When Hospitals Merge to Save Money, Patients Often Pay More

Image result for hospital mergers

 

 

Massachusetts officials attach stiff conditions to Beth Israel-Lahey merger

https://www.healthcaredive.com/news/massachusetts-officials-attach-stiff-conditions-to-beth-israel-lahey-merger/539515/

Dive Brief:

  • Massachusetts public health officials have set tough new conditions for the proposed merger of Beth Israel Deaconess Medical Center and Lahey Health that will require the parties to demonstrate they’re holding down costs while ensuring access to low-income patients, The Boston Globe reports.
  • The conditions, laid out at a Wednesday meeting of the state’s Public Health Council, include yearly reporting of how the hospitals will apply savings from the merger to enhance care quality and access to services. If savings surpass the state’s 3.1% benchmark for controlling healthcare costs, the new system will have to put more money back into services and community hospitals and clinics.
  • The conditions also require the system, within six months, to develop a plan to increase services to Medicaid patients and, within two years, ensure full participation by Beth Israel-Lahey physicians in the state Medicaid program.

Dive Insight:

The conditions follow a Health Policy Commission report that warned the merger could result in a $128.4 million to $170.8 million increase in healthcare spending for inpatient, outpatient and adult primary care services and up to $59.7 million for specialty physician services.

The commission concluded that while the merger could lead to improvements in quality and efficiencies, the companies hadn’t explained how that would happen. The new conditions call for a second report in five years to assess the merger’s impact on healthcare costs and services in the state.

BIDMC CEO Kevin Tabb called the commission’s conditions “strict,” but said they won’t discourage the planned merger. “While the conditions are unprecedented, we are eager to move forward together as Beth Israel Lahey Health,” he told Healthcare Dive via email. “The status quo in this market is unacceptable, and it’s time to do something different.”

As mergers and acquisitions continue in healthcare, potential problems could lead to more stringent conditions. Research has shown, for example, that horizontal mergers can drive up costs. Once completed, Beth Israel-Lahey Health would rival Partners HealthCare System in terms of market share in Massachusetts. The new company could use its increased bargaining power to raise prices for commercial payers, increasing healthcare spending.

A recent National Bureau of Economic Research analysis also played down the extent to which hospital mergers increase efficiencies. According to NBER, acquired hospitals save just 1.5% of total costs following a merger — or an average of $176,000 a year.

And a recent University of California-Berkeley study of health system consolidation in the state found that highly concentrated markets led to higher hospital and physician service fees, as well as higher Affordable Care Act premiums, especially in northern California.

 

 

AT&T, Time Warner, and the Future of Health Care

https://www.commonwealthfund.org/blog/2018/att-time-warner-and-future-health-care?omnicid=EALERT%25%25jobid%25%25&mid=%25%25emailaddr%25%25

AT&T Time Warner Merger

Policymakers and private actors should not interpret a federal court’s AT&T and Time Warner ruling as an unconditional green light for vertical integration in health care.

The need for change in the U.S. health care system is obvious, but whether vertical integration is the change we need remains to be determined.

The recent federal district court ruling allowing the merger of AT&T and Time Warner — a case of so-called vertical integration — will likely encourage similar unions throughout the U.S. economy, including in health care. Nevertheless, a close look at the court’s decision, and at the wide variety of vertical health care mergers under way, suggests that policymakers and private actors should not interpret the court’s ruling as an unconditional green light for vertical integration in health care, or any other sector.

Vertical integration typically involves the combination of entities operating on different parts of a supply chain in the production of a particular product. Manufacturers of tires, for example, are part of the supply chain that results in a finished automobile. Similarly, ambulatory physician services are sometimes seen as an input on the supply chain of more advanced hospital services. The acquisition of physician practices by hospitals is often characterized as vertical integration.

Some antitrust experts question whether the analogy between manufactured products and health care delivery is accurate. Independent physicians, for example, often work within hospitals and help to produce their “products.” Nevertheless, there are clear differences between mergers across the same types of health care organizations, like hospitals, and those between different types of providers, like physicians and hospitals.

The AT&T/Time Warner case was the first time in 40 years that the government has taken a proposed vertical integration to court, and many commentators have noted that antitrust theory with respect to vertical integration could use some updating. In the meantime, however, Judge Richard Leon’s 172-page opinion seems to have relied on traditional antitrust considerations: would the merger increase or decrease competition, and thereby increase or decrease consumer welfare? His ruling rested heavily on what he viewed as the government’s failure to supply evidence that the merger would have adverse effects. In other words, if the government had produced more convincing data, the ruling could have gone the other way.

Judge Leon’s ruling may be appealed and, if so, may not stand. But if it does, what are its implications for vertical integration in health care? Simply put, the facts matter. And unfortunately, the facts about vertical integration in health care are obscure, and likely to vary enormously according to the details of the merger and from market to market.

Evidence on the effects of horizontal health care mergers has grown considerably in recent years, and generally shows that they increase prices. But studies of vertical health care mergers are much less common. Perhaps the most relevant experience concerns long-standing integrated health systems, such as Kaiser Permanente, Intermountain, Geisinger, and a handful of similar organizations.

Widely regarded as industry leaders in quality and efficiency, these systems seem to demonstrate the benefits of vertical integration: they are able to coordinate services across different types of providers, and, when incentives encourage it, they can easily substitute less expensive services (e.g., ambulatory care) for more expensive ones (e.g., hospital care). However, whether the experiences of these integrated systems are generalizable to the current flock of mergers is unclear. Each of these venerable organizations has a unique history and culture that have shaped its performance over decades.

Studies of vertical integration will have to take into account the type of merger under consideration. The most common type of vertical integration seems to be the acquisition of physician groups — both primary care and specialty — by hospitals. Between 2012 and 2016, the number of hospital-employed U.S. physicians increased from 95,000 to 155,000.

But health care is witnessing a variety of other types of vertical integration. Insurers are buying physician groups, as in the case of UnitedHealth Group’s acquisition of parts of DaVita’s physician network. Drug store chains are buying insurers, as in the case of CVS’s purchase of Aetna. And integrated health systems like Partners HealthCare are proposing to buy insurers like Harvard Pilgrim Health Care.

The effects of these varied mergers will depend on the types of services being combined and the markets affected. From both a societal and legal standpoint, the facts matter.

For example, it turns out that the CVS-Aetna merger includes an important horizontal union between Part D health plans owned independently by CVS and Aetna. Part D health plans provide drug coverage to Medicare beneficiaries. In recent testimony before the California Department of Insurance, economist Richard Scheffler showed that in a number of markets, the merger of these Part D plans would significantly reduce competition, and thereby, could potentially increase the prices of drug coverage for Medicare patients. Fear of consolidation among Part D plans has caused the American Medical Association to oppose CVS’s acquisition of Aetna.

Adding to the uncertainty surrounding these questions is the unique nature of the health market, in which governments are the largest purchasers and consumers often don’t know the prices or value of the products they buy. Traditional competition in local markets sometimes results in radically increasing prices and costs, as providers pile on new technologies and facilities and compete for star physicians in an effort to attract customers. And many parts of health care already have a high degree of consolidation that limits price competition.  The result is a level of dysfunction that has created an almost universal cry for radical disruption of the status quo.

Health care is a conundrum on many levels, and how and whether to regulate vertical integration among its varied components may turn out to be another one. The need for change is obvious. Whether vertical integration is the change we need, and how the courts will treat it, remain to be determined.

 

Healthcare Triage: Why Does the U.S. Spend So Much on Healthcare? High, High Prices.

https://theincidentaleconomist.com/wordpress/healthcare-triage-why-does-the-u-s-spend-so-much-on-healthcare-high-high-prices/

Image result for Healthcare Triage: Why Does the U.S. Spend So Much on Healthcare? High, High Prices.

 

American healthcare spending is still WAY higher than pretty much all other industrialized countries. But not that long ago, things were different. The US didn’t spend nearly as much in this realm. What changed? Demographics? More sickness? Nah. Spoiler alert, prices have risen much, much faster than the rate of inflation. We’ve got a few suggestions for getting it under control.

 

What all these health care mergers mean for patients

The health care industry is on a mergers-and-acquisitions bender right now. But, as my colleague Bob Herman reports this morning, it’s not clear whether all of that consolidation will leave patients any better off.

  • Five proposed megamergers have been announced just within the past few weeks. They would create the top two largest non-profit hospital systems in the country. The proposed CVS-Aetna deal alone would be creating a giant pharmacy chain, clinic operator, pharmacy benefit manager and health insurer — all under one roof.

Why now? As more Baby Boomers age into Medicare and more low-income families gain coverage through the ACA’s Medicaid expansion, hospitals are taking on a lot more patients whose bills get paid by the government.

  • Merging into bigger, more concentrated health systems gives them more bargaining power with private insurance, where they can command higher rates than what they get from Medicare and Medicaid

Yes, but: The risk to the broader system is that health care companies might see savings from mergers, but people won’t feel the benefits.

  • “If you become too big, you don’t have the incentives to turn that into lower prices for consumers. That’s sort of the sticking point for when the merger gets out of hand for its size and scope,” says Tim Greaney, a former Department of Justice antitrust official who’s now a health law professor at the UC Hastings.

Image result for axios

CVS merger with Aetna: Health care cure or curse?

https://theconversation.com/cvs-merger-with-aetna-health-care-cure-or-curse-88670?utm_medium=email&utm_campaign=Latest%20from%20The%20Conversation%20for%20December%206%202017%20-%2089557547&utm_content=Latest%20from%20The%20Conversation%20for%20December%206%202017%20-%2089557547+CID_461096d86af0ad8c2eedceabf8b8a42f&utm_source=campaign_monitor_us&utm_term=CVS%20merger%20with%20Aetna%20Health%20care%20cure%20or%20curse

The announcement that CVS plans to acquire Aetna for US$69 billion raises hope and concerns.

The transaction would create a new health care giant. Aetna is the third-largest health insurer in the United States, insuring about 46.7 millionpeople.

CVS operates 9,700 pharmacies and 1,000 MinuteClinics. A decade ago, it also purchased Caremark and now operates CVS/Caremark, a pharmacy benefits manager, a type of business that administers drug benefit programs for health plans. CVS/Caremark is one of the three largest pharmacy benefits managers in the United States. Along with ExpressScripts and OptummRXTogether, these three control at least 80 percent of the market.

Should American consumers be happy or concerned about the proposed merger? As a professor of health law and bioethics, I see compelling arguments on both sides.

Good for consumers, or for the companies?

CVS and Aetna assert they are motivated by a desire to improve services for consumers and that the merger will lower health care costs and improve outcomes.

Many industry experts have postulated, however, that financial gain is at the heart of the deal.

CVS has suffered declining profits as consumers turn to online suppliers for drugs. Reports that Amazon is considering entry into the pharmacy business raise the specter of increasingly fierce competition.

The merger would provide CVS with guaranteed business from Aetna patients and allow Aetna to expand into new health care territory.

The heart of the deal

The merger would eliminate the need for a pharmacy benefits manager because CVS would be part of Aetna.

Pharmacy benefits managers, which sprang up in the early 2000s in response to rising costs of care, administer drug benefit programs for health plans. Most large employers contract with pharmacy benefits managers that are different from their health insurers.

Nevertheless, a consolidation along the lines of a CVS/Caremark and Aetna merger would not be unprecedented. The nation’s largest health insurance company, United Healthcare, operates its own pharmacy benefits manager, OptumRx.

Pharmacy benefits managers process and pay prescription drug claims, negotiate with manufacturers for lower drug prices, and can employ other cost-saving mechanisms. They thus act as intermediaries between the insurer and pharmacies.

They also make a lot of money. They have been controversial in recent years for how they do so, allegedly keeping a keener focus on profits than on patients.

The merger has not been finalized and requires approval from government regulators, which isn’t always easy to get. In 2016 the U.S. Department of Justice sued to block two health insurer mergers: one between Aetna and Humana and a second between Anthem and Cigna. The government objected on antitrust grounds, arguing that the mergers would unduly restrict competition. Both efforts were abandoned.

CVS and Aetna argue that their proposed merger is different. It is a vertical rather than a horizontal merger, which means that it would combine companies providing different services for patients (insurance and filling prescriptions) rather than two companies doing the same thing.

However, the Trump administration is currently opposing another vertical merger, that between AT&T and Time Warner. It is unclear whether the administration will likewise oppose the CVS/Aetna merger.

Benefits of a merger

There is some evidence that a merger could help consumers.

A merger could result in more negotiating power. Combining the power of a leading pharmacy and a top insurer may allow CVS/Aetna to negotiate more effectively for price discounts from drug and device manufacturers.

It also could cut out the middleman. PBMs themselves have been blamed for raising health care costs. They often do not pass on negotiated drug discounts to consumers, but rather keep the money themselves. In addition, many believe they “make money through opaque rebates that are tied to drug prices (so their profits rise as those prices do).” With the merger, CVS/Aetna would not need CVS/Caremark to function as an intermediary. Eliminating a profit-seeking middleman from the picture could lower consumer prices.

The merger could provide easy access to health care for minor injuries and illnesses. CVS said it plans to expand its MinuteClinics, walk-in clinics that provide treatment by nurse practitioners for minor conditions. Also, CVS said it would offer more services, such as lab work, nutritional advice, vision and hearing care, and more. Thus, CVS promises that its clinics will become “health hubs.”

Many patients could turn to these clinics instead of seeking more expensive care from physicians or emergency rooms. Furthermore, health hubs could provide “one-stop shopping” convenience for some patients. This could be particularly beneficial to elderly individuals or those with disabilities.

Another benefit could be improved and expanded data analytics, which could result in better care. Combining information from patients’ health insurers with that of their pharmacies, including nonprescription health purchases, may promote better care. CVS pharmacists and health hub providers would be able to monitor and counsel patients regarding chronic disease management, pain management, prenatal care and other matters. Such attention could reduce the risk of complications and hospitalizations and thus also decrease expenditures.

Increase of other risks?

Skeptics argue that the CVS/Aetna merger is unlikely to yield cost savings and improved outcomes. They note that mergers in the health care sector generally lead to higher, not lower, prices and worry about other adverse consequences.

If the market shrinks to fewer pharmacy benefits managers because of consolidation, costs may actually increase. The remaining pharmacy benefits managers may have little incentive to compete with each other by demanding discounts from drug companies. As noted above, they may actually profit from higher pharmaceutical prices and thus welcome increases.

After the merger, Aetna may require those it insures to use only CVS pharmacies. In addition, it may require individuals to turn to CVS MinuteClinics for certain complaints even if patients prefer to visit their own doctors. Such restrictions would mean less choice for consumers, and many may find them to be very distressing.

The merger could also decrease competition and bar other companies from entering the pharmacy market. For example, Aetna may refuse to cover prescription drugs that are not purchased from CVS. In that case, Amazon may find it extremely difficult if not impossible to break into the industry. Less competition, in turn, often means higher prices for consumers.

It is difficult to predict the precise consequences of a CVS/Aetna merger. One way or another, however, its impact will likely be significant.