Two sys­tems seek state-sanc­tioned end to their health­care ‘arms race’

Modern Healthcare - - NEWS - By Phil Gale­witz, Kaiser Health News

“Com­pe­ti­tion is and should be the first choice, but in an area where com­pe­ti­tion be­comes ir­ra­tional and there are limited choices, there has to be a Plan B. If not this, then what?”

Alan Levine CEO Moun­tain States Health Al­liance

JOHN­SON CITY, Tenn.—Look­ing out a fourth-floor win­dow of his hos­pi­tal sys­tem’s head­quar­ters, Alan Levine can see the Ap­palachian Moun­tains that have de­fined this hard­scrab­ble re­gion for gen­er­a­tions.

What gets the CEO’s at­ten­tion, though, is nei­ther the steep hills in the dis­tance nor one of his 14 Moun­tain States Health Al­liance hos­pi­tals just across the park­ing lot. Rather, it’s a nearby shop­ping cen­ter where his main ri­val—Well­mont Health Sys­tem, which owns seven hos­pi­tals—runs an ur­gent-care and out­pa­tient can­cer cen­ter. Moun­tain States of­fers the same ser­vices just up the road.

“Money is be­ing wasted,” Levine said, not­ing that du­pli­ca­tion of med­i­cal ser­vices is com­mon through­out the north­east­ern Ten­nessee and south­west­ern Vir­ginia mar­kets where Moun­tain States and Well­mont have been in a health­care “arms race” for years, each try­ing to out­duel the other for the doc­tors and ser­vices that will bring in pa­tients and money.

The two not-for-profit sys­tems now des­per­ately want to end their fight and merge their 21 hos­pi­tals in a 13-county re­gion that’s among the sick­est and poor­est in the coun­try. To do it they are ask­ing per­mis­sion to form what is es­sen­tially a state-sanc­tioned mo­nop­oly. In ex­change, Moun­tain States and Well- mont prom­ise to use money saved from the merger to of­fer men­tal health and ad­dic­tion treat­ment ser­vices and at­tack pub­lic health is­sues such as obe­sity and smok­ing—ar­eas pre­vi­ously ne­glected by the sys­tems be­cause they don’t in­crease hos­pi­tal ad­mis­sions and bring in big rev­enue.

In re­cent years, hos­pi­tal merg­ers and ac­qui­si­tions have cre­ated huge health sys­tems that have used their near-mo­nop­oly sta­tus to de­mand high pay­ments from in­sur­ers and pa­tients. Stud­ies by health economists have re­peat­edly found that con­sol­i­da­tion means higher prices.

Fed­eral an­titrust reg­u­la­tors have be­come in­creas­ingly sus­pi­cious and have even blocked merg­ers deemed anti-com­pet­i­tive.

But the same cal­cu­lus may not ap­ply here and in other poor re­gions where a pre­pon­der­ance of pa­tients are poor or unin­sured, of­fi­cials from both Moun­tain States and Well­mont say.

Since 2014, they’ve spent

mil­lions of dol­lars on le­gal costs, pub­lic­ity cam­paigns and lob­by­ing ef­forts to tra­verse an ob­scure process un­der state law called a Cer­tifi­cate of Pub­lic Ad­van­tage, or COPA. Their prize: A co­op­er­a­tive agree­ment that they say will be good both for their sur­vival and for con­sumers and em­ploy­ers pay­ing the bills. If Ten­nessee and Vir­ginia reg­u­la­tors sign off, the Fed­eral Trade Com­mis­sion could not try to block the merger un­der U.S. an­titrust laws. State reg­u­la­tors would su­per­vise the merged com­pany for at least 10 years to en­sure the pub­lic gains more than it stands to lose from re­duced com­pe­ti­tion.

The states could rule on the mat­ter as soon as this month.

“The ques­tion that needs to be asked is whether tight state over­sight of a mo­nop­oly is bet­ter than failed com­pe­ti­tion,” said Robert Beren­son, a health pol­icy ex­pert at the Ur­ban In­sti­tute.

With­out their pro­posed merger, Levine said, both hos­pi­tal sys­tems would likely have to sell to an out-of-mar­ket chain, elim­i­nat­ing lo­cal con­trol of the fa­cil­i­ties and lead­ing to mas­sive lay­offs and the clo­sure of hos­pi­tals and ser­vices.

Op­po­nents such as the Fed­eral Trade Com­mis­sion and in­sur­ance gi­ant An­them are press­ing reg­u­la­tors to re­ject the merger, ar­gu­ing that less com­pe­ti­tion will lead to higher health costs and re­duced qual­ity of care. The FTC con­tends a full merger is un­nec­es­sary for the hos­pi­tals to ac­com­plish the ben­e­fits they say one will bring. The FTC even says the hos­pi­tals’ mar­ket prob­a­bly would be no worse off if one chain merged with a com­pany out­side the area.

The sys­tems are mak­ing big prom­ises to sell their deal. They say no hos­pi­tals would close for at least five years, al­though some could be con­verted to other types of health fa­cil­i­ties with fewer ser­vices. Af­ter the merger, all qual­i­fied doc­tors would have staff priv­i­leges at any of the hos­pi­tals in­volved so they could treat pa­tients. No sin­gle in­surer would pay lower rates than oth­ers. The new sys­tem would spend at least $160 mil­lion over 10 years to im­prove pub­lic health, ex­pand med­i­cal re­search and sup­port grad­u­ate med­i­cal ed­u­ca­tion for work in ru­ral ar­eas.

The FTC main­tains the sys­tems’ pledges are un­re­li­able and dis­missed them as hav­ing “sig­nif­i­cant short- com­ings, gaps and am­bi­gu­i­ties” in a de­tailed anal­y­sis filed with state reg­u­la­tors in Jan­uary.

Levine said it’s the best deal for the com­mu­nity given the fac­tors that hand­i­cap hos­pi­tals. They in­clude de­clin­ing pop­u­la­tions and lower Medi­care re­im­burse­ment rates (due to lower av­er­age wages). An­other is the cost of car­ing for unin­sured peo­ple—nei­ther Vir­ginia nor Ten­nessee ex­panded Med­i­caid un­der the Af­ford­able Care Act, which would have low­ered unin­sured rates.

“Com­pe­ti­tion is and should be the first choice, but in an area where com­pe­ti­tion be­comes ir­ra­tional and there are limited choices, there has to be a Plan B. If not this, then what?” he added.

The fed­eral an­titrust ex­emp­tion made pos­si­ble through a COPA dates to a 1940s U.S. Supreme Court de­ci­sion and has only been used about a dozen times to al­low hos­pi­tal merg­ers, mostly decades ago. There’s lit­tle schol­arly re­search on their re­sults.

But COPAs could be on the up­swing. Last sum­mer, the FTC dropped its chal­lenge to a merger of two West Vir­ginia hos­pi­tals af­ter the state adopted a COPA law and per­mit­ted the deal.

Blue Cross and Blue Shield of Ten­nessee, the state’s largest health in­surer, is not op­pos­ing the Moun­tain States-Well­mont com­bi­na­tion, a spokesman said. But its coun­ter­part in Vir­ginia, An­them, hasn’t been per­suaded.

“An­them does not be­lieve that there are any com­mit­ments that will pro­tect South­west Vir­ginia and North­east Ten­nessee health­care con­sumers from the neg­a­tive im­pact of a state-sanc­tioned mo­nop­oly,” the com­pany said in a state­ment.

The pro­posed COPA has strong sup­port among large em­ploy­ers in the re­gion, in­clud­ing Kingsport, Tenn.based East­man, a chem­i­cal com­pany with $9 bil­lion in an­nual rev­enue that em­ploys more than 7,000 peo­ple lo­cally. “We get lo­cal gov­er­nance, in­put and con­trol . . . and that’s a lot bet­ter sit­u­a­tion for us,” said David Golden, a se­nior vice pres­i­dent at East­man.

Levine said no place bet­ter sup­ports the case for a hos­pi­tal merger than Wise County in south­west­ern Vir­ginia, a scenic area with 40,000 peo­ple where three hos­pi­tals all op­er­ate be­low half their ca­pac­ity. Moun­tain States and Well­mont each own a hos­pi­tal in Nor­ton, the county seat with 4,000 res­i­dents. De­spite few pa­tients, the hos­pi­tals still bear hard-to-cut costs for build­ings, equip­ment and ad­e­quate staffing lev­els, Levine said.

On a re­cent week­day morn­ing, Well­mont’s fa­cil­ity, Lone­some Pine Hos­pi­tal, looked nearly de­serted. No vol­un­teers or staffers were vis­i­ble in­side its main en­trance and less than a fifth of its 70 acute-care beds were be­ing used.

A five-minute drive away, the 129 beds of Moun­tain States’ Nor­ton Com­mu­nity Hos­pi­tal are about a quar­ter filled. Its ma­ter­nity unit de­liv­ers fewer than five ba­bies a week. The hos­pi­tal of­fers hy­per­baric oxy­gen ther­apy—a treat­ment that pays well un­der Medi­care’s re­im­burse­ment rates—to help di­a­bet­ics heal their wounds. But it has no en­docri­nol­o­gists to help di­a­bet­ics man­age their dis­ease to avoid such com­pli­ca­tions. De­spite a high rate of heart dis­ease in the com­mu­nity, there’s no car­di­ol­o­gist on staff.

Whether a state-ap­proved merger will re­solve the in­con­gruities—here or in other poor re­gions—de­pends how firmly reg­u­la­tors hold hos­pi­tals to their pre-merger com­mit­ments. If the merger plan is re­jected, Moun­tain States and Well­mont will re­sume arch-com­pet­i­tive busi­ness prac­tices that do not al­ways put com­mu­nity in­ter­ests first, said Bart Hove, Well­mont’s CEO.

“It’s about com­pet­ing for the dol­lar in any way you can and ex­tract­ing a dol­lar from your com­pe­ti­tion,” Hove said. “You do what you can to drive pa­tients to your hos­pi­tal.”

Kaiser Health News, a not-for-profit health news­room whose sto­ries ap­pear in news out­lets na­tion­wide, is an ed­i­to­ri­ally in­de­pen­dent part of the Kaiser Fam­ily Foun­da­tion.

Op­po­nents such as the FTC and in­sur­ance gi­ant An­them are press­ing reg­u­la­tors to re­ject the merger, ar­gu­ing that less com­pe­ti­tion will lead to higher health costs and re­duced qual­ity of care.

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