Oregon health care companies may face more scrutiny from the state when they seek to merge with or buy hospitals, other providers and insurers.
House Bill 2362 would give the Oregon Health Authority the power to approve or deny mergers, affiliations and acquisitions that involve a gain of more than $1 million in net patient revenue annually or are among organizations that between them had an average of at least $25 million in total net patient revenue over the three preceding fiscal years. The bill aims to prevent health care industry mergers that could drive up prices for insurers and patients or reduce access to care.
Health care industry groups, including the Oregon Association of Hospitals and Health Care Systems, oppose the bill. They say the measure would impose unnecessary barriers to partnerships as well as create uncertainty, unintended consequences and added expenses. They say the wording means it could cover relatively small transactions.
But health care advocates and labor groups representing health care workers say the state’s rising health care costs after years of consolidation demand oversight to avoid monopolies that drive up prices. They also want to ensure that underserved minority or low-income populations and others aren’t left behind due to mergers.
The bill, heard Tuesday in the House Health Care Committee, comes at a transformational time for the health care industry. Health care providers are laser-focused on tackling COVID-19. But at the same time, the pandemic has put financial strain on clinics and providers that were forced to temporarily stop doing elective procedures during 2020 and now are retooling their systems to continue delivering care as COVID-19 persists. In the long-term, industry observers expect the pandemic will spark more mergers and acquisitions, particularly among smaller providers unable to withstand the economic pressures of the past year.
Meanwhile, Oregon is making a push to rein in health care costs that began before the pandemic in response to rising costs that have outpaced inflation. Health care costs have increased nearly 29% in the last four years, alarming Oregon policy makers as premiums go up and employers pass more costs on to their workers. The state’s Implementation Committee for Oregon’s Sustainable Health Care Cost Growth Target Program has recommended Oregon cap per-capita health care cost growth at 3.4% annually, which would cut the current growth rate in half. That proposal, now before lawmakers, would hold insurers and providers accountable if they exceed the cap in multiple years.
“Oregon has an expensive, inequitable health care system,” said Rep. Andrea Salinas, D-Lake Oswego, and a sponsor of the merger-oversight bill.
“We need a system that puts patients at the center” of proposed mergers and acquisitions, she said.
The bill would put in place a process for the public to weigh in before the state signs off on mergers. An applicant would have to show how quality and access would improve under the merger, and state officials would examine the application to ensure that under-served groups like minority communities and low-income people are not adversely impacted.
Health industry mergers aren’t regulated in Oregon -- except for commercial insurers and coordinated care organizations, which handle Medicaid insurance for low-income residents. Currently, Oregon regulates commercial insurance mergers and acquisitions through the Department of Commerce and Business Services. The Oregon Health Authority oversees mergers of coordinated care organizations.
Lawmaker Open To Amending Bill
Salinas stressed the goal is not necessarily to reduce consolidations that make sense. Instead, the goal is to ensure that mergers don’t reduce quality or access to care, Salinas said.
“Having a public process and a lens upon which we are looking at equity would be helpful,” she said, adding that she realizes the bill is not yet perfect and that she is open to improvements.
As a next step, Salinas will put together a working group of people from both sides and come back with a new version of the bill later this session.
Mergers and acquisitions in Oregon health care started well before COVID-19 hit. In 2018, nonprofit PeaceHealth acquired for-profit ZOOM+Care, a network of primary and specialty care clinics, for an undisclosed sum. Portland-based nonprofit hospital system Legacy Health absorbed nonprofit Silverton Hospital in 2015. That year, Tennessee-based for-profit Quorum Health bought McKenzie-Willamette Medical Center in Springfield as part of a purchase of a roster of hospitals around the nation. The city-owned Ashland Community Hospital, in financial trouble, was absorbed into Medford-based nonprofit Asante Health Systems in 2013. In 2010, hospitals in Baker City and Ontario were absorbed by the non-profit Saint Alphonsus Health System.
Opponents Weigh In
The Oregon Association of Hospitals and Health Care Systems maintains the bill would threaten provider networks that keep critical access hospitals and health clinics open in rural and under-served areas.
“These organizations have long-standing community relationships and have fostered trust and partnerships with Medicaid and uninsured patients who rely on local, community-based care,” wrote Sean Kolmer, senior vice president of policy strategy with the industry group, to lawmakers. “HB 2362 would jeopardize productive affiliations with larger systems that provide necessary resources to keep doors open and services in communities.”
Kolmer also said the attorney general’s office already has the authority to monitor the industry for antitrust activities tied to monopolies. He encouraged lawmakers to reconsider putting the system in place now, when the industry is in the midst of a pandemic.
“In the middle of a pandemic, we should be fully focused on that work,” Kolmer told the committee.
Springfield-based insurer PacificSource also opposes the bill. The company, through its PacificSource Community Solutions arm, is the coordinated care organization that provides Medicaid insurance to central Oregon, the Columbia River Gorge, and Marion, Polk and Lane counties.
The bill duplicates regulatory processes already in place for insurers and coordinated care organizations, said Richard Blackwell, director of Oregon government relations for PacificSource, which has more than 500,000 members in four states.
“To achieve even higher levels of access to quality, affordable health care, providers may need to build innovative partnerships and structures that further integrate and transform health care systems, providers and payers. Achieving this health care transformation and integration of health care systems and payers in Oregon will ultimately suffer due to the uncertainty and costs of this proposed transaction review procedure,” Blackwell wrote.
Renton, Wash.-based Providence Health & Services also weighed in with concerns.
Jessica Adamson, director of government relations for the provider, said the bill as drafted could have unintended consequences. For example, with the $1 million threshold for net-patient income per year, that could potentially apply to the purchase of an MRI machine that would generate more than $1 million in billings a year, Adamson said, adding that Providence doesn’t believe that’s the intent of the bill.
Supporters Outline Cost Concerns
Health care advocates argue that Oregon’s rising health care costs necessitate oversight to keep costs down.
Once a merger is finished, it’s “nearly impossible” to undo the damage, Maribeth Guarino, health care advocate with Oregon State Public Interest Research Group, told lawmakers. In the Portland area, the share of physicians affiliated with health systems increased by 82% from 2016 to 2018. Meanwhile, the average silver-level health care plan premium for a 40-year-old in Portland rose from $300 per month to over $400, Guarino said.
The Service Employees International Union, which represents about 85,000 workers in Oregon and southwest Washington, also supports the bill.
The group released a 25-page report this month that analyzes the trend of consolidation in Oregon and nationwide. It found that independent hospitals in Oregon dropped from 28 to 16 since 2000, even as costs increased. In 2017, the Portland metro area had the 14th highest health care prices nationally among 124 metro regions, according to research the report cited.
In California, mergers have unfolded rapidly and costs have increased more than average at the larger providers between 2004 and 2013, the research found, citing a Journal of Health Care Organization report. That report found that overall California hospital prices increased by about 76%, but prices at the largest multi-hospital systems increased by 113%. That meant nearly $4,000 more in costs for each patient admission at the large multi-system hospitals than at other hospitals, according to the report.
That offers a lesson for Oregon, SEIU officials said.
"Oregon is in a good place to learn from that and to put some safeguards in place before it's too late,” Kirsten Isaacson, research director of the union, said in an interview.
Other states have stricter laws than does Oregon. Washington passed a law in 2019 that requires the health care industry to notify its attorney general of any “material transactions,” regardless of the dollar amount. Massachusetts passed a 2012 law that regulates mergers.
The Oregon Nurses Association, which represents 15,000 nurses, also backs the legislation. Less competition causes wage stagnation, the group said.
“We believe in strong worker protections that extend to ensuring that the labor market is not unilaterally manipulated through industry consolidation,” the group said in a letter to lawmakers. “This bill provides a process to identify adverse consequences to the workforce, small businesses, and the broader economy.”
The bill’s supporters also argue that purchases or mergers by faith-based providers can reduce access to reproductive services, including birth control, if the acquiring entity imposes religious restrictions on the acquired provider.
“Oregon needs a system that places patients at the center of all proposed health care deals, while also allowing flexibility to ensure successful partnerships,” An Do, interim executive director of Planned Parenthood Advocates of Oregon, wrote lawmakers.
You can reach Ben Botkin at [email protected] or on Twitter @BenBotkin1.