Hospital groups criticize Biden executive order on consolidation

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Hospital groups are responding to President Biden's executive order last week that cracks down on hospital and health insurance consolidations, saying integration and scale can be beneficial in responding to community needs, particularly during a pandemic.

Biden's order – which also targeted consolidation by health insurers and the cost of hearing aids and prescription drugs – cited 19 rural hospitals that shut down last year as evidence that consolidation can be anticompetitive. The executive order also cited research showing that hospitals in consolidated markets charge higher prices than hospitals in markets with several competitors.

The order encourages the Department of Justice and the Federal Trade Commission to enforce antitrust laws vigorously and "recognizes that the law allows them to challenge prior bad mergers that past Administrations did not previously challenge." Biden encouraged the DOJ and FTC to review and revise their merger guidelines to ensure patients are not harmed by such mergers.

The Federation of American Hospitals shot back, saying that "the best of intentions can be misguided."

"Ensuring access to needed medical attention for rural Americans is not going to be assured by excessive antitrust enforcement action of the FTC or Justice Department," said FAH president and CEO Chip Kahn in a statement. "Miring hospitals in legal and bureaucratic red tape will simply slow critical care to the bedside. FAH has always viewed free-market competition as the best means to provide high quality care, but it is chasing a mirage to think that patient access and choice in healthcare can be achieved through constraining integration of healthcare services."

FAH said the administration should recognize the benefit to patients that can result from integration and scale, and said the pandemic showed that hospitals have been drivers of advancements in care with cutting-edge treatments.

The American Hospital Association was a little more forgiving of the executive order, specifically mentioning insurance companies; three out of four markets were highly concentrated in 2019, said the AHA in a statement, and the top five insurers alone control nearly 50% of the market. When an insurance market is highly concentrated, the group said, insurers reduce provider payments and don't pass savings along to consumers.

However, AHA maintained that the executive order falls short in a number of ways.

"For example, it does not recognize the exceptional value and essential services health systems provide to their patients and communities each day," the group said. "This has been highlighted during the public health emergency of COVID-19.

"The pandemic challenged hospitals to transform their operations, which included rapidly expanding telemedicine services, overcoming shortages of equipment and drugs, retooling operations and reconfiguring space to provide life-saving care for patients and protect others from contracting the virus.

"Many hospitals were also called upon to backstop an inadequate public health response by providing information, counseling and vaccinations as those became available."

The AHA went on to say that hospital mergers and acquisitions undergo rigorous scrutiny from federal antitrust agencies and state attorneys general, and can be an important option for retaining access to hospital services in some rural communities.

Responding more favorably to the executive order was the Association for Accessible Medicines, which said it supports the need to improve access to generic and biosimilar drugs for Americans who struggle with the high cost of brand-name medicines.

AAM and its members "look forward to working with the Administration to increase adoption of lower-cost generics and biosimilars and remedy the growing number of government and payer policies that perversely reward the use of high-cost brands over generic or biosimilar competitors," the group said.

"In addition, in order to accelerate patent access to generics and biosimilars, the White House should ensure that any new regulations do not restrict the ability to settle patent litigation with brand companies in a pro-competitive manner."

WHAT'S THE IMPACT?

In his order, Biden directed the Department of Health and Human Services to support existing hospital price transparency rules and to finish implementing bipartisan federal legislation to address surprise hospital billing. He also encouraged the Department of Justice and the Federal Trade Commission to revise and review their merger guidelines to ensure patients aren't harmed by mergers.

In response, FTC Chair Lina Khan and Acting Assistant Attorney General of the Justice Department Antitrust Division Richard A. Powers said they plan soon to jointly launch a review of their merger guidelines with the goal of updating them to reflect a rigorous analytical approach consistent with applicable law.

THE LARGER TREND

Consolidation, among hospitals and health systems especially, has seen robust activity in recent years, and this trend will most likely continue, Moody's Investors Service found in April. 

Larger health systems will pursue M&A to increase market share and to diversify, in terms of both geography and service lines, Moody's said. Smaller providers, meanwhile, have felt that the COVID-19 pandemic has exacted a toll on their financial performance and will likely pursue M&A to gain access to clinical, strategic and financial resources.

Kaufman Hall released an analysis finding that while the number of hospital and health system mergers and acquisitions saw a sharp decline during the first quarter, the average transaction size soared, with the number of so-called "mega-mergers" increasing as the pandemic has worn on.

Twitter: @JELagasse
Email the writer: jeff.lagasse@himssmedia.com