RECENT ACTION by the Federal Trade Commission highlights the dynamic tension in competition within the hospital industry today.
Maintaining competition between healthcare organizations, in order to apply some downward pressure on healthcare pricing, is likely to become a recurring focus for regulators. Concerns may grow as providers explore different approaches for dealing with economic pressures such as rising prices, inadequate reimbursement from public payers and increasing difficulty in shifting expenses to other payers.
Approaches that raise red flags with regulators are combinations such as the one the FTC sought to block in early May, when it took steps to prevent the proposed acquisition of Prince William Health System Inc. by Inova Health System Foundation.
The FTC and Virginia’s attorney general are using a temporary restraining order to block the combination, which the two organizations formalized in August 2006. The agencies claim the acquisition would give Inova control of 73 percent of the inpatient beds in its market.
Until now, the FTC has rarely acted directly in hospital organization mergers. In April, the agency culminated its most recent case against Evanston Northwestern Healthcare Corp. in its 2000 acquisition of Highland Park (Ill.) Hospital. As part of the final disposition of that case, Evanston Northwestern was required to establish separate independent negotiating teams to enable managed care organizations to negotiate separately with the hospitals, among other requirements.
However, there are indications that the FTC is gearing up to pay more attention to such healthcare combinations.
In late May, the FTC was scheduled to host a workshop on the innocuous topic of clinical integration. The general purpose of the workshop is “to discuss collaboration between healthcare providers to improve the provision of healthcare services and reduce costs.”
The workshop was expected to feature participation from a number of parties interested in the broader topic of clinical integration, which the FTC sees as having both positive and negative consequences. On the plus side, the agency believes quality can be enhanced and cost restrained by integration.
However, the FTC also indicates that it intends to look at these arrangements more closely. “More extensive antitrust analysis of the competitive effects of such arrangements may be warranted where collective negotiation and contracting with payers is necessary to achieve clinical efficiencies,” it said.
The FTC says the workshop is part of its ongoing efforts to study developments in healthcare delivery and financing that can inform its antitrust analysis, to ensure that consumers are protected from anticompetitive conduct and that the agency doesn’t discourage legitimate efficiency-enhancing joint ventures.
This scrutiny is coming at precisely the time when providers are feeling significant financial pressure from myriad economic factors. For example, the financial health of the nation’s not-for-profit hospitals is worsening, according to a recently released report from Moody’s Investors Service, which reported declines in volume and revenue growth measures and reductions in liquidity. It projects that 2009 and 2010 could be rough years for not-for-profits and for-profits alike.
In this context, hospital organizations – particularly those that are independent – are more likely to consider steps to consolidate in hopes of achieving economies of scale or better organizing healthcare delivery in an area or region or, at the least, to ensure survival.
As they do, hospitals will have new worries about how both state and federal agencies will view such combinations. It seems to be a classic no-win situation for healthcare organizations, which increasingly seem to have their hands tied by circumstances and regulators.
And the hospital community will be wrestling with the ethics of choices and options for combinations. For example, in the Chicago area, Condell Medical Center, located in a relatively affluent area of Lake County, is expected to become a part of Advocate Health Care after signing a letter of intent to merge with the integrated delivery system and rejecting other merger offers, including one reported from Lake Forest (Ill.) Hospital.
By contrast, St. Francis Hospital wasn’t nearly so lucky. The hospital in Blue Island, Ill., which had been owned by SSM Healthcare, was in danger of closing after the system said it couldn’t even give the unprofitable facility away. On May 8, the chain announced it would sell the facility to MSMC investors; terms weren’t disclosed.
Future combinations are inevitable, and all parties need to create an environment in which hospitals get the reimbursement they need to survive or obtain the ability to join together quickly in ways that ensure reasonable competition. The government shouldn’t be creating the environment that predisposes combinations, then stalls them for long periods of time while assessing their anti-competitive effects.
Is the government creating conditions that make consolidation more of a necessity, only to oppose the mergers that result? Let us know with an email to editor@healthcarefinancenews.com.