More Aggressive Review of Hospital Mergers Needed, Says FTC Commissioner

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The problems include ‘a legal shield’ enjoyed by nonprofit hospitals, and the solutions include more retrospective analysis of close calls, says Rebecca Kelly Slaughter.


KEY TAKEAWAYS

The FTC is prohibited from enforcing antitrust laws against nonprofits, which poses a challenge, Slaughter said.

The commission should conduct another round of retrospective study on closed healthcare mergers, she said.

Commissioners should be ‘as aggressive as possible’ moving forward to preserve healthcare competition, she added.

Federal Trade Commissioner Rebecca Kelly Slaughter told a liberal think tank Tuesday that antitrust regulators should take a more assertive approach to protect competitive forces among healthcare providers.

Slaughter, a Democrat appointed to the FTC by President Trump and confirmed last year, made the remarks in a speech at the Center for American Progress in Washington, D.C., where she took issue with what she described as “a legal shield for anticompetitive conduct” at nonprofit hospitals.

The FTC is allowed to review all hospital mergers, but it cannot enforce antitrust laws against nonprofits, including more than 45% of U.S. hospitals, she said.


“So, for example, if a non-profit hospital merger itself is not anticompetitive, but the newly merged entity engages in anticompetitive practices, the FTC is stuck on the sidelines,” Slaughter said in her prepared remarks.

“In effect, this means that all of the healthcare industry expertise that the FTC has worked for decades to, and continues to, develop cannot be deployed alongside the DOJ and state enforcers to stop anticompetitive practices by roughly half of all hospitals nationwide,” she added. “This is a significant lost opportunity.”

Slaughter called for greater scrutiny of horizontal and vertical mergers alike both in the future and in the past.

“I believe that the FTC should conduct a new round of retrospectives of healthcare provider mergers,” Slaughter said.

Studying the past has led the FTC to some of its biggest improvements in understanding market forces, as was the case with former Chairman Timothy J. Muris’ retrospective analysis of hospital mergers in the early 2000s, Slaughter said.

Moving forward, Slaughter said, the FTC should take another look at recently cleared “close-call hospital mergers” and those that were shielded from antitrust scrutiny by state laws despite posing significant concerns. This is consistent, she said, with a statement the FTC issued last fall when it decided not to challenge a proposed affiliation involving CareGroup Inc., Lahey Health System Inc., Seacoast Regional Health System, and others.

The FTC should also consider taking another look at vertical integration among healthcare providers, such as transactions involving hospitals and physician groups, she said.

“[W]e should be as aggressive as possible in challenging the mergers we encounter today, especially where the proposed consolidation involves new structural arrangements rather than traditional horizontal concerns,” Slaughter added. “It is important for parties considering mergers to know we will not shy away from challenging, for example, anticompetitive vertical organizations.”

“I am sensitive to the concern that we might lose litigation,” she added, “but our obligation is to identify the right outcome and fight for it.”

 

 

 

House Subcommittee Takes Dim View of Healthcare Consolidation

https://www.healthleadersmedia.com/strategy/house-subcommittee-takes-dim-view-healthcare-consolidation

Lawmakers and witnesses alike cited the ill-effects of hospital mergers and acquisitions in a long list of industry behavior they find troubling.


KEY TAKEAWAYS

An economics and health policy professor from Carnegie Mellon suggested lawmakers should give the FTC more power to review nonprofit mergers.

Lawmakers from both sides of the aisle expressed dissatisfaction with the healthcare industry’s consolidation trend and voiced support for legislative action.

A hearing of the House Judiciary Committee’s antitrust subcommittee would not have been a comfortable place Thursday for any healthcare executive touting the benefits of a planned merger or acquisition.

Lawmakers and witnesses took turns criticizing rampant consolidation among hospitals and other healthcare companies. While the public is often told these deals will lead to improved efficiency and higher quality care, those purported benefits frequently fail to materialize, they said.

Since the hearing grouped payer and provider consolidation with anticompetitive concerns about the pharmaceutical industry—an area that both major parties have expressed interest in addressing through congressional action—the discussion could signal how lawmakers will approach any legislation to address the problems they perceive.

Rep. Doug Collins, a Republican from Georgia and the committee’s ranking member, said hospital consolidation has had an especially detrimental impact on rural communities in his state.


“These communities often already have few options for quality care, so as hospital consolidation has increased over the past 10 years, rural communities like my own have been hurt the most,” Collins said.

“At times, these mergers and acquisitions can help rural communities by keeping facilities open, but often they result in full or partial closures and shifting patients from nearby facilities to those hours away,” he added.

Some problems caused by consolidation, such as increased travel times for emergency services, can “literally mean the difference in life and death,” Collins said.

Jerry Nadler, a Democrat from New York and the committee’s chairman, said there’s no question that the recent spate of mergers has contributed to the industry’s problems.

“It is well documented that hospital mergers can lead to higher prices and lower quality of care,” Nadler said.

Martin Gaynor, PhD, an economics and health policy professor at Carnegie Mellon University and a founder of the Health Care Cost Institute, said in his testimony that there have been nearly 1,600 hospital mergers in the past 20 years, leading most regions to be dominated by one large health system apiece.

“This massive consolidation in healthcare has not delivered for Americans. It has not given us better care or enhanced efficiency,” Gaynor said. “On the contrary, extensive research evidence shows us that consolidation between close competitors results in higher prices, and patient quality of care suffers for lack of competition.”

Since hospitals that have fewer competitors can better negotiate favorable payment terms, this consolidated landscape “poses a serious challenge for payment reform,” he added.

“Our healthcare system is based on markets. That system is only going to work as well as the markets that underpin it,” Gaynor said. “Unfortunately, these markets do not function as well as they could or should.”

Gaynor recommended several possible policy changes, including an end to policies that make it harder for new competitors to enter a market and compete and an expanded authority for the Federal Trade Commission to review potentially anticompetitive conduct by nonprofit entities. He also said lawmakers should consider imposing FTC reporting requirements for even small transactions to enhance the tracking capabilities of enforcement agencies.

To support his claims, in his written testimony, Gaynor pointed to research he completed with Farzad Mostashari of Aledade Inc. and Paul B. Ginsburg of The Brookings Institution.

 

 

 

 

Nonprofit Hospital Consolidation to Continue in 2019

https://www.healthleadersmedia.com/finance/nonprofit-hospital-consolidation-continue-2019

Despite increased scrutiny from regulators, nonprofit health systems will remain active through mergers and acquisitions this year, according to a new Moody’s report.

The deluge of M&A activity among nonprofit health systems is expected to continue on in 2019, with the potential for some “unconventional relationships,” according to a Moody’s report released Friday morning.

Driven by tight financial conditions challenging the nonprofit hospital business model, as well as the entrance of nontraditional corporate players to healthcare and the potential changes to the ACA, more M&A activity is expected throughout the year.

Moody’s expects nonprofit health systems to engage in partnerships with other hospitals but also seek to align with companies specializing in data analytics or ridesharing services to continue the transition from inpatient care to outpatient care.

Nonprofit health systems are also aiming to increase their footing when negotiating with payers, which involves strategic decisions to diversity service options and increase their geographic reach.

The report cites ProMedica’s acquisition of HCR Manorcare and Tower Health’s purchase of five for-profit acute care hospitals as examples of nonprofit systems taking a short-term credit hit to gain stable long-term positioning for the organization.

Though M&A activity is expected to be widespread and a primary objective for many nonprofit systems, the Moody’s report warned that additional scrutiny from state and federal regulators is on the way.

The requirements put in place on the CHI-Dignity Health merger by California Attorney General Xavier Becerra, along with price increase restrictions imposed by Massachusetts Attorney General Maura Healey on CareGroup and Lahey Health, are cited as examples of the terms health systems should expect to meet.

For-profits will tap into capital markets

The Moody’s report also indicates that for-profit hospitals will delve further into capital markets so long as they remain receptive and buoyed by low interest rates. This approach could lead to lower interest costs and improve liquidity, which would bolster their credit standing.

Jessica Gladstone, Moody’s associate managing director and lead analyst on for-profit hospitals, told HealthLeaders that rising interest rates would a material impact on many for-profit hospitals.

“High cash interest costs relative to earnings are already consuming the majority of cash for many FP hospital companies,” Gladstone said. “For companies with floating rate debt, rising interest rates (depending on the amount of the increase) could leave some FP hospitals with very little free cash flow left to pay down debt or otherwise invest to grow operations.”

Gladstone added that while many of the same headwinds facing for-profit hospitals remain a challenge in 2019, executives can be encouraged by the opportunities ahead to refinance high-cost debt and achieve cost savings.

Several deals are listed as potential opportunities that could benefit for-profit healthcare organizations in 2019 regarding changes to capital structure, interest cost savings, as well as M&A activity:

Additional highlights from the Moody’s report:

  • Expect smaller community and regional nonprofit hospitals to join cooperatives to gain leverage at the negotiating table on supply costs among other price points.
  • Growing investment by private equity firms in physician practices and ambulatory services, will put a pinch on nonprofit systems.
  • The entrance of Amazon, Walmart, and Apple can’t be discounted as another driver of M&A activity in 2019.
  • Vertical mergers like CVS-Aetna and the continued rise of telemedicine will drive patients away from traditional areas of care delivery, like hospitals.
  • Though major changes to the ACA remain unlikely due to the split government in Congress, smaller changes could still make a significant impact.
  • The report cites potential changes to site-neutral payments, Medicare quality-factor penalties, and DSH payment reductions as examples.

 

 

 

 

CVS to Judge: Please Don’t Let Those 7 Witnesses Testify

https://www.healthleadersmedia.com/strategy/cvs-judge-please-dont-let-those-7-witnesses-testify

The pharmacy chain asked for a narrow hearing on its DOJ-approved purchase of Aetna, as seven witnesses prepare to testify against it.


KEY TAKEAWAYS

Both CVS and the DOJ argue the hearing should be narrowly tailored, with at least some witnesses excluded.

If allowed to proceed as proposed, the hearing could devolve into “a forum for airing competitors’ grievances,” CVS warned.

CVS Health asked the federal judge overseeing its acquisition of Aetna to prevent seven witnesses who lined up to testify against the megamerger from speaking at a hearing next month.

Although antitrust regulators with the U.S. Department of Justice greenlit the CVS-Aetna deal last fall, U.S. District Judge Richard Leon in Washington, D.C., made clear that his review should not be seen as a rubber stamp. Leon said he wanted to hear from witnesses before deciding whether to sign off on the DOJ-approved deal.

The seven witnesses put forward by three groups of amici curiae include health policy professors and economists from major universities, but CVS argued in a court filing Friday that Leon should decline altogether to hold a hearing with live witnesses. The planned testimony, as outlined in court filings, includes irrelevant arguments that could turn the hearing “into a forum for airing competitors’ grievances about the CVS-Aetna merger and about the healthcare industry more generally,” attorneys for CVS wrote.

The CVS filing argues that the three groups of amici—the AIDS Healthcare Foundation (AHF), the American Medical Association (AMA), and Consumer Action with the U.S. Public Interest Research Group (PIRG)—would be advancing their own competitive interests if the hearing were to proceed.

“Amici’s submissions demonstrate that such a hearing is unnecessary in light of the considerable record already before the Court,” attorneys for CVS wrote, “and Amici’s planned presentations, consisting almost exclusively of unreliable competitor testimony on issues that are not relevant to the Court’s Tunney Act determination, will add little, if anything, of value.”

In its own filing Monday, the DOJ argued that Leon should limit the testimony to only those items relevant to the scope of Tunney Act review. The DOJ asked the court to strike five of the seven witnesses entirely and limit of the scope of the testimony offered by the other two.

“These limitations will ensure that the hearing remains within the appropriate statutory and constitutional bounds, and will protect the Executive Branch’s constitutionally mandated control over its resource-allocation decisions in the enforcement of antitrust laws,” DOJ attorneys wrote.

 

 

 

KPC Health Wins Approval to Buy Verity Health Hospitals

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A federal bankruptcy judge approved KPC Health’s $610 million bid Wednesday afternoon.


KEY TAKEAWAYS

KPC Health is adding four Verity Health-owned hospitals to its growing collection of nonprofit hospitals.

Dr. Kali P. Chaudhuri, chairman of KPC Health, referred to the ruling as an “Important milestone” for the company.

The court-approved deal now goes before California Attorney General Xavier Becerra, who attempted to block the sale of two Verity Health hospitals in January.

KPC Health, a Santa Ana, California-based healthcare company, announced Wednesday that a federal bankruptcy judge approved the $610 million purchase of four hospitals owned by financially-troubled Verity Health System.

KPC Health will take ownership of St. Francis Medical Center, St. Vincent Medical Center, Seton Medical Center, and Seton Coastside in Moss Beach. The company also acquired St. Vincent Dialysis Center as part of the deal.

The deal is the latest development in Verity Health’s ongoing bankruptcy proceedings, which began in August 2018.

“Today marks an important milestone for KPC Heath’s bid to acquire four Verity Health hospitals,” Dr. Kali P. Chaudhuri, chairman of KPC Health, said in a statement. “We look forward to working with Verity Health on a successful acquisition and welcoming these important community hospitals into our integrated healthcare system.”

The acquisition of four Verity Health hospitals adds to KPC Health’s seven acute care hospitals in southern California as well as seven long-term acute care hospitals and two skilled nursing facilities in multiple states.

Verity Health’s board of directors approved the deal on April 15. Due to no other bid exceeding KPC Health’s $610 million bid, no auction was required for the four Verity Health hospitals. 

The next step will be submitting the purchase to California Attorney General Xavier Becerra, who has already been involved in handling the sale of two Verity Health hospitals earlier this year.

In January, Becerra blocked the $235 million sale of two hospitals owned by Verity Health, O’Connor and Saint Louise hospitals, to Santa Clara County. 

Despite the sale being approved by the U.S. Bankruptcy Court in December, Becerra argued that the County had not agreed to specific conditions related to the deal.

At the end of January, a federal bankruptcy judge denied Becerra’s motion to block the sale, stating that he did not have the authority to regulate the sale. A scheduled federal hearing on Becerra’s motion to block was cancelled in mid-February and the sale closed on March 1.

 

 

Megamergers Take Center Stage in M&A Activity

https://www.healthleadersmedia.com/strategy/megamergers-take-center-stage-ma-activity

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Despite continued and sometimes unsettling M&A activity in the industry, the fundamental mission of healthcare has not changed.


KEY TAKEAWAYS

73% of healthcare executive respondents will be exploring potential M&A deals during the next 12–18 months, according to a new HealthLeaders survey.

The recent M&A movement toward vertical integration involving nontraditional partners suggests that the healthcare industry is undergoing a major transformation.

Merger, acquisition, and partnership (M&A) activity within the healthcare industry shows no sign of diminishing, with nearly all indicators pointing to continued consolidation, according to a 2019 HealthLeaders Mergers, Acquisitions, and Partnerships Survey. The fundamental need for greater scale, geographic coverage, and increased integration remains unchanged for providers, and this will sustain M&A activity for years to come.

Evidence of the M&A trend’s resiliency is found throughout the HealthLeaders survey. For example, 91% of respondents expect their organizations’ M&A activity to increase (68%) or remain the same (23%) within the next three years, an indication of the trend’s depth. Note that only 1% of respondents expect this activity to decrease.

Likewise, 38% of respondents say that their organization’s M&A plans for the next 12–18 months consist of exploring potential deals, up six percentage points over last year’s survey, and another 35% say that their M&A plans consist of both exploring potential deals and completing deals underway. This means that nearly three-quarters (73%) of respondents will be exploring potential deals during this period.


Megamergers and industry impact

While steady healthcare industry M&A activity has been with us for some time, a series of new and rumored megamergers and partnerships is capturing the headlines these days. This recent M&A movement toward vertical integration involving nontraditional partners suggests that the healthcare industry is undergoing a major transformation, one that will likely alter the landscape in unanticipated ways.

The majority of respondents in our survey say that they expect significant industry impact from these megamergers, led by CVS Health’s merger with Aetna (68%), Walmart’s potential deal with Humana (57%), and Amazon’s partnership with JPMorgan Chase and Berkshire Hathaway (49%). While information regarding the latter two developments is still in short supply, respondents see the potential for large-scale impact.

Faced with such far-reaching and transformative new relationships, what are healthcare providers to do? As things currently stand, even the largest health systems lack the scale to negotiate on equal footing with most insurers, and these new hybrid organizations combine scale, technology, and innovative structures.

However, there is no need for providers to panic—these megamergers are still in the early stages of implementation, and the fundamental mission of healthcare has not changed.

“I don’t think people fully understand the real business purpose of this type of activity yet, or what these organizations are trying to get out of their connections,” says Kevin Brown, president and CEO of Piedmont Healthcare, a Georgia-based nonprofit health system with 11 hospitals and nearly 600 locations. “Time will tell regarding the impact they will have on the industry landscape and its different segments.”

“I haven’t spent a lot of time thinking or worrying about these new developments. Generally, I spend my time thinking about what we are doing on a day-to-day basis as an organization to fulfill our mission and take care of the communities we serve. I’m certainly aware of these developments, but it’s important not to get distracted from our core purpose,” Brown says.

 

 

NC hospital system tries another megamerger

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Atrium Health struck out a year ago when it attempted to merge with in-state rival UNC Health Care, Bob reports. Now, the hospital system has inked a new deal to combine with Wake Forest Baptist Health, which is 90 minutes away from its headquarters.

Why it matters: Research overwhelmingly shows these kinds of regional hospital mergers lead to higher health care prices (and, consequently, premiums) because providers gain negotiating leverage and make it harder for health insurers to exclude them from networks.

Between the lines: The primary hook that Atrium and Wake Forest are selling is that they would build a new medical school in Charlotte. Because who could be against more doctors and research?

  • The organizations didn’t mention how, or if, they would try to keep costs and prices down.
  • The combined system would have almost $10 billion of revenue, which is roughly the size of Boston Scientific.