Tag Archives: Competition

Healthcare’s Consolidation Landscape

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Market and regulatory factors have unleashed a wave of merger, acquisition, and partnership activity that is changing the delivery of healthcare services.

Consolidation in the healthcare-provider sector has accelerated in recent years, reshaping the relationships between health systems, hospitals, and independent physicians across the country.

In the Buckeye State, healthcare consolidation activity has been a transformational force at OhioHealth, says Michael Louge, CPA, who serves as executive vice president and chief operating officer at the 11-hospital health system based in Columbus.

“When you look at OhioHealth, and you go back two or three decades, it was a much different organization. The reason it is different today is because of philosophy and the way we approach regional partnerships—how we have worked with physicians and hospitals in the region. Our whole organization’s evolution has been through successful partnerships and consolidations with regional players.”

Over the past year, statistics have been gathered on the pace of healthcare-provider consolidation.

In a recent HealthLeaders Media survey, 159 healthcare executives—mainly from health systems, hospitals, and physician practices—were asked about their merger, acquisition, and partnership (MAP) deals.

Eighty-seven percent of the respondents said their organizations were expected to both explore potential deals and complete deals that were underway in the next 12–18 months. Only 13% of the respondents said their organizations were not planning MAP deals in that same time period.

From the passage of the Patient Protection and Affordable Care Act (PPACA) in 2010 through the end of last year, merger and acquisition transactions involving acute-care hospitals increased 55% from 66 announced deals to 102, according to Skokie, Illinois–based Kaufman Hall. Last year, the operating revenue of acquired organizations was more than $22 billion, according to the consultancy.

Kit Kamholz, managing director at Kaufman Hall, says two sets of drivers are propelling consolidation activity among health systems and hospitals.

“There are transactions that are driven by financial rationale. This is driven by a level of distress at the smaller organization, either from a historical-financial standpoint, an access-to-capital standpoint, or they are experiencing some significant clinical deficiencies. … The second bucket is in the category of strategic rationale. These are organizations that tend to be relatively strong financially, that are considered to be strong community-based providers in their marketplaces; but they are looking at the landscape of the evolving healthcare environment and saying, ‘Do we have the skills and capabilities to be successful in this new era of value-based care?’ ”

Healthcare consolidation activity is impacting the country’s physician practices and physician-employment trends.

Healthcare Competition Needs a Priority Check and Reset, Experts Say

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http://www.healthleadersmedia.com/leadership/healthcare-competition-needs-priority-check-and-reset-experts-say

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Farzad Mostashari, MD, the former National Coordinator for Health IT at the Department of Health and Human Services, and Martin S. Gaynor, a professor of economics and health policy, discuss how policy helps and/or harms competition in the healthcare marketplace.

Despite the near-universal agreement that the U.S. healthcare delivery system should remain market-based, there has been surprisingly little talk amongst government policy makers and private payers about the potential for stifling competition with over-regulation.

An essay this month in JAMA calls for a re-examination of how healthcare rules, regulations, and policies help or harm competition in the healthcare marketplace.

Farzad Mostashari, MD, the former National Coordinator for Health IT at the Department of Health and Human Services, and Martin S. Gaynor, a professor of economics and health policy at Carnegie Mellon University, two authors of the essay, spoke with HealthLeaders last week. The following is a lightly edited transcript.

What a Bipartisan Approach to U.S. Health Care Could Look Like

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https://hbr.org/2017/03/what-a-bipartisan-approach-to-u-s-health-care-could-look-like?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+harvardbusiness+%28HBR.org%29

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As a friend once told me, “Government is about compromise.” That friend was Tommy Thompson, a four-term governor of Wisconsin who went on to serve in George W. Bush’s cabinet as secretary of health and human services.

With the failure of the American Health Care Act, recently proposed by Republicans in the U.S. House of Representatives, it is clear that the Affordable Care Act (ACA) will continue to serve millions of Americans for the foreseeable future. Of course, the ACA (or Obamacare) remains a flawed law. But rather than allow it to “implode” or “collapse,” as some suggest it will (e.g., President Trump), a group of Republican and Democratic leaders in Washington should take action and fix the broken elements of the ACA for the good of the millions of Americans who depend on it. It is time for a compromise.

What might such a bipartisan agreement look like? Here are some ideas.

Antitrust Not Always Available in Competitor Disputes in the Healthcare Sector

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Antitrust Not Always Available in Competitor Disputes in the Healthcare Sector

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The antitrust injury and antitrust standing defenses/doctrines are alive and well in healthcare.  A recent case, SCPH Legacy Corp. et al. v. Palmetto Health et al., shows that a competitor is not always the most legally appropriate plaintiff to bring an antitrust case, especially when the competitor’s alleged harm stems from increased competition.  This article explains the court’s reasoning and makes some predictions for similar arguments in the future.

On February 24, 2017, Judge Joseph F. Anderson of the District of South Carolina, granted a motion to dismiss all federal antitrust claims brought by a small hospital chain against its larger competitor for lack of antitrust injury and antitrust standing.  The court held that poaching a group of doctors is not the type of injury that the antitrust laws are designed to protect when the suit is brought by a competitor, and that more direct plaintiffs exist.

Providence Hospitals, which operates a small hospital system in the midlands of South Carolina, alleged that Palmetto Health was a monopoly that secretly recruited employees of Providence’s orthopedic services business—the only competitive advantage that Providence had over Palmetto.  Palmetto allegedly orchestrated for 300 orthopedic physicians, executives and staff to simultaneously quit Providence and move to Palmetto in mid-2015.

 

Cigna ends merger with Anthem, sues for more than $14B

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Lawsuit document

In a move that defies Anthem’s push to fight for their deal, Cigna has terminated its merger agreement with Anthem and filed suit against the larger insurer.

Earlier this month, a federal judge ruled against the two insurers’ planned merger, saying it would violate antitrust law by lessening competition in the national accounts market. Anthem responded by saying it intends to appeal the ruling.

But in a statement issued Tuesday, Cigna said that given the court’s decision, it “believes that the transaction cannot and will not achieve regulatory approval and that terminating the agreement is in the best interest of Cigna’s shareholders.”

Thus, Cigna filed a suit against Anthem in the Delaware Court of Chancery, seeking a declaratory judgment that Cigna has lawfully terminated the merger agreement and that Anthem is not permitted to extend the termination date.

The suit also asked the court to compel Anthem to pay Cigna the $1.85 billion termination fee outlined in the merger agreement, plus additional damages of more than $13 billion. Those damages “include the lost premium value to Cigna’s stockholders caused by Anthem’s willful breaches of the merger agreement,” according to a question-and-answer document filed with the Securities and Exchange Commission.

For its part, Anthem maintains that “under the terms of the merger agreement, Cigna does not have a right to terminate the agreement. Therefore, Cigna’s purported termination of the merger agreement is invalid,” a company spokesperson said in an emailed statement. “Anthem will continue to enforce its rights under the merger agreement and remains committed to closing the transaction.”

How has Obamacare impacted state health care marketplaces?

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The Affordable Care Act (ACA) changed the nature of competition among health plans by creating regulated insurance exchanges, introducing new insurance industry regulations, and providing premium and cost-sharing reduction subsidies. Through these reforms, the law aimed to increase access to and the value of insurance coverage while lowering costs. To better understand the law’s implementation and its effect on competition, researchers with the ACA Implementation Research Network interviewed key marketplace stakeholders to analyze why carriers chose to enter or exit markets, how provider networks were built, and how state regulatory decisions affected the landscape.

As Congress and the new Administration deliberate on what’s next for the law, the Network presents their analyses of competition in California, Florida, Michigan, North Carolina, and Texas (PDFs). A summary report(PDF) of the general findings, authored by Texas A&M Professor Michael Morrisey, Brookings Senior Fellow Alice Rivlin, ACA Network Lead Richard P. Nathan, and Mark A. Hall, Brookings Nonresident Senior Fellow, is intended to generate hypotheses for further testing across state marketplaces and to identify individual idiosyncrasies within the states that provide context for national- and state-level reforms.

CONCLUSION

While the results of this five-state study may not be applicable across the country, the authors emphasize a few key lessons for further consideration when crafting a potential replacement plan or changes to the law:

    1. Health insurance markets are local and depend on the ability of insurers to create competitively priced plans. While this is often more difficult in rural locations, metropolitan areas also see variation in competition.
    2. Higher-than-expected claims costs caused concern for insurers initially, as they lacked information on the amount of health care service utilization to expect from exchange enrollees. It remains to be seen whether the trend will continue or if recent market adjustments reflect a “one-time correction.”
    3. Insurer networks have narrowed, which potentially provides greater opportunity for insurers to negotiate lower prices by assuring a greater volume of patients to a more limited number of providers. The number of preferred provider organization (PPO) exchange plans has also been decreasing, as these plans had disproportionate enrollment of people with pre-existing conditions and are generally less able to negotiate low prices from providers.
    4. Both hospital and provider competition are vital for competitive markets, with population and the number of physician groups and health systems playing a role in cost competition.

What Made Obamacare Succeed In Some States? Hint: It’s Not Politics

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People standing in line at the Panorama Mall to sign-up for Covered California at an enrollment event in 2014. (Irfan Khan/Los Angeles Times via Getty Images)

Ask anyone about their health care and you are likely to hear about ailments, doctors, maybe costs and insurance hassles. Most people don’t go straight from “my health” to a political debate, and yet that is what our country has been embroiled in for almost a decade.

A study out Thursday tries to set aside the politics to examine how the insurance markets function and what makes or breaks them in five specific states.

Researchers from The Brookings Institution were exploring a basic idea: If the goal is to replace or repair the Affordable Care Act, then it would be good to know what worked and what failed.

“The political process at the moment is not generating a conversation about how do we create a better replacement for the Affordable Care Act,” said Alice Rivlin, senior fellow at The Brookings Institution, who spearheaded the project. “It’s a really hard problem and people with different points of view about it have got to sit down together and say, ‘How do we make it work?’”

The researchers focused on California, Florida, Michigan, North Carolina and Texas, interviewing state regulators, health providers, insurers, consumer organizations, brokers and others to understand why insurance companies chose to enter or leave markets, how state regulations affected decision making and how insurers built provider networks.

“Both parties miss what makes insurance exchanges successful,” said Micah Weinberg, president of Bay Area Council Economic Institute who led the California research team. “And it doesn’t have anything to do with red and blue states and it doesn’t have anything to do with total government control or free markets.”

Despite the political diversity of the five states, some common lessons emerged. Among them:

 

U.S. judge finds that Aetna deceived the public about its reasons for quitting Obamacare

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http://www.latimes.com/business/hiltzik/la-fi-hiltzik-aetna-obamacare-20170123-story.html

Mergers in the healthcare sector: why you'll pay more

Aetna claimed this summer that it was pulling out of all but four of the 15 states where it was providing Obamacare individual insurance because of a business decision — it was simply losing too much money on the Obamacare exchanges.

Now a federal judge has ruled that that was a rank falsehood. In fact, says Judge John D. Bates, Aetna made its decision at least partially in response to a federal antitrust lawsuit blocking its proposed $37-billion merger with Humana. Aetna threatened federal officials with the pullout before the lawsuit was filed, and followed through on its threat once it was filed. Bates made the observations in the course of a ruling he issued Monday blocking the merger.

Aetna executives had moved heaven and earth to conceal their decision-making process from the court, in part by discussing the matter on the phone rather than in emails, and by shielding what did get put in writing with the cloak of attorney-client privilege, a practice Bates found came close to “malfeasance.”

The judge’s conclusions about Aetna’s real reasons for pulling out of Obamacare — as opposed to the rationalization the company made in public — are crucial for the debate over the fate of the Affordable Care Act. That’s because the company’s withdrawal has been exploited by Republicans to justify repealing the act. Just last week, House Speaker Paul Ryan (R-Wisc.) cited Aetna’s action on the “Charlie Rose” show, saying that it proved how shaky the exchanges were.
Bates found that this rationalization was largely untrue. In fact, he noted, Aetna pulled out of some states and counties that were actually profitable to make a point in its lawsuit defense — and then misled the public about its motivations. Bates’ analysis relies in part on a “smoking gun” letter to the Justice Department in which Chief Executive Mark Bertolini explicitly ties Aetna’s participation in Obamacare to the DOJ’s actions on the merger, which we reported in August. But it goes much further.

Study: In healthcare price negotiation, insurer size matters

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Larger health insurers are able to negotiate lower prices with providers, according to a new study. But that doesn’t necessarily mean payer consolidation is the answer to keeping healthcare costs in check.

The study, conducted by researchers from Harvard Medical School and published in the January issue of Health Affairs, examined multipayer claims data from 2014 to assess how insurers’ market power affected the rates that they were able to negotiate for office-based physician services.

The researchers found that greater market power did indeed give insurers a leg up at the negotiating table. For example, when examining rates for office visits paid to the same group of providers, they estimated that large insurers—those with market shares of 15% or more—negotiated prices that were 21% lower than prices negotiated by small insurers, or those with market shares of less than 5%.

Looking at providers of different sizes, the study also found evidence that insurers require greater market shares to negotiate lower prices from large provider groups than with smaller ones. And if providers respond to insurer mergers with greater consolidation of their own, that would boost their bargaining power and let them negotiate higher prices, the study said.