Our Take: DOJ reportedly preparing lawsuit to prevent UnitedHealth from acquiring Change Healthcare
Reports emerged last week that the Department of Justice is getting ready to file a lawsuit to keep UnitedHealth Group’s Optum from proceeding with the acquisition of Nashville, Tenn.-based Change Healthcare for $7.84 billion in cash and approximately $5 billion in debt.
The proposed deal was announced in January 2021. The companies said Change Healthcare would join with OptumInsight “to provide software and data analytics, technology-enabled services and research, advisory and revenue management offerings to help make health care work better for everyone.”
At the time, the companies expected to complete the transaction in the second half of last year.
But just a couple of months after the announcement, in a Form 8-K filed with the Securities and Exchange Commission, Change Healthcare said the DOJ had requested additional information from both companies.
In the interim, the American Hospital Association sent a letter to the DOJ asking for a thorough investigation of the planned acquisition, claiming it would result in “a massive consolidation of competitively sensitive health care data.”
Change Healthcare provides health care IT services such as payment accuracy, insurance reimbursement, and revenue cycle management. The hospital lobbying group said in its letter that Change has access to health care data contained in 1 in 3 U.S. patient records. The acquisition would shift oversight of the data from Change, a neutral third party and the leading independent provider of health care IT services, to Optum.
Optum, which includes OptumInsight, OptumRx, and OptumHealth, is also one of the country’s largest providers of health care IT. UnitedHealth Group owns both Optum and UnitedHealthcare, the largest private payer in the U.S.
Citing information from UnitedHealth Group’s annual report, the American Hospital Association said in the letter that more than 9 out of 10 hospitals and 100,000 physicians “rely on OptumInsight’s data analytic services to ensure payments are accurate and reduce insurance denials.” A similar proportion of hospitals and more than 900,000 physicians use Change Healthcare’s IT services, according to the letter.
The hospital lobbying group said combining the data sets “would impact (and likely distort) decisions about patient care and claims processing and denials to the detriment of consumers and health care providers, and further increase [UnitedHealth Group’s] already massive market power.”
The American Hospital Association also said Optum would have “strong financial incentives to use competitive payers’ data to inform its reimbursement rates and set its competitive clinical strategy,” which in turn would “reduce competition among payers and harm hospitals and other providers.”
The association concluded the letter by saying the acquisition would “ultimately [remove] a neutral intermediary.”
The National Community Pharmacists Association also expressed concerns about the acquisition. Change Healthcare uses a “switch” to route insurance claims from pharmacies to insurance companies and pharmacy benefit managers, the association explained, noting that data pertaining to dispensing fees, product cost fees, patient data, PBM details, and plan design flows through the switch.
The group said that if UnitedHealth Group were to gain access to all of the data on patients and competitors that flows through this switch, it would give UnitedHealth “a massively unfair advantage in the marketplace.”
Talk of a potential FTC lawsuit to block the acquisition first made the news in early August. Soon after, UnitedHealth Group and Change Healthcare entered into a timing agreement with the DOJ in which the two companies basically agreed to give the DOJ a 120-day window for its investigation, after they certified their compliance with the DOJ’s request for additional information. They agreed not to complete the acquisition during that time unless the DOJ confirmed that the investigation had been completed.
In November, the companies extended the timing agreement, which is now set to expire on Tuesday. In December, UnitedHealth Group pushed the deadline for completing the acquisition to April 5.
Along the way, Change and UnitedHealth offered to make divestitures to allay the DOJ’s antitrust concerns and gain regulatory approval. So far, regulators reportedly have deemed the offers inadequate.
According to Dealreporter, sources familiar with the matter said the two companies are expected to meet with the DOJ soon for a “last rites” meeting on the proposed acquisition.
Our Take: While each acquisition or merger needs to be evaluated on its own merits, plenty of research indicates that market consolidation drives up costs. In the health care industry, it can also negatively affect the quality of care, among various other ramifications.
UnitedHealth Group’s acquisition of Change Healthcare wouldn’t just impinge on one particular geographical area. The deal could potentially affect consumers, hospitals and health systems, physician practices, pharmacies, health plans, PBMs, and other stakeholders across the country.
We don’t know what will happen to Change if/when the deal falls through — but we imagine the odds of the company surviving are pretty good.
And we’re certainly not going to have any pity for UnitedHealth Group. A little over a week ago, FierceHealthcare reported that UHG was the most profitable payer in 2021, with $17.3 billion in earnings. That’s more than twice the profit that the second-most-profitable payer, CVS Health, reported for the year (a mere $7.9 billion).
What else you need to know
Lifespan and Care New England have almost assuredly failed in their quest to merge. Not only did the Federal Trade Commission announce that it is suing to block the proposed merger, but Rhode Island’s attorney general also issued a press release stating that he has denied the health systems’ application to merge and that Rhode Island would join the FTC’s lawsuit. The lawsuit contends that the combined health system would control at least 70% of the state’s market for inpatient general acute care hospital services and a similar proportion of the market for inpatient behavioral health services. Leaders from both health systems expressed their disappointment in a joint statement.
Signify Health will acquire Caravan Health for $250 million, creating one of the nation’s largest networks of providers engaged in risk-based payment models, according to the companies’ announcement. Dallas-based Signify is a value-based health care platform with a network of more than 3,000 physician practices and facilities contracted in value-based arrangements. Caravan, based in Kansas City, Mo., assists accountable care organizations with population health management and value-based payment programs. Through the ACOs, Caravan works with more than 200 health systems and 100 federally qualified health centers that, collectively, have over 10,000 primary care physicians who manage more than 500,000 patients. The agreement between the two companies includes additional payments of up to $50 million if Caravan achieves certain performance goals. The acquisition is subject to customary closing conditions and is expected to close in the first quarter.
For now, the FTC will not investigate PBMs’ business practices, despite pleas from independent pharmacists at a public hearing on Thursday. The pharmacists say PBMs threaten their livelihood by essentially forcing them to accept certain contractual terms; through remuneration fees that can cause them to lose money on the prescriptions they fill; through a practice called spread pricing, in which PBMs reimburse pharmacies at a lower amount than what the PBMs receive from health plans; and by steering patients to use the PBMs’ mail-order pharmacies. Although two FTC commissioners voted in favor of a proposed study into PBM practices, the other two voted against it, voicing concerns about the study’s design but indicating their willingness to revisit the issue.
ChristianaCare signed a letter of intent (LOI) to acquire Crozer Health, a four-hospital health system based in Springfield, Pa., from Prospect Medical Holdings for an undisclosed sum. ChristianaCare, based in Wilmington, Del., has three hospitals in its network of inpatient and outpatient facilities and owns the Gene Editing Institute. If ChristianaCare and Prospect negotiate a definitive agreement, they anticipate closing the transaction in the second quarter. Earlier this month, Yale New Haven Health signed an LOI to acquire two Connecticut health systems from Prospect; financial terms were not disclosed.
The FDA issued an emergency use authorization for a monoclonal antibody that appears to effectively neutralize the omicron variant of the SARS-CoV-2 coronavirus. Eli Lilly licensed and developed the injectable drug, bebtelovimab, after it was discovered by Vancouver, B.C.-based AbCellera and scientists at the National Institute of Allergy and Infectious Diseases. The EUA is for the treatment of mild to moderate COVID-19 in individuals who are at least 12 years old and meet certain clinical criteria. The day before the FDA issued the authorization, Lilly announced an agreement to supply the federal government with up to 600,000 doses of the drug by March 31 in exchange for at least $720 million. The agreement includes an option for an additional 500,000 doses to be supplied by July 31.
The Senate voted 50-46 to confirm Dr. Robert Califf as head of the FDA. President Biden nominated Dr. Califf in November, but several senators raised concerns about Dr. Califf’s financial ties to the pharmaceutical industry and the FDA’s approval of numerous opioids during his previous tenure as FDA commissioner. The lawmakers’ objections cast doubt over whether there would be enough votes to confirm his nomination. Dr. Janet Woodcock, who had been serving as acting commissioner of the FDA, will stay on as principal deputy commissioner.
What we’re reading
The Case For Accountable Care Organizations To Partner With Geriatric Emergency Departments. Health Affairs, 2.17.22
Association of Hospital Interoperable Data Sharing With Alternative Payment Model Participation. JAMA Health Forum, 2.18.22
How to Interrupt Someone’s Workday — Without Annoying Them. Harvard Business Review, 2.17.22
A Whole New Mind: Why Right-Brainers Will Rule the Future, by Daniel Pink.