fah hospital policy blog

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

The FAH Weighs in on Health Care and Competition

May 29, 2014 | FAH Hospital Policy Blog

Category: Realignment, Transparency, Uncategorized

This afternoon, the National Academy of Social Insurance (NASI) hosted a panel featuring Keith Pitts, Vice Chairman of Tenet Healthcare Corporation and Chair-Elect of the Board of Directors of the Federation of American Hospitals. Pitts is the second FAH representative in just two weeks to have the opportunity to speak on a panel focusing on the important topic of competition in healthcare. The FAH is pleased that the voice of hospital systems and our esteemed leadership is included in these critical discussions.

With his extensive experience in financial and operational management of health care systems, Pitts was the only panelist with a view from inside a hospital’s doors. Hospitals are directly responsible for patient care, and as caregivers of last resort, we are reminded every day about the importance to community health care of extending and preserving access to care.  This perspective is critical to better understanding the steps hospitals are taking to ensure delivery of high quality health care in the most efficient way possible.

In the evolving health care marketplace, hospital realignment often is an essential method of preserving access to care and improving health care quality and efficiency.  Many of the other panelists presented only a partial picture of hospital realignment, overlooking the need to preserve access and basing presumptions and conclusions on common misconceptions and old data reflecting market conditions that were vastly different than what exists today.

Pitts painted the broader picture, emphasizing that a conversation surveying the last few decades is ineffective in understanding the current health care marketplace we are experiencing today. “The interesting thing about this discussion looking at the last 20 or 30 years, we are seeing a markedly different environment now…. We’re in a different world today. When we think about policy we can’t always use history to determine what we should do moving forward,” Pitts said.

The changing health care market landscape and is shifting towards a model of more integrated and coordinated care. Hospitals operate in an environment where dramatic public sector reductions in hospital funding make it difficult to adjust to this changing delivery system while investing in costly but important health IT systems. The reality is that hospitals must adapt to survive and continue serving their patients. Consolidation, mergers and other realignments can help achieve lower costs while increasing quality and improving access to care.

Earlier this year, the FAH commissioned a comprehensive review from the Center for Healthcare Economics and Policy to examine contemporary hospital consolidation, which reviewed 75 studies spanning the years 1996-2013, as well as 36 primary sources. The study found that the biased perception of hospital realignment stems from 20 year old data, and that current realignments provide significant benefits for patients and communities, including:

   * 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; and,

   * More competitive health care markets.

The report also found no consistent statistical relationship between realignment and hospital price increases and that, in some cases, without realignment there would be disruptions in emergency services, other service lapses and hospital closures.

FAH_Reality of Hospital Realignment_Effective Oversight_Infographic

The Federal Trade Commission (FTC) is active in reviewing mergers that could potentially have anticompetitive implications, yet the vast majority of mergers have been permitted over the last five years on the basis that they do not impede market competition. However, mergers are not rubber stamped.  In fact, the Federal Trade Commission has successfully challenged recent mergers. Two such examples include:

    *In April 2014, a federal appeals court ordered the unwinding of a 2010 merger between ProMedica, a nonprofit health-care system based in Toledo, Ohio, and St. Luke's, an Ohio community hospital.  The court agreed with the FTC that ProMedica's dominance in the    relevant markets would give it leverage to demand higher rates.

    *In January 2014, a federal district court ordered the unwinding of St. Luke’s Health System’s 2012 acquisition of Saltzer Medical Group, Idaho’s largest independent, multi-specialty physician practice group.

In the Idaho case, the court recognized that the health care landscape is changing and suggested that although long-standing antitrust law prevented the court from deciding in favor of the merger, the best result in this case would be to allow the merger to proceed while monitoring the result.

The court’s message is clear:  the new world order in health care requires greater flexibility to test new care delivery models to meet the needs of the current marketplace. Indeed, it may be prudent to take a cue from the court in St. Luke’s/Saltzer and allow mergers to proceed, while monitoring them for anti-competitive results. Wholesale changes in federal antitrust enforcement policy are not appropriate at this time.

In a further step acknowledging the changing landscape, the FTC recently held a comprehensive public workshop, Examining Health Care Competition, to solicit the views of policymakers and the public. The FAH recently sent a letter in response to this workshop, to outline our perspectives and flag the aforementioned study for the FTC’s review.

As the health care landscape continues to evolve, it is important to present the topic of hospital realignment and health care competition more holistically and to address the total landscape, rather than just discussing pricing impact without the broader context of why realignments are necessary in today’s marketplace.