Hospital Consolidation: Mergers, Antitrust & Health Equity

Please be aware that this transcript may contain occasional errors or discrepancies.

0:04

Good afternoon, I'm Kathryn Santoro, Director of Programming at the National Institute for Health Care Management Foundation. On behalf of NIHCM, thank you for joining us today for this important discussion on the impact of Consolidation on healthcare delivery access and cost. This webinar is part of our affordability roadmap webinar series, where we are sharing research and expert perspectives on the drivers of rising health care costs just for solutions to our nation's health care affordability crisis.

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Previous webinars have covered private equity, the impact of rising drug costs and aging on federal spending, and value based care. We also have a broader portfolio of work on these topics, including research and journalism grants, research briefs, and infographics.

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Today, we will hear from a prestigious panel of experts to learn more about the research on the impacts of hospital consolidation, the role of the Federal Trade Commission, and efforts to ensure access to affordable and equitable health care.

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Before we hear from them, I want to thank NIHCM, President and CEO, Nancy Chockley, and the NIHCM team, who helped to convene today's event.

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You can find biographical information for our speakers along with today's agenda and copies of their slides on our website.

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Closed captioning information for today's event can also be found on our website, as well as in the webinar chat.

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We also invite you to join the conversation on social media using the hashtag hospital Consolidation Web webinar.

1:42

Am now pleased to introduce our first speaker, Zack Cooper. Zack is an Associate Professor of Public Health, an Associate Professor of Economics at Yale University.

1:54

As a Professor and Public Health and Economics, Zack has produced academic work on the topic areas of competition, and hospital insurance markets, surprise out of network billing, and the influence of electoral politics on health care spending growth. His work has been featured in the Quarterly Journal of Economics and the New England Journal of Medicine.

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Zack has also presented his research at the White House, the Department of Justice, the Federal Trade Commission, and the Department of Health and Human Services.

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NIHCM is also proud to have supported some of Zack's research through our grant program.

2:30

We're so grateful. He's with us to today to share some of his research.

2:34

Zack: Terrific. All right, well, thanks so much, Kathryn.

2:38

I'm thrilled to be here, and what I want to do today is start by thinking about why do we care about hospital markets.

2:47

Then, I want to talk a little bit about how hospital markets are functioning, some of the trends we're seeing in consolidation, and then I want to talk about what the academic literature shows on the impact consolidation.

2:58

And I'll finish a little bit with some discussion of policy and what the options are at our, at our disposal.

3:05

So, let's just take a step back.

3:09

It's really important to remember that the hospital sector is an enormous share of GDP, right, At 6% of the entire economy, and so when we think about what's driving health spending and what contributes to health spending, it's the hospital sector. That's the largest single unitary chunk of the health span.

3:29

Often I think there's a lot of focus on PBMs or on cost of prescription drugs, and no doubt those are important to look at.

3:39

The hospital sector is sort of where it's at. That's the big chunk of spending in the system.

3:44

That's why it's really the focus of my research.

3:51

We rely on competition in hospital markets to make them function, Right.

3:56

It's really the backbone of the sort of incentives we create for the hospital sector.

4:03

So, in traditional Medicare, we rely on hospitals to compete with one another to drive up quality, right, And the idea here is prices are regulated.

4:13

Individuals can choose where they go. and that allows hospitals to compete on non price aspects of care.

4:19

Medicare Advantage, we're gonna have competition, albeit somewhat constrained, overprices and quality.

4:26

And then in the private insurance space, we can have competition between hospitals, over price and quality. So they're going to compete on price quality to join contracts with insurers. And then we're going to think about these negotiated prices.

4:39

the hospitals negotiate with insurance companies as a sort of part of their ability to join insurer's networks.

4:49

So, it's worth taking a step back and saying, the markets and the healthcare sector are increasingly consolidated.

4:56

So, for context, the Federal Trade Commission, the DOJ, say, Look, markets with a Herfindahl–Hirschman index, an HHI of over 2500 points is highly concentrated, something that we should really pay attention.

5:09

Most of the healthcare industry has an HHI over 2500 points, you can see the average HHI in the US hospitals sectors, north of about 5000, 90% of hospital markets are highly concentrated, but we're also seeing concentration, high and going up among physicians and also, among insurers.

5:33

Now, the hospital sector has really experienced a pretty significant amount of consolidation over the last two decades. So, this is a graph of, some of the work we've done looking from 22 to 20 17, and there've been north of a thousand mergers between hospitals.

5:49

And during that period, there have been pretty few enforcement actions, So, 11 by the Federal Trade Commission, and that really follows a period where in the late nineties and early two thousands, the FTC really didn't do many cases, in part, because they lost number of neurons.

6:06

Now, they're starting to win cases, but they're really, in my view, going after the most extreme of the mergers. And that's partly because it's hard to win these cases, As I'll talk about later, I think it's partly because the agency itself is doing really well, but they're quite underfunded.

6:22

Beyond that, one of the challenges is that the Hart Scott Rodino Act requires merging parties to notify the government if the deals are of a certain value.

6:32

It turns out, the majority of hospital mergers are actually under Hart Scott Rodino reporting threshold. So, I think that the FTC season, but there isn't the notification that you'd see in a lot of the big transactions across the economy.

6:45

So, the hospital sector is a big share of the economy. It's the largest single chunk of health spending.

6:51

The market's concentrated it has gotten more concentrated because of mergers and acquisitions.

6:57

And if we look at data from the Bureau of Labor Statistics, it looks at prices across industries. In the US, we see the prices in the healthcare sector are growing faster than prices, in, other sectors, on average, at the economy, in, the hospital prices grow faster than prices, in any other sector, even, after the Bureau of Labor Statistics attempts to adjust for quality.

7:17

And the question here is, is this correlation or causation, with a bunch of the consolidation that's happened across the industry?

7:26

So what we can do is, say, well, what is the evidence we have.

7:30

And I want to think about the evidence on hospital prices, and clinical quality, hospital mergers, and prices, and then hospital mergers and quality itself.

7:40

So it turns out measuring the relationship between hospital quality and hospital crisis is actually really tough. Because it turns out sicker patients in all likelihood liked to go to higher priced hospitals.

7:53

And so I have some work with John Gruber and John Great Joe Doyle at MIT trying to get at this by exploiting the fact that ambulance companies have really strong preferences about where they transport their patients.

8:06

And so we can build this sort of fancy identification strategy to get the causal effect of going to a high price hospital. And our results really surprised me.

8:16

What we found was that going to a high priced hospital gets you better outcomes.

8:20

I was not expecting to see that and the effects here really, really big.

8:25

So moving from the 20th, the 80th percentile prices raises spending on an inpatient admission by about 53%.

8:33

But it's going to lower mortality by about 37%.

8:37

Those high prices are going to be cost effective, right? Because they really do have an effect on lowering mortality.

8:45

But here's what's really, really important, this relationship between prices and quality is only present in markets where there's competition.

8:54

So, if you're in a hospital market, where the HHI is 5000 points, we don't find any relationship between high prices and quality.

9:03

In those markets, when you go to a high priced hospital, you just spend more on your care and don't get better outcomes. Right.

9:09

So here what we're seeing is, competition is mediating this relationship between hospital prices and quality that is that markets can function in the health care sector conditional on there being competition.

9:25

So, you know, what about mergers and prices?

9:28

So the first thing that it's really, really important to point out is that mergers need to be reviewed on a case. By case basis.

9:35

It's, we can't just say mergers are good, or mergers are bad, and anybody who says that, you just shouldn't listen to it.

9:43

What we can see, however, is that there's a large literature that shows hospital mergers between parties that are close substitutes, bitter rivals, can lead to price increases.

9:54

And so, I've work showing that, broadly, the closer hospitals are to one another that merge, the bigger the price increases that those mergers generate.

10:02

We're seeing mergers between for-profit and non-profit non-profits, and other non-profit, and for-profit, for-profit, all lead to price increases.

10:11

So it is not true that when non-profits merge, they somehow sort of step back and say, We're not going to raise our prices. They do, just like for-profit merging.

10:21

The other thing to keep in mind, some individual transactions can have very, very large price increases. So, Bob Town is down at University of Texas, Gulf and Gary ..., and the ... now actually hit the FTC, looked at the proposed merger between a nova and Prince William Hospital.

10:41

They are predicting that that merger would have raised prices by north of 30%, and we see in our data price increases certain transactions that are extremely large.

10:51

There's also a growing literature by Limor, Daphne Cato, and Robin Li and some others, looking at so-called cross market mergers. Now, I don't think the name here is totally right, I don't think these are cross market.

11:01

I think it's just that the market is really, really big in some cases and that these mergers can lead to seven to 10% price increases.

11:08

Basically, if these mergers between hospitals that are pretty far apart can raise prices if those facilities share a common insurer.

11:17

So, what about mergers, Quality, and efficiency?

11:22

So there's a little bit of research on hospital mergers and efficiencies that finds that acquired hospitals can actually reduce their costs by somewhere in the neighborhood of four to 7%.

11:32

However, and this is really, really important, those efficiency gains only come from mergers where the merging parties aren't close competitors, right.

11:41

So these mergers of hospitals that are 10, 15, miles apart, we don't see any evidence in the academic literature that those mergers are leading to either quality gains or to efficiency improvements.

11:55

So, what about the literature on mergers and quality?

12:00

I think first it's really important to point out there is literally no academic evidence that I'm aware of. That mergers lead the merging parties to raise quality.

12:09

And so for all of the discussion about this, my sense is if there was something here, somebody would have found it. There have just been studies after studies that have tried to look at this. And nobody's really done anything convincing that went to hospitals, merge, their quality goes up.

12:26

So there's really good work by Limor, Daphne and colleagues at the New England Journal of Medicine, but no systematic changes in mortality.

12:33

There's been some work looking at the Evanston, north-western Highland Park murder, but found some evidence of quality reductions on some measures, and then there's been work Macquarie, CAHPS and others. It sounds a modest evidence. Potentially, mortality increases post merger.

12:47

My sense is to sort of get a summary of the literature.

12:50

Also, murder certainly don't improve quality, and there's some evidence that you can see quality reductions.

12:57

Where there's very, very clear evidence is that hospitals that are more exposed to competition, higher quality, and that exposing hospitals to competition, leads to lower mortality.

13:09

That's based on work that Mark McClellan and Dan Kesler done some work that I've done, and Marty Gainor has done.

13:16

The other thing we're seeing is sort of the opposite of monopoly power to monopsony power. So we're seeing that when hospitals merge together, that allows them to negotiate lower wages with nurses and so that work badly prager and match.

13:32

I'm just gonna wind down here.

13:33

So what can we do that from a policy perspective?

13:38

So the first is I think we really need to think about stronger antitrust enforcement. So President Biden issued an Executive Order gosh, about a year ago on this. I think it was really important to say that.

13:49

My sense, and I think by most accounts the FTC is underfunded.

13:53

I think we really can and should hope for more funding for the agency.

13:57

I think they're vital in guaranteeing that We avoid transactions that lesson competition.

14:04

The second is, in some ways, the FTC has its hands tied a bit when they come to looking at hustle murders and anti competitive action.

14:14

So the FTC and the FTC Act don't allow the agency to take action against anti competitive conduct problems, so they can look at non hospital or non-profit hospitals merging.

14:23

And they can't go after cases for anti competitive conduct among non-profits. I think that needs to change.

14:29

There's also been some discussion of folks who look at antitrust broadly, thinking about antitrust statutes.

14:35

So right now, the plaintiffs have to show likely harm to competition, and that's a really, really high standard. And you might think that there are ways we can sort it.

14:44

Change the burden of proof, potentially to amending are laws to say that transactions pose an appreciable risks, the competition and what I understand from attorneys. That's something that we think could could meaningfully change things.

14:57

The FTC has also put out some really good recommendations and proposals to change the reporting requirements to merger for mergers.

15:04

So that more of these deals that are under Hart Scott Rodino threshold do actually have to notify the agencies taking a step back, OK, antitrust enforcement is good, but there have been a lot of mergers.

15:16

Most of the market actually is already consolidated in this big sort of question of how do you unscramble eggs right. It's actually really, really hard to online mergers.

15:26

And so I think what we're starting to see, states take action and introduce different forms of price regulation, we see that happening in Oregon and Rhode Island.

15:34

I think it's great that states are trying.

15:36

I think we need to study what they're doing and what effects they're having really, really closely and think about the extent to which price regulation can be something that's effective and markets where there isn't scope for actual competition to maintain market determined rates.

15:51

So, with that, I'll turn it over to uh, back to Kathryn.

15:58

Thank you for sharing the impacts of consolidation and helping us understand the impact on price and quality. Next, we will hear from Rahul Rao. Rahul serves as the Deputy Director of the Federal Trade Commission's Bureau of Competition. Rahul, oversees a team of 300 attorneys and support staff that upheld that, uphold Federal antitrust laws as the Deputy Director. He assessed the FTC with conducting merger reviews anti competitive conduct investigations, and antitrust litigation.

16:33

Rahul regularly testifies before Congress, and speaks panels and workshops. And we're so honored to have him with us today to help us understand the FTC's role.

16:45

Oh, thank you, Kathryn. Can you hear me OK? I just wanna make sure.

16:49

Well, thank you. Kathryn, thanks to for inviting me here.

16:53

I want to start with just a simple disclaimer. I want to note that I am speaking on behalf of myself and not the Federal Trade Commission. My comments today don't necessarily reflect the views of the commissioner or any individual Commissioner. So we've really seen discussion today on hospital consolidation.

17:11

Now, consolidation as a general matter is happening across the country, in in all sorts of industries.

17:18

You know, too often we are seeing companies not necessarily focused on improving their products or bettering their services, but rather focused on getting bigger for the sake of getting bigger, because the bigger they are, the more they can crowd out or out muscled the competition.

17:34

And the easier it is for them to raise rates, cut corners, or simply do whatever they need to do to, to eke out a little bit more profit.

17:43

As I said, this is happening across all industries across the country. And antitrust enforcers are focused on harm in all markets.

17:50

But healthcare is unique, and healthcare is different.

17:53

In health care, we are quite literally dealing with life and death stakes.

17:58

So for us, healthcare markets are some of the most important us, some of the most important markets for us to protect.

18:05

In the US federal system, we have two antitrust law enforcers, who review mergers, the FTC, and the Department of Justice. Our jurisdictions overlap. And we enforce mostly the same laws. But it's the FTC that traditionally handles most healthcare provider mergers.

18:23

The principle statute that applies to mergers is the Clayton Act. Section seven of that law prohibits mergers that may substantially less than competition or tend to create a monopoly.

18:34

The focus on competition is our North Star when we review mergers. And so, what do we mean? When we say competition?

18:41

I mean simply it's the rivalry that exists among firms that then engage in any form of economic activity, that rivalry can be motivated by a desire to sell a product or a service to buy a product or service or to hire the best workers.

18:57

Competition, to sell, to buy, to hire, it has many benefits.

19:02

When companies compete to win customers or patients, they're motivated to offer lower prices and better quality, better services, they're motivated to innovate, new and improved products.

19:14

Similarly, when they compete to hire workers like nurses, they're motivated to offer higher wages, better benefits, and improved working conditions.

19:23

We focus on competition when we review mergers because there is real harm if a merger eliminates an important source of rivalry in a marketplace, and thus reduces the motivation to offer better prices, wages, or products or services.

19:37

Now, there are many different types of transactions that can raise concerns. I'm going to highlight two really broadly applicable fact patterns.

19:46

But that's not an exhaustive list. The first and I think, the one that most people are familiar with are mergers between head to head competitors.

19:54

These types of mergers can raise alarm bells for antitrust enforcers, particularly when they are significant competitors in a particular area and especially when there are few alternatives to the merging firms.

20:06

one straightforward way that agencies and courts evaluate this is by looking at metrics for market shares and market concentration.

20:13

Put simply if the merger results in a firm or a hospital system having significant market share and there are a few remaining competitors, or if the remaining competitors are pretty insignificant.

20:24

That's going to draw our scrutiny.

20:27

We're also concerned about other types of transactions. You may be familiar with so-called vertical mergers.

20:33

These are, these transactions involve parties that don't offer the same goods or services. Rather, one merging party offer something that the other emerging party uses in their business. So, a really simple example is a is a car manufacturer uses steel to build cars if a car company buys a steel producer.

20:51

That's a vertical transaction.

20:53

In the healthcare context, a vertical transaction could be something like a hospital system, purchasing medical groups, or an insurance company acquiring a provider.

21:03

While the merging parties themselves aren't direct rival's and insurance companies not competing with the provider group, vertical mergers can also harm competition.

21:12

You know, going back to the insurer example, if the large insure buys a major medical group in a specific community, it can charge rival insurers higher prices for the medical group services or may prevent rival insurers from contracting with the medical group altogether.

21:28

This, in turn, may force rival insurers to charge higher prices or to offer inferior health plans or to exit the market entirely.

21:37

Those are just two species of mergers that may be problematic.

21:41

But regardless of the type of merger, whether it's horizontal, whether it's vertical, or whether it's some other orientation, when we evaluate any transaction, our focus is really on what the law prevents, which are transactions that may substantially lessen competition or tend to create a monopoly.

21:59

Now, how we evaluate that is, is both a backward and forward looking exercise.

22:04

Know, when, when we do merger review, we're necessarily making predictions about the future effects of a merger.

22:10

But we don't do that in a vacuum.

22:11

We look to see how the merging parties compete in the marketplace today and ask how the merger will change their incentives or their ability to compete.

22:20

And here, past is often really prolog.

22:23

The fact that merging parties compete strongly with each other, is a strong indicator that the merger will substantially lessen competition.

22:32

So when we investigate a merger in the healthcare industry, let's say between two hospitals, we ask ourselves a series of questions.

22:39

Are the emerging hospitals important alternatives for patients?

22:43

What other options are available to patients? Are there other hospitals that are equally attractive for patients? Would patients be willing or likely to turn to other hospitals if they're not happy after the merger?

22:54

Are the merging hospitals competing to attract patients through improved quality? Developing new service lines, adopting new technology? Increasing access or making capital investments to increase capacity?

23:06

And would the merged hospital system have the same motivation to undertake those efforts after the merger?

23:11

And also after the merger, will the hospital have a significant market share? And if so, will they be able to demand higher rates from health insurers?

23:20

Would insurers have to accept those rates? Because the newly merged system is too important to exclude from their network.

23:27

Those are some of the questions we ask and oftentimes to rebut the answers to those questions, merging hospitals will often claim that their merger will have some significant benefits.

23:37

When faced with these claims of supposed benefits, we ask, what evidence is there? What evidence is there that the benefits will actually occur?

23:45

Are the benefits, speculative?

23:47

And could those benefits be achieved through some other way that does not involve a merger that eliminates a competitor?

23:54

And you heard me, Sue mentioned this before we also look at emerges effect on workers. And here the questions we ask are fundamentally the same.

24:01

Are the merging parties important alternatives for workers like nurses?

24:05

Are they competing to attract those workers with better wages, better benefits, or better working conditions?

24:11

And what are the other options available to those workers? How similar are the other potential employers, what's the geographic radius that these workers are willing to travel for a different job.

24:21

Ultimately, is the competition for these workers important enough that they would be substantially worse off after the merger?

24:29

Now, reviewing Merger's is a critical part of our authority, but our Principal enforcement power is our ability to sue to block or unwind murders.

24:39

So after an investigation, if we believe that a merger is anti competitive, we file a lawsuit before a federal district court or an administrative law judge to challenge the legality of the merger.

24:49

And we don't always do this alone.

24:51

We frequently work closely with state attorneys general, especially in the healthcare context.

24:56

Healthcare is inherently local and central to our communities. So working with our state law enforcement partners is something we value when it's possible. And so you will often see state AG's join, our Lawsuits to Block a Hospital Merger.

25:10

Now, talking about our lawsuit, Didier ... mentioned this: in the past session, for the past two decades, the FTC has had a, has a pretty solid track record on challenging hospital mergers.

25:22

We've challenged about 12 and a half hospital mergers in the past 20 years and only lost one.

25:27

You know, we've developed a very successful playbook for analyzing and challenging Birders involving hospitals that are head to head competitors.

25:35

That statistic I just mentioned. It does not include hospitals that have abandoned mergers after we've begun our review.

25:42

It does not include mergers that state AG's were able to block using the playbook we put together on how to evaluate hospital mergers, nor does it include proposed hospital mergers that never made it out of the boardroom.

25:55

But, and ...

25:57

mentioned this, despite all these winds we've had in court and all the progress we've made, we're still seeing rampant and concerning levels of concentration in health care markets.

26:06

So our task in the enforcement community now is to identify these other drivers of consolidation, and come up with the right analytical framework to understand and successfully challenged them.

26:18

And there are a few drivers of consolidation beyond the traditional local hospital merger that we are seeing today and that we are scrutinizing.

26:26

The first is on non reportable deals.

26:30

These are deals that fall below that HSR reporting threshold that SACWIS match, and the current threshold is $111 million.

26:39

So these deals are hard to detect, since the parties don't have to tell us about them.

26:43

But just because they're, they're small, and by small, I mean, less than $111 million.

26:49

That doesn't mean that these deals can't have significant impacts on, on their communities.

26:54

And there are two different types of non reportable deals that I want that I wanna focus on. The first is on what we call rollouts.

27:02

Now, traditionally, when we review a merger, we look at the single transaction that is being proposed.

27:08

A roll up, however, is a series of small acquisitions that in isolation, any one of those transactions may not look concerning.

27:17

But taken as a whole, the series of transactions lead to a quiet accumulation of concerning lehi levels of market power.

27:25

In the healthcare context, what we are seeing are health systems and private equity firms, Acquiring small, independent medical practice, through a series of acquisitions.

27:35

A 30 person group here, a five person group there, small acquisitions, like this, done over several years.

27:41

Each acquisition, again, was, when seen viewed alone, may seem insignificant, and the FTC may not even find out about these transactions, because they're so small and fly under the radar.

27:53

But over time, those little acquisitions add up, and they can lead to highly concentrated markets, where one Health System, or one provider group employs a significant number of physicians.

28:03

And while the roll ups are hard to detect, their efforts can be, their effects can be very acute.

28:10

We recently filed a lawsuit challenging a roll up in the healthcare space. That suit was filed in Texas, Challenger and a roll up in the anesthesia market by a national practice and its private equity sponsor.

28:21

As the complaint alleges the defendants, in that case, quietly acquired a number of small anesthesia practices in various cities in Texas, eventually amassing a dominant market share in those cities, and using that market power to extract higher rates in those communities and throughout Texas as a whole.

28:40

So, another concern that was one concern we have with sub HSR transactions.

28:44

Another concern with sub HSR transactions is on what I want to describe as, um, identifying and preventing catalyzing events.

28:53

So, when I say catalyzing events, what I mean is a transaction that serves as a flashpoint for a downward spiral towards consolidation. This is about stopping the snowball at the top of the mountain from ever becoming the avalanche. So an example of what I mean by this. In, in past merger reviews, we've seen situations of a proposed merger in a highly concentrated market.

29:16

Markets where there are three hospital systems and two of them want to merge.

29:21

Under street, legal, and economic analysis, these murders are highly problematic and illegal.

29:26

The problem we face with some of these mergers is that the B side of the hospital that is being bought is oftentimes a very distressed asset. It's a system that may be on the verge of bankruptcy, end up shutting down.

29:40

So blocking a merger does not always help the community.

29:44

Concentration will increase whether the hospital is bought or whether it shuts down in bankruptcy.

29:49

So, the problem is, by the time it gets to us, it's sometimes too late.

29:54

Now, some of the things that we've seen when we're reviewing these mergers that fall into this fact pattern is that at some point, years before one of the three systems, usually not the one that is currently in financial dire straits, but one of the systems engaged in a large, but sub HSR transaction.

30:11

Often, a large provider group acquisition.

30:15

and it was this transaction that started the downward spiral towards consolidation that culminated in a near bankrupt hospital, and in a market with 2 to 3 hospitals in it.

30:26

That group acquisition from years ago, that was the snowball at the top of the mountain.

30:30

So part of our task here is to build out an early detection system to identify these smaller transactions and stop them before they lead to irreversibly, concentrated markets. And, there are things that we can do on this.

30:43

You know, Zack said, we need more funding. I will not say no to that. But first, you know, I hope Congress will give us more resources so that we can pursue more cases preemptively.

30:54

Second, our partners at the state level, they have much more visibility and activity of the activity in their community. And they also have different laws on reporting healthcare transactions. So, our state partners can, and often do alert us to problematic acquisitions that don't rise to the HSR reporting level.

31:13

And, third, we encourage any knowledgable market participants to flag transactions for us in real time.

31:19

Now, these sub HSR transactions, they are one issue.

31:23

But we're also faced with kind of the opposite issue. We are also faced with mega mergers in healthcare.

31:30

And as a general matter, the commission finds out about these murders before they're consummated. because they're very big and we do our best to investigate and challenging these trouble, these troubling mega mergers.

31:40

one challenge, though, is, um, is that, to large hospital systems that are trying to merge, may not actually have facilities in overlapping geographic markets, and thus may not compete for the same patients.

31:55

Some of the antitrust community have referred to these as cross market mergers, and as you heard, that name is, is, may not be fully accurate.

32:04

Now, if the merging parties don't actually compete at all in any capacity, then there are passed to blocking the merger are limited.

32:12

But the problem here is that in the wake of these mega mergers, or these so-called cross market mergers, we see the undeniable effects of lost competition. We see rates go up, We see quality decrease NBC's services cut.

32:27

So when we look at the effects of the merger, we know there is some loss of competition that's driving those effects, even when the merging hospitals aren't directly competing for the same patients.

32:39

So what is that lost competition?

32:41

It could be a dominant statewide employer or a or a payer trying to provide a health plan to all of its statewide employees or insurance enrollees. Or it could be something else.

32:52

So our task here is to better understand what's happening, to understand and identify all the dimensions of competition and the full extent of the commercial realities, not just the ones centered on local geographic area so that we can prospectively analyze a so-called cross market merger and block it before it results in harm.

33:11

Now, another thing you've heard me mentioned is a focus on workers.

33:14

Hospitals tend to be one of the largest employers in a community.

33:17

And so we don't want to lose sight of any effects A merger may have on those who work at hospitals, for example, nurses.

33:24

These are our unsung heroes in healthcare, and we wanna make sure that a merger doesn't create a dominant employer that has the power to lower wages, lower benefits or other working conditions.

33:34

It's obviously worth noting that overworked and underpaid hospital staff also have a direct impact on the quality of patient care.

33:41

So, making sure that our critical workers like nurses are protected and taken care of is important, just is important for them, but it's also important for patients.

33:50

So, evaluating labor impacts is a critical part of our hospital merger review.

33:56

Now, I know I'm running a little past time, and I want to just quickly wrap up. There are some other process developments in the pipeline that we also hope will help us combat consolidation in healthcare markets.

34:07

The first is that the FTC and DOJ are revising our so-called merger guidelines. By way of background, the FTC and DOJ put out these guidelines that describe the analytical framework and the tools we use to evaluate mergers.

34:22

The merger guidelines provide guidance to the public to merging parties into the courts' on how to assess the legality of mergers.

34:28

And while they're not a lot, they don't bind courts or judges, judges do typically find them useful, and have traditionally adopted their framework when Litigating merger challenges.

34:39

So we're in the process of revising our Merger guidelines, which were last updated in 2010.

34:44

To better reflect how we assess Murderer's today, the revised guidelines will provide more clarity on many of the issues we touched upon today including evaluating the effects on workers, better articulating what the concentration thresholds are, for a merger that's presumptively legal and things like that.

35:01

And we also proposed a revision to the form and the information the parties have to submit to the FTC and DOJ as part of their HSR filing.

35:09

The goal here is for the agencies to get more of the critical information upfront so that we can evaluate a merger early. And so we can more effectively assess and screen those mergers that raise concerns and not waste time reviewing mergers that are not problematic.

35:24

And basically, where I just want to leave is that there's clearly a concerning trend towards consolidation and concentration in healthcare markets, and the FTC is committed to doing everything in our power to combat this trend. So thank you for the time.

35:39

Thank you so much travel for helping us understand all the efforts going on at the FTC to address consolidation. Next, we will move into a discussion on maintaining access to care and health equity, and we'll hear from lowest Utley co-founder of Community Voices for Health System Accountability. A statewide alliance that is raising Consumer Voices as Health systems Propose Mergers, Acquisitions, New Construction, Downsizing, and Closing of Hospitals.

36:09

Lois, also teachers and the Masters Health Advocacy Program at Sarah Lawrence College has dedicated july 25 years to protecting patients rights and the access to care when health systems are consolidating and we're so grateful, Lois is here today, O S Yes. Thank you so much, I'm hoping you can hear me.

36:33

Yes. OK, good.

36:36

So thank you so much for the opportunity to say a few words about how hospital consolidation is affecting communities access to care and health equity.

36:47

I wanted to try to give you the view from the front lines at the community level.

36:52

Next slide.

36:54

So hospital consolidation is really changing the healthcare landscape for patients. Their community hospitals are joining large health systems that then shift decision making to add 10 executives.

37:09

And often these executives look to eliminate what they view as duplicative services that can be found at other hospitals in the system.

37:19

People are also seeing their community hospitals closing are downsizing, hospitals are shutting maternity care and they're closing or reducing the hours at hospital ERs.

37:33

Next slide, please.

37:37

As you've heard Zack and Raul explain increasing numbers of hospitals are joining Health Systems. The American Hospital Association, and this is their graphics and kits, reports that there are now 407 Health Systems, and the US, and that more than two thirds of all hospitals belong to one of these systems. You know, being part of a large health system can seem very attractive to the hospital boards and CEOs, particularly, those struggling with financial issues.

38:11

But often, these mergers come with a big catch for the people who depend on the hospital for their medical care.

38:19

Next slide, please.

38:22

So I've worked with dozens of communities across the US where health systems have made big promises about the benefits of mergers or acquisitions. And here are three popular examples.

38:39

Then they say, the merger will stabilize your hospital financially and ensure it's still here for you in the future.

38:48

They may say, the merger will improve the quality of care at your hospital.

38:53

And you've just heard from Jack Cooper that that often is not a promise that's fulfilled and stared. Your hospital will have access to capital, needed to carry out renovations of aging buildings.

39:08

Next slide, please.

39:12

But once the merger goes through, those promises often are broken.

39:17

And the post merger effect can be like some of the examples I have here where communities are then told, Oh, we're closing maternity care.

39:29

But you can just go to our other system hospital 25 miles away or the community may be told we won't be allowing contraception, tubal, ligation, abortion, or other reproductive health services and violate our systems religious directives.

39:48

Lower.

39:49

Often, a private equity firm that's acquired a hospital may say, to achieve optimum efficiency and effectiveness. We need to cut the hospital staff by 25%.

40:02

And sometimes the news is very dire.

40:06

Unfortunately, we must close your hospital entirely.

40:10

Now, sometimes it can take several years for the other shoe to drop and what I call the post merger effect.

40:19

For example, here in New York City, where I'm based, the Mount Sinai Health System took over Beth Israel Medical Center through a 2013 merger where the Continuing Health System.

40:30

six years later, in 20 19, Mount Sinai tried to close Beth Israel.

40:37

That plan fell apart when the pandemic kit and all available hospital capacity was needed.

40:43

But now, Mount Sinai is back planning to close that Israel and leaves a large swath of downtown Manhattan with diminished hospital capacity.

40:54

Thank you. Next slide.

40:58

So, who is harmed by hospital consolidation?

41:02

As Zack Cooper has explained beautifully, hospital consolidation has often been shown to increase the price of health care.

41:11

And that ends up increasing premiums and harming people at high deductibles as well as people who are uninsured. And they can end up in medical debt as a result.

41:24

But access to care and health equity are also harmed.

41:28

People in rural areas can be left without ready access to medical care.

41:34

People in low income, urban neighborhoods of color, often feel abandoned by health systems that are closing their hospitals, and instead moving into suburban areas where people have commercial health insurance.

41:49

Women and other people capable of pregnancy, can be forced to travel long distances for maternity care, or suffer the loss of reproductive health services.

42:03

These changes can pose real problems for people with disabilities and elderly people who cannot easily navigate change and health delivery systems, and also for LGBTQ plus people, who often struggled to find health care providers, they trust, and then can lose them in these hospital changes.

42:24

Next system. Next slide, please.

42:28

So, now I want to talk about an approach that one state New York, where I'm based, has taken to try to introduce a health equity consideration into state review, or proposed hospital consolidation.

42:45

Know, when Kogod 19 to stay really hard and early 2020, I, and some other health advocates, we raised concerns about how decades of hospital consolidation had left some communities without enough hospital beds.

43:02

So a former State Assembly, Health Committee CHHIr, Dick Doctorate, and State Senate Health Committee CHHIr, Gustavo Rivera, sponsored a bill.

43:13

Was intended to introduce health equity into state review of hospital transactions through our state's Certificate of Need Program.

43:25

The measure was signed into law in December 2021 by Governor Kathy Hoell goal, and then underwent an 18 month rulemaking period that engage both health advocates and health facility representatives.

43:39

And the law is being administered by the State Burnette House, New Office of Health Equity, in Human Rights. Now, let me just briefly tell you what the law requires.

43:52

When a proposed health facility transaction would cause the elimination reduction or relocation of services, health facilities must hire an independent assessor to do an assessment of, what's the likely impact of the change on medically underserved people.

44:12

And you can see on the slide that medically underserved, includes low-income, uninsured, women, LGBTQ plus people, racial and ethnic minorities, immigrants, people with disabilities, rural residents, older adults.

44:29

The assessor is supposed to conduct meaningful engagement of these folks and come up with the likely impact, as well as a propos mitigation plan to address any negative impacts.

44:45

The assessor, by the way, is supposed to be independent, have expertise and health equity, and no conflicts of interest, like an interest in approval of the transaction in question.

44:58

Next slide, please.

45:02

So the first test of this new law has been proposed closing of the only maternity service and upstate rental they're counting.

45:11

That county used to have three hospitals with maternity services, but two of them were close through successive rounds of hospital mergers.

45:21

The surviving facility called Samaritan Hospital join the saint Peter's Health Partners System, which is part of the National Trinity Catholic Health system.

45:32

And because triggering doesn't allow certain reproductive services, a separately incorporated hospital within a hospital was created to allow access to post-partum Tubal ligation.

45:48

That creative solution, however, fell apart in 20 20.

45:52

Lambert debt was Reabsorbed into Samaritan Hospital.

45:57

Do they have financial and staffing issues?

45:59

So, OK, No reproductive services, but at least maternity care was still there, but, then last Spring saint Peter's suddenly announced that it was closing number, that verse center entirely because it has been losing money, and the system said, the pregnant patients could travel across the Hudson River to the system's hub hospital in Albany County.

46:24

Next slide, please.

46:28

There was a really strong outcry send the community, which would be losing its own only maternity service.

46:35

And by the way, that Burdette Center also serves people in several adjacent oral tennis, even the local Catholic Bishops spoke out in opposition.

46:47

Next slide, please.

46:50

So, how does the health equity law come into play?

46:54

Well, saint Peter's filed its certificate of need to close the birth center two days before the new law went into effect.

47:04

After considerable public criticism, saint Peters Reluctantly agreed, to go ahead and commissioned a health equity assessment.

47:12

They hired to charge this group a national consulting firm that often advises hospitals and health systems, including Trinity Health, the parent system of saint Peter's. Next slide, please.

47:29

A local coalition to say, Ignore that birth center coalition that includes midwives, dulas, and public health people, decided they would do their own health equity assessment following the model from the state. Frankly, they were mistrustful of what the study commissioned by saint Peter's would find.

47:49

The coalition found that many people who have given birth after the phrase, the midwife, led model of care, and low rate of C section deliveries, black pregnant women.

48:00

And you can see a quote from one of them on the slide here said, They feared the loss of burdette where they felt respected and listened to after many hurtful experiences with other health providers. I should say that in Troy, wherever Deadness located.

48:17

Many low-income people depend on having the birth center close by nearly a quarter of some people, And so I live in poverty, and 22% of the households have no cars, and, thus, no way of going to another birth center. So there are also many rural residents who depend on their debt.

48:36

Next slide, please.

48:41

So the charter screwup did the health equity assessment, and many of its findings actually echoed what the community group had found in terms of health inequities, and some significant transportation problems.

48:57

However, in the mitigation section charges then just accepted saint Peters claims that it could arrange transportation for pregnant people. And that patients could go to saint Peter's and use midwives there.

49:10

Even though only 16% of the births there are currently attended by midwives, add a forum the other night, the CEO of Saint Peter's credited the house equity assessment as being helpful and identifying health equity issues.

49:26

And he and Lee system said they would delay the plan closure up or down and engage the community.

49:35

It remains to be seen, however, how robust stone engagement will be and whether there are any ways to really mitigate the negative impact of closing the birth center.

49:48

Wanted to just note that, meanwhile the State Attorney General, Latisha James has also stepped in. She has regulatory authority over non-profit charities, including saint Peter South Partners. So she's been looking closely at this closure.

50:05

I want to flag that some other states are also looking at health equity, in addition to price effects of competition, Kearney, Oregon, and Minnesota.

50:19

And as both Sac and Grow will have noted, President Biden has has said that hospital mergers are leaving many areas without good options for convenient and affordable health care service. So I am eagerly anticipating the release of the FTC's New Merger Review Guidelines, and hope there can be some way to incorporate health equity concerns there.

50:47

I'll just finish by flagging a few resources.

50:50

You can consult for more details about what I've discussed today.

50:56

Thank you.

51:01

Thank you. Lois, thank you to all of our speakers. Our invite everyone to come back on camera and off mute for our last few minutes of discussion. The audience can continue to submit questions.

51:17

We'll start out. We had a lot of questions come in, and I know a few of you touched on this, but Can you expand on, you know, what are the practical legal options for addressing already concentrated markets as any unwinding, feasible. Do you anticipate seeing more legislation and the states in the year ahead?

51:47

I think, Yeah, and I get my so I think what the Massachusetts HE did, which is sort of say, if you merge, maybe we'll put some price caps on the merchant fees, and sort of a really good start.

52:00

I think unwinding is really, really tough. You know, I think there's been the north-western murders. The only one that I can recall, I think it might be worth looking into. But I think it's just very, very hard.

52:13

So I think there's it's worth considering price regulation. I think you just have to be exceptionally careful. I think our work pretty clearly shows that higher price hospitals if they faced competition, has higher quality.

52:25

And that may be potentially because their costs are higher.

52:27

And so, I think it's sort of assessing what's happening in those markets and looking at what's happening, it's a mistake and proceeding pretty cautiously.

52:39

Yeah, I just want to echo that. I mean, we definitely have within our authority, the ability and the right to unwind an illegal transaction, but it's exceptionally difficult. It's very challenging. The metaphor, often used as unscrambling Eggs, which is an imperfect metaphor, because we actually can unscramble. It's just, it's just challenging.

53:00

I will say, you know, some of the other options, like price caps and things like that, they're, they're interesting.

53:06

But, I think, one of the things that we need to be really sensitive to is, it's really hard to change the, the incentives of the merging parties.

53:13

And if they are incentivized to do to maximize profits, right, and the, traditionally, it would be through price increases capping that just means they may be incentivized to find another way, to eke out that process, such as quality reductions or access issues. So, yeah.

53:31

Our preference is obviously to prevent the consolidation before it happens, because the structural separation is the most secure way to ensure all the equities are at play or are accounted for.

53:45

one of the things we have to think about is, you know, there's sort of breaking up existing firms. And we can think about that. The other is expanding the geographic scope of markets. So, we're seeing evidence of patients being willing to travel farther in certain instances.

53:59

I think the more that we can sort of make these markets bigger, and potentially not expect that our local hospital can do everything for everyone, like the more you're going to see competition in the existing markets.

54:14

Great.

54:16

And I think all of you touched on this as well, but a few questions asking if you can expand on how consolidation is impacting the workforce, specifically nurse staffing, and how that's impacting patient care, and is that an area where we need more research or is there enough research there to help show that?

54:41

I'll be really quick.

54:42

So, but others, please feel free to chime in. There has been a significant amount of research in the last few decades on the, on labor markets, on labor economics, specifically, which has really kind of revolutionized our understanding of of how labor markets work. You know, 50, 60 years ago, we would think of a consolidated labor market as as a company town. Right. Like Pullman, Illinois or something. And we now have much more sophisticated understanding of that and there is more research being done.

55:12

But also taking just a step back. We do have experience looking at input markets in general. We do review mergers for buyer power, so we, we have the tools at our disposal and it is something that we are, you know, we're very actively looking into.

55:28

There was a merger that we challenge not too long ago, made a couple of years ago, where it was a time where we were had a split commission, where there was only four Commissioners and not a fifth one.

55:38

And this is, public staff had recommended, including, a labor count into the Hospital Merger Challenge, and all four commissioners were supportive of, the idea of a Labor Count, is just to didn't think that the fact supported it, in that case, but it's, it's part of all of our merger analysis. So.

56:01

Hmm, I know we have mainly focused on hospitals today, But I know soc, you've pointed to some work on providers and physician groups. The question is, how do we deal with that concurrent horizontal acquisitions officials, physician groups, labs, clinics, to steer referrals to the owner, and not allow referrals elsewhere?

56:24

And some health plans are seeing that.

56:27

Yeah, and then I think, so, there's, you know, again, separating vertical and horizontal, so will sort of take each in turn, you know, the vertical said, I think, the literature, and the theory, or the sort of theory. And the evidence is becoming much, much stronger.

56:41

And, you know, I'm doing some work on a lot of others are, I think, let's just say, the theory for a second, which is, you know, as a hospital by physicians, and those physicians and changed the referral patterns, That actually gives me more market power. That actually helps me, as the hospital, help. those physicians negotiate higher prices. And I think we're starting to see evidence that both hospital physician prices go up there.

57:04

It's really challenging from an enforcement perspective, because each of the individual traction, transactions are small, and ...

57:09

talked about, looking a little more into roll ups and, and I think it's something we need to seriously consider.

57:16

I think the horizontal one, the theory's, just sort of on ambiguous in that case.

57:20

I think it's hard and the physician sector, because there are a lot of physicians and two doctors or 10 doctors coming together.

57:27

That's just a small transaction, and the agency is got a handful already, and so that's like, how do you go after that? And the other thing we have to start thinking about is payers buying physician practices.

57:38

I think that's another area where we need to study what's happening.

57:42

Think about the economics of it and think about what impacts that have on prices and whether it's leading to competitive advantage for certain firms via lessening of optician.

57:55

Yeah, Sorry. Let us go ahead.

57:58

Let's just quickly find the patient perspective, when the health system, in a buys physician practice. one of the immediate impacts the patient say is that there's sometimes encounter a facility's, say, You know, being charged $150 extra to go see the same doctor in the same exact office they saw before, so that's something that is worth considering.

58:22

Just to kinda, I touched upon this, a little bit in the talks about when I describe, like a catalyzing event like that's what, that's what you're describing is.

58:29

What Zack is describing to you is like, you know, these acquisition of these groups that change referral patterns in a way that that causes a spiral towards consolidation. And the challenge there is definitely on the deal size, it's it, they're usually not over $111 million. But, what we're seeing at the state level is that there are a number of states out there that are passing their own healthcare notification laws that have significantly lower thresholds, and, or, or, just based on different threshold metrics. Like, in Washington State, it's based on provider size. So, transactions, that involve more than seven providers have to be reported.

59:01

And, and that's helping us and working with the states in that way. It's helping build out a more robust early detection system, so that we can, you know, we have the authority to challenge the transactions if we know about them.

59:12

And just to build on, you know, I think, what the states are doing, it's vital. And what you're talking about about disclosure requirements makes, it kind of sounds like, the FTC has been really clear about some of the challenges that certificate of need groups can compose. So, I think I'd be really cautious going down that lane, it actually often as a tool to protect incumbents.

59:32

But I think the states have a ton of ability to really support the federal agencies and do a lot of work on their own, make local markets competitive.

59:40

Great. Well, thank you, Zack. We're gonna make that the last word since we're right at two o'clock. But really want to thank our excellent panel of speakers, that was so interesting and helpful to hear about your work, your perspectives, and some potential solutions that our audience can take back to their work. Thank you to our audience for joining this discussion. Your feedback is important.

1:00:05

Please take a moment to complete a brief survey that will open on your screen, and please check out our that comes, resources and research on consolidation. And our other affordability related resources. And you can also register for our next webinar, where we'll be talking about the growing combination drug use issue, an opioid crisis. So, I hope you'll all join us for that. And thank you again to our speakers so much.

1:00:37

Thanks, everybody.