Experts Urge Regulators to Change Their Approach When Assessing Consolidations

A recent roundtable of policymakers and researchers in Washington D.C. exposed differing viewpoints  about the competitive aspects of hospital consolidations. Because the impact of consolidation on competition and prices in a market continues to excite discussion and controversy, the participants called for regulators to approach their antitrust scrutiny from a different perspective.

 

Some roundtable participants noted contradictory findings about the impact of consolidation in a market. For example, an executive from the Commonwealth Fund called the full effect of mergers “somewhat of a black box.” Both positive and negative effects from consolidation have been found in various research studies. On the negative side, consolidation may make it easier for providers to pass along higher prices to patients and payers. But the benefits include increased collaboration and clinical integration to improve care coordination and clinical outcomes.

 

The Federal Trade Commission (FTC) is one of the primary regulatory agencies to assess the anti-trust implications of hospital consolidation. The FTC’s representative at the roundtable explained the agency’s key goal is to allow new market entrants. He noted that once competition is suppressed in a market, it is extremely difficult to get it back.

 

He was questioned about why the FTC appears to oppose some mergers but not others. He noted that the FTC “generally allows mergers to go forward if there is no identified harm to competition or identified benefits, or no evidence either way.” (“Hospital Consolidation Trend to Continue,” HFMA Weekly News, June 20, 2014)

 

Roundtable participants urged regulators, including the FTC, to focus their efforts differently. The suggestions included:

 

  • Less focus on hospital-to-hospital consolidation and more on hospital acquisition of or affiliation with physician practices. They noted these arrangements have the greatest potential for anticompetitive impacts
  • Regulatory restraint toward the hospital consolidation movement
  • Ceilings on permissible negotiated rates
  • Targeting particular institutions for oversight
  • Implementing a range of pro-competition regulatory provisions—for example, prohibiting anti-competitive terms and conditions in insurer-provider contracts

 

Background

 

Merger/acquisition activity continues to trend upward, according to recent analyses by researchers and consultants. The findings include:

 

  • Hospital mergers and acquisitions increased 10 percent in the first quarter of 2014 compared with the same time frame last year (Kaufman Hall)
  • Consolidations increased 3 percent in 2013 to 98 transactions (Kaufman Hall)
  • The number of hospitals and hospital beds involved in hospital deals in 2013 hit a five-year high, despite a nearly 22 percent decline in the number of transactions—the discrepancy was due to the acquisition of Health Management Associates by Community Health Systems and the sale of Vanguard Health Systems to Tenet Healthcare (Irving Levin Associates)

 

Analyses have been undertaken to show how/whether consolidation affects competition and prices in markets, and we have reported on some of those studies in the past. The Center for Healthcare Economics and Policy reviewed and assessed 75 studies and 36 primary sources spanning the past 15 years and found the vast majority of mergers did not impede market competition, but rather created more competitive healthcare markets. Researchers also found no statistical correlation between realignment and pricing.

 

In a recent article in Health Affairs, the author wrote, “. . . there appears to be a contradiction between efforts to contain health care prices and the fact that aggressive policies aimed at reducing provider concentration might be ineffective and could even have the unintended effect of stunting positive developments.” (“Paradigm Lost: Provider Concentration and the Failure Of Market Theory,” Health Affairs, May 2014).

 

Even with the significant trend in consolidation, hospital prices, which had been rising for many years far faster than inflation, have been fairly flat over about the past 24 months, the author wrote.

 

(Sources: “Hospital Consolidation Trend to Continue,” HFMA Weekly News, June 20, 2014; “Paradigm Lost: Provider Concentration and the Failure Of Market Theory,” Health Affairs, May 2014)

 

 

 

iProtean subscribers, Part Two of the advanced Finance course, Strategic Responses to the Competitive Environment, will be published in your library by the end of June. Michael Irwin and Dan Grauman present their experience with and opinions about the competitive impact of consolidation/M & A activity, and also discuss the next phase of mergers and acquisitions, the impact on bond ratings and taxable vs. tax-exempt bonds.

 

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Hospitals Should Focus on Complications Beyond CMS List, Report Says

The list of hospital acquired conditions (HACs) subject to a specific payment policy by  CMS fails to provide a complete picture of the quality of patient care in a particular hospital, according to a new report by Premier.

 

Although the CMS HACs “are important events to prevent, an exclusive focus on these conditions will miss opportunities to identify and improve care processes for other complications whose elimination could substantially lower mortality, length of stay and costs,” the report’s authors wrote. (Complications Research, a new Premier methodology for identifying hospital-wide harm associated with increased cost, length of stay and mortality in U.S hospitals, Premier Inc.)

 

Premier identified 86 conditions associated with nearly 50,000 potential deaths, $4.3 billion in costs, and 1.7 million added hospital days. The findings were based on 5.5 million FY13 patient records across 530 hospitals. In comparison, the 22 HACs tracked and penalized by CMS accounted for 1,071 deaths, about $560 million in costs, and 210,000 added hospital days.

 

The authors and other hospital experts said the hospital conditions identified in the  report could help hospitals evaluate the importance of a particular complication by quantifying the impact against other outcomes. (“Report Urges Wider Hospital-Complication Focus,” HFMA Weekly News, June  13, 2014)

 

“Studies like this show the potential opportunity hospitals have to improve quality while reducing the cost of care by looking at possible complications beyond those tracked by CMS,” said an HFMA executive. “Where these opportunities are identified, hospitals need to continue improving their complication mitigation efforts rather than wait for any payer’s expansion of penalties tied to those conditions.” (Report Urges Wider Hospital-Complication Focus, HFMA Weekly News, June  13, 2014)

 

The 10 conditions with the highest association with mortality, cost, and length of stay were:

  • Acute renal failure
  • Hypotension
  • Respiratory failure
  • Sepsis/bacteremia
  • Aspiration pneumonia
  • Acute myocardial infarction (heart attack)
  • Gastrointestinal ulceration and hemorrhage
  • Cerebral infarction
  • Pulmonary embolism
  • Ventilator-associated pneumonia

 

Those 10 conditions were associated with nearly $2.5 billion in costs, 24,000 potential mortalities, and 920,000 added days in the hospital across approximately 530,000 cases, according to the report.

 

The Premier report and its methodology can be downloaded by clicking here.

 

 

iProtean subscribers, Part Two of the advanced Finance course, Strategic Responses to the Competitive Environment, will be published in your library by the end of June. If you enjoyed Part One, you should look forward to a continuation of the details offered by Michael Irwin and Dan Grauman. Topics include the competitive impact of consolidation/M & A activity, the next phase of mergers and acquisitions, the impact on bond ratings and taxable vs. tax-exempt bonds.

 

For a complete list of iProtean courses, click here.

 

For more information about iProtean, click here. www.iprotean.com/index.php/iprotean/demo

 

Expanded Medicaid Eligibility is Decreasing Charity Care

The Affordable Care Act’s (ACA) Medicaid eligibility expansion provision has reduced charity care and self pay in hospitals in states that have adopted the provision, according to a new study by the Colorado Hospital Association’s Center for Health Information and Data Analytics.

 

Authors of the study reviewed monthly financial and volume data for the first quarter of 2014 for 465 hospitals in 30 states. Analysts and leaders of publically traded health systems reported similar results last month.

 

“This is more evidence of the financial impact on hospitals of state decisions regarding Medicaid eligibility expansion,” said an HFMA executive. “These financial effects will only increase as the disproportionate share hospital payments cuts included in the Affordable Care Act continue to roll out.” (“Study: Less Self Pay, Charity Care in Expansion States,” HFMA Weekly News, June 6, 2014)

 

Study Details

 

Of the 30 states studies, 15 had expanded Medicaid and 15 had not. The authors

explored volume trends through changes in charges and payer mix. The results show that:

 

  • The Medicaid proportion of patient volume at hospitals in states that expanded Medicaid increased substantially in the first quarter of 2014.
  • The Medicaid proportion of total charges increased over three percentage points to 18.8 percent in 2014 from 15.3 percent in 2013. (In contrast, the amount of Medicare volume varied little in the same timeframe.)
  • The increase in Medicaid volume, which occurred only in expansion states, is due to Medicaid expansion. The parallel decrease in self-pay and charity care shows that previously uninsured patients are now enrolled in Medicaid.
  • Expansion states had a 30 percent reduction in average charity care per hospital—from $2.8 million to $1.9 million.
  • At the same time, self-pay care declined by 25 percent in expansion state hospitals—from 4.7 percent to 3.1 percent.
  • Medicaid, self-pay and charity care showed no change outside normal variation for hospitals in non-expansion states in 2014:
  • In non-expansion states, average charity care spending slightly increased between the two quarters, to $4.2 million from $3.8 million.
  • The share of self-pay charges at non-expansion state hospitals increased to 5 percent from 4.8 percent.

(Impact of Medicaid Expansion on Hospital Volumes, Colorado Hospital Association/Center for Health Information and Data Analytics, June 2014; “Study: Less Self Pay, Charity Care in Expansion States,” HFMA Weekly News, June 6, 2014)

 

iProtean subscribers, Part Two of the advanced Finance course, Strategic Responses to the Competitive Environment, will be published in your library by the end of June. If you enjoyed Part One, you should look forward to a continuation of the details offered by Michael Irwin and Dan Grauman. Topics include the competitive impact of consolidation/M & A activity, the next phase of mergers and acquisitions, the impact on bond ratings and taxable vs. tax-exempt bonds.

 

For a complete list of iProtean courses, click here.

 

For more information about iProtean, click here.

 

CMS Says Medical Staff Members on Board of Directors Is Not Necessary

The Centers for Medicare & Medicaid Services (CMS) recently issued final revisions to the Medicare conditions of participation (CoPs) that pertain to medical staff organization and participation in hospital governance. The key revisions include the following:

 

  • Removing the requirement that a medical staff member serve on the governing body
  • Allowing for a unified and integrated medical staff shared by multiple hospitals within a system

 

Medical Staff Representation Not Required on Governing Body

 

CMS has noted that the requirement to include a member of the medical staff on a hospital’s governing body may create conflicts for some hospitals, particularly public and nonprofit hospitals, where state and local laws may require members of the governing body to be either publicly elected or appointed by the governor or other official(s). As an alternative, CMS has added a provision requiring a hospital’s governing body to directly consult with the individual responsible for the organized medical staff of the hospital, or his or her designee.

 

CMS defined “direct consultation” as a meeting initiated by “the governing body or a subcommittee of the governing body, with a medical staff leader or leaders, either face-to-face or via a telecommunications system permitting immediate, synchronous communication.”

 

Direct consultation must include discussion of matters related to the quality of medical care provided to patients and must occur at least twice during either a fiscal or calendar year.” (CMS Revises Medicare CoPs on
Medical Staff Governance and Participation, AHLA, May 19, 2014)

 

Additional details provided by CMS include:

  • It is up to the governing body to determine the number of consultations needed based on the particular circumstances of the hospital.
  • There must be documented evidence that the governing body is appropriately responsive to any periodic and/or urgent requests from the individual responsible for the organized medical staff for timely consultation on issues related to the quality of care.

 

Unified and Integrated Medical Staff

 

Until recently, CMS prohibited a unified and integrated medical staff for a multi-hospital system. That prohibition has been modified to enable the medical staff of each hospital to voluntarily integrate itself into a larger system medical staff. Although the specifics have been left to the medical staffs and governing bodies, CMS requires that:

 

  • The medical staff at each separately certified hospital in the system must determine, by majority vote, whether to participate in or opt out of a unified and integrated medical staff structure
  • The unified medical staff must have bylaws, rules and requirements describing its processes for self-governance, appointment, credentialing, privileging and oversight; its peer review policies, and due process guarantees; and must have a process to advise medical staff members of the right to opt out
  • The unified medical staff must be established in a manner that takes into account each hospital’s unique circumstances and any significant differences in patient populations and services offered
  • The unified medical staff must give due consideration to the needs and concerns of members of the medical staff, regardless of practice or location, and the hospital must have mechanisms to ensure that issues localized to particular hospitals are duly considered and addressed.

 

NOTE: Hospitals and systems considering medical staff integration “should keep in mind CMS’ admonition that permitting the use of a system governing body or medical staff does not mean that compliance with other hospital COPs may be demonstrated at the system level. Each separately participating hospital is still required to demonstrate compliance with all other COPs to participate in Medicare.” (CMS Revises Medicare CoPs on
Medical Staff Governance and Participation, AHLA, May 19, 2014)

 

Additional CMS Provisions in the Revised Final Rule

 

CMS has long required that the medical staff be composed of doctors of medicine and osteopathy. With its revised final rule, it now has noted that the medical staff may also include other categories of physicians and non-physician practitioners eligible for appointment by the governing body under state laws. State laws will still control, but CMS noted there is nothing in the CoPs that prevents hospitals and medical staffs from establishing certain practice privileges for categories of practitioners excluded from medical staff membership under state law.

 

 

 

iProtean subscribers, Part Two of the advanced Finance course, Strategic Responses to the Competitive Environment, will be published in your library by the end of June. If you enjoyed Part One, you should look forward to a continuation of the details offered by Michael Irwin and Dan Grauman. Topics include the competitive impact of consolidation/M & A activity, the next phase of mergers and acquisitions, the impact on bond ratings and taxable vs. tax-exempt bonds.

 

For a complete list of iProtean courses, click here.

 

For more information about iProtean, click here.