Two more hospital mergers scrapped after federal antitrust scrutiny

Steward Health Care is abandoning its proposal to sell five Utah hospitals to HCA Healthcare, and New Jersey-based RWJBarnabas Health dropped its plan to purchase New Brunswick, NJ-based Saint Peter’s Healthcare System. These pivots come just weeks after the Federal Trade Commission (FTC) filed suits to block the transactions, saying they would reduce market competition. The FTC said in a statement that these deals “should never have been proposed in the first place,” and “…the FTC will not hesitate to take action in enforcing the antitrust laws to protect healthcare consumers who are faced with unlawful hospital consolidation.” 

The Gist: These latest mergers follow the fate of the proposed Lifespan and Care New England merger in Rhode Island, and the New Jersey-based Hackensack Meridian Health and Englewood Health merger, which were both abandoned after FTC challenges earlier this year.

Antitrust observers find these recent challenges unsurprising, as all were horizontal, intra-market deals of the kind that commonly raise antitrust concerns. What will be more telling is whether antitrust regulators can successfully mount challenges of cross-market mergers, or vertical mergers between hospitals, physicians, and insurers. 

Is healthcare still recession-proof?

A recent conversation with a health system CFO made us realize that a long-standing nugget of received healthcare wisdom might no longer be true. For as long as we can remember, economic observers have said that healthcare is “recession-proof”—one of those sectors of the economy that suffers least during a downturn. The idea was that people still get sick, and still need care, no matter how bad the economy gets. But this CFO shared that her system was beginning to see a slowdown in demand for non-emergent surgeries, and more sluggish outpatient volume generally.

Her hypothesis: rising inflation is putting increased pressure on household budgets, and is beginning to force consumers into tougher tradeoffs between paying for daily necessities and seeking care for health concerns. This is having a more pronounced effect than during past recessions, because we’ve shifted so much financial risk onto individuals via high deductibles and cost-sharing over the past decade.

There’s a double whammy for providers: because the current inflation problems are happening in the first half of year, most consumers are nowhere near hitting their deductibles, leading this CFO to forecast softer volumes for at least the next several months, until the usual “post-deductible spending spree” kicks in.

Combined with the tight labor market, which has increased operating costs between 15 and 20 percent, this inflation-driven drop in demand may have hospitals and health systems experiencing their own dose of recession—contrary to the old chestnut.

Younger hospital nurses leaving the profession altogether

The prevailing opinion earlier this year was that the hospital registered nurse (RN) shortage was being driven by older nurses retiring early or leaving hospital employment for less-demanding care settings during the pandemic. However, recent data shown in the graphic below paint a different picture. 

Hospital RNs with over ten years of tenure actually turned over at lower rates in 2021, compared to 2019. Meanwhile, the turnover rate for nurses with less tenure (who are typically younger) increased in 2021. While less-tenured nurses have always turned over at higher rates, we are seeing a new uptick in younger RNs leaving the profession

The size of the total RN workforce decreased by 1.8 percent between 2019 and 2021and the decline was twice as steep for hospital-employed RNs. Younger RNs disproportionately drove this decline: nurses under age 35 left the nursing workforce at four times the rate of those over age 50. 

A recent survey suggests younger RNs are less likely to feel their well-being is supported by their organization, and more likely to define themselves as “emotionally unhealthy.” To keep younger nurses in the profession, hospitals must increase the support available to them. Investments might include expanding preceptorship and mentorship programs, many of which were cut during the pandemic, and increasing behavioral health support and job flexibility.  

Study finds Medicare could save billions buying generic drugs from Mark Cuban’s pharmacy

 An analysis published in the Annals of Internal Medicine finds that if Medicare had purchased 77 common generic drugs from Mark Cuban’s Cost-Plus Pharmacy in 2020, it would have saved $3.6B dollars. That translates to more than a third of the $9.6B Medicare spent on generic drugs that year. 

In January, Dallas Mavericks owner and billionaire Cuban launched the generic drug company as a transparency play, cutting out pharmacy benefit managers (PBMs), negotiating directly with manufacturers, and selling drugs at a flat 15 percent markup.

The Gist: This isn’t the first study to find that Medicare overpays for generic drugs, as it’s unable to negotiate drug prices under current law. Another recent analysis found that Costco can offer consumers lower prices than Medicare drug plans for half of the most common generic drugs.

The fact that both Costco’s and Cuban’s pharmacies, neither of which accepts health insurance, can offer consumers cheaper generics is another indication of how PBMs’ perverse incentives and opaque pricing and rebate models lead to consumers being steered to higher priced drugs. We’re hopeful that the FTC’s new investigation into PBMs will shed light on their pricing practices, and create a path for lawmakers to finally address unsustainably high prescription drug prices.  

Walgreens launches its clinical trial business

The company plans to leverage its expansive retail footprint of 9,000 stores, as well as its pharmacy business and other care delivery assets, to connect patients with late-stage pharmaceutical trials either at retail clinics, at home, or virtually. To match patients with trials, Walgreens is partnering with health data company Pluto Health, which aggregates information across medical records, insurance claims, and other sources.

The Gist: The decentralized clinical trial business has been growing since the pandemic spurred a rapid switch to remote trial participation. This announcement comes roughly a year after competitor CVS announced its entry into the clinical trial space.

Most clinical research is centered in academic medical centers, which are disproportionally located in large urban areas, forcing many patients to travel long distances to participate. With large amounts of patient data and footprint spanning all fifty states, retail pharmacies are well-positioned to partner with investigators to reach patients who lack access to clinical trials today, given lack of financial resources or ability to travel.

Supreme Court overturns Roe v. Wade, eliminating the constitutional right to an abortion

 The 6-3 decision in Dobbs v. Jackson Women’s Health Organization, challenging a Mississippi law banning most abortions after 15 weeks, overturns the nearly 50-year precedent providing a constitutional right to abortion. The opinion was little changed from a draft that was leaked last month, returning most decision making on abortion to states. At least 13 states have so called ‘trigger laws’ in place that will almost immediately make abortion illegal, and another 13 states are likely to pass similar laws.

The GistIn over half of states, existing or new laws will likely prevent pregnant people from accessing critical and evidence-based reproductive healthcare services, including medically safe abortion, miscarriage care, pregnancy termination for severe fetal anomalies, and endangerment of the childbearing parent’s life.

Patients in Texas, which passed one of the strictest abortion laws last year, have already been facing challenges obtaining prescriptions for medications for miscarriage and abortion care. Many state laws which criminalize providing the procedure put physicians and other medical providers in legal jeopardy.

And as legal experts point out, most malpractice insurance doesn’t protect physicians from damages incurred from criminal charges. 

Moreover, most laws have been written by legislators with little or no medical expertise, leading to lack of clarity about which potentially life-threatening situations, in what circumstances, merit pregnancy termination—forcing physicians to delay lifesaving obstetric care. (Read this NEJM piece to understand what this looks like for doctors and patients in Texas today.) Regardless, today’s decision will lead to increased mortality for pregnant people and those unable to seek safe abortion care. 

Podcast: All Healthcare Is Politics?

Does Your Vote Affect Your Healthcare?

What role should the federal government play in addressing major healthcare issues? And does the way you vote affect your prospects for a long and healthy life? We talked about it on today’s episode of the 4sight Friday Roundup podcast.

  • David Johnson is CEO of 4sight Health.
  • Julie Vaughan Murchinson is Partner of Transformation Capital and former CEO of Health Evolution.
  • David Burda is News Editor and Columnist of 4sight Health.

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7 hospitals hit with credit downgrades

Credit rating downgrades for several hospitals and health systems were tied to cash flow issues in recent months. 

The following seven hospital and health system credit rating downgrades occurred since February: 

1. Jupiter (Fla.) Medical Center — lowered in June from “BBB+” to “BBB” (Fitch Ratings)
“The ‘BBB’ rating reflects JMC’s increased leverage profile with the issuance of $150 million in additional debt to fund various campus expansion and improvement projects,” Fitch said. “While favorable population growth in the service area and demonstrated demand for services in an increasingly competitive market justify the overall strategic plan and project, the additional debt weakens JMC’s financial profile metrics and increases the overall risk profile.” 

2. ProMedica (Toledo, Ohio) — lowered in May from “BBB-” to “BB+” (Fitch Ratings)
“The long-term ‘BB+’ rating and the assigned outlook to negative on ProMedica Health System’s debt reflects the system’s significant financial challenges as result of continued pressure of the coronavirus pandemic and escalating expenses, with ProMedica reporting a $252 million operating loss that follows several years of weak performance,” Fitch said. 

3. Providence (Renton, Wash.) — lowered in April from “Aa3” to to “A1” (Moody’s Investors Service); lowered from “AA-” to “A+” (Fitch Ratings)
“The downgrade to ‘A1’ is driven by the disaffiliation with Hoag Hospital, and the expectation that weaker operating, balance sheet, and debt measures will continue for the time being,” Moody’s said.

4. San Gorgonio Memorial Healthcare District (Banning, Calif.) — lowered in May from “Ba1” to “Ba2” (Moody’s Investors Service)
“The downgrade to Ba2 reflects the district’s tenuous cash position and weak finances that have contributed to difficulty in securing a bridge loan financing for liquidity needs pending the delayed receipt of approximately $8 million to $9 million in intergovernmental transfers beyond the end of the fiscal year,” Moody’s said. 

5. Willis-Knighton Medical Center (Shreveport, La.) — lowered in March from “A1” to “A2” (Moody’s Investors Service)
“The downgrade to A2 reflects expectations that Willis-Knighton will continue to face challenges in achieving budgeted operating cash flow margins due to heightened wage pressures and volume softness,” Moody’s said. 

6. OU Health (Oklahoma City) — lowered in March from “Baa3” to “Ba2” (Moody’s Investors Service)
“The magnitude of the downgrade to Ba2 reflects projected cashflow in fiscal 2022 that will be materially below prior expectations, from an escalation of labor costs, and reliance on a financing to avoid a further decline in already weak liquidity and potential covenant breach,” Moody’s said. “Also, the rating action reflects execution risk given a prolonged period of management turnover with several key positions unfilled or filled with interim leaders, a governance consideration under Moody’s ESG classification.”

7. Catholic Health System (Buffalo, N.Y.) — lowered in February from “Baa2” to “B1” (Moody’s Investors Service) 
“The downgrade to ‘B1’ anticipates minimal cashflow and a further significant decline in liquidity this year, following material losses in fiscal 2021 from a 40-day labor strike and the disproportionately severe impact of the pandemic, both social risks under Moody’s ESG classification,” the credit rating agency said.