Strategic Partnerships Mergers and Acquisitions

Congress Weighs Actions to Curb Hospital M&A

May 6, 2019 7:01 pm

March 8—Congress is discussing a variety of ways to reduce mergers and acquisitions (M&A) among providers, including allowing more enforcement against not-for-profit entities, increasing funding of enforcement agencies, and eliminating payment incentives.

The potential legislative actions targeting hospital-to-hospital M&A and hospital acquisitions of physician practices followed testimony from academics and former regulators about the need for increased enforcement against anticompetitive practices.

For instance, Martin Gaynor, PhD, a professor of Economics and Public Policy at Carnegie Mellon University and former director of the Bureau of Economics at the U.S. Federal Trade Commission (FTC), bemoaned the fact that there have been nearly 1,600 hospital mergers in the last 20 years and nearly 31,000 practice acquisitions by hospitals from 2008 to 2012.

“This massive consolidation in health care has not delivered for Americans; it has not given us better care or enhanced efficiency,” Gaynor testified to the House Judiciary Committee’s Antitrust Subcommittee.

Hospital transactions declined in 2018, amid a shift in the most active types of organizations, according to tracking firms.

Hospital advocates responded that M&A is needed to improve care.

The “real story is that hospital and health system transactions are about organizations responding to the rapidly changing healthcare landscape by coming together to drive high-value and high-performing health care,” the American Hospital Association (AHA) said in a written statement. “While various forms of affiliation are being pursued, mergers and acquisitions can be an effective means for making progress toward meeting the aims of value-based population health.”

For example, AHA cited a 2017 analysis it commissioned by economists at Charles River Associates, which found that efficiencies resulting from mergers can unleash savings and the type of innovation and quality improvement that is essential to transforming healthcare delivery.

Craig Garthwaite, PhD, a professor in the Kellogg School of Management at Northwestern University, told the panel that he viewed hospital consolidation as being driven by efforts to either implement higher prices or coordinate care.

Members of the panel appeared convinced that more federal antitrust enforcement of hospital deals was needed.

For instance, Rep. Jerrold Nadler (D-N.Y.), chairman of the Judiciary Committee, said he hoped this Congress would “break new ground on the harmful effects of hospital consolidation.”

Many members of the panel were critical of what they viewed as especially adverse effects of hospital M&A in rural areas.

Rep. Doug Collins (R-Ga.) said such deals sometimes can help rural communities by keeping facilities open, but in many cases they result in full or partial closures and force patients to be shifted from nearby facilities to those hours away.

“This doesn’t benefit patients but hurts them because they are unable to receive the lifesaving treatments they need,” Collins said.

Garthwaite said some of the newer types of healthcare deals were driven by efforts to increase access. He cited the CVS-Aetna merger and Walmart’s initiatives as examples of how entities are looking to provide access to care in markets where the traditional acute care hospital or physician office can struggle due to the lack of demand.

Other adverse effects from M&A, as cited by Collins, include limitations on the availability of emergency care and the tendency of hospitals to use acquisitions of pharmacies and physician practices to steer patients away from their competitors.

Actions Sought

Gaynor said needed congressional action on hospital M&A includes ending policies that unintentionally incentivize consolidation; ending policies that impede new competition; and strengthening antitrust enforcement—in particular, giving the Department of Justice (DOJ) and FTC more funding.

Specifically, Gaynor urged the expansion of site-neutral payment policies by Medicare to provide the same payment for the same service, regardless of where it is provided. Without site-neutral payments, hospitals have been incentivized to acquire lower-cost practices and increase their charges by classifying them as hospital facilities.

Gaynor received support from the panel members for several recommendations, including permitting FTC enforcement of anticompetitive conduct by not-for-profit entities such as hospitals.

“A lot of not-for-profit hospitals are doing incredible work, good work, but there is a case to be made for the FTC to have expanded authority in this regard,” said Rep. Joe Neguse (D-Colo.).

To allow future anticompetitive enforcement against hospital acquisitions of physician practices, Gaynor said the FTC should require reporting of transactions that fall below the Hart-Scott-Rodino reporting requirements so the enforcement agencies can track smaller-scale physician practice mergers. Additionally, the agency should be directed to study vertical aspects of hospital-physician acquisitions.

Michael Kades, director of Markets and Competition Policy at the Washington Center for Equitable Growth, said Congress could have a big impact through legislation establishing that certain types of mergers or conduct are, by default, anticompetitive.

Gaynor proposed legislation to alter the standard for competitive harm and change the criteria under which mergers or conduct would be presumptively illegal, shifting the burden to defendants to establish that they are not anticompetitive.

A positive way that legislators could reduce incentives for hospital M&A, Gaynor said, would be by reducing administrative burdens that generate more costs than benefits. For example, the quality reporting required by Medicare, Medicaid, and multiple private insurers covers a large set of quality measures. Coordination among payers could reduce administrative burden and thereby reduce incentives to consolidate, he said.

State Laws

The hearing also included various references to state laws that are seen as limiting provider competition to varying extents. For example, 26 states have certificate of need laws, which require state review and approval to create new provider facilities or expand existing facilities.

Additionally, some state licensing boards limit clinicians’ scope of practice well below their educational levels and restrict the use of telehealth, which can provide interstate access to more clinicians.

Gaynor said licensing restrictions are a state issue, but the federal government can make a difference by working with the states.

“Negative impacts of these laws can particularly affect residents of rural areas, where access to alternative suppliers (e.g., via telehealth and appropriate services from nurse practitioners or pharmacists) is particularly scarce,” Gaynor said in written testimony. “States should examine these laws and practices to make sure they are narrowly tailored to benefit the public and do not unintentionally protect incumbents and harm competition.”


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