January 22, 2020 Read Advisory Board's take: What does this mean for M&A as a growth strategy?

FTC Commissioner Christine Wilson on Thursday said the agency this year will increase its scrutiny of the health care sector by challenging "every hospital merger" and cracking down on certificates of public advantage (COPAs), among other things.

Wilson made the comments during a speech at a Council for Affordable Health Coverage event.

Background

FTC previously has expressed skepticism over hospital mergers' effects on competition in the market, as well as COPAs and their effects on care. Wilson on Thursday said FTC over the past 15 years has "successfully sued to block several problematic hospital mergers," and also has blocked some mergers involving physician practices.

In addition, FTC has been working on an ongoing project examining the effects of COPAs on health care access, innovation, prices, and quality. COPAs allow states to approve mergers that reduce market competition as long as the involved parties commit to make investments that benefit the public. However, FTC has claimed that states use the legal mechanisms "to immunize mergers and collaborations from antitrust scrutiny."

FTC to crack down on hospital mergers, COPAs in 2020

Wilson on Thursday said FTC will ramp up that scrutiny this year and look to "increase[e] competition in the [health care] sector, … pare back state policies that restrict entry into provider markets, reform insurance markets in ways that lower barriers to entry, and arm consumers with better information about their health care options."

For example, Wilson said FTC is "intent on challenging every hospital merger," noting that there are "a number in the pipeline." Wilson added that the agency also could review past hospital mergers to ensure they've achieved certain cost and quality metrics. She said, "We're conducting more retrospectives to make sure we're making the right calls [on mergers]."

Wilson also said FTC will work to abolish COPAs at the state level. "I believe abolishing [COPAs] at the state level will benefit consumers and FTC will continue to call out these laws," she said.

FTC also will work to repeal state Certificate of Need laws, Wilson said. Such laws establish requirements for states to approve a new provider's entry into a market or an existing provider's expansion in a market.

Further, FTC will push for increased flexibility in scope of practice laws, especially for mid-level providers such as nurse practitioners, Wilson said. According to Wilson, expanding nurses' practice authority could improve access to care, curb costs, and increase competition in the health care sector (Muchmore, Healthcare Dive, 1/17; Cirruzzo, Inside Health Policy, 1/16 [subscription required]; Wilson remarks, 1/16; National Conference of State Legislatures website, 12/1/19).

Advisory Board's take

It's not surprising to me that FTC is seeking to crack down on hospital M&A activity. A number of new studies, most notably one published in the New England Journal of Medicine several weeks ago, have argued that the strategy has not improved care quality or patient satisfaction at acquired hospitals. Moreover, a wave of studies have indicated that consolidation also leads to higher prices for patients. Seeing higher costs for patients and no difference in care, regulators were sure to become increasingly wary of bold claims about the potential of M&A.

Amid this greater scrutiny, I believe it's vital for systems to take a step back and truly think about the benefits they can expect from greater consolidation. As I've argued previously, the evidence is not forthcoming that M&A is effective at helping organizations become more cost-effective or streamline burdensome supply chain and human capital operations. And while consolidation has often afforded systems greater leverage with payers, will this leverage really continue to be as effective in the future? Will employers continue to absorb higher prices? And in a world of public options, Medicaid expansion, price transparency regulations, and greater media scrutiny, how long will this advantage truly last?

If you are still considering M&A as a part of your growth strategy, I would urge you to ask: What's going to be different about your deal? Take a hard look at where others have fallen short and create a plan to address these shortcomings with your eyes open.

In particular, I urge you to think critically about several questions. Make sure you satisfy yourself with the answers to:

  • Is there a history of compatibility and your systems working well together? Have you partnered in the past and partnered well?
  • To what extent are you actually similar? Specifically, do you have similar compensation models, the same EHRs, the same culture within your physician networks? Do you have a similar approach to identifying and reducing unwarranted care variation? Do you have similar views on what decisions should be made centrally versus locally?
  • Are both organizations serious about reducing operating expenses? With industry margins at an historic low point, there is no room for equivocation on cost.
  • Do either of your organizations have a history of making hard decisions such as closing underperforming facilities, consolidating service lines that are under capacity, or migrating from an acute care center to an ambulatory center? If you've been able to do this on a small scale, I might believe that you could do it on a larger scale. But if you have struggled in any of these areas in the past, then I think you are kidding yourself if you think size is going to make any of these problems easier to solve.

If you do decide to move forward, I'd suggest you think carefully about how you can achieve the benefits you hope for by actually acting like a system. As I've noted before, many organizations operate as SINOs (Systems in Name Only) and must move beyond excuses about why it's too hard to act like a system. Read my post on "Why so many health systems get 'systemness' wrong" for more about the SINO phenomenon and to understand more why systemness is really a four-stage framework for organizational cohesion. Then, I invite you to explore my subsequent blog posts below to understand more about how you can achieve each level of systemness—and if each one is right for your organization.

Learn how mega-mergers could impact your organization

Health care mergers and acquisitions are hardly new, but many recent transactions involve vertical integration: new-in-kind combinations of major players resulting in unprecedented scale and scope.

Use this research report to plan for integrators' possible moves, forecast potential effects on your organization, and create a plan to defend against or capitalize on the changes.

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