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Our Take: New report shows hospital market concentration growing

Sep 29, 2019
Jury selection begins Monday in the antitrust trial against one of California’s largest health systems, and other hospitals and health systems that might be considering a merger or acquisition are likely to keep an eye on the case as it unfolds over the next several months.

A labor union initiated the lawsuit in 2014, alleging that Sutter Health used its dominance in Sacramento, San Francisco, and surrounding areas to compel employers and unions with self-funded health plans to sign provider agreements that shielded Sutter from competition. (Self-funded plans pay hospitals and other health providers directly, rather than going through an insurance company.)

The original lawsuit gained class-action status in 2017, bringing an estimated 1,500 self-funded health plans in Northern California on board as plaintiffs. Then, in March 2018, California’s attorney general, Xavier Becerra, filed a second lawsuit against Sutter Health. The two lawsuits were subsequently combined.

Our Take: Essentially, Sutter is accused of structuring its contracts with health plans in ways that quashed competitors. For instance, the contracts may have stipulated that the health plans include either all of Sutter’s hospitals (now at 24) in their provider networks, or none of them. That tactic could have prohibited health plans from excluding Sutter hospitals in areas where there might be better-quality competitors. The contracts might also have precluded the use of tiered network systems, in which lower-cost, higher-quality providers — potentially some of Sutter’s competitors — are placed in a top tier, and consumers’ out-of-pocket costs are lower when they choose a top-tier provider. Without such tiered networks, consumers obviously don’t have this option for lowering costs.

Once Sutter was locked in as a systemwide network provider, the lawsuit alleges, it was free to charge higher prices for care without worrying about competitors. That, in turn, drove up the cost of care in Sutter-dominated markets, the plaintiffs claim.

Becerra has cited a recent study by the University of California, Berkeley, that appears to lend credence to that claim. The findings showed that prices for inpatient services are an eye-popping 70% higher in Northern California, and prices for outpatient services are 17% to 55% higher, as compared with the southern part of the state. Premiums on the state’s insurance exchange are also considerably higher — about 35% — in Northern California versus Southern California, for the same coverage.

The study didn’t point a finger at Sutter Health specifically, but it did call attention to the fact that hospital ownership is much more highly concentrated in Northern California.

To date, dozens of lawyers have made thousands of filings in the Sutter Health case, and the first juror is only about to be chosen.

We’ve witnessed the creation of some colossal health systems in the last decade, and it seems that almost every week hospitals somewhere in the country are merging or being scooped up by larger health systems. Sometimes it’s the only way for a smaller hospital to survive.

And in some ways, consumers might benefit: better access to care, more coordinated care, more efficient processes, improved outcomes, and so forth. At least that’s the spin that’s put on virtually any merger between or acquisition by hospitals and health systems. Most of the time, potential savings through greater efficiencies are touted as well, along with lower costs for patients.

But in markets where there’s a monopoly, the dominant health system can rack up billions of dollars in profit — often at the expense of the patients it serves, or employers who foot most of the bill. The Sutter lawsuit points out that the health system’s assets more than doubled between 2005 and the end of 2016, increasing from $6.4 billion to $15.6 billion, The Associated Press reported.

If Sutter loses the lawsuit, it could end up paying almost $3 billion, according to the AP. But rather than negotiating a settlement, as Atrium Health and CHI Franciscan both did in similar antitrust litigation, Sutter’s going to fight. The health system contends that the lawsuit is really about insurance companies that want to amplify their own profits.

“The bottom line is that this lawsuit is designed to skew the health care system to the advantage of large insurance companies so they can market inadequate insurance plans to Californians,” said Amy Tan, Sutter’s health director of public affairs.

Everyone plays the blame game. Insurance companies, drug manufacturers, and pharmacy benefit managers blame one another for obscenely high drug prices. Providers and insurers blame each other for soaring costs for patient services. But no matter who’s to blame, it’s almost always the consumer who loses.

We’ll be eager to see how this case plays out. Plenty of others will be watching, too. Be sure to stay tuned.

What else you need to know
Lafayette General Health will merge with Ochsner Health System, building on an established clinical affiliation between the two health systems. In a press release, the organizations said their respective boards have signed a letter of intent regarding the merger, which, with 33 hospitals between them, will create the largest health care provider “in the Gulf South.” Per their agreement, Lafayette General will serve as the regional health care hub in Southwest Louisiana for the statewide health system, and Ochsner will invest $365 million in that area over the next decade. Following a period of due diligence and pending regulatory approvals, the merger is expected to be finalized next spring. 

Earlier this month, Ochsner also announced a strategic partnership with Rush Health Systems; that health system includes seven hospitals and 23 primary care clinics in east Mississippi and west Alabama. Under that agreement, Ochsner will install and implement Epic electronic health information software across Rush Health Systems to coordinate care and provide patients with better access to their health information. Patients at Rush Health Systems will also gain greater access to Ochsner’s telemedicine capabilities. 

CMS finalized a rule last Monday for implementing Medicaid disproportionate-share hospital (DSH) payment cuts; DSH funding helps offset hospitals’ uncompensated care costs, which are likely to increase as the numbers of uninsured and underinsured people continue to rise. The agency plans to trim $4 billion from state Medicaid DSH payments in the upcoming fiscal year, which begins on Oct. 1, and $8 billion per year thereafter, through 2025. On Sept. 19, the House of Representatives passed a continuing resolution (CR) to fund the federal government that included a provision to delay the funding cuts until Nov. 21, and the Senate passed a similar CR last Thursday.   

Connecticut is working to create the state’s first network of Centers of Excellence. A news release from State Comptroller Kevin Lembo’s office said a search and RFP process led the state to choose Remedy and Health Advocate to establish a regional network of Centers for Excellence for “certain complex planned medical procedures,” and Carrum Health to provide access to a national network of Centers of Excellence. The model builds off of a provision that allows the state to provide incentives to participants in Connecticut’s state health plan in exchange for using high-quality health care facilities. 

Amazon is piloting a virtual health clinic called Amazon Care for employees and their families who live in the Seattle area and are enrolled in an Amazon health insurance plan. Employees can get information, a diagnosis, treatment, and referrals through an “in-app” video visit with a physician or nurse practitioner. They can also use a mobile app or website to see a health provider, and those who need additional care can have a nurse pay them a home visit. If prescription medications are needed, those can be delivered to the employee or picked up at a preferred pharmacy. Amazon has partnered with Oasis Medical Group to provide the health care services. 

RWJBarnabas Health and St. Luke’s University Health Network signed a three-year clinical affiliation agreement with the primary goal of expanding care to patients in northern New Jersey. The organizations, based in West Orange, N.J., and Bethlehem, Pa., respectively, will participate in each other’s clinically integrated networks, share access to electronic medical records (when permitted by law), and work together to create evidence-based clinical programs. They also plan to collaborate on expanding educational opportunities. 

CVS is launching a new pharmacy solution designed to give patients quicker access to specialty drugs, Fierce Healthcare reported. The program has two components: Specialty Expedite, which addresses prior authorization and onboarding, and Specialty Connect, which lets members choose to receive their medications at a CVS pharmacy or by mail and offers electronic communications about the prescriptions.

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