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? 

Mark Hall on HCA's Acquisition of Tax-Exempt Health System

Wake Forest law professor Mark Hall has released the latest chapter in his exhaustive preliminary report on the 2019 acquisition of Asheville, North Carolina's tax-exempt Mission Health System. As he writes in this new chapter: "As a result, Mission’s flagship facility became the fifth largest for-profit hospital in the country. Prior to HCA’s purchase, Mission had been operated as a nonprofit “charitable” organization ever since its founding in 1885." Prof. Hall's goal is to describe in as much detail as possible the decision-making process that led to the acquisition, how Mission Health performed before the acquisition, and how the system has performed over the next 5 years. (McKenzie Wicker wrote a comprehensive piece for the Asheville Citizen Times in 2020. Mission Health has been a major news story for the five years since the acquisition. See also NBC News, Nov. 13, 2023 and related stories.)

 

The hospital world is divided into three types of entity: public hospitals, private for-profit hospitals, and private nonprofit (and almost always tax-exempt) hospitals. For-profits are expected to generate net revenues that may be put to various uses but are also expected to be distributed to investors (increased share values, dividends, etc.). Nonprofits are also expected to generate net revenues, but are barred from benefitting private interests by state and federal laws (including § 501(c)(3) of the Internal Revenue Code, which is applicable to most nonprofit hospitals). A major question that garners the attention of state courts and legislatures as well as members of Congress from time to time is whether the tax subsidies that flow to tax-exempt hospitals are justified by a corresponding benefit to the public (principally but not exclusively improved access to care, higher quality of care, lower prices for that care, medical education, medical research, and charity care). Across the country, the answer appears to be mixed: sometimes yes, sometimes no.

These three categories are not impermeable spheres. Various combinations are permitted and mostly take the form of joint ventures, mergers, or acquisitions. These different arrangements raise all sorts of legal and public-policy issues. To perform any sort of useful analysis, however, we need facts. 

With mergers and joint ventures, policy-makers tend to be most concerned with making sure the nonprofit/tax-exempt entity doesn't become a profit-making (and profit-distributing) arm of its for-profit partner. 

With outright acquisitions, the issues are different because the acquired tax-exempt entity will be operated as a for-profit business. Prof. Hall is analyzing each one in a separate release. As described by the Nonprofit Law Blog (as of May 30, 2024), the entries so far are these:

• Mission Hospital’s Financial Performance Under HCA. Working Draft (2024).
by Professor Mark Hall
• Mission Hospital’s Quality Ratings Following HCA’s Acquisition. Working Draft (2024).
by Professor Mark Hall
• Mission Hospital Charity Care Following HCA’s Acquisition. Working Draft (2024).
by Professor Mark Hall
• Private Equity and the Corporatization of Health Care (abstract). Stanford Law Review (2024).
by Professors Erin Brown and Mark Hall ("These investors seek to earn handsome profits by rapidly increasing revenues before selling off the investment. Private equity’s incursion into health care is especially concerning. The drive for quick revenue generation threatens to increase costs, lower health care quality, and contribute to physician burnout and moral distress. These harms stem from market consolidation, overutilization and up-coding, constraints on physicians’ clinical autonomy, and compromises in patient care."). My recent blog post on this topic is here.
• Rediscovering the Importance of Free and Charitable Clinics. New England Journal of Medicine (202[3]; abstract).
by Professor Mark Hall

To this list we can now add Thursday's entry, Mission Hospital’s Decision to Sell to HCA. Working Draft (2024). by Professor Mark Hall.

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.)