Possible changes to the 340B discount drug program include a new requirement that hospitals pass all savings along to patients.

Feb. 15—Reduced Medicare payments to practices acquired by hospitals, tightened 340B requirements, more telemedicine funding, and increased transparency were among the possible federal responses to hospital merger-and-acquisition (M&A) trends, as discussed this week by members of Congress.

Hospital combinations with other hospitals and physician practices, as well as M&A activity by physician practices and insurers, were the focus of a Feb. 14 hearingby the House Energy and Commerce Committee’s Oversight and Investigations Subcommittee.

“Data shows that the increasing costs of health care are ultimately passed along to American workers and families,” Rep. Gregg Harper (R-Miss.), the panel’s chairman, said. “While there are numerous factors contributing to the rising costs of health care, reports and studies show consolidation is a contributing factor.”

Among the data that drove Harper’s concerns were the hospital-market consolidation findings of the Medicare Payment Advisory Commission (MedPAC) and others. In 2012, MedPAC found that a single hospital system accounted for a majority of Medicare discharges in 146 of 391 metropolitan areas. By 2016, 90 percent of metropolitan areas were classified as highly concentrated for hospitals, according to another researcher.

Harper also cited a recent finding that the number of physicians employed by hospitals increased by 49 percent between 2012 and 2015.

The American Hospital Association (AHA) pushed back on the consolidation concerns, noting that “the rapidly changing health care environment is challenging hospitals to adapt by realigning with other hospitals and with providers, such as physicians, particularly those providing essential services that might be unavailable to individuals in their community absent that alignment.”

In a letter, the AHA urged skepticism of studies “that fail to account for the realities of delivering care, particularly when the resulting analyses are filled with flaws that challenge their validity.”

Possible Actions

Harper sought feedback on what steps Congress or the U.S. Department of Health and Human Services (HHS) could take to “encourage competition and innovation in health care.”

Rep. Joe Barton (R-Texas) suggested regulations or laws to require Medicare to pay physician practices purchased by hospitals at the lower rate they received before their acquisition, rather than higher hospital-based rates.

Leemore Dafny, PhD, a professor at Harvard Business School who has studied healthcare consolidation, noted that in 2015, with passage of the Bipartisan Budget Act, Congress moved toward partially equalizing rates between new off-campus hospital outpatient departments and physician practices.

“The real question is about rolling back rates for grandfathered practices,” Dafny told the panel. “Do you say, ‘For a certain period of time we’re going to move toward site-neutral payments,’ so as not to continue to encourage more spending in this inefficient way but recognize that hospitals have revenue streams and employment and other things, so recognizing that there may be some other way that hospitals need to be compensated but not in a way that distorts their incentives of where to supply services?”

MedPAC continues to recommend that Congress establish site-neutral payments for all sites of care in Medicare as a way to prevent cost increases from physician-hospital consolidation.

Barton also suggested that regulations could require that all discounts provided by the 340B discount drug program be passed on to patients.

“That would provide a huge incentive to go back to the practice model that we had that was much less expensive to consumers,” Kevin Schulman, MD, associate director of the Duke Clinical Research Institute, testified.

However, Rep. Kathy Castor (D-Fla.) warned that the 340B program should not be blamed as a factor in broad consolidation. Martin Gaynor, PhD, professor of economics and health policy at Carnegie Mellon University, agreed that research data indicates the 340B program’s influence on hospital M&A has largely been limited to oncology practice acquisitions.

Other steps that could improve healthcare competition include legislation to allow more innovative models that pay for and deploy telemedicine, Schulman said.

Such a measure would build on a provision in the recently enacted budget dealthat, for the first time, authorized separate payments for the use of telehealth services by accountable care organizations.

Rep. Morgan Griffith (R-Va.) saw the need for greater transparency in prices, costs, and quality.

“I’d like to blow up the way we do reimbursement so we can blow up the medical system and make costs come down,” Morgan said.

Researchers testified that the federal government has access to federal and state healthcare price and cost data, but not to comprehensive information on commercial health plans.

Transparency examples highlighted by researchers included the all-payer claims database in Massachusetts, which is used to issue transparent reports and allow the public to weigh in on proposed consolidations. Such data was used to successfully argue against a recent hospital M&A deal in the commonwealth, Dafny said.

Gaynor cited New Hampshire’s all-payer claims database, which research has shown consumers use for shopping and which has been shown to drive down provider prices.

“Providers responded to that because they knew there were some people out there looking,” Gaynor said. “You don’t have to have everybody in the market looking at them, just enough so that sellers know that somebody might not come to them if others’ prices are competitive.”

Other Ideas

The healthcare consolidation researchers from whom Congress sought advice also had their own ideas of how to reduce M&As.

Among Dafny’s suggestions was the creation of public databases with information about the ownership and financial links among different healthcare providers, and net commercial prices for their services.

She also suggested that Congress provide funding for federal “enforcement-focused research on healthcare consolidation,” and financial incentives or regulatory requirements for employers to use “private exchanges.”

“Data from the public exchanges suggest consumers are more price-sensitive, and more willing to select narrow-network plans, than are employers,” Dafny said. “If consumers refuse to pay for a higher-priced product that doesn’t offer greater value warranting the price premium, the incentive to pursue anticompetitive consolidation will be diminished.”

Gaynor urged strengthening of antitrust enforcement, ending policies that hamper new competitors and impede competition, and promoting transparency “so employers, policymakers, and consumers have access to information about healthcare costs and quality.”


Rich Daly is a senior writer/editor in HFMA’s Washington, D.C., office. Follow Rich on Twitter: @rdalyhealthcare

Publication Date: Thursday, February 15, 2018