Increases in size may lead to decreased agility, but systems continue to assemble new pieces to their continuum of care.


July 29—At  least some healthcare providers viewed the U.S. Department of Justice’s (DOJ’s) recent efforts to block two health insurance company megamergers “with a little bit of relief,” according to an industry advisor.

Those federal actions also may provide clues as to how regulators will view healthcare merger and acquisition activity or how organizations may use acquisitions to adapt to healthcare transformation, Anu Singh, managing director at Kaufman Hall management consultants, said in an interview.

Before the DOJ took action, the Federal Trade Commission (FTC) moved to block major health system mergers in Illinois and Pennsylvania. There would be more concern in the industry if the government fought health system consolidation while letting health plan mergers go unchallenged, Singh said.

Singh compared the FTC’s attempts to block the Advocate Health and Hospitals Corp.-NorthShore University HealthSystem and the Penn State Hershey Medical Center-PinnacleHealth System mergers to Anthem Inc.’s $54.2 billion offer to buy Cigna Corp. and Aetna Inc.’s $37 billion proposal to buy Humana Inc. While health system consolidation can alter competition within a single market, health plan mergers affect multiple markets, states and regions, Singh explained.

In fact, 11 states and the District of Columbia have joined the DOJ’s challenge to the Anthem-Cigna deal, while eight and the District of Columbia are part of the suit seeking to block Aetna’s purchase of Humana.

Strategic Rational Needed

Still, “the government’s involvement in healthcare the last couple years has been hard to read,” Singh said.

The government has looked unfavorably at large health system mergers, Singh said, but it has allowed some competition-lowering deals to go ahead if parties can be show a “strategic rational” of how consolidation can improve care and efficiency while lowering costs.

The DOJ didn’t see this happening with the health plan mergers.

“If allowed to proceed … (the mergers) would leave much of the multi-trillion dollar health insurance industry in the hands of three mammoth insurance companies, drastically constricting competition in a number of key markets that tens of millions of Americans rely on to receive healthcare,” U.S. Attorney General Loretta Lynch said at a July 21 news conference. “If these mergers were to take place, the competition among these insurers that has pushed them to provide lower premiums, higher quality care and better benefits would be eliminated.”

In addition to lowering competition, the DOJ described the companies being bought, Hartford, Conn.-based Cigna and Louisville, Ky.-based Humana, as “innovative competitors.” It credited them with “pressuring insurers to develop new models of care designed to keep Americans healthier, to deliver healthcare more efficiently and to control the costs of providing care.”

The insurance companies disagreed with the DOJ’s arguments, and the legal challenge was described as “an unfortunate and misguided step backwards for access to affordable healthcare” in a statement released by Indianapolis-based Anthem.

“The DOJ’s action is based on a flawed analysis and misunderstanding of the dynamic, competitive and highly regulated healthcare landscape and is inconsistent with the way that the DOJ has reviewed past healthcare transactions,” the statement continued.

Giant Theme

But the need for more competition has become a common theme in Washington.

Sen. Elizabeth Warren (D-Mass.) referenced the health insurance industry in her June 29 speech on “reigniting competition in the American economy.” Warren railed on “a handful of health insurance giants” controlling 83 percent of the market.

Warren’s speech was referenced by Farzad Mostashari, M.D., in a July 22 blog for TheHill.com, where he wrote that market domination by a few big players is the “default preferred stance” in American healthcare. Additionally, the Centers for Medicare & Medicaid Services’ (CMS) proposed implementation of the Medicare Access and CHIP Reauthorization Act (MACRA) has unwittingly created strong incentives for further consolidation, Mostashari wrote.

“Yet, there is no evidence that consolidation of hospitals and physician practices leads to better clinical outcomes or cost reductions,” wrote Mostashari, the former national coordinator for health IT. “In fact, recent studies suggest that small, physician-owned practices have a lower average cost per patient, fewer preventable hospital admissions, and lower readmission rates than hospital-owned practices.”

Mostashari, the founder and CEO of Aledade, a consultancy for independent practices, said in an interview that he expects practice acquisition and consolidation will continue if MACRA is implemented as proposed. This is because it lacks alternative payment models (APMs) suitable for small independent practices to adopt and the complex and confusing nature of its Merit-Based Incentive Payment System (MIPS) will be difficult to navigate, he said.

“One of the arguments the insurers make is that they need to get big to combat the providers getting big,” Mostashari said. “We can’t hope to have gigantism on the insurance side hold in check gigantism on the provider side.”

Mostashari cited a New England Journal of Medicine study that found smaller physician-led accountable care organizations (ACOs) outperformed hospital-led ACOs in the Medicare Shared Savings Program, and said there is a “policy imperative” to find ways to limit “the abuse of consolidation of power.”

“We keep putting on heavier and heavier armor to do battle with other goliaths and we’re losing the agility to adapt to change that’s coming with new payment systems,” Mostashari said.

Redefining ‘Market’

Singh did not disagree, but noted that perhaps the term “market” needs to be redefined.

“It’s not just patient beds that define your market presence,” Singh said. He explained that organizations are increasing their size because they believe this makes a population’s health easier to manage and gives them more influence in keeping people well.

“In an environment where you don’t get reimbursed every single time you see a patient, suddenly it’s become very important—not only where your hospital is—but how your continuum of care is assembled,” Singh said.

Singh and his Kaufman Hall colleagues identified 52 hospital and health system transactions in the first half of 2016, up 6.1 percent from the 49 reported last year.

“We are in an uptick in M&A activity that will be here for the medium term,” Singh said.

Traditionally, acquisitions were looked at as a way to increase scale to lower fixed costs and consolidate “back office” operations, Singh said. But now, creative organizations are looking at strategic alignments to help extend financial efficiencies into how they provide care. This includes creative collaborations with health plans or employers, and working with new partners like labs, rehabilitation centers and senior living facilities, according to Singh.

Linking of acute-care providers with non-acute care will continue, and perhaps accelerate, current consolidations as organizations decide whether ownership is necessary for all the parts to work well together or if other arrangements can be developed.

“The question is ‘Who do we partner with to get the job done?’” Singh said. “I think health systems that are just a combination of assets may lack agility.”


Andis Robeznieks is a freelance writer based in Chicago. Follow Andis on Twitter at @AndisRobeznieks.

Publication Date: Friday, July 29, 2016