Hospitals

The Problem:

Hospitals large and small often pursue mergers or acquisitions. These merging hospitals often argue that these mergers are needed to save the failing finances of one of the hospitals, putting them on better footing in a merged system, or they claim that a larger, integrated hospital system will improve the quality of care.

Hospital mergers have been shown to increase prices by eliminating competition between the two hospitals.[1] Hospital mergers often also reduce access to care, as merging hospitals are likely to close non-profitable or ostensibly “redundant” care units.[2] Without the pressures of competition for patients, hospital consolidation contributes to worse health outcomes, including higher mortality rates.[3] Finally, by reducing the number of healthcare employers in a region, consolidation gives hospitals greater bargaining power over their employees and reduces pay for healthcare workers.[4] Furthermore, many hospital mergers are not just between hospitals that directly compete with one another, but are rather “cross-market” mergers, in which the hospitals are looking to gain bargaining power against insurance companies to be able to increase prices.[5]

The problem has only gotten worse in recent years, with a hospital merger frenzy beginning during the Obama administration. With the belief that hospitals or large physician groups would be more efficient under universal healthcare coverage, the government pushed for “integration across the continuum of care” by offering financial incentives in the 2010 Affordable Care Act (ACA). While the annual number of announced buyouts peaked at 60 in the few years before the ACA was signed into law, they rose to 74 in 2010, 86 in 2011, and hit 115 in 2017.

Mergers, including hospital mergers, are illegal under federal law where the “effect of such acquisition may be substantially to lessen competition, or to tend to create a monopoly.”[6]  However, when merging or acquiring, hospitals only need to report the transaction to the Federal Trade Commission if it is valued over a certain amount, $111.4 million as of 2023,[7] and the Federal Trade Commission is not allowed to share the information from those notifications with state attorneys general. As a result, stretched federal antitrust regulators are often unaware of potentially harmful hospital mergers and acquisitions. And even when they are notified, federal antitrust agencies are not allowed to share merger notifications with state and local enforcers.[8]

The Solution:

State legislatures can pass laws with a clear authority for the attorney general to solicit input, review healthcare mergers, and block any consolidations based on a comprehensive examination of the health and equity effects of the healthcare merger.

Such legislation should accomplish two things:

• First, state hospital and healthcare merger legislation should require notification to the attorney general of any merger or acquisition between healthcare providers, regardless of their size. This would ensure both that the attorney general has the necessary information, and it would prevent hospital consolidation through a series of small acquisitions of, for example, physicians’ practices.
• Second, the legislation should allow the attorney general to block a hospital merger not just if it harms competition itself, but also if an investigation deems the merger likely to negatively affect the standard of care in the community. This would be particularly important to block the harms stemming from cross-market mergers, for example.

Model Legislation:

The proposed Keep Our Care Act (Senate Bill 5241) in Washington State requires both (a) notification to the attorney general for any healthcare merger or acquisition within the state, and (b) a review of the merger’s effects on the quality and equity of care.[9]

Notes

[1] Zack Cooper, Stuart Craig, et al., “The Price Ain’t Right? Hospital Prices and Health Spending on the Privately Insured,” The Quarterly Journal of Economics, February 2019, https://pubmed.ncbi.nlm.nih.gov/32981974/.

[2] Rachel Mosher Henke, Kathryn Fingar, et al., “Access to Obstetric, Behavioral Health, and Surgical Inpatient Services After Hospital Mergers in Rural Areas,” Health Affairs, October 2021,  https://www.healthaffairs.org/doi/abs/10.1377/hlthaff.2021.00160.

[3] Martin Gaynor, Rodrigo Moreno-Serra, and Carol Propper, “Death by Market Power: Reform, Competition, and Patient Outcomes in the National Health Service,” American Economic Journal: Economic Policy, 2013, https://pubs.aeaweb.org/doi/pdfplus/10.1257/pol.5.4.134.

[4] Elena Prager and Matt Schmitt, “Employer consolidation and wages: Evidence from hospitals,” Washington Center for Equitable Growth, February 2019, https://equitablegrowth.org/working-papers/employer-consolidation-and-wages-evidence-from-hospitals/.

[5] Brent Fulton, Daniel Arnold, et al., “The Rise of Cross-Market Hospital Systems and Their Market Power in the U.S.,” Health Affairs, November 2022, https://pubmed.ncbi.nlm.nih.gov/36343312/.

[6] 15 U.S. Code § 18 – Acquisition by one corporation of stock of another, Cornell Law School Legal Information Institute, accessed March 13, 2023, https://www.law.cornell.edu/uscode/text/15/18.

[7] “HSR threshold adjustments and reportability for 2023,” Federal Trade Commission, February 16, 2023, https://www.ftc.gov/enforcement/competition-matters/2023/02/hsr-threshold-adjustments-reportability-202.

[8] See Mattox v. FTC, 752 F.2d 116 (5th Cir. 1985) and Lieberman v. FTC, 771 F.2d 32 (2d Cir. 1985).

[9] “Keep Our Care Act Resource Center,” ACLU Washington, accessed March 13, 2023, https://www.aclu-wa.org/KOCA; House Bill 1809, Washington State Legislature, 2021-2022, https://app.leg.wa.gov/billsummary?BillNumber=1809&Chamber=House&Year=2021; Senate Bill 5241, https://lawfilesext.leg.wa.gov/biennium/2023-24/Pdf/Bills/Senate%20Bills/5241.pdf?q=20230404070323.

The Problem:

Patients often find themselves unable to know what hospital services will cost them, sometimes even for routine services that hospitals perform dozens of times a day. Hospitals don’t generally make their price information public, instead simply informing patients the cost after providing care. Even when hospitals do publicly post pricing information, it is often not in a form that is easily comparable between hospitals, particularly not for patients. As of January 2021, federal law requires hospitals to post their pricing information, but a majority of hospitals are still not in compliance.[1]

Not only does this create a confusing and frustrating experience for patients, but opaque hospital pricing distorts competition between hospitals in the same region, and hospitals use this lack of transparency to keep prices high.

The Solution:

Partly because of the ineffectiveness of the federal hospital price transparency rule, states should enact requirements for hospitals to list their prices publicly in a consumer- and patient-friendly format. Legislation could require listing prices for the most common procedures on a publicly available website, in language that patients can easily understand, in order to compare between providers. Transparency will allow patients with high-deductible plans in particular to manage their healthcare costs.

Model Legislation:

Indiana’s Senate Bill 5 requires hospitals, ambulatory surgical centers, and urgent care facilities to post certain healthcare services and prices on their websites, and it requires the disclosure to policyholders of commissions, fees, and brokerage fees to be paid in the selling of group health insurance.[2]

The legislation bars the inclusion of a provision in a health provider contract to prohibit the disclosure of claims data to an employer. This is also known as prohibition of the “gag rule” on claims data. The final part of the bill gives the Indiana Department of Insurance (DOI) the authority to request information and proposals for the creation of an all-payer claims database (APCD). That database gives employers and other stakeholders tools to control and analyze healthcare costs through claims data.

Notes

[1] Victoria Bailey, “Only 25% of Hospitals Are Complying with the Price Transparency Rule,” Recycle Intelligence, February 8, 2023, https://revcycleintelligence.com/news/only-25-of-hospitals-are-complying-with-the-price-transparency-rule.

[2] Indiana Senate Bill 5, https://in-proxy.openstates.org/2020/bills/SB0005/versions/SB0005.06.ENRH.

The Problem:

Today, 18 states have “certificate of public advantage” (COPA) laws, which allow merging hospitals to apply for a COPA, which exempts them from state and federal antitrust laws, in exchange for more direct state regulatory oversight. While advocates often argue that this removes a regulatory barrier to creating a more efficient, merged hospital system that will improve the quality of care and patient experience, the track record indicates the opposite. Hospital mergers, including those approved under a COPA, tend to increase prices, limit access to care, and decrease competition between healthcare providers. Of the COPAs that have been approved thus far in the United States, a majority have created a single-hospital monopoly.[1] The Federal Trade Commission, barred from enforcing the antitrust laws against hospitals granted this exemption, has criticized COPA laws for almost as long as they have existed.[2]

State oversight of COPA hospitals also tends to be weak. As the FTC has said, “Experience and research demonstrate that COPA oversight is an inadequate substitute for competition among hospitals, and a burden on the states that must conduct it.”[3]

The Solution:

By repealing COPA laws, state legislators would enable state and federal antitrust regulators to review proposed mergers for anti-competitive effects and take remedial action to protect patients and workers.[4]

However, given that many harmful hospital mergers have already been approved and carried out under COPA laws, COPA oversight is the only remaining mechanism to require public accountability from these monopoly hospitals. As a result, any repeal of COPA laws should grandfather in the COPA regimes for already-consummated hospital mergers.

Notes

[1] Federal Trade Commission, “FTC Policy Perspectives on Certificates of Public Advantage,” Staff Policy Paper, August 15, 2022, https://www.ftc.gov/system/files/ftc_gov/pdf/COPA_Policy_Paper.pdf.

[2] Ibid.; FTC Press Release, “FTC to Study the Impact of COPAs,” Federal Trade Commission, October 21, 2019, https://www.ftc.gov/news-events/news/press-releases/2019/10/ftc-study-impact-copas; Federal Trade Commission, “A Health Check on COPAs: Assessing the Impact of Certificates of Public Advantage in Healthcare Markets,” June 18, 2019, https://www.ftc.gov/news-events/events/2019/06/health-check-copas-assessing-impact-certificates-public-advantage-healthcare-markets.

[3] Federal Trade Commission, “FTC Policy Perspectives on Certificates of Public Advantage.”

[4]  Ibid.

The Problem:

Thirty-five states have “certificate of need” (CON) laws requiring government approval before healthcare corporations can create, acquire, or expand facilities. Dating back to the 1970s, CON laws were intended to prevent the construction of excess hospital capacity, which was feared would lead to unnecessary spending on redundant services and overcharging on the fewer patients each facility would take under their care. In particular, the 1974 National Health Planning and Resources Development Act withheld federal funding from states that did not adopt CON laws. This law was repealed in 1986, but most states have retained their CON statutes.

CON laws have effectively become tools for legacy hospitals to avoid competition by abusing a regulatory barrier to entry; existing systems can simply fight the regulatory approval, rather than having to compete with a new facility. CON laws also restrict antitrust regulators’ ability to stop a merger or demand a divestment from combining hospitals. For all the same reasons that hospital consolidation is harmful for patient care, CON laws are as well. Research has indicated that CON laws increase overall patient expenditures and elderly mortality.[1]

Similar to COPA laws, federal antitrust regulators have long criticized CON laws as protecting the market power of legacy hospitals.[2]

The Solution:

By repealing CON laws, state legislators can restore competitive pressures to hospital markets, which research shows results in higher quality, more affordable care. Without CON laws, new hospitals could be constructed more easily where either the existing hospital is not providing quality care or where there is no existing hospital.

Notes

[1] Christopher J. Conover and James Bailey, “Certificate of need laws: a systematic review and cost-effectiveness analysis,” BMC Health Services Research, 1-29, August 14, 2020, https://www.ncbi.nlm.nih.gov/pmc/articles/PMC7427974/.

[2] Joint Statement of the Federal Trade Commission and the Antitrust Division of the U.S. Department of Justice on Certificate-of-Need Laws, January 11, 2016, https://www.ftc.gov/system/files/documents/advocacy_documents/joint-statement-federal-trade-commission-antitrust-division-u.s.department-justice-certificate-need-laws-south-carolina-house-bill-3250/160111ftc-doj-sclaw.pdf.

The Problem:

Healthcare costs in the United States are out of control, creating significant financial burdens for patients and government payers. Because many hospitals and healthcare providers have consolidated pricing power over the market, and because healthcare is so essential that most patients will pay regardless of cost, consistent year-over-year price increases have become the norm, putting pressure on both patients and public health programs.

The Solution:

States should shift to setting standard prices for certain healthcare services. One effective way to do this would be for states to adopt an “all-payer” system, under which the state government sets prices for specific healthcare services and procedures. An independent public body sets rates, and all payers, private and public, pay the same price for the same service at the same hospital. Further, hospital revenues, and the growth of health spending overall, are capped.

Another, less comprehensive solution is to cap the prices that state health insurance plans will reimburse providers. State lawmakers can establish a system called “reference-based pricing,” which pegs the maximum amount reimbursable for all inpatient and outpatient services to a certain multiple of Medicare reimbursement rates. This would set a ceiling on the maximum prices that providers would be able to charge for certain services.

Model Legislation

Maryland currently operates an all-payer system, which has increased hospital quality while effectively constraining costs, to the order of $1.4 billion in Medicare spending in its first five years.[1] Implementing such a system requires a Medicare waiver.

In 2016, Montana’s state employee health plan implemented a reference-based pricing system that set the maximum reimbursement for all inpatient and outpatient services to an average of 234% of  Medicare payments. Two years after its adoption, the system saved an estimated $15.6 million, relative to if it had not been put into place.[2] State lawmakers in other states could write similar requirements into statute.

Notes

[1] Madeline Jackson-Fowl and Willem Daniel, “Understanding the Success behind Maryland’s Model,” Delaware Journal of Public Health, 34-35, December 2019, https://www.ncbi.nlm.nih.gov/pmc/articles/PMC8389156/.

[2] Julie Appleby, “‘Holy Cow’ Moment Changes How Montana’s State Health Plan Does Business,” Kaiser Health News, June 20, 2018, https://khn.org/news/holy-cow-moment-changes-how-montanas-state-health-plan-does-business/.