New England Journal of Medicine: "The Failing U.S. Health System"

It should come as a shock to no one that our health care "system" is only a "system" in the loosest sense of the word. "System" implies a set of common goals, a comprehensive design, and coordination of effort toward achieving the system's purposes. The result is about what you would expect with a largely profit-based set of arrangements among participants who are often working at cross-purposes.

The recent report from the Commonwealth Fund ("Mirror, Mirror 2024: A Portrait of the Failing U.S. Health System") paints a dismal picture. The website has the report and useful chartpacks in PowerPoint and PDF. Here's the executive summary:

• Goal: Compare health system performance in 10 countries, including the United States, to glean insights for U.S. improvement.
• Methods: Analysis of 70 health system performance measures in five areas: access to care, care process, administrative efficiency, equity, and health outcomes.
• Key Findings: The top three countries are Australia, the Netherlands, and the United Kingdom, although differences in overall performance between most countries are relatively small. The only clear outlier is the U.S., where health system performance is dramatically lower.
• Conclusion: The U.S. continues to be in a class by itself in the underperformance of its health care sector. While the other nine countries differ in the details of their systems and in their performance on domains, unlike the U.S., they all have found a way to meet their residents’ most basic health care needs, including universal coverage.

Three of the authors provide an expanded version of this abstract in this week's edition of the New England Journal of Medicine (apparently for free). Here are some of the main points:

• We can be proud of our process for delivering care. Compared to nine peer countries, we are ranked #2, quite close behind New Zealand.
• But the cost of this care is astronomically high and the results place our health outcomes dead last among this peer group:
  
  
  
  
  
  
• "Many of the U.S. health system’s shortfalls result from persistent economic barriers to obtaining essential care. The Affordable Care Act and related policies reduced the proportion of uninsured people to its current level of 7 to 8%. But 26 million Americans still lack insurance. . . . Substantial progress toward this goal could be made by building on existing programs, such as the Affordable Care Act, Medicare, and Medicaid." Note to self: This strategy requires political will and adequate financing at the state and federal levels. I'm not optimistic.
• "The U.S. health care delivery system has profound problems that result in huge inefficiencies and excessive costs that would limit the benefits of expanded coverage. One such problem is the country’s worsening shortage of primary care clinicians . . . . Improved compensation and reductions in administrative burdens for primary care clinicians would help the health system recruit and retain such clinicians and build desperately needed capacity." See Note to self above.
• "A second delivery-system failure is the high prices charged by U.S. health care facilities and professionals, which far exceed prices in other health systems. These high prices largely account for the extraordinary costs of care in the United States, which would make expanded coverage less affordable and which drive employers, who purchase insurance for more than half of Americans younger than 65 years of age, to impose high deductibles and copayments." The authors suggest scrutiny of the extensive consolidation of providers -- institutional and individual -- underway. But: The the premium-price train left the station far earlier than the consolidation boom. Consolidation may be exacerbating the problem, but the problem goes back decades, is cultural,  and it runs deep.
• "Improvements in coverage and the delivery system will need to be complemented by policies targeting critical influences on health outside the health sector. The United States lags behind comparator countries when it comes to addressing the social determinants of health, such as poverty, homelessness, inequality, and hunger. . . . The toll of gun violence in the United States also demands policy attention." See Note to self above.

This report gives us a good differential diagnosis and then prescribes the policy equivalent of "lose weight, exercise more, cut back on meat and dairy, reduce stress in your life, and start getting enough sleep." We all know this is the Path to Enlightenment (or at least to health maintenance), but how many patients take this advice? 

Revised Merger Guidelines from DOJ & FTC: What Effect on Hospital Acquisitions of Physician Practices?

 

On Dec. 18, 2023, the U.S. Department of Justice and the Federal Trade Commission issued their updated Merger Guidelines, hitting the "Refresh" button for the first time since the publication of their 2010 Horizontal Guidelines and 2020 Vertical Guidelines. [See Wilmer Hale newsletter, 12/22/23; see also Crowell & Moring newsletter, 12/19/23 (5 key takeaways); Gibson Dunn newsletter, 12/22/23 (3 key takeaways)]

The Merger Guidelines apply equally to acquisitions, so it is natural to ask about the potential impact of the revised Merger Guidelines on the growing trend of hospital acquisitions of physician practices. That question is asked and expanded, if not quite answered, in the March 9 issue of the New England Journal of Medicine in a piece by Dhruv Khullar, M.D., M.P.P., Lawrence P. Casalino, M.D., Ph.D., and Amelia M. Bond, Ph.D.: "Vertical Integration and the Transformation  of American Medicine," available for free here (HTML) and here (PDF).

The article identifies three broad areas of concern that will require a more nuanced approach fueled by a close factual inquiry in each case under review:

First, are the effects of vertical integration influenced by the form that the resulting health system takes? The Agency for Healthcare Research and Quality has defined a health system as an organization that has at least one hospital and at least one physician practice that provides comprehensive care, with the entities operating under common ownership or management. This broad definition is useful for systematically tracking growth in the number of health systems, but it masks tremendous heterogeneity in size, geography, not-for-profit versus for-profit status, provider specialties, and leadership structure. . . .

Second, how do practice acquisitions affect clinicians? Traditionally, antitrust agencies judging whether to challenge a proposed merger or acquisition have focused on prices paid by consumers. In recent years, however, they have started to take a more expansive view of potential benefits and harms. The new guidelines address the extent to which a merger lessens competition for workers and could result in lower wages, worse benefits, or poorer workplace conditions. Research on vertical integration in health care could examine its consequences for clinicians. Many clinicians may be satisfied after their practice is acquired; they may, for example, have an improved work–life balance, receive greater administrative support, and be relieved of managing the business-related aspects of medicine. Alternatively, they may work longer hours, have less autonomy and constrained job mobility, and experience more burnout or moral injury.

Third, and most important, when hospitals acquire practices, which patients benefit, and which are harmed? The effects of vertical integration are likely to vary depending on the medical and social needs of a health system’s patients. Patients who have multiple coexisting conditions and require frequent interactions with the health care system may be especially affected by changes in care protocols and referral networks after practice acquisitions. The types of practices that hospitals target also matters. The guidelines call attention to the potential for merged entities to limit access to products or services that rivals need to compete. It’s possible that in preferentially acquiring profitable practices, hospitals leave patients in poorly resourced practices worse off by weakening those practices’ leverage in negotiations with insurers, deprioritizing referrals for their patients, or hiring away their clinicians and staff. Future research could examine the effects of acquisitions not only on patients at practices that are acquired by hospitals, but also on patients at practices that, for whatever reason, are not.

The concluding paragraph summarizes the authors' concerns:

The rapid acquisition of physician practices by hospitals highlights an important tension in health care — between the possibility that integration can promote efficiency and improved quality and the concern that it distorts markets and can worsen health and financial outcomes. This tension reflects the conflicting values of coordination and competition. Resolving it — determining whether, how, and when regulators should act — will require a more nuanced understanding of the consequences of these acquisitions for patients, families, and clinicians. 

Health Care M&A Activity Hits 3-year Low . . . Or Not

Becker's Hospital Review has a story (Aug. 9) about a KPMG report that describes a three-year decline in merger-and-acquisition activity in the health care sector. Apart from a couple of large deals in May (CVS Health's closing on Oak Street Health for $10.6 billion) and June (UnitedHealth Group's $3.3 billion agreement to take over Amedisys), second-quarter M&A activity was the lowest since the same quarter in 2020. (Health consultants Kaufman Hall paint a rosier picture of M&A activity in Q2 2023.)

I don't know how this compares to M&A activity in other parts of the economy, but the reasons cited by KPMG sound pretty generically applicable throughout the economy:

"Ongoing pressures could keep second-half M&A near first-half levels," Kristin Pothier, leader of healthcare and life sciences for KPMG and principal of deal advisory, said. "Additional interest-rate hikes even amid an economic downturn, political divisions in advance of a presidential election year, and uncertainty about the valuations of potential acquisition targets may combine to postpone a rebound in deal making. But we expect at least some of those headwinds to moderate toward the end of the year, and that could begin to release long-pent-up demand." 

To this list I would add recent M&A policy revisions from the FTC & DOJ, making Hart-Scott-Rodino review more of a toss-up than the market is used to. (See posts here and here.) 

Noncompete Clauses, the FTC, and the Health Care Industry

As described in an excellent paper on the American Bar Association's website (sorry, but you need to be an ABA member -- or know one -- to get access), states are all over the map when it comes to noncompete clauses. They've been unenforceable in California for 150 years. A few other states have banned them, some with limited exceptions. For physicians, state law is a big deal. According to the paper, Medscape reports that 87% of physicians report being subject to a noncompete clause sometime during their careers.

State law may become irrelevant in light of a rule proposed by the Federal Trade Commission this year, that would prohibit many firms from including noncompetes in their contracts with employees and independent contractors (press release, FTC (Jan. 5, 2023).  

There are some limits to the scope of the proposed rule:

• As written, it does not apply to noncompetes that are written into contracts for the sale of a business.
• The FTC generally doesn't regulate nonprofits, unless they are "organized to carry out business for its own profit or that of its members.” Under most states' laws and § 501(c)(3) of the Internal Revenue Code, nonprofits (and tax-exempts) must be organized primarily for public as opposed to private benefit. It is a sketchy distinction in some cases, but it endures.
• There's no private cause of action under § 5 of the FTC Act, so enforcement of the prohibition (if it is adopted as a final rule) will be up to the FTC and DOJ.

I say "if it is adopted" because over 21,000 comments have been filed for and against the proposed rule. Former FTC Commissioner Christine Wilson dissented from the Notice of Proposed Rulemaking, noting that the proposed rule would prohibit conduct that is permitted in 47 states. If the rule is adopted, expect (1) lots of work for lawyers revising work contracts and (2) a court challenge. It's likely that any case would wind up in the Supreme Court. And if that happens, expect a tug of war among the justices over the recently discovered "major questions doctrine."

New Proposed Merger Guidelines from FTC & DOJ

 

In a previous post (May 25, 2023), I featured some of the criticisms leveled by Daniel Sokol and Dick Pierce against the emerging M&A policy at the FTC under the leadership of Lina Khan. It's not likely that the revised merger guidelines released by DOJ and FTC on July 19 will do much to soften their criticism. 

Of particular interest for health lawyers, consider these more or less parallel developments:

• July 14: the two agencies withdrew the Statements of Antitrust Enforcement Policy in Health Care and the Statement of Enforcement Policy Regarding Accountable Care Organizations Participating in the Medicare Shared Savings Program. ACOs represent a major innovation in the 2010 Patient Protection and Affordable Care Act, and a major part of ACO-related policy was the antitrust protection issued by the FTC and DOJ. The ACO initiative hasn't been a roaring success, and if the FTC and DOJ tighten the enforcement screws on ACOs, that could be the end of the road for them.
• July 20: at an open meeting, the FTC voted to issue a statement that discourages reliance on 11 prior advocacy letters and reports issued between 2004 and 2014 related to pharmacy benefit managers.

These are interesting times, indeed, for health-care antitrust counsel and their clients.

Teva & Gilead Prevail in $3.6 Billion "Pay for Delay" Suit

I haven't seen much discussion of this verdict handed down by a federal jury on Friday out in California that cleared the two pharmaceutical companies of antitrust liability. As reported by thepharmaletter's "Brief," consumers and other direct purchasers, including the Blue Cross and Blue Shield Association, filed the antitrust lawsuit in 2019 in which they alleged Gilead Sciences and Teva Pharmaceutical Industries entered into an illegal "pay for delay" patent deal that inflated prices for two HIV medications. The jury found that plaintiffs had not shown Gilead had market power or that it paid Teva to delay its generics, IP Law 360 reported.

The FTC has a good website on "Pay for Delay: When Drug Companies Agree Not to Compete." The policy against "pay to delay" seems sound. Usually to settle a private patent infringement suit between two drug manufacturers (which itself may or may not be hatched for this sole purpose), the practice amounts to extended patent protection for the original drug beyond what is contemplated by the Hatch-Waxman Act. That protection keeps a lower-cost generic off the market and allows the original patentee to reap what amounts to monopoly profits.

Good policy, but if the facts aren't there, the case will fail. It will be interesting to read the details surrounding this verdict in the days and weeks ahead.

Private Equity, Consolidation, and Prices of HC Goods and Services

Good article in the Washington Post on June 29. The case study concerns U.S. Anesthesia Partners, which has been on a buying spree. The business model is basic: Go into a market, purchase private anesthesia practices, and once they are under one roof, raise the prices these groups charge hospitals and surgery centers. One study, "based on six years of data, for example, found that when anesthesia companies backed by private-equity investors took over at a hospital outpatient or surgery center, they raised prices by an average of 26 percent more than facilities served by independent anesthesia practices."

The Federal Trade Commission is supposed to be watching out for mergers and acquisitions that produce enough market power to give the resulting entity the power to raise prices, According to the article, the FTC has given these consolidations of market share the equivalent of a raised eyebrow and nothing more. The Kaiser Family Foundation has published on this topic. Is anyone in government paying attention?

Merger Chaos at the FTC?

If there's one indisputable legal and business trend in the health care industry over the past 10-20 years, it's the move toward greater consolidation of health care providers. Some observers praise consolidation on efficiency grounds (cutting duplication and waste --> lower costs --> lower prices for patients), while others decry consolidation because it concentrates market power and lessens competition, which leads to higher prices for patients.  

The mechanism for resolving these claims in connection with large proposed mergers is the statute known as Hart-Scott-Rodino (H-S-R), along with its numerous FTC, DOJ, and SCOTUS interpretations. But according to Daniel Sokol and Dick Pierce, the times they are a-changin', though where federal policy is headed is anyone's guess. 

In his Jotwell essay (May 25, 2023), Pierce argues that two articles by Sokol "are required reading for anyone who is interested in antitrust law, administrative law, government regulation, or corporate law." That's just about everyone in the legal profession, but I'll throw in health care law for good measure.

The catalyst for change is Lina Khan, the Biden Administration's chair of the FTC. As described by Pierce, 

Khan has made it clear that she disagrees with virtually every characteristic of the [FTC/DOJ merger]  guidelines, including the guidelines’ goals. She rejects the goal of maximizing consumer welfare, which the Justice Department and the FTC have pursued for the last 50 years. Instead, she has emphasized the need to protect competitors from large firms that charge low prices—a goal that the enforcement agencies and the Supreme Court disavowed 50 years ago. Khan cannot further her stated goals by applying the 2010 guidelines.

The Pierce essay is a quick and easy read. The implications of Chair Khan's views on mergers portends an era that will be messy and uncertain.