Health Authority Seeks To Regulate Health Care Industry Mergers

The Oregon Health Authority wants the power to regulate the mergers and acquisitions of hospitals and other large health care providers as the industry faces consolidation amid economic pressures from COVID-19. 

Agency officials say the move is necessary to ensure consumer protections for Oregonians in the face of changes in the health industry. Consolidation can drive up patient costs. The authority’s request in its 2021-2023 budget proposal represents a shift from the current model in which the agency only reviews mergers of coordinated care organizations that provide Medicaid services.

Right now hospitals and health care providers are not required to seek the agency’s approval before a merger. As a result, the authority is unaware of any pending mergers but agency officials and industry experts expect consolidation to play out as small providers get squeezed during the pandemic and profit margins tighten up.

“There's really nobody that has a process for reviewing transactions for other parts of the health care system,” said Jeremy Vandehey, director of the Oregon Health Authority’s Health Policy & Analytics Division. “There’s no process to have anybody check for consumer protections.”

A report released in March found that patients with commercial insurance tended to pay more for coverage and care in markets with consolidation. Congress requested that report in 2018, well before the pandemic started.

As competition shrinks, a health care provider can gain a stronger bargaining position.

“Too often, when we see clinics consolidate or footprints shrink, patient choice can suffer and costs can go up because the clinic has stronger negotiating power,” said  Betsy Boyd-Flynn, executive director of the Oregon Academy of Family Physicians. Boyd-Flynn said every physician should be able to practice how they want to, whether that’s in their own clinical practice or as an employee.

The pandemic could push some companies toward change.

When COVID-19 hit Oregon in March, Gov. Kate Brown ordered hospitals and clinics to cancel lucrative elective procedures to preserve staffed beds for COVID-19 patients. That loss of business was coupled with higher expenses for personal protective gear, special air filtration systems and other expenses related to infection control. 

These pressures have exposed fault lines that already ran deep in the industry. Smaller practices have faced increasing infrastructure costs like data processing and administrative overhead that a larger provider can handle on a broader scale. 

“That was there for years,” said Jeff Luck, an associate professor of health management and policy at Oregon State University. “The pandemic starved small practices of revenue on top of that, so it wouldn’t be surprising if some physicians in smaller practices just said, ‘I can’t go on any longer. I don’t want to go on any longer.’”

The Oregon Health Authority’s proposal would require a change in state statute and $758,000 to cover the salaries and benefits for three staff members to review mergers and acquisitions.

The authority linked its proposal to its goals of better care, better health and lower costs and equity.  For example, the authority could allow a merger but impose conditions for the applicant, like quality outcomes and equity measures. The authority could deny a proposed merger on the grounds that it reverses the state’s progress toward quality affordable health care.

Vandehey said it’s crucial to have a review process before a merger takes place because there’s little an agency can do after the fact. 

“Once a merger or acquisition happens, it’s nearly impossible to unscramble the egg, if you will,” he said.

In the authority’s written proposal, officials warn that not moving forward with the change will lead to a “risk for greater consolidation in the market, which may result in increased prices without any increases in value, quality, or equity.”

The proposal would cover a variety of mergers and acquisitions in the industry, including any that involved  a hospital or hospital system. Business deals for providers and provider groups also would face a review if the merger would increase annual net patient revenue by at least $10 million. 

The proposal is modeled after a similar law in Massachusetts and Oregon’s existing law that regulates the merger of coordinated care organizations. The Department of Consumer and Business Services already regulates insurance industry mergers. 

You can reach Ben Botkin at [email protected] or via Twitter @BenBotkin1.




 

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