Strategic Partnerships Mergers and Acquisitions

Congress Seeks Answers on Hospital Consolidation

September 5, 2018 8:52 am

MedPAC’s findings and recommendations on consolidation could be quickly put to use in pushing legislative changes, since the committee members requested a response within 30 days.

Sept. 4—The trend of hospital consolidation has drawn increased scrutiny from members of Congress who are concerned about increasing costs for Medicare and the program’s beneficiaries.

The Republican leaders of the House Energy and Commerce Committee recently sent a letter to the Medicare Payment Advisory Commission (MedPAC) to ask for more research on the impact of hospital consolidation on Medicare and its beneficiaries.

“Hospitals play a significant role in the healthcare market and are thus likely to have a role in influencing healthcare costs, particularly as it relates to the Medicare program,” the members of Congress wrote. “There is conflicting information however, on the impact hospital consolidation has on healthcare costs for patients.”

The letter from Reps. Greg Walden (R-Ore.), chairman of the committee; Michael Burgess, MD, (R-Texas); and Gregg Harper (R-Miss.) noted that witnesses in hearings have given “differing views” on the extent to which consolidation is a cost driver in Medicare and to which Medicare payment policies encourage such consolidation.

“Some have questioned the merit of concerns over consolidation and have instead highlighted the beneficial efficiencies and economies of scale that can be accomplished through consolidation,” they wrote.

For example, during a May 2014 hearing a witness argued that site-neutral payment policies should not be viewed in a vacuum and instead must be viewed along with the totality of services provided, the populations served, and in recognition of the fact that “hospitals are subject to significant regulatory and quality requirements,” the letter noted.

In contrast, one consolidation critic noted at a February 2018 hearing that “extensive research evidence shows that consolidation between close competitors leads to substantial price increases for hospitals, insurers, and physicians, without offsetting gains in improved quality or enhanced efficiency.”

The witness urged policies “to support and promote competition in healthcare markets” and to end “distortions that unintentionally incentivize consolidation.”

Among the possible federal responses to hospital merger-and-acquisition (M&A) trends, as discussed by committee members at that hearing, were reduced Medicare payments to practices acquired by hospitals, tightened 340B requirements, more telemedicine funding, and increased transparency.

The consolidation issues that the committee leaders recently asked MedPAC to examine included:

  • The recent trend in hospital consolidation and to what degree federal positions spur consolidation
  • The impact of consolidation on hospital and patient costs
  • Differences in hospital prices in markets with more or less consolidation
  • The impact of practice purchases by hospitals on Medicare physician payments
  • Whether 340B discounts incentivize use of more-expensive drugs

Hospital advocates responded to criticism about consolidation by highlighting other research, such as a January 2017 study of hospital mergers over 10 years that found, “on average, acquired hospitals realize cost savings between 4 and 7 percent in the years following the acquisition.”

And they emphasized that increased M&A activity is part of a response to the push by government and commercial payers for hospitals to move to value-based payment.

“What is important for policymakers to understand is how 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,” Tom Nickels, executive vice president of the American Hospital Association, wrote in a letter to the committee.

Hospital M&A slowed in the most recent quarter, according to tracking companies’ reports, but analysts expected such deals to pick up in coming quarters.

Data’s Role

The MedPAC findings on consolidation may be quickly put to use in pushing legislative changes, since the committee members requested a response within 30 days—amid the time of year when Congress passes its final federal funding bills, which often include major payment policy changes. For example, the Bipartisan Budget Act of 2015 required prospective Medicare hospital payment-rate cuts for newly acquired, provider-based, off-campus hospital outpatient departments.

“Bipartisan concern over the degree to which Medicare payment policy may be accelerating hospital consolidation and negatively impacting the Medicare program has been present in Congress for some time,” the members of Congress wrote.

But the concern became more acute when Medicare’s trustees issued their June report, which found the Medicare Hospital Insurance Trust Fund will be depleted in 2026, or three years earlier than projected last year.

“Accordingly, it is imperative the committee receive additional analysis from MedPAC regarding the degree to which Medicare payment policies may encourage hospital consolidation and may also lead to higher drug spending for the program and patients,” they wrote.

One area that the committee may address is the 340B discount drug program. The committee’s January 2018 oversight report on the program already concluded that “dramatic growth” had occurred in the “practice of 340B hospitals acquiring private practices and registering those practices as child sites [and thus eligible for 340B drug discounts].”

The committee’s report found “regardless of the motivation for such consolidation, these actions often result in higher cost of care to patients due to the additional costs imposed by the hospital, such as facility fees.”

Consequences of MedPAC Findings

MedPAC research findings and recommendations often have preceded congressional or regulatory actions.

For instance, Medicare’s recently proposed rule to overhaul the accountable care organization program included changes in the clinical use of opioids, based in part on the findings of 2015 MedPAC research.

In MedPAC’s June 2017 report to Congress, it concluded that consolidation can increase costs to Medicare and the program’s beneficiaries. Among MedPAC’s specific findings was that “horizontal hospital consolidation can contribute to higher commercial prices and therefore contribute to the growing gap between the prices paid by Medicare and those paid by commercial insurers.” 

Among MedPAC’s previous anti-consolidation recommendations was to “restrain” Medicare price increases, rather than follow commercial rate increases, and to implement site-neutral prices for the same service in different settings.

In July, a year after that recommendation, the Centers for Medicare and Medicaid Services (CMS) issued a proposed rule to cut payments for hospital outpatient clinic visits at off-campus provider-based departments to 40 percent of the Hospital Outpatient Prospective Payment System (OPPS) rate. The clinic visit is the most commonly billed service under the OPPS, and CMS estimated the policy would cut $760 million in FY19 Medicare hospital spending.

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


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