Last Thursday, the Senate Finance Committee heard testimony from experts who offered damning testimony about hospital consolidation (excerpts below). Committee Chair Ron Wyden (D-OR) gaveled the session to order with this commentary:
“I’d like to talk about health care costs and quality. Advocates for proposed mergers often say they will bring lower health costs due to increased efficiency. Time after time, it’s simply not proven to be the case. When hospitals merge, prices go up, not down. When insurers merge, premiums go up, not down. And quality of care is not any better with this higher cost. “
Ranking Member Mike Crapo (R-ID) offered a more conciliatory assessment in his opening statement: “In exploring and addressing these problems, we have the opportunity to build on our efforts to improve medication access and affordability by taking a broader look at the health care system through a similarly bipartisan, consensus-based lens…We need to examine the drivers of consolidation, as well as its effects on care quality and costs, both for patients and taxpayers. We also need to develop focused, bipartisan and bicameral solutions that reduce out-of-pocket spending while protecting access to lifesaving services.”
Congress’ concern about consolidation in healthcare is broad-based. Pharmacy benefits managers and health insurers face similar scrutiny. Drug price control referenda have passed in several states and a federal cap was included in the Inflation Reduction Act. The reality is this: the entire U.S. health system is on trial in the court of public opinion for ‘careless disregard for affordability’. And hospitals are seen as part of the problem justifying consolidation as a defense mechanism.
What followed in this 3-hour hearing was testimony from 3 experts critical of hospital consolidation, a Colorado community hospital CEO who opined to competition with big hospital systems and a Peterson Foundation spokesperson who offered that data access and transparency are necessary to mitigate consolidation’s downside impact.
None of their testimony was surprising. Nor were questions from the 25 members of the committee. It’s a narrative that played out in House Energy and Commerce and Ways and Means Committee hearings last month. It’s likely to continue.
Often, Congressional Hearings on healthcare issues amount to little more than political theatre. In this one, four key themes emerged:
- Consolidation among hospitals has adversely impacted quality of care and affordability of healthcare. Prices have gone up without commensurate improvements in quality harming consumers.
- Larger organizations use horizontal and vertical integration to strengthen their positions relative to smaller competitors. Physician employment by hospitals is concerning. Rural and safety net hospitals are impaired most.
- Anti-trust efforts, price transparency mandates, data sharing and value-based programs have not been as effective as anticipated.
- Physicians are victims of consolidation and corporatization in U.S. healthcare. They’re paid less because others are paid more.
While committee members varied widely in the intensity of their animosity toward hospitals, a consensus emerged that the hospital status quo is not working for voters and consumers.
My take:
Consolidation is part of everyday life. Last Tuesday’s bombshell announcement of the merger of the PGA Tour and the Saudi Arabia’s Public Investment Fund caught the golfing world by surprise. Anti-trust issues and monopolistic behaviors are noticed by voters and lawmakers. Hospital consolidation is no exception festering suspicions among lawmakers and voters that the public’s good is ill-served. And studies showing that charity care among not-for-profit hospitals is lower than for-profit confuse and complicate.
As I listened to the hearing, I had questions…
- Were all relevant perspectives presented?
- Was the information provided by witnesses and cited in Committee member questioning accurate?
- Will meaningful action result?
But having testified before Congressional Committees, I find myself dismissive of most hearings which seem heavy on political staging but light on meaningful insight. Many are little more than political theatre. Hospital consolidation seems different. There seems to be growing consensus that it’s harmful to some and costly to all.
Sadly, this hearing is the latest evidence that the good will built by hospital heroics in the pandemic is now forgotten. It’s clear hospital consolidation is an issue that faces strong and increased headwinds with evidence mounting—accurate or not– showing more harm than good.
Paul
PS: If the economy is the major issue in the 2024 Elections and household finances the acid test, healthcare affordability inclusive of hospital prices, surprise medical bills, insurance premiums and what’s covered or not will be highlights for Campaign messaging. Most hospital boards are ill-prepared to address the issue head-on. That’s a start.
Resources
Senate Committee on Finance “Consolidation and Corporate Ownership in Health Care” Thursday, June 8, 2023
“Once cushioned from lawmaker scrutiny, hospitals see a shift” Roll Call June 8, 2023https://rollcall.com/2023/06/08/once-cushioned-from-lawmaker-scrutiny-hospitals-see-a-shift
Health Care Payment Learning & Action Network https://hcp-lan.org
Derek Jenkins, Vivian Ho “Nonprofit Hospitals: Profits And Cash Reserves Grow, Charity Care Does Not” Health Affairs June 2023 https://doi.org/10.1377/hlthaff.2022.01542
Derek Jenkins, Vivian Ho “Nonprofit Hospitals: Profits And Cash Reserves Grow, Charity Care Does Not” Health Affairs June 2023 https://doi.org/10.1377/hlthaff.2022.01542
Nick Thomas “13 healthcare mergers and acquisitions making headlines in May” Beckers June 9, 2023 www.beckershospitalreview.com/hospital-transactions-and-valuation/13-healthcare-mergers-and-acquisitions-making-headlines-in-may
Quotable: Excerpt from Senate Committee on Finance “Consolidation and Corporate Ownership in Health Care” Thursday, June 8, 2023
“During the 2000s, the Bureau of Labor Statistics found that hospital prices grew faster than prices in any other US industry. Ultimately, the prices hospitals negotiate with insurers are markedly higher than the regulated prices they are paid by the Medicare program. Commercial reimbursements have also risen much more quickly than Medicare payment rates. In the late 1990s, commercial payments to hospitals were only approximately 10% higher than Medicare reimbursements; by 2012, hospital payment rates from private insurers were 75% higher than Medicare rates.31 At present, it is not uncommon for hospitals to be paid 200% or more of Medicare rates. Here, it is vital to point out that most academic experts do not accept the idea of cost shifting – the concept that hospitals’ payments from insurers are going up because of low payments from public payers. Rather, the broad consensus is that the difference in the growth in prices hospitals negotiate with insurers reflects the impact of changes in providers’ bargaining leverage and reductions in competition.”
Written Testimony Zack Cooper, PhD Associate Professor of Public Health & Associate Professor of Economics Yale University Senate Committee on Finance “Consolidation and Corporate Ownership in Health Care” Thursday, June 8, 2023 www.finance.senate.gov/imo/media/doc/20230605_sfc_testimony.pdf
“Primary care is the only health care component where an increased supply is associated with better population health and more equitable outcomes, leading the National Academies of Sciences, Engineering, and Medicine (NASEM) to call it a common good.5 Evidence clearly demonstrates that improving access to longitudinal, coordinated primary care reduces costs, improves utilization of recommended preventive care, and reduces hospitalizations. Yet the United States has continuously underinvested in primary care, which only accounts for a mere five to seven percent of total health care spending in the country…. In 2023, pre-merger notification to federal antitrust authorities was required for transactions over $111.4 million, meaning that many acquisitions, particularly of physician practices, go unnoticed until the merger has been finalized. Relatedly, tax-advantaged hospitals are not currently subject to federal antitrust enforcement or oversight of anticompetitive behaviors. In exchange for valuable tax exemptions, hospitals are required to provide charitable contributions to the community. However, data has shown that the highest income-generating tax-advantaged hospitals provided the lowest amount of charity care. Tax exemptions for hospitals, which generated an estimated value of $28 billion in 2020, provide them with even greater capital and financial resources to purchase physician practices.”
Statement of the American Academy of Family Physicians By R. Shawn Martin Executive Vice President and Chief Executive Officer, American Academy of Family Physicians To U.S. Senate Committee on Finance On Consolidation and Corporate Ownership in Health Care: Trends and Impacts on Access, Quality, and Costs June 8, 2023 https://www.finance.senate.gov/imo/media/doc/Shawn%20Martin%20Written%20Testimony%20for%20
“In the hospital sector, from 2003-2017, 42 private equity deals led to the acquisition of 282 unique hospitals across 36 states. Evidence generally suggests that PE-acquired hospitals raise list prices and charges, and improve financial performance, but have little consistent change in quality or outcomes of care, with studies finding small improvements in quality for some conditions and decrements for others. Though less-well studied, PE-backed acquisitions of ambulatory surgical centers from 2011-2014 were similarly not associated with consistent differences in quality or outcomes. Evidence from the nursing and long-term care facility sector is more extensive, and perhaps more concerning. Though studies are mixed, some evidence suggests that PE acquisition of nursing homes may be associated with significant decreases in staffing, 1-2 percentage point increases in emergency department visits and hospitalizations, 9 and a 1-2 percentage point increase in mortality… The physician practice sector is the most difficult to summarize because it is the most variable in terms of structure, organization, and personnel, but evidence suggests that PE investment in this space is growing. In some specialties, such as ophthalmology, dermatology, gastroenterology, and urology that are both lucrative and highly fragmented, PE has made rapid inroads. By gaining market share or even local monopoly power, increasing charges, streamlining operations, cutting costs, changing staffing, and/or increasing the volume of highmargin procedures, there is ample opportunity for PE firms to achieve short-term profits. However, there are scant data on the effects of PE acquisition of physician practices on patient outcomes.”
Testimony of Karen E. Joynt Maddox, M.D., M.P.H. Associate Professor of Medicine, Washington University in St. Louis School of Medicine Before the United States Senate Committee on Finance Hearing On: Consolidation and Corporate Ownership in Health Care: Trends and Impacts on Access, Quality, and Costs June 8, 2023 K Joynt Maddox-Corporatization for Senate 6-3-23.pdf
“We understand and appreciate the role system hospitals play in America. Their innovations, their commitment to research and education, and their support for communities that are unable to support their own healthcare needs is critical. There is also a significant role for the independent hospital. In many cases, we are that alternative, that option for a more local approach. As we have experienced in Mesa County, options within healthcare generate real, positive improvements in the health and the wellbeing of our community. Consolidation is not the only option. Conclusion Independent hospitals play a critical role in supporting their community’s wellbeing. We are an integral part of a competitive healthcare market. Our ability to be agile, serve the unique needs of our communities, and serve as a champion for patient choice, is critical to the future of local healthcare. If the few independent hospitals left are going to survive, care for our communities and continue to lower the cost of healthcare for our patients, we need support from Congress.”
Consolidation and Corporate Ownership in Health Care: Trends and Impacts on Access, Quality, and Costs Prepared statement by Chris Thomas President and CEO Community Hospital 2351 G Road Grand Junction, Colorado 81505 Before the Committee on Finance United States Senate 1st Session, 118th Congress Hearing on Consolidation and Corporate Ownership in Health Care: Trends and Impacts on Access, Quality, and Costs Senate Finance Committee – Chris Draft 2.pdf
“Based on my experience working with companies across the healthcare industry, I believe the path to a better, lower cost, and more accessible U.S. healthcare system depends on improving the availability and usability of healthcare data, including price transparency data.
The Peterson-KFF hospital price transparency research finds that:
- Hospital compliance with the reporting requirements is lagging, but growing
- Consumers have little to no awareness of the transparency requirements
- There is significant variation in hospital prices
- The usability of this new data remains challenging.
In closing, healthcare data transparency is necessary but not sufficient to improve system performance and reduce healthcare costs. Efforts to improve data availability and quality can enable better market performance and targeted policymaking efforts.
Caroline Pearson Executive Director, Peterson Center on Healthcare Senate Finance Committee Written Testimony for the Hearing Record Consolidation and Corporate Ownership in Health Care: Trends and Impacts on Access, Quality and Costs June 8, 2023 Pearson SFC Testimony_06052023_Final.pdf (senate.gov)
Other Quotable:
Re: effectiveness of hospital advocacy: “The arguments that hospitals’ trade groups have used for years — mainly, that they need more money from the government — are beginning to fall flat, indicating one of Washington’s most powerful lobbying juggernauts may be losing some goodwill.
While groups like the American Hospital Association, which represents about 5,000 hospitals and which spent $27 million on lobbying in 2022, remain incredibly powerful, inflation, rising health care costs and headlines about questionable business practices have put an unwelcome spotlight on the industry, especially as the Medicare trust fund nears its insolvency date.”
The shift follows the COVID-19 pandemic, during which Congress poured $178 billion into helping hospitals offset financial losses and care for an influx of patients.
But questions surfaced about whether the wealthiest of health systems really needed that money. And in recent months, advocates have criticized practices they consider abusive, like sending patients to debt collectors.
It follows a cascade of scrutiny that lawmakers have put on other aspects of the health care industry in recent years, including drug manufacturers, insurers and pharmacy benefit managers.”
“Once cushioned from lawmaker scrutiny, hospitals see a shift” Roll Call June 8, 2023https://rollcall.com/2023/06/08/once-cushioned-from-lawmaker-scrutiny-hospitals-see-a-shift
Re: employer frustration with insurers: “Push has come to shove for companies, unions, and workers frustrated by exorbitant prices for health coverage. They’re suing health insurers based on the belief that hospitals, doctors, and other providers are charging flagrantly high prices without fear of pushback because they ultimately get paid. And employers allege that insurers use contracts to block claims data so effectively that it’s impossible to know what they’re being charged. Three examples
- A woman alleged her employer’s insurer, CVS Health’s Aetna, conspired with a subcontractor, UnitedHealth’s Optum, to create “dummy codes” for certain services.
- Ford sued Blue Cross Blue Shield of Michigan, and the broader network of Blues plans, alleging the Blues “divided territory and fixed prices” like a cartel.
- Unions representing laborers in Connecticut sued Elevance Health and alleged it blocked the unions from obtaining their own claims data and overcharged them by willingly overpaying providers.”
Bob Herman “Fed up with exorbitant health costs, employers and workers are taking insurers to court” STAT News www.statnews.com/2023/06/12/employers-sue-health-insurers
Re: hospital charity care: “We limited our assessment of hospitals’ contributions to community well-being to charity care, even though the Internal Revenue Service (IRS) definition of community benefits includes a range of other services such as community health improvement services and health professions education. Charity care and unreimbursed costs for the treatment of Medicaid patients are the two largest components of hospital spending on community health benefits. However, researchers have noted that the IRS’s definition of unreimbursed Medicaid costs likely leads to overestimates of their true cost to hospitals. Furthermore, there are four other categories of community benefit that are small in magnitude, and hospitals likely benefited directly from their marketing-related effects.”
Derek Jenkins, Vivian Ho “Nonprofit Hospitals: Profits And Cash Reserves Grow, Charity Care Does Not” Health Affairs June 2023 https://doi.org/10.1377/hlthaff.2022.01542
Re: physician mistrust of leaders: “Only 50% of physicians nationwide say they have a lot or a great deal of trust that “The leaders of my organization are honest and transparent.” Only 53 percent say they have a lot or great deal of trust that “the leaders of my organization are making good financial decisions.”
Jarrard June 9, 2023. https://jarrardinc.com/resources/national-physician-survey-2023-request
Re: physician discontent: “Only 57% of doctors today would choose medicine again, if they were just starting their careers… this is more than just “daydreaming” of another job — roughly two in five physicians wish they’d never chosen the profession at all.”
Jack Resnick, outgoing President of AMA in closing remarks to its House of Delegates meeting Friday Medpage June 11, 2023 ttps://www.medpagetoday.com/meetingcoverage/ama
Re: value-based programs: “In 2021, 19.6% of U.S. health care payments, flowed through Categories 3B-4 model (payment models requiring financial risk taking). 83% of payers believe the use of alternative payment will increase.”
Health Care Payment Learning & Action Network https://hcp-lan.org
Re: transformation: “Morgan Health has identified bipartisan solutions that will speed the adoption of these innovative care models while improving access to mental and behavioral health services for those with ESI. Those recommendations include:
Advancing data quality and uniformity standards
- Finalizing a recent proposal around the creation of a centralized, national provider directory.
- Modernizing the existing HIPAA statute.
- Providing consistent standards for race/ethnicity data collection, use and reporting.
Addressing workforce shortages in primary and behavioral health
- Encouraging accountable care arrangements that promote primary care with full integration of primary behavioral health care.
- Empower non-physicians’ ability to practice to the top of their licenses and improve reimbursement for behavioral health care services.”
“Morgan Health: Improving Employer-Sponsored Health Care Requires Federal Policymakers to Prioritize Value-Based Reforms” JP Morgan June8, 2023 https://www.jpmorganchase.com/news-stories/morgan-health-improving-employer-sponsored-health-care
Regulation
Study: Impact of State Palliative Care regulations: Researchers analyzed State death certificate data for 50 US states (from January 1, 2005, to December 31, 2017) for all decedents who had any type of cancer listed as the underlying cause of death. Findings:
- During the study period, 553 state-years (85.1%) had no palliative care law, 60 state-years (9.2%) had a nonprescriptive palliative care law, and 37 state-years (5.7%) had a prescriptive palliative care law.
- Compared with state-years without a palliative care law, the likelihood of dying at home or in hospice was 12% higher for decedents in state-years with a nonprescriptive palliative care law and 18% higher for decedents in state-years with a prescriptive palliative care law.
Vega et al “Place of Death From Cancer in US States With vs Without Palliative Care Laws” JAMA Netw Open June 8, 2023;6(6):e2317247. doi:10.1001/jamanetworkopen.2023.17247
Value-based Programs
CMS announces new primary care model: CMS is piloting a value-based primary care model in eight states through the Center for Medicare and Medicaid Innovation that will seek to create more coordinated care for rural and underserved populations.
The Making Care Primary Model will be tested from July 2024 to the end of 2034 in Colorado, Massachusetts, Minnesota, New Jersey, New Mexico, New York, North Carolina and Washington state, according to a June 8 news release from CMS.
Applications for the program will open in late summer 2023, with a launch date of July 1, 2024.
CMS Announces Multi-State Initiative to Strengthen Primary Care June 8, 2023 www.cms.gov/newsroom/press-releases/cms-announces-multi-state-initiative-strengthen-primary-care
Study: Accountable Health Communities results negligible: Social determinants of health can adversely affect health and therefore lead to poor health care outcomes. When it launched in 2017, the Accountable Health Communities (AHC) Model was at the forefront of US health policy initiatives seeking to address social determinants of health. The AHC Model, sponsored by the Centers for Medicare and Medicaid Services, screened Medicare and Medicaid beneficiaries for health-related social needs and offered eligible beneficiaries assistance in connecting with community services. This study used data from the period 2015–21 to test whether the model had impacts on health care spending and use. Findings:
“…statistically significant reductions in emergency department visits for both Medicaid and fee-for-service Medicare beneficiaries. Impacts on other outcomes were not statistically significant… Collectively, findings provide mixed evidence that engaging with beneficiaries who have health-related social needs can affect health care outcomes.”
Parish et al “Health Care Impacts Of Resource Navigation For Health-Related Social Needs In The Accountable Health Communities Model” Health Affairs May 17, 2023 https://doi.org/10.1377/hlthaff.2022.01502
Hospitals
Study: Charity care higher for for-profit hospitals than not-for-profits: Using the National Academy of State Health Policy Hospital Cost Tool, researchers compared changes in hospital profits with changes in hospitals’ charity care and cash reserves between 2012 and 2019 for 2,783 hospitals (2,219 nonprofit hospitals, and 564 for-profit hospitals in 2019). Findings:
Note:
- Nonprofit hospitals’ spending on charity care decreased from $6.65 million in 2012 to $6.36 million in 2019, whereas for-profit hospitals increased their charity care spending from $2.29 million to $6.30 million during the same period.
- In contrast, every one-dollar increase in profits between 2012 and 2019 was associated with a $1.74 rise in cash reserves during the same period for all hospitals in our sample. When the analysis was conducted by ownership type, the estimated increase in cash reserves was $1.73 for nonprofit hospitals and $1.92 for for-profit hospitals.
- “With the transformation, we estimated that a one-dollar increase in profit between 2012 and 2019 was associated with an increase of cash reserve balances of $1.23 for all hospitals in our sample: $1.21 for nonprofit hospitals and $1.58 for for-profit hospitals. A one-dollar increase in profit was associated with a two-cent increase in charity care spending for for-profit hospitals, using the inverse hyperbolic sine transformation and the association between a change in profit and changes in charity care spending for nonprofit hospitals and the sample including both nonprofit hospitals and for-profit hospitals remained statistically insignificant.”
“With operating profits for nonprofit hospitals growing, the share of community health benefits they provide should also be growing to justify their favorable tax treatment.”
Derek Jenkins, Vivian Ho “Nonprofit Hospitals: Profits And Cash Reserves Grow, Charity Care Does Not” Health Affairs June 2023 https://doi.org/10.1377/hlthaff.2022.01542
Systems expanding ambulatory surgery concentration: “Health systems are ramping up investments in ambulatory surgery centers and forming joint ventures with outpatient partners to accelerate the development of new centers. The trend is picking up steam as complex procedures increasingly move to ASCs, which are steadily growing as the preferred site of service for physicians, patients and payers.“ Current status:
- Tenet Healthcare: 445 ASCs and 24 surgical hospitals thru its subsidiary United Surgical Partners International.
- Optum SCA Health:320 ASCs, 70,000 employed physicians
- HCA Healthcare: 150 ASCs, freestanding emergency rooms, urgent care centers and physician clinics,
- Kaiser Permanente: 62 ASCs
Alan Condon “Tenet, HCA, Optum compete for market share in emerging battleground” Beckers June 8th, 2023 ttps://www.beckershospitalreview.com/finance/tenet-hca-optum-compete-for-market-share-of-emerging-battleground
IQ operating margins: Top 5:
- Tenet: 12%
- HCA Healthcare: 9%
- Community Health Systems: 7%
- BJC HealthCare (St. Louis): 3.5%
- Banner Health (Phoenix):6%
Note: 10 of the Top 30 had negative operating margins in 1Q.
30 health systems ranked by operating margins Beckers June 6, 2023 www.beckershospitalreview.com/finance/29-health-systems-ranked-by-operating-margins.
Physicians
CHG: 50,000 docs working in temporary assignments: “Doctors once turned to part-time work mostly as a transition into retirement. Overloaded and burned out, many in their working prime are now building entire careers as temporary physicians-for-hire…About 50,000 doctors, or 7% of the U.S. physician workforce not including foreign medical-school graduates, now practice medicine via temporary assignments. That is a nearly 90% increase from 2015…Doctors and staffing agencies say working temporary hospital gigs typically can pay 30% to 50% more than what a full-time hospital staff doctor would earn—and sometimes more, depending on the specialty and location. “
Gretchen Tarrant “Burned Out, Doctors Turn to Temp Work” Wall Street Journal June 6, 2023 www.wsj.com/articles/the-rise-of-the-part-time-doctor
