fah hospital policy blog

Perspectives on health policy affecting America’s hospitals and the patients we serve.

Category Archives: realignment

Growing Evidence Challenges Misconceptions About Hospital Realignment

September 19, 2014 | FAH Hospital Policy Blog

Category: Realignment

A recent item in The New York Times that surveys the “what ifs” of hospital realignment today, has been receiving some attention in the health care world this week. What’s surprising to many, is the lack of coverage of a series of reports, studies and commentary from high-level health policy officials that speak to the real-time understanding we have about mergers, realignments and other alliances between hospitals across the country. Rather than postulate what could happen based on twenty-year old data and misconceptions on pricing and competition, the FAH offers actual data from respected researchers and health policy leaders in the field.

Leading Analysts Weigh In: For many months The Altarum Institute has questioned the conventional wisdom that provider consolidation leads to excessive price growth. First, let’s be clear—hospital price growth has been at or near historical lows for some time now. That’s a fact. Moreover, as far back as May, Altarum weighed in on the current state of realignments, saying:

“While analysts continue to express concern about the potential pricing power from provider consolidation there is, as yet, scant evidence of this.”

Just yesterday, Altarum’s September price report reiterated this sentiment, saying:

“Analysts have been predicting higher prices from provider consolidation for some time, but this national data shows a steady public vs. other price growth differential.”

In other words, if provider consolidation was, in fact, driving price growth, one would expect to observe a widening of the gap between private versus public sector price growth. Why? Because the effect of consolidation on prices would generally be visible only in the private sector where prices reflect arms-length negotiations between providers and insurers. Medicare and Medicaid prices, on the other hand, are largely set by government. Instead, the gap in price growth remains steady, which suggests that the low overall price growth we are all benefiting from reflects underlying economic factors and, more importantly, structural changes in health care payment and delivery factors which are operating to suppress price and spending growth.

AEI & BDO expert commentary: A recent editorial in The Morning Consult by Patrick Pilch, National Leader of BDO’s Health Advisory Practice, and Dr. Scott Gottlieb, resident fellow at the American Enterprise Institute, questions whether hospital realignment today will differ from the examples of the 1990s. After in depth analysis, Pilch and Gottlieb conclude:

“This time, things should be different. The market forces that have set in motion the current consolidation wave are hardly perched to reverse. Principal among these is a preponderance of capitated contracts that shift financial risk to providers.”

Gottlieb and Pilch cite marked differences in the state and structure of our health care system today, in addition to lessons learned from the last wave of mergers in the 1990s. The hindsight of more than twenty-years, they say, will prevent a repeat of issues; and this new trend of realignment is supported by a health care system experiencing record low spending and price growth trends, continued revised CBO projections and significant savings that impact the federal deficit.

Meta-analysis of current mergers: the concept of 1990s data and circumstances being an inappropriate comparison to current realignment efforts was first addressed in a report by FTI’s Center for Health Care Economics and Policy earlier this year. FTI performed a meta-analysis of the most recent research about hospital realignments, canvassing some 75 studies and 36 primary sources. The analysis proffers three main conclusions:

There is no consistent statistical relationship between realignment and price increases.

Mergers and realignments offer significant and critical community benefits in the markets where they occur.

Realignments create more competitive health care markets.

FTI points to reliance on old data from the 1990s wave of mergers as the reason misconceptions on price and competition have perpetuated—and why the consumer and community benefits have gone overlooked for so long.

FTC & experts weigh in: At a recent Politico ProHealth event, a panel of experts spoke on hospital realignment, offering their experiences assessing the mergers and alliances occurring across the country today.

John Colmers, an executive from Johns Hopkins summarized it best:

“The view on consolidation is narrow minded and backwards. Hospitals are undergoing a fundamental set of changes.”

Martin Gaynor, Director of the Economic Bureau of the Federal Trade Commission (FTC), explained the role of the FTC in assessing the proposed mergers, saying:

“The FTC’s role is to try and help markets work as well as they can to benefit consumers. There’s a lot of things going on in the health care sector– a lot of consolidation, alliances. People are searching for new forms of organizations and I think this is done to improve quality.”

Deborah Zastocki, a hospital executive whose system has undergone mergers and realignments both intra- and interstate spoke right to the heart of the impact of these transactions:

“I have seen clear benefits to our community and patients. And we have seen operational efficiencies and lower costs. What we have seen of the past is one thing; what we see in the future is another thing. The types of things we can now do is game changing.”

Sharis Pozen, a partner at Skadden, Arps, Slate, Meagher and Flom, who has also worked for the Department of Justice and FTC, provided scope on the national scale:

“The vast majority [of realignments] are not raising prices, not eliminating competition,” she said. “You see these alignments- important alignments going on. Quality of care for patients is the goal, and hospitals align to achieve it. The efforts with clinical integration can only spur those alignments as well.”

All of these critical pieces of evidence have come in just a series of months. As more and more evidence is accumulated on the real-time impacts of hospital realignment, and as more experts share their thoughts on the matter, we anticipate the tide will turn both with media and public sentiments on this issue as facts replace rhetoric and hypotheses.

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Hospital Realignment: Why The 1990s Examples Don’t Reflect Today’s Marketplace

September 16, 2014 | FAH Hospital Policy Blog

Category: Realignment

A recent opinion piece in The Morning Consult looks at the current state of hospital mergers and realignment and questions whether it will be different from unsuccessful merger and realignment activities that took place in the 1990s. In their column, “The Urge To Merge In Healthcare: This Time, Will It Be Different?” co-authors Scott Gottlieb and Patrick Pilch note that the current level of mergers and realignments is almost half of the number occurring “during the peak years in the late 1990s.” Then, after analyzing the current series of mergers and acquisitions, realignments and other alliances forming among health systems to those of the 1990s, they state that this time, “things should be different.”

Why? During the 1990s, many of the mergers “broke apart shortly after they were consummated,” in part because acquiring providers in the 1990s were unable to adequately measure the risk they were assuming in capitated contracts, according to Gottlieb and Pilch.

However, hospitals and others now have the tools and data to properly measure the risk that they would undertake through global contracts. Also, the actuarial skills required to conduct these analytics are more widely distributed across industry constituents and no longer the sole province of insurers,” they observe.

“The market forces that have set in motion the current consolidation wave are hardly perched to reverse,” they add.

The sentiments of the column by Gottlieb and Pilch echo what many experts and contemporary analyses are saying about hospital realignments in the 21st century – that examples of hospital mergers from the 1990s cannot serve as proxies to predict the effects and impact of realignment today. Economic conditions are not the same and the state of the health care industry is not the same.

Further, referring to old data and old examples is driving misconceptions about hospital pricing power and competition and allowing them to perpetuate in the press and within the health care policy space.

At the same time, significant community benefits resulting from realignments today go overlooked. Due to realignments, hospitals are staying in business, vital health services are protected and often expanded, and patient access to care is preserved.

As more experts weigh in and more assessments of the most current realignments continue, we are seeing a turn against the popular misconceptions about hospital realignment. The latest data and reports are helping to dispel the misconceptions that have hampered efforts to provide quality health care for all.

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Realignment Realities: Industry Experts Weigh In

September 11, 2014 | Ryanne

Category: Realignment

This week, Politico Pro Health convened a panel of experts from across the health care spectrum to discuss the realities of coordinating care and hospital realignment. The panel, a robust set of experts from the Federal Trade Commission, hospital systems and health care law engaged in a substantive discussion of efforts by hospitals nationwide to pursue mergers and realignments, and the challenges and outcomes providers face in these transactions.
This discussion echoed much of what the latest studies and reports of 21st century realignments show—that the misconceptions and stereotypes of monopolies & reduced competition and well as increased pricing power are, in fact, not correct. Patient benefits, improved efficiencies and cost savings from local examples were just some of the headlines from hospital systems living the reality of realignment today.

The following are key takeaways from yesterday’s discussion:

Understanding the state of the U.S. health system & focus on clinical integrated care

Martin Gaynor, who heads the Federal Trade Commission’s economic bureau, addressed the current state of mergers and realignments on a national scale saying, “The FTC’s role is to try and help markets work as well as they can to benefit consumers. There’s a lot of things going on in the health care sector— a lot of consolidation, alliances. People are searching for new forms of organizations and I think this is done to improve quality.”

Gaynor also discussed the Triple Aim (lower cost, better quality of care and better population health) as a driver in the health care system overall, and one main component of the pursuit of realignments. Hospitals are merging in an effort to achieve this Triple Aim for patients.

The view from local hospitals: popular sentiments on consolidation are wrong

All of the panelists discussed the importance of clinically integrated care, and the evolution of the health care system to more coordinated care models for patients. This transformation is of critical importance to all in the health system.

John Colmers, VP of Health Care Transformation and Strategic Planning for Johns Hopkins Medicine refuted the common misconceptions about hospital realignment, saying, “The view on consolidation is narrow minded and backwards. Hospitals are undergoing a fundamental set of changes.”

Colmers discussed the focus across health care on increased transparency and measuring outcomes, and pointed to efforts by Johns Hopkins to realign with 4 local Washington-area facilities. “This is about expansion of our services in ways that benefit the populations they serve,” he said. “We are working on clinical integration and have been able to extend the advantages of outstanding care in service areas distinct from us. Our thinking has evolved. I think the world is moving in that direction.”

Deborah Zastocki, President of Chilton Medical Center and Vice President of Atlantic Health System also spoke to the real effects of realignment she has experienced in recent years. Zastocki cited “a need for infrastructure bench strength, for access to capital” as drivers for the realignments her health system pursued – the need to merge to survive, and thrive.

And Zastocki points to proof positive the hospitals are thriving, with effects of the realignment including: clinically integrated care systems, enhanced service lines, expanded access through outpatient services, implementation of EHR systems and efforts to meet deadlines for critical national benchmarks.

“We now have rapid implementations of initiatives,” she said. “We are using much more ehealth now, our renowned stroke program has improved and expanded.”

Looking at cross-state mergers and realignments she has overseen, Zastocki said, “I have seen clear benefits to our community and patients. And we have seen operational efficiencies and lower costs. What we have seen of the past is one thing; what we see in the future is another thing. The types of things we can now do is game changing.”

A May report from the Altarum Institute addressed the pricing power misconception on a national scale, saying: “While analysts continue to express concern about the potential pricing power from provider consolidation there is, as yet, scant evidence of this.”

Sharis Pozen, a partner at Skadden, Arps, Slate, Meagher and Flom, who has also worked for the Department of Justice and FTC, was emphatic in her support of realignment as a means for better health care. “The vast majority [of realignments] are not raising prices, not eliminating competition,” she said. “You see these alignments- important alignments going on. Quality of care for patients is the goal, and hospitals align to achieve it. The efforts with clinical integration can only spur those alignments as well.”

The role of the FTC

Having the input of the FTC on a panel such as this was incredibly important, because Martin Gaynor was able to shed light on how and why the FTC assesses proposed mergers, and what factors drive their decisions. When asked about the decision on which proposed mergers to investigate, Gaynor said, “The vast majority we review, we close the matter because either we don’t feel it raises concerns or we have no strong evidence.”

Indeed the FTC’s numbers reflect that. From 2007-2011 of 333 mergers & acquisitions and realignments pursued, 111 were reported to the FTC and only 4 were challenged. Gaynor added, “When we pursue something it is before a merger has occurred. If we get involved post facto they [mergers] are hard to undo.”

And the criteria for an approved realignment? Gaynor says the FTC looks as whether the merged entity will be able to lower cost substantially and offer improved quality of care. “We look at whether a merger is necessary to provide consumer benefits,” he said.

Competition in health care & the consumer paradox

Gaynor, in looking at the issue of competition in the market, said mergers and realignments generally are not anticompetitive. This is supported by the FTI 2014 analysis which showed one of the many consumer benefits from realignments was more competitive health care markets.

Gaynor also addressed the impact of competition on consumers, saying, “We know there is substantial research that says where there is more competition prices are lower. At the end of the day higher prices come back and come out of consumers’ wallets. Prices go up, insurance rates go up, employer premiums up.”

In this discussion, Gaynor also said in some cases health insurance costs are going up for consumers, citing consistent wages (or improving wages) as driving down coverage. These sentiments hit at the core of the consumer paradox we are experiencing in health care today.

In sum, the panel addressed the many concurrent changes and trends occurring across health care and their role in the effort to coordinate care through realignment. With insights from the FTC and local hospital system, we see further evidence of realignment creating great benefits, better efficiencies and refuting the many misconceptions on pricing and competition. As all actors in the health care industry work towards Triple Aim goals, the implementation of clinical integrated care systems and critical benchmarks for care delivery, better understanding of the positive effects of realignment will be an important factor in a transformed U.S. health system.

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Hospital Realignments: Understanding Consolidation in the 21st Century

September 09, 2014 | FAH Hospital Policy Blog

Category: Realignment

This morning, Politico Pro Health will convene a panel to discuss hospital realignments. The event, “Consolidating Care” will serve as an in-depth discussion of the impact of efforts by hospitals to merge, realign and expand their systems to incorporate more health care providers in their region.

Though it is important to always be assessing the outcomes of these business transactions among hospitals – and their effect on the communities they serve— there are a few important reminders the FAH hopes the panelists are mindful of in a substantive conversation such as this.

To understand effects, you must first look at the causes.

In assessing the current market for hospital realignment, understanding what is occurring in the health care industry at large is critically important. This is a time of transformation for health care in the U.S. We are seeing a transition to models of coordinated care, accomplished through integrated health care systems. As our entire industry makes this shift, hospitals are struggling to absorb nearly $122 billion in cuts over ten years, imposed since 2010, while Medicare hospital payments have fallen eight percent below the cost of care in 2014 – an all-time low.

Fiscal sustainability and an evolving system are driving the pursuit of realignment. Hospitals are merging and joining together to survive and thrive in this changing landscape.

2. Realignment today is not the same as the 1990s.

Earlier this year, the FAH commissioned the most comprehensive analysis of current hospital realignment. The report by FTI’s Center for Healthcare Economics and Policy surveyed 75 studies of contemporary realignment to provide a meta-analysis of the impact on a national scale.

The report had many key conclusions on the effect of hospital realignments, several of which ran contrary to expert claims of price increases and monopolization of the market. In their review, FTI found no consistent statistical relationship between realignment and price increases.

The report points to old data as the root cause for misconceptions on contemporary realignment. Experts often cite examples or studies from 20 years ago, which is how these misconceptions perpetuate. These experts should not use studies or examples of realignment from the 1990s – or worse, compare today’s economy to that of the 90s – as a means to understand how these transactions work today.

3. Community benefits cannot be overlooked.

The biggest takeaway from the FTI analysis: in today’s economy, with today’s transforming health care model, hospital realignments yield a significant number of benefits to patients and the communities they serve. We are seeing these benefits in real-time as realignments occur and their success reviewed in short order.

These mergers and acquisitions ensure hospitals stay open, and provide other important benefits, such as:

Preserved and expanded access to essential medical care

Improved service offerings and quality of care

Sustained and necessary investment in technology, facilities and health IT

Sensible reduction in excess capacity

More competitive health care markets

To borrow a phrase, this is not your mother’s consolidation. Hospital realignments in the 21st century are yielding important improvements in care for patients, while allowing providers around the country the opportunity to stay open and modernize and expand their services. The FAH looks forward to this morning’s discussion at the Politico Pro Health breakfast, and encourages the panel to utilize all of the most recent information on contemporary realignment in assessing this topic.

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