Small, Piecemeal Mergers in Health Care Fly Under Regulators’ Radars
(from NY Times)
Federal
officials are expected to argue in court starting Monday that a large
hospital merger in the Chicago area could hurt consumers and should be
stopped. It would be the latest in a series of efforts by regulators to
push back against a wave of consolidation among major health care
providers.
But a frenzy of smaller transactions is also profoundly changing the landscape, many of which face little regulatory resistance.
The
deals are often for a couple of doctors here, or a hospital there,
making them too small to attract much attention. But as those deals add
up, they are creating groups that in some cases dominate local or
regional markets. And they are raising questions about whether the gaze
of antitrust officials is directed in the right place.
“There’s
a lot of consolidation going on at a lot of levels,” said Leemore S.
Dafny, a former federal official who is a health economist at
Northwestern University.
She added, “I don’t think the antitrust laws are set up to stop it.”
Doctors
and hospitals are making the calculation that bigger is definitely
better. Consolidation, they say, helps them better coordinate care and
manage patients, making care more effective and less expensive.
Skeptics,
however, say that the small combinations can eventually translate into
higher costs. By gaining market share, they say, hospitals are able to
charge more for their care and gain more influence about where patients
are sent for lucrative services.
Regulators,
meanwhile, are left with limited information about the smaller deals,
including answers about whether they diminish competition, leading to
higher prices and lower-quality care.
Dr.
Farzad Mostashari, a former health official in the Obama
administration, describes what is taking place as “creeping
consolidation” — being done at a pace that keeps it away from prying
eyes.
“If you move slowly enough, maybe nobody will notice,” he said.
Many
of the smaller deals go unreported, leaving any tally of them
incomplete. But at least 940 health care service transactions took place
last year, up from about 480 in 2010, according to Irving Levin
Associates, a research firm. This mix of deals, which involved groups
like physician practices, hospitals and nursing homes, totaled some $175 billion.
Because
of the consolidation, patients are more likely to be getting care from
providers with formal ties to one another. The doctor who is employed by
a hospital, for example, may send a patient for a CT scan
at a facility owned by the same hospital. Patients may be discouraged
from going to a provider outside a given network, either by their
insurer or their doctor.
The
combinations taking place include smaller hospital mergers, like one in
Arizona in March, when two hospitals merged. The same month, Baptist
Health, a small hospital group in Kentucky, said it planned to reach
into Indiana to add another hospital. Neither of those deals has
generated significant attention.
The difference in regulatory attention is particularly stark in Illinois.
The hospital deal
in Chicago, between Advocate Health and NorthShore University
HealthSystem, brings together two large systems, including hospitals and
doctors’ groups. It was announced in 2014 and involves more than 6,000
doctors. Advocate and NorthShore say they will promise not to raise
their prices above inflation. They also say they plan to introduce a
health plan that will be cheaper than comparable policies offered by the
insurers in the market.
But the deal is being opposed by the Federal Trade Commission in a case expected to start Monday at the United States District Court for Northern Illinois.
“This
merger is likely to significantly increase the combined system’s
bargaining power with health plans, which in turn will harm consumers by
bringing about higher prices and lower quality,” Deborah L. Feinstein,
the director of the F.T.C.’s competition bureau, said in a statement in
December.
The same sort of attention has not been paid to the growth of the state’s largest independent physician group.
The
company, DuPage Medical Group, started as an eight-doctor practice in
the Chicago suburbs in the 1960s and then combined with other practices.
In the last five years, it has made about 16 deals and doubled in size
to 500 doctors.
Many
of its acquisitions barely register — eight specialists last month, two
small physician groups in February, a handful of doctors joining at a
time. But it has been enough that DuPage now has ambitions of going
national. Late last year, it teamed up with a private investment firm to
provide it with $250 million for its goal.
“We
saw what was happening,” said Michael A. Kasper, the chief executive of
DuPage Medical Group. “There was going to be mass consolidation at the
hospital and physician level.”
As
a bigger organization, he said, DuPage has more leverage with area
hospitals. “There’s no question we have a higher degree of influence
because of our size,” he said.
Several
companies are also amassing doctors who specialize in fields like
emergency medicine, trying to capture a sizable share of the physicians
in that field and also expanding into related areas. In November,
TeamHealth, which has about 16,000 doctors, bought IPC Healthcare, which
specializes in care within the hospital, for $1.6 billion.
Federal
Trade Commission officials have traditionally focused on deals known as
horizontal combinations, when large hospital groups or physician
practices merge in a local market. Last year, the agency and Idaho’s
attorney general prevailed in a case against St. Luke’s Health System in
Boise for buying the state’s largest independent multispecialty group
because it would control too many doctors.
The
agency is also watching the addition of doctors into these big groups,
Ms. Feinstein said. But making the legal case against so-called vertical
combinations — when a hospital buys doctors’ groups or expands into
related areas like imaging or outpatient surgery — is not as
straightforward.
These
deals, experts say, can benefit consumers by making care more
efficient. Integrated systems like Kaiser Permanente in California
manage to combine the operations of hospitals, doctors’ clinics and a
health plan into a well-regarded system.
But
the track record for others is not well known, and many make promises
that never materialize into lower prices or better care.
“It’s
difficult to even understand the relationships between hospitals and
doctors’ practices,” said Francine Lafontaine, a former F.T.C. official
who is now at the University of Michigan. “We don’t have a lot of clear
research.”
To
keep track of what is going on in the market, Massachusetts now
requires that any health care transactions be reported to a state
agency. The agency has received notice of 57 deals since it began
tracking them three years ago. A few other states are considering a
similar reporting system.
But
the expectation is that regulators will continue to have their hands
full. The push toward new forms of payment and more coordinated care is
pushing providers to enter these combinations, said Roger D. Strode, a
health care lawyer for Foley & Lardner in Chicago.
“I don’t see this abating,” he said.
Great article and it points out a larger issue in following smaller (sub $25 million) healthcare transactions. There is, and has been for the last 15-20 years, significant activity in this marketplace that is not recorded in any statistical index. For example, last year we facilitated five transaction totaling over $100 million revenue, with three in this very lower end of the middle market and while identified were not recorded in any way that would prove useful to our understanding of this market segment. We really have little idea of the volume though it's clearly substantial.
ReplyDeleteTom Schramski,PhD, CMAA
tschramski@vertess.com