Game On: FTC Takes on Hospital Consolidation via COPA Dismantling

The Federal Trade Commission issued a scathing 20-page report last Monday criticizing hospital Certificate of Public Advantage (COPA) agreements and urging state lawmakers to suspend their use.

“The FTC routinely challenges hospital mergers that would substantially lessen competition, and therefore would raise healthcare prices for patients, reduce quality of care, limit access to healthcare services, and depress wage growth for hospital employees. COPA laws attempt to immunize such hospital mergers from the antitrust laws by replacing competition with state oversight and limiting the FTC’s ability to challenge them. COPAs thus allow for hospital consolidation that is likely to harm patients and employees… Hospital competition has proven to result in lower prices and improvements in quality of care, expanded access to healthcare services, and even higher wages for some hospital employees. For these reasons, the FTC advocates against the use of COPAs to shield otherwise illegal hospital mergers. Indeed, both Democratic and Republican administrations and several leading academics have raised concerns about COPAs, cautioning states not to rely on them in the absence of evidence that COPAs produce better results than market-based competition.”

Since the 1990’s, 9 states have approved hospital mergers through COPAs: North Carolina, South Carolina, Montana, Maine, Minnesota and, most recently, West Virginia, Tennessee, Virginia and Texas. North Carolina, Montana and Minnesota have repealed their COPA while others continue to operate. The FTC report highlights 3 in making its case against COPAs in favor of competition:

·        “Mission Health COPA (NC): Substantial increases in commercial inpatient prices during early COPA years (at least 20%), during later COPA years (average 25%), and after COPA was repealed (at least 38%). Demonstrates price regulations during COPA were ineffective, as well as the risk of eventually having an unregulated monopolist.  

·        Benefis Health COPA (MT): Substantial increases in commercial inpatient prices after COPA was repealed (at least 20%). Demonstrates the risk of eventually having an unregulated monopolist.  

·        Maine Health COPA (ME): Substantial increases in commercial inpatient prices at unregulated hospital during COPA (at least 38%), as well as after COPA expired at both hospitals – for a total price increase of at least 50% during the COPA and post-COPA period. Demonstrates the risk of selectively regulating hospitals within a larger system, as well as the risk of eventually having an unregulated monopolist. Measurable decline in quality at the acquired hospital after the COPA expired.”

Per the FTC: “COPAs can be extremely difficult to implement and monitor, requiring significant state resources over many years, sometimes decades. Regulatory fatigue, staff turnover, and changes in funding priorities at state agencies can lead to less vigorous supervision over time. Also, the hospitals subject to COPAs often lobby for repeal of COPA oversight or fewer COPA conditions, citing costs and difficulties of compliance. When this happens, the practical effect is that the merged healthcare system that was previously subject to state COPA oversight is then able to exercise increased market power (in most cases, monopoly power) unconstrained by either state regulation or antitrust enforcement against merger-related harms.”

 My take:

The FTC has its sights on hospital consolidation: it’s high on the list of industries where its activist’ muscle is likely to be flexed more frequently and effectively. It’s notable that the COPA report was approved unanimously by its 5 commissioners. Like strong bipartisan support for the Hospital Price Transparency Rule, it reflects the FTC’s rejection of hospital claims about inadequate reimbursement by payers including Medicare and Medicaid, price gauging by device, drug and technology suppliers and unfair competition from insurers and niche providers often funded by private investment to optimize profits at the expense of hospitals.

The report makes no mention of hospital workforce shortages and higher operating costs for wages. In fact, it concludes that hospital wages were suppressed as a result of monopolistic business practices in concentrated hospital markets.

It makes no distinction between for-profit and not-for-profit hospitals: it asserts hospitals pursue monopolist strategies in concentrated markets for the sole purpose of gaining leverage in negotiations with payers resulting in higher prices without quality improvement.

It explicitly blames lax state regulatory oversight for the failure of CPOAs to achieve better care at lower prices more accessibly. Notably, it challenges states’ willingness and resource commitments to effective regulation of hospitals.

And it offers a solution that’s strong on populist appeal but weak on practical implementation in the current hospital environment: competition vs. consolidation. Regulatory Constraints on hospitals like EMTALA and others are not applied to insurers and retailers who offer a widening range of care management services in direct competition with hospitals. The playing field is increasingly tilted against hospitals.

For most local hospital boards, a comprehensive competitive profile in their market is incomplete. For state regulators, hospital consolidation is an issue. For Congress, it’s about fixing a health system that’s broken with hospitals a high-profile contributor. And for the FTC, it’s about dismantling COPAs as its focus turns to aggressive oversight of hospital consolidation it deems harmful to consumers.

Paul

PS: Next week, classes start on most college campuses where tuition spikes . In tandem, college football kicks-off this weekend with Super Conferences (SEC and Big Ten) positioned to be national powerhouses leaving lesser conferences scrambling.  Driving the news: USC and UCLA will join the Big Ten Conference starting in 2024 and In 2025, Texas and Oklahoma will join the SEC. It’s ironic: the value proposition for a college degree is on trial as enrollments shrink and tuition grows, and super-conferences aka consolidation is the new normal in their football programs but a growing concern to others. The framework for college athletics is fundamentally changing: the same is true in healthcare.

Resources: FTC Policy Paper Warns About Pitfalls of COPA Agreements for Patient Care and Healthcare Workers: Some Hospital Mergers Subject to Certificate of Public Advantage Agreements Led to Higher Prices, Reduced Quality August 15, 2022 www.ftc.gov/copa system/files/ftc_gov/pdf/COPA_Policy_Paper.pdf

Hospitals

Fitch Ratings projects declines next year: The credit rating agency analyzed 2021 audited data and reported that “AA” rated hospital medians showed a 20% increase in cash to adjusted debt. “BBB” rated health systems had an 8 % increase. Fitch predicts hospital medians will dip this time next year due to inflationary pressures, a challenging operational start to 2022, additional omicron sub-variants and staffing costs.

Nonprofit hospitals’ ‘deceptively strong’ financial metrics likely to end, Fitch says www.FitchRatings.com

Mayo 2Q  revenues up, operating income down: Rochester, Minn.-based Mayo Clinic’s 2Q 2022 revenue totaled $4.03 billion–up from $3.94 billion in the same period a year earlier. 

·        Expenses climbed 11% year over year to $3.88 billion in the second quarter of 2022. Mayo Clinic saw expenses increase across all categories, including salaries and benefits. 

·        Operating income was $155 million, down 66% from $451 million in the same quarter of 2021. 

Mayo Clinic operating income slips 66% in Q2 www.mayoclinic.org

Economy

National Bureau of Economic Research: GDP increased 5.7% in 2021– highest growth rate in 37 years.  In 2021, US GDP grew 7.6% from pre-pandemic levels. California, Texas, New York, Florida, and Illinois contributed 41% of the national GDP and all states except Hawaii had a higher GDP in 2021 than in 2019. The nation has endured 34 recessions since 1857, 13 of which were after World War II. Recessions occurring between 1857 and 2020 lasted an average of 17 months.

National Bureau of Economic Research www.nber.org

Altarum: June health spending  up 6.3%: Per Atarum’s latest report:

June 2022 Health Spending:

·        National health spending in June 2022 grew by 6.3%, year over year; in the absence of federal government support in 2021 and 2022, it would have grown by 5.6%.

·        GDP was 9.6% higher than in June 2021 as GDP growth continues to outpace health spending growth.

·        Health spending accounted for 17.9% of GDP and has continued its decline from a recent high of 18.8% of GDP in December 2021

July 2022 Health Prices:

·        The overall Health Care Price Index (HCPI) increased by 2.7% year over year in July, down slightly from the 2.8% growth in June– above the 2022 average of 2.4% and the second-largest increase seen through the first seven months of this year.

·        Private prices for health services increased 4.1% in July vs. Medicaid + 3.4%, and Medicare -0.6%.

·        Economywide CPI year-over-year growth slowed to 8.5 % and PPI growth slowed to 9.8%. Services CPI growth (excluding health care) was at 6.4% year over year, the same as the month prior.

·        Among the major health care categories, physician and clinical services prices increased the least in July (0.4%), while dental care (4.1%) and hospital care prices (3.3%) increased the fastest.

·        Utilization for June was 2.8%, up from 2.5% year-over-year growth in May

Altarum Health Sector Economic Indicators  August 19, 2022 https://altarum.org/publications/august-2022-health-sector-economic-indicators-briefs

Health Insurance

JD Power survey: Medicare Advantage Plans short on mental health coverage: Per the J.D. Power member satisfaction survey:

·        Overall customer satisfaction with Medicare Advantage plans is 809 (on a 1,000-point scale)–+3 points from 2021 and up 15 points in the past five years.

·        91% say they have enough coverage for routine diagnostics and 89% say they have enough coverage for preventive and wellness services. But only 38% say they have enough coverage for mental health treatment, down from 39% a year ago, and 27% say they have enough coverage for substance use disorder services;

·        Kaiser Foundation Health Plan ranks highest in Medicare Advantage plan overall satisfaction, with a score of 844. Humana (824) ranks second and Highmark (811) ranks third.

Customers Perceive Shortfall in Medicare Advantage Plan Coverage of Mental Health and Substance Abuse Services, J.D. Power Finds August 18, 2022 www.jdpower.com/business/press-releases/2022-us-medicare-advantage-study

Regulation

WSJ: FTC challenging consolidation at record pace: The FTC issued 42 letters of investigation over mergers or similar transactions during the 2021 fiscal year– almost double the number for 2020 and the highest in more than 10 years. The FTC can sue to block deals, but it can also reach settlements that require companies to undo some effects of a merger.

Those settlements have grown stricter under Ms. Khan, who revived a tactic the FTC abandoned more than 20 years ago: requiring the merged company to seek approval for future deals, even those below the $101 million threshold that triggers disclosure to the agency. The agency has also stopped giving companies early assurance that deals won’t be investigated, while dealing with a surge in the number of mergers it must review.

Wall Street Deal Making Faces Greater Scrutiny, Delays Under FTC’s Lina Khan August 15, 2022 www.wsj.com

Final rule for arbitration in No Surprise Billing act released: Friday, HHS and Treasury department regulators finalized policies related to the independent arbitration process under the No Surprises Act in a final rule. The regulation instructs arbiters to consider both an insurer’s median contracted in-network rate and additional information when determining the correct payment for a surprise bill, including for air ambulance services. The government also implemented policies requiring additional disclosures about the median contracted rate and written explanations from arbiters about how they reached a payment decision. Under the final regulation, arbiters don’t have to choose the offer closest to a median contracted rate but should select the best offer after considering that amount and other information.

CMS can fine providers up to $10,000 for billing a patient more than the amount established under the No Surprises Act process. Regulators also can assess penalties against health insurance companies that improperly calculate the qualifying payment amount. Federal authorities are responsible for auditing insurers’ median in-network rates to ensure they adhere to federal guidelines.

No Surprises Act www.cms.gov

Hearing aids approved for retail sales: The Food and Drug Administration decided on Tuesday to allow hearing aids to be sold over the counter without a prescription to adults. Under the F.D.A.’s new rule, people with mild to moderate hearing loss will be able to buy hearing aids online and in retail stores as soon as October, without being required to see a doctor for an exam to get a prescription.

OTC Hearing Aid Act www.fda.gov

Key health policy provisions in the Inflation Reduction Act of 2022 (IRA) signed into law by President Biden last Tuesday

·        Medicare Parts B and D can negotiate prices of a limited number of drugs with no generic or biosimilar competition. Starting in 2026, 10 drugs will be eligible for negotiations. Eligibility expands to 20 drugs by 2029.

·        Starting in 2023, limits out-of-pocket spending on insulin products in Medicare Part D to $35 per month and eliminates cost-sharing for adult vaccines under Medicare Part D and under Medicaid.

·        Effective in 2024, the IRA eliminates the 5% cost-sharing in the catastrophic phase of Medicare Part D, which kicks in after enrollees reach $7,050 in out-of-pocket costs for covered drugs. Effective in 2025, the law caps patients’ out-of-pocket costs in Part D at $2,000. 

·       Institutes inflation caps (6% per year) in Medicare Part D that limit price increases for drugs year over year. Drugmakers face tax penalties if their price increases to prescription drugs in Medicare outpace the rate of inflation. 

·        Extends health insurance subsidies through 2025.

The legislation would increase taxes by about $300 billion, largely by imposing new levies on big corporations. The law includes a new tax on certain corporate stock repurchases and a minimum tax on large firms that use deductions and other methods to reduce their tax bills. It also bolsters funding for the Internal Revenue Service in an effort to crack down on tax evasion and collect potentially hundreds of billions of dollars that are currently owed to the government but not paid by high earners and corporations.

Inflation Reduction Act of 2022 www.whitehouse.gov

Polling

Morning Consult: 2 in 5 parents challenged by child-care costs:

·        Among U.S. parents of children younger than 18, 43% say it is difficult to afford child care; 51% of women with young children compared with 33% of men with children under 18.

·        35% said they already have or plan to resort to using credit cards or acquiring other debt to pay for care, and 31% said they have or plan to leave the workforce in light of high child care costs.

Morning Consult https://morningconsult.com/2022/08/18/child-care-affordability-data-survey

Poll: Economic issues dominate voter concerns: Per the Politico-Morning Consult poll of 2005 voters conducted August 12-14, 2022:

·        76% strongly or somewhat support placing a limit on the amount that prescription drugs can increase vs. 13% strongly or somewhat oppose it.

·        More than 70% strongly or somewhat support allowing Medicare to directly negotiate some prescription drug prices, and more than 70% also support the act limiting annual out-of-pocket drug costs for Medicare recipients to $2,000, while 15% oppose it.

·        Economic issues are highest concerns to voters (44%) followed by security issues (11%), women’s issues aka abortion, equal pay (11%), senior issues aka Medicare, social security et al (9%) and healthcare and energy issues (both 7%).

·        Democrats in Congress are trusted more to handle health issues more than Republicans (49% to 36%)

·        42% think passing a health reform bill should be a top priority for Congress, 31% think it’s an important but not the top priority and 27% think it’s not an urgent priority.

·        Voters think companies maximizing profits (32%), supply chain issues (33%) and labor costs (12%) are primarily responsible for high prices.

Morning Consult Politico National Tracking Poll www.morningconsult.com

Clinical Innovation

HHS OIG Report: NIH lax in oversight of clinical trials: The HHS Office of the Inspector General reviewed 72 NIH-funded clinical trials from 2019 to 2020.

• Half were conducted in NIH facilities; half were conducted at external universities or research sites.

• 35 submitted clinical trial results on time; a dozen trials submitted results late; 25 trials never submitted results.

• NIH took “limited enforcement action” against labs and research partners who did not submit results and even continued to fund new research done by these groups, the report found.

The National Institutes of Health Did Not Ensure That All Clinical Trial Results Were Reported in Accordance With Federal Requirements August 12, 2022 https://oig.hhs.gov/oas/reports

Politics

Economist: Shift on GOP voter base: “For most of the past 50 years more Republicans had a lot of confidence in big business than had little or no confidence in it, often by double-digit margins…last year the mistrustful outnumbered the trusting by a record 17%, worse than at the height of the global financial crisis of 2007-09….So far this year corporate PACs have funneled 54% of their campaign donations to Republicans, down from 63% in 2012. Firms’ employees have beaten an even hastier retreat, with just 46% donating to Republican candidates, compared with 58% ten years ago… If the result of this is divided government, that would suit American business just fine. As one executive remarks, “We might not have improvements but we won’t get more cataclysmic policies.””

Republicans are falling out of love with America Inc The Economist August 15, 2022 www.economist.com/business/2022/08/15/republicans-are-falling-out-of-love-with-america-inc

Public Health

KHN analysis: community health centers profitability significant: The federal government spent $6 billion in basic funding grants last year into 1,375 privately run centers around the country, which provide primary care for more than 30 million mostly low-income people. In 2021, the American Rescue Plan Act provided an additional $6 billion over two years for COVID-19 care. A KHN analysis found that a handful of the centers recorded profit margins of 20% or more in at least three of the past four years.

Background: the annual federal base grant for centers which makes up about 20% of their funding on average have more than doubled over the past decade. The centers also receive Medicare and Medicaid reimbursements and many participate in the 340B federal drug discount program, which allows them to buy medicines from manufacturers at deeply discounted rates.

Community Health Centers’ Big Profits Raise Questions About Federal Oversight  August 15, 2022 www.modernhealthcare.com/community-health-centers

 

Investing

Healthcare workforce solutions shows strong investor confidence: “The US had a shortage of nurses before 2020, yet the pandemic greatly exacerbated the problem as a large number of medical staff left the profession, citing increased stress and risks. Now, a handful of tech-enabled marketplaces for nurses are trying to help solve the shortage by matching healthcare workers with hospitals. It is a sector that continues to attract investor interest despite the market downturn.” Examples:

·        Incredible Health‘s $80 million Series B fundraise, led by Base10 Partners with participation from Andreessen Horowitz, Obvious Ventures and Kaiser Permanente. The round valued the 5-year-old San Francisco-based startup at $1.65 billion. It plans to use the funds to expand into placements for other healthcare professionals, such as doctors, physical therapists and pharmacists.

·        Startups that help hospitals find so-called traveling nurses include Nomad, which grabbed $105 million Series D1 in June, and CareRev, which in March raised $50 million Series B at a valuation of $600 million.

The HR tech vertical has seen consistent growth in investor interest since mid-2020, reaching a record quarterly global deal value of $4.3 billion in Q2 2022. “While the looming threat of a recession could present a risk to this category, healthcare is seen as less sensitive to economic downturns.”

Investors target recession-resilient healthcare recruiting startups Pitchbook August 17, 2022 https://pitchbook.com/news/articles/incredible-health-hr-tech-nursing

Rock Health: $22 Billion invested in AI-enabled digital health star: tups since 2018: Total funding for AI-enabled digital health startups: $3 billion thru first half 2022 vs. $10 B in 2021, $4.8 B in 2020, $2.4 B in 2019 and $2.5 B in 2018

Rock Health www.rockhealth.com

Coverage, Affordability

Study: employer sponsored coverage unaffordable for employees: According to a paper from the Peterson Center on Healthcare and the Kaiser Family Foundation, “45% of single person non-elderly households” did not have enough liquid assets to cover the typical workplace plan deductible of $2,000 for an individual. Among that group, 62% couldn’t afford an individual plan’s “very high” deductible of $6,000.

For households that include more than one person, 42% would be unable to cover the typical family plan deductible of $4,000, while roughly 6 in 10 could not handle a very high family plan deductible of $12,000. The Urban Institute’s Debt in America project found that 13% of Americans with credit records had medical debt in collection. The median amount was $703 according to February credit bureau data, says Blavin of the Urban Institute’s Health Policy Center.

Peterson-KFF Health System Tracker www.healthsystemtracker.org

Covid

Kaiser Permanente study: Increased health care use among patients after COVID-19: A study of patients from 8 health care organizations across the United States showed that COVID-19 was associated with a 4% increase in use of health care services over the 6 months after initial infection. Related findings:

“In total, COVID-19-associated excess health care utilization amounted to an estimated 27,217 additional medical encounters over 6 months (212.9 visits per 1000 patients). “

Tartof et al Health Care Utilization in the 6 Months Following SARS-CoV-2 Infection JAM Network Open August 12, 2022 https://jamanetwork.com

Employers

AON: employer costs in 2023 projected to increase 6.5%: U.S. employers’ healthcare expenditures are expected to rise by an average of 6.5%, or $13,800 per employee, in 2023. The predicted rise is expected to outpace the prior increase of 3.7% growth in employer costs between 2021 and 2022. Though it is expected to remain below the 9.1% Consumer Price Index.

Background: In the first year of the pandemic, medical claims were fewer as patients skipped or delayed care amid stay-at-home orders and reluctance to visit medical settings. Claims have slowly returned to more typical levels for employers, according to the report. This year, employees are on average contributing about $4,412 for coverage, with $2,520 paid through premiums from paychecks and the remaining $1,892 paid through deductibles, copays and coinsurance.

Aon August 18, 2022 www.aon.com

Physicians

Medscape: Physician misbehavior up in 2022: Per the Medscape Report:

·        41% of physicians have seen other physicians behave inappropriately in the workplace in 2022 vs. 35 % in 2021.

·        30% of physicians have seen other physicians behave inappropriately on social media, compa

·        red to 26% in 2021. 

·        26% of physicians have seen other physicians perform inappropriately outside of the workplace, the same percentage as 2021. 

·        38% of physicians have not seen other physicians behave inappropriately,  compared to 44% in 2021.

Physicians Behaving Badly: Stress and Hardship Trigger Misconduct Medscape August 19,2022 www.medscape.com/slideshow/2022-physicians-misbehaving

Study: Medicaid expansion associated with less access to primary care: Researchers analyzed changes in Managed Care Organization (MCO) enrollee characteristics and outcomes from 2012-2018. Findings:

·        Medicaid expansion was associated with statistically significant decreases in the proportion of female enrollees (–8.4%) and increases in the proportion of enrollees who were aged 55 to 64 years (6.8%) and were non-Hispanic White (4.4%).  

·        Relative to enrollees in non-expansion states, MCO enrollees in expansion states were significantly less likely to report access to a personal doctor (–1.6%) and less likely to report timely access to specialty care (–2.1% ) in the first year after expansion. Differences were not statistically significant by the second year post expansion.

Medicaid Expansion, Managed Care Plan Composition, and Enrollee Experience Am Journal of Managed Care August 8. 2022;28(8):390-396. https://doi.org/10.37765/ajmc.2022.89198