same services. A recent RAND study analyzed more than 3,000 hospitals’ prices and found the most expensive facility in the country charged employers:4.1xMedicare
Hospitals claim this price difference is necessary because public payers like Medicare do not pay enough. However, there is a wide gap between the amount hospitals lose on Medicare (around -9% for inpatient care) and the amount more they charge employers compared to Medicare (200% or more).
A small but growing group of companies, public employers (like state governments and universities) and unions is using new data and tactics to tackle these high prices. (Learn more about who’s leading this work, how and why by listening to our full podcast episode in the player above.)
Note that the employers leading this charge tend to be large and self-funded, meaning they shoulder the risk for the insurance they provide employees, giving them extra flexibility and motivation to purchase health care differently. The approaches they are taking include:
Some employers are implementing so-called tiered networks, where employees pay more if they want to continue seeing certain, more expensive providers. Others are trying to strongly steer employees to particular hospitals, sometimes know as centers of excellence, where employers have made special deals for particular services.
Purdue University, for example, covers travel and lodging and offers a $500 stipend to employees that get hip or knee replacements done at one Indiana hospital.
Negotiating New Deals
There is a movement among some employers to renegotiate hospital deals using Medicare rates as the baseline — since they are transparent and account for hospitals’ unique attributes like location and patient mix — as opposed to negotiating down from charges set by hospitals, which are seen by many as opaque and arbitrary. Other employers are pressuring their insurance carriers to renegotiate the contracts they have with hospitals.
In 2016, the Montana state employee health plan, led by Marilyn Bartlett, got all of the state’s hospitals to agree to a payment rate based on a multiple of Medicare. They saved more than $30 million in just three years. Bartlett is now advising other states trying to follow her playbook.
In 2020, several large Indiana employers urged insurance carrier Anthem to renegotiate their contract with Parkview Health, a hospital system RAND researchers identified as one of the most expensive in the country. After months of tense back-and-forth, the pair reached a five-year deal expected to save Anthem customers $700 million.
Legislating, Regulating, Litigating
Some employer coalitions are advocating for more intervention by policymakers to cap health care prices or at least make them more transparent. States like Colorado and Indiana have passed price transparency legislation, and new federal rules now require more hospital price transparency on a national level. Advocates expect strong industry opposition to stiffer measures, like price caps, which recently failed in the Montana legislature.
Other advocates are calling for more scrutiny by state and federal officials of hospital mergers and other anticompetitive practices. Some employers and unions have even resorted to suing hospitals like Sutter Health in California.
Employers face a few key barriers to purchasing health care in different and more efficient ways:
Hospitals tend to have much more market power than individual employers, and that power has grown in recent years, enabling them to raise prices. Even very large employers have geographically dispersed workforces, making it hard to exert much leverage over any given hospital. Some employers have tried forming purchasing coalitions to pool their buying power, but they face tricky organizational dynamics and laws that prohibit collusion.
Employers can attempt to lower prices by renegotiating contracts with hospitals or tailoring provider networks, but the work is complicated and rife with tradeoffs. Few employers are sophisticated enough, for example, to assess a provider’s quality or to structure hospital payments in new ways.Employers looking for insurers to help them have limited options, as that industry has also become highly consolidated.
Employers say they primarily provide benefits to recruit and retain happy and healthy employees. Many are reluctant to risk upsetting employees by cutting out expensive providers or redesigning benefits in other ways. A recent KFF survey found just 4% of employers had dropped a hospital in order to cut costs.
Employers play a unique role in the United States health care system, and in the lives of the 150 million Americans who get insurance through work. For years, critics have questioned the wisdom of an employer-based health care system, and massive job losses created by the pandemic have reinforced those doubts for many.
Assuming employers do continue to purchase insurance on behalf of millions of Americans, though, focusing on lowering the prices they pay is one promising path to lowering total costs. However, as noted above, hospitals have expressed concern over the financial pressures they may face under these new deals. Complex benefit design strategies, like narrow or tiered networks, also run the risk of harming employees, who may make suboptimal choices or experience cost surprises. Finally, these strategies do not necessarily address other drivers of high costs including drug prices and wasteful care.
The Federal Trade Commission is revamping a key tool in its arsenal to police competition across a plethora of industries, a development that could have direct implications for future healthcare deals.
One avenue it will zero in on is labor markets, including workers and their wages, and how mergers may ultimately affect them.
It’s an area that could be ripe for scrutinizing healthcare deals, and the FTC has already begun to use this argument to bolster its case against anticompetitive tie-ups. Prior to this new argument, the antitrust agency — in its legal challenges and research — has primarily focused on how healthcare mergers affect prices.
The retrospective program is hugely important to the FTC as it is a way to examine past mergers and produce research that can be used as evidence in legal challenges to block future anticompetitive deals or even challenge already consummated deals.
“I do suspect that healthcare is a significant concern underlying why they decided to expand this program,” Bill Horton, an attorney with Jones Walker LLP, said.
So far this year, the FTC has tried to block two proposed hospital mergers. The agency sued to stop a proposed tie-up in Philadelphia in February between Jefferson Health and Albert Einstein Healthcare Network.
In both cases, the agency alleges the deals will end the robust competition that exists and harm consumers in the form of higher prices, including steeper insurance premiums, and diminished quality of services.
The agency has long leaned on the price argument (and its evidence) to challenge proposed transactions. However, recent actions signal the FTC will include a new argument: depressed wages, particularly those of nurses.
In a letter to Texas regulators in September, the FTC warned that if the state allowed a health system to acquire its only other competitor in rural West Texas, it would lead to limited wage growth among registered nurses as an already consolidated market compresses further.
Last year, the agency sent orders to five health insurance companies and two health systems to provide information so it could further study the affect COPAs, or Certificates of Public Advantage, have on price and quality. The FTC also noted it was planning to study the impact on wages.
FTC turned to review after string of defeats
A number of losses in the 1990s led the agency to conduct a hospital merger retrospective, Chris Garmon, a former economist with the FTC, said. Garmon has helped conduct and author retrospective reviews.
Between 1994 and 2000, there were about 900 hospital mergers by the U.S Department of Justice’s count. The bureau lost all seven of the cases they attempted to litigate in that time period, according to the DOJ.
The defendants in those cases succeeded by employing two types of defenses. The nonprofit hospitals would argue they would not charge higher prices because as nonprofits they had the best interests of the community in mind. Second, hospitals tried to argue that their markets were much larger than the FTC’s definition, and that they compete with hospitals many miles away.
Retrospective studies found evidence that undermined these claims. That’s why the studies are so important, Garmon said.
“It really is to better understand what happens after mergers,” Garmon said. It’s an evaluation exercise, given many transaction occur prospectively or before a deal is consummated. So the reviews help the FTC answer questions like: “Did we get it right? Or did we let any mergers we shouldn’t let through?”
Sam’s Club partnered with primary care telehealth provider 98point6 to offer members virtual visits.
1. Sam’s Club now offers members access to telehealth visits through a text-based app run by 98point6.
2. Members can purchase a $20 quarterly subscription for the first three months; the regular sign-up fee is $30 per person. After the first three months, members pay $33.50 every three months.
3. The subscription gives members unlimited telehealth visits for $1 per visit. The service has board-certified physicians available 24 hours per day, seven days a week.
4. Members can also subscribe for pediatric care.
5. Physicians can diagnose and treat 400 conditions including cold and flu-like symptoms as well as allergies. They can also monitor chronic conditions including diabetes, depression and anxiety.
6. Members can use the app to obtain prescriptions and lab orders as well.
7. Sam’s Club has around 600 stores in the U.S. and Puerto Rico and millions of members.
“Offering access to telemedicine was on our roadmap in the pre-COVID world, but the current environment expedited the need for this service to be easily accessible, readily available and most of all, affordable,” said John McDowell, vice president of pharmacy operations and divisional merchandise at Sam’s Club. “Through providing access to the 98point6 app in a pilot, we quickly realized that our members were eager to have mobile telehealth options and we wanted to provide this healthcare solution to all of our members as a standalone option.”
Healthcare is Hard: A Podcast for Insiders; June 11, 2020
Over the course of nearly 20 years as Chief Research Officer at The Advisory Board Company, Chas Roades became a trusted advisor for CEOs, leadership teams and boards of directors at health systems across the country. When The Advisory Board was acquired by Optum in 2017, Chas left the company with Chief Medical Officer, Lisa Bielamowicz. Together they founded Gist Healthcare, where they play a similar role, but take an even deeper and more focused look at the issues health systems are facing.
As Chas explains, Gist Healthcare has members from Allentown, Pennsylvania to Beverly Hills, California and everywhere in between. Most of the organizations Gist works with are regional health systems in the $2 to $5 billion range, where Chas and his colleagues become adjunct members of the executive team and board. In this role, Chas is typically hopscotching the country for in-person meetings and strategy sessions, but Covid-19 has brought many changes.
“Almost overnight, Chas went from in-depth sessions about long-term five-year strategy, to discussions about how health systems will make it through the next six weeks and after that, adapt to the new normal. He spoke to Keith Figlioli about many of the issues impacting these discussions including:
Corporate Governance. The decisions health systems will be forced to make over the next two to five years are staggeringly big, according to Chas. As a result, Gist is spending a lot of time thinking about governance right now and how to help health systems supercharge governance processes to lay a foundation for the making these difficult choices.
Health Systems Acting Like Systems. As health systems struggle to maintain revenue and margins, they’ll be forced to streamline operations in a way that finally takes advantage of system value. As providers consolidated in recent years, they successfully met the goal of gaining size and negotiating leverage, but paid much less attention to the harder part – controlling cost and creating value. That’s about to change. It will be a lasting impact of Covid-19, and an opportunity for innovators.
The Telehealth Land Grab. Providers have quickly ramped-up telehealth services as a necessity to survive during lockdowns. But as telehealth plays a larger role in the new standard of care, payers will not sit idly by and are preparing to double-down on their own virtual care capabilities. They’re looking to take over the virtual space and own the digital front door in an effort to gain coveted customer loyalty. Chas talks about how it would be foolish for providers to expect that payers will continue reimburse at high rates or at parity for physical visits.
The Battleground Over Physicians. This is the other area to watch as payers and providers clash over the hearts and minds of consumers. The years-long trend of physician practices being acquired and rolled-up into larger organizations will significantly accelerate due to Covid-19. The financial pain the pandemic has caused will force some practices out of business and many others looking for an exit. And as health systems deal with their own financial hardships, payers with deep pockets are the more likely suitor.”
Struggling rural hospitals are faring better financially in states that expanded Medicaid under the Affordable Care Act, according to a new Health Affairs study examining 1,004 rural hospitals’ CMS cost reports submitted from 2011 to 2017.
Among rural, nonprofit critical access hospitals in states that expanded Medicaid, the median overall margin increased from 1.8% to 3.7%, while it dropped from 3.5% to 2.8% in states that did not expand the program.
Tax-exempt status played another key role in determining rural hospitals’ financial viability. During the study period, the median overall profit margin at nonprofit critical access hospitals rose from 2.5% to 3.2%, while it dropped among for-profit operators from 3.2% to 0.4%.
These systems are often smaller, employing fewer specialists and less medical technology, thus limiting the variety of services they can provide and profit on. They remain the closest point of care for millions of Americans, yet face rising closures.
The good news is that most rural hospitals are nonprofit, the designation that fared best in Health Affairs’ six-year study. More than 80% of the 1,004 private, rural hospitals analyzed in the study were nonprofit, while 17% were for-profit.
But researchers found Medicaid expansion played a key role in rural hospitals’ financial viability during the study period, with closures occurring more often in the South than in other regions.
Thirty-seven states have expanded Medicaid under the ACA, but 14 have not, and a majority of them are concentrated in the southern U.S., according to data from the Kaiser Family Foundation.
One of those states is Oklahoma, which on Monday withdrew its planned July 1 Medicaid expansion, citing a lack of funding.
Another factor researchers found positively associated with overall margins and financial viability was charge markups, or the charged amount for a service relative to the Medicare allowable cost. Hospitals with low-charge markups had median overall margins of 1.8%, while those with high-charge markups had margins at 3.5%.
The same is true for occupancy rates. In 2017, rural hospitals with low occupancy rates had median overall profit margins of 0.1% Those with high occupancy rates had margins of 4.7%.
That presents a unique challenge for rural hospitals. Reimbursements from public and private payers do not compensate for fixed costs associated with providing standby capacity, which is essential in rural communities, where few hospitals serve large geographic areas.
Since 1997, CMS has been granting rural hospitals — particularly those with 25 or fewer acute care inpatient beds and located more than 35 miles from another hospital — critical access status, reimbursing them at cost for treating Medicare patients.
In the Health Affairs study, critical access hospitals accounted for 21% of the rural hospital bed capacity, with the remaining 79% of bed capacity provided by noncritical access hospitals.
Sutter Health, a 24-hospital system based in Sacramento, Calif., has agreed to pay $575 million to settle an antitrust case brought by employers and California Attorney General Xavier Becerra.
The settlement resolves allegations that Sutter Health violated California’s antitrust laws by using its market power to overcharge patients and employer-funded health plans. The class members alleged Sutter Health’s inflated prices led to $756 million in overcharges, according to Bloomberg Law.
Under the terms of the settlement, Sutter will pay $575 million to employers, unions and others covered under the class action. The health system will also be required to make several other changes, including limiting what it charges patients for out-of-network services, halting measurers that deny patients access to lower-cost health plans, and improving access to pricing, quality and cost information, according to a Dec. 20 release from Mr. Becerra.
To ensure Sutter is complying with the terms of the settlement, the health system will be required to cooperate with a court-approved compliance monitor for at least 10 years.
Mr. Becerra said the settlement, which he called “a game changer for restoring competition,” is a warning to other organizations.
“This first-in-the-nation comprehensive settlement should send a clear message to the markets: if you’re looking to consolidate for any reason other than efficiency that delivers better quality for a lower price, think again. The California Department of Justice is prepared to protect consumers and competition, especially when it comes to healthcare,” he said.
A Sutter spokesperson told The New York Times that the settlement did not acknowledge wrongdoing. “We were able to resolve this matter in a way that enables Sutter Health to maintain our integrated network and ability to provide patients with access to affordable, high-quality care,” said Flo Di Benedetto, Sutter’s senior vice president and general counsel, in a statement to The Times.
The settlement must be approved by the court. A hearing on the settlement is scheduled for Feb. 25, 2020.
With the continued growth in high deductible health plans (HDHPs) in both employer- and exchange-based insurance markets, a larger number of services are falling “under the deductible”, leaving patients responsible for the full cost of care.
The graphic above illustrates the national cost ranges of ten common outpatient services, based on data from a publicly-available commercial claims database. It’s not just minor services like lab tests or diagnostic imaging that are falling under the deductible—many consumers are now paying full freight for a growing list of outpatient procedures like cataract or carpal tunnel surgery, or even knee arthroscopy.
Shopping can pay off: for any service, the highest-priced provider can be over three times the lowest-priced, translating into thousands of dollars of savings for patients with high-deductible plans.
Outpatient services now account for over half the revenue of many health systems. As deductibles climb, more and more of the (profitable) health system services are becoming “shoppable” for consumers—creating an imperative for systems to both lower costs and pursue rational pricing as scrutiny becomes more intense.