Hospitals have gone on a doctor-buying spree in recent years, in many areas acquiring so many independent practices they’ve created near-monopolies on physicians.
Research published Tuesday throws new light on the trend, showing that large doctor practices, many owned by hospitals, exceed federal guidelines for market concentration in more than a fifth of the areas studied.
But it goes further, helping answer some of health policy’s frequently asked questions: How could this happen? Where are the regulators charged with blocking mergers that have been repeatedly shown to drive up the price of health care?
The answer, in many cases, is that they’re out of the game.
Doctor deals are typically far too small to trigger official notice to federal antitrust authorities or even attract public attention, finds a paper published in the journal Health Affairs.
When it comes to most hospital-doctor mergers, antitrust cops operate blind.
“You have a local hospital system and they’re going in and buying one doctor at a time. It’s onesies and twosies,” said Christopher Ody, a Northwestern University economist and one of the study’s authors. “Occasionally they’re buying a group of five. But it’s this really small scale” that adds up to big results, he said.
The paper, drawing from insurance data in states covering about an eighth of the population, found that 22 percent of markets for primary care doctors, surgeons, cardiologists and other specialties were “highly concentrated” in 2013. That means that, under Federal Trade Commission guidelines, a lack of competitors substantially increased those doctors’ ability to raise prices without losing customers.
The research didn’t sort physician groups by ownership. But other studies show that large, predominant practices are increasingly owned by hospitals, which see control of doctors as a way to both coordinate care and ensure patient referralsand revenue.
According to one study, hospitals owned 26 percent of physician practices in 2015, nearly double the portion from 2012. They employed 38 percent of all physicians in 2015, up from 26 percent three years earlier.
In the study by Ody and colleagues, only 15 percent of the growth by the largest physician groups from 2007 to 2013 came from acquisitions of 11 doctors or more.
About half the growth of the big practices involved acquisitions of 10 or fewer doctors at a time. About a third of the growth came not from mergers but from hiring doctors out of medical school or other sources.
Federal regulations require notification to anti-monopoly authorities only for mergers worth some $80 million or more — far larger than any acquisition involving a handful of doctors.
Very few of the mergers that drove concentration over the market-power red line — or even further — in the studied areas would have surpassed that mark or a second standard that identifies “presumably anti-competitive” combinations.
But the little deals add up. In 2013, 43 percent of the physician markets examined by the researchers were highly or moderately concentrated according to federal guidelines that gauge monopoly power by market share and number of competitors.
(A market with three practices in a particular specialty, each with a third of the business, would be at the lower end of what’s considered highly concentrated. A market with one doctor group doing at least 50 percent of the business would be highly concentrated no matter how many rivals it had.)
Part of the increase results from a reimbursement quirk. Medicare and other insurers pay hospital-based doctors more than independent ones. But another part comes from the lock on business held by large practices with few rivals, Ody said.
“It’s a problem,” said Martin Gaynor, a health care economist at Carnegie Mellon University and former head of the FTC’s Bureau of Economics. “All the evidence that we have so far … indicates that these acquisitions tend to drive up prices, and there’s other evidence that seems to indicate it doesn’t do anything in terms of enhancing quality.”
The American Hospital Association, a trade association, declined to comment on the study since officials hadn’t seen it. But the AHA often argues that “hospital deals are different” and that doctor acquisitions keep patients from falling through the cracks between inpatient and outpatient care.
The FTC has moved to block or undo a few sizable doctor mergers, including an orthopedics deal in Pennsylvania and an attempt by an Idaho hospital system to buy a medical practice with dozens of doctors.
But the agency largely lacks the tools to challenge numerous smaller transactions that add up to the same result, said Ody.
An FTC spokeswoman declined to comment on the study’s findings.
Ody urged state attorneys general and insurance commissioners to look more closely at doctor combos. Sometimes state officials can question mergers overlooked by federal authorities. Or they can block anti-competitive practices, such as when hospitals seek to exclude competitor physicians from insurance networks.
Beyond that, “I hope that people notice this [research], and I hope people think creatively about what kinds of solutions might be appropriate for this,” he said. “I don’t know what they are.”
Even before media reports and a congressional hearing vilified Valeant Pharmaceuticals International for raising prices on a pair of lifesaving heart drugs, Dr. Umesh Khot knew something was very wrong.
Khot is a cardiologist at the Cleveland Clinic, which prides itself on its outstanding heart care. The health system’s internal monitoring system had alerted doctors about the skyrocketing cost of the drugs, nitroprusside and isoproterenol. But these two older drugs, frequently used in emergency and intensive care situations, have no direct alternatives.
“If we are having concerns, what is happening nationally?” Khot wondered.
As it turned out, a lot was happening.
Following major price increases, use of the two cardiac medicines has dramatically decreased at 47 hospitals, according to a research letter Khot and two others published Wednesday in the New England Journal of Medicine.
The number of patients in these hospitals getting nitroprusside, which is given intravenously when a patient’s blood pressure is dangerously high, decreased 53 percent from 2012 to 2015, the researchers found. At the same time, the drug’s price per 50 milligrams jumped more than 30-fold — from $27.46 in 2012 to $880.88 in 2015.
The use of isoproterenol, key to monitoring and treating heart-rhythm problems during surgery, decreased 35 percent as the price per milligram rose from $26.20 to $1,790.11.
The two drugs, which are off patent, have long been go-to medicines for doctors.
“This isn’t like a cholesterol medicine; these are really, very specialized drugs,” says Khot, who is lead author on the peer-reviewed research letter. When patients get the drugs, he says, “they are either sick beyond sick in intensive care or they’re under anesthesia [during] a procedure.”
And Valeant’s Lainie Keller, a vice president of communications, says the company is committed to limiting price increases.
“The current management team is committed to ensuring that past decisions with respect to product pricing are not repeated,” Keller says.
Pharmacist Erin Fox, the director of drug information at University of Utah Health Care, said the findings by Khot and his colleagues reveal “exactly what a lot of pharmacists have been talking about. When prices are unsustainable, you have to stop using the drug whenever you can. You just can’t afford it.”
Fox says her Utah health system has removed isoproterenol from its bright-red crash carts, which are stocked for emergencies like heart attacks. But Nitroprusside is more difficult to replace.
“If you need it, you need it,” Fox says. “That’s exactly why the usage has not gone down to zero, even with the huge price increases.”
Cleveland Clinic leaders spent months investigating each drug’s use and potential alternatives, Khot says.
“We’re not going to ration or restrict this drug in any way that would negatively impact these patients,” Khot says, adding that he hopes to do more research on how the decreased use of both drugs has affected patients.
Dr. Richard Fogel is a cardiologist and electrophysiologist at St. Vincent, an Indiana hospital that’s part of Ascension, a large nonprofit chain with facilities in 22 states and the District of Columbia. He told a Senate committee last year that the cost of the two drugs alone drove a nearly $12 million increase in Ascension’s spending over one year.
“While we understand a steady, rational increase in prices, it is the sudden, unfounded price explosions in select older drugs that hinder us in caring for patients,” Fogel told the committee.
The NEJM letter also analyzed the use of two drugs that remained stable in price over that time period, as a control group — nitroglycerin and dobutamine. The number of patients treated with nitroglycerin, a drug used for chest pain and heart failure, increased by 89 percent. Khot warns that the drugs can’t always be used as substitutes.
Looking out a fourth-floor window of his hospital system’s headquarters, Alan Levine can see the Appalachian Mountains that have defined this hardscrabble region for generations.
What gets the CEO’s attention, though, is neither the steep hills in the distance nor one of his Mountain States Health Alliance hospitals across the parking lot. Rather, it’s a nearby shopping center where his main rival — Wellmont Health System, which owns seven area hospitals — runs an urgent care and outpatient cancer center. Mountain States offers the same services just up the road.
“Money is being wasted,” Levine said, noting that duplication of medical services is common throughout northeastern Tennessee and southwestern Virginia where Mountain States and Wellmont have been in a health care “arms race” for years, each trying to outduel the other for the doctors and services that will bring in business.
The companies now want to merge, which would create a monopoly on hospital care in a 13-county region that studieshave placed among the nation’s least healthy places. The merger’s savings would pay for a range of public health services that they can’t afford now, the companies project. And they are trying to pull it off without Washington regulators’ approval, breaking with hospitals’ usual path to consolidation.
In a typical case, a plan that eliminates so much competition in a market would almost certainly provoke a court battle with the Federal Trade Commission, which enforces antitrust laws and challenges anti-competitive behavior in the health industry.
To avert such a fight, the hospitals are using an obscure legal maneuver available in Tennessee and Virginia and some other states.
Generally known as a Certificate of Public Agreement (COPA), the process works like this: If regulators in Virginia and Tennessee agree that the merger is in the public interest, Wellmont and Mountain States would operate as one company under a state-supervised agreement governing key parts of their operations, including setting prices. The states’ approval would prevent the FTC from challenging the merger under federal antitrust law.
Their decisions could come as soon as this month.
In exchange for approval, Mountain States and Wellmont promise to use money saved from the merger to offer mental health and addiction treatment services and attack public health concerns, such as obesity and smoking — areas previously neglected by the systems that don’t increase hospital admissions and bring in big revenue, hospital officials said
“The question that needs to be asked is whether tight state oversight of a monopoly is better than failed competition,” said Robert Berenson, a health policy expert at the Urban Institute.
Little-Used And Rarely Challenged Mechanism
The federal antitrust exemption made possible under a COPA dates to a Supreme Court ruling in the 1940s used only about a dozen times to allow hospital mergers. One was an hour away from here, in Asheville, N.C.
There’s little scholarly research on COPAs’ results.
Last summer, the FTC dropped its challenge to a merger of two West Virginia hospitals after the state adopted a COPA law and permitted the deal.
In recent years, hospital mergers and acquisitions have created behemoth health systems that have used their status to demand high payments from insurers and patients. Studies by health economists have repeatedly found that consolidation means higher prices.
But the same calculus may not apply here and in other regions where a preponderance of patients are poor or uninsured, officials from both Mountain States and Wellmont say.
While President Donald Trump and Republicans in Congress stress the value of free-market principles in health care, both hospitals argue that in their part of Appalachia the market has led to unnecessary spending, driven up health costs and forced them to focus on services that produce the highest profits rather than meet the community’s most pressing health needs. In this deeply conservative region where death rates from cancer and heart disease are among the nation’s highest, the hospitals say only a state-sanctioned monopoly can help them control rising prices and improve their population’s health.
Without their proposed merger, Levine said, both hospital systems would likely have to sell to an out-of-market chain. That would likely eliminate local control of the facilities and could lead to massive layoffs and the closure of hospitals and services, he said. Together, the two hospital systems employ about 17,000 people.
The FTC, which is urging the states to reject the hospitals’ plan, contends the hospitals could form an alliance or take other steps short of a merger to accomplish the benefits they say one will bring. The agency says the hospitals’ market probably would be no worse off if one chain merged with a company outside the area.
Feds Wary Of Promises
The hospitals are making big promises to sell their deal. They say no hospitals would close for at least five years, although some could be converted to specialized health facilities to treat problems such as mental health or drug addiction. After the merger, all qualified doctors would have staff privileges at all hospitals to treat patients. No insurer would pay lower rates than others. The new hospital system would spend at least $160 million over 10 years to improve public health, expand medical research and support graduate medical education for work in rural areas.
The FTC maintains the hospitals’ pledges are unreliable and dismissed them as having “significant shortcomings, gaps and ambiguities” in an analysis filed with state regulators in January.
Levine said the plan is the best deal for the community given the factors that handicap the hospitals. Those include declining populations and Medicare reimbursement rates that are lower here than other parts of the country because of lower average wages. Another concern is the cost of caring for uninsured people — neither Virginia nor Tennessee expanded Medicaid under the health law, which would have lowered uninsured rates.
“Competition is and should be the first choice, but in an area where competition becomes irrational and there are limited choices, there has to be a Plan B. If not this, then what?” he said.
Blue Cross and Blue Shield of Tennessee, the state’s largest health insurer, is not opposing the hospitals’ combination, a spokesman said. But its counterpart in Virginia, Anthem, hasn’t been persuaded.
“Anthem does not believe that there are any commitments that will protect Southwest Virginia and Northeast Tennessee health care consumers from the negative impact of a state-sanctioned monopoly,” the company said in a statement.
Wanted: Better Job Prospects
The proposed COPA has strong support among large employers in the region, including Eastman, a Kingsport, Tenn., chemical company with $9 billion in annual revenue that employs more than 7,000 people locally. “We get local governance, input and control … and that’s a lot better situation for us,” said David Golden, a senior vice president at Eastman.
Still, walking around Johnson City — the region’s largest city with almost 67,000 people — it’s easy to feel an unease among small employers and residents about a merger. Many worry about possible job cuts.
“Eliminating duplication of services means eliminating people,” said Dick Nelson, 60, who runs a coffee and art shop downtown and has lived here for 27 years. “I don’t care how much health care costs because my insurance will pay it,” he said.
In Kingsport, where Wellmont and Mountain States each has a hospital, Thorp is leery about a merger, too. “It’s an economic move, not an enhancement of medical care,” said Thorp, who runs a newsstand downtown. “We pride ourselves here for having good education and health care. They say there won’t be any services or jobs cut, but if that’s the case then what’s the point of the merger?”
Levine said no place better supports the case for a hospital merger than Wise County in southwestern Virginia, a scenic area with about 40,000 people whose three hospitals all operate below half their capacity. Mountain States and Wellmont each own a hospital in Norton, the county seat with 4,000 residents. Despite few patients, the hospitals still bear hard-to-cut costs for buildings, equipment and adequate staffing levels, Levine said.
On a recent weekday morning, Lonesome Pine Hospital, a Wellmont facility in Big Stone Gap, Va., looked nearly deserted. No volunteers or staffers were visible inside its main entrance and fewer than a fifth of its 70 acute-care beds were being used.
A five-minute drive away, Mountain States’ Norton Community Hospital’s 129 beds are about a quarter filled. Its maternity unit delivers fewer than five babies a week. The hospital offers hyperbaric oxygen therapy — a treatment that pays well under Medicare’s reimbursement rates — to help diabetics heal their wounds. But it has no endocrinologists to help diabetics manage their disease to avoid such complications. Despite a high rate of heart disease in the community, there’s no cardiologist on staff.
Whether a state-sanctioned merger will resolve the incongruities — here or in other poor regions — depends on how firmly regulators hold the hospitals to their pre-merger commitments. If the merger plan gets rejected, Mountain States and Wellmont will resume arch-competitive business practices that do not always put community interests first, said Bart Hove, Wellmont’s CEO.
“It’s about competing for the dollar in any way you can and extracting a dollar from your competition,” Hove said. “You do what you can to drive patients to your hospital.”