Behind The Bill To Curb Health Costs

Joan McGuire

New legislation seeks to stem the rise in health care mergers and acquisitions. 

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For Jenelle Isaacson, owner of Portland real estate brokerage Living Room Realty, purchasing health care insurance for her 20 employees has been a persistent frustration.  

In 2018 she purchased a plan with United Healthcare, but in 2019 the cost of coverage rose by 20%. Isaacson migrated to Health Net, but by the end of the year the cost of coverage increased by 20% yet again. For the third time in three years, Isaacson had to shop for insurance. 

“As a small business I have no leverage. I’m not like Amazon or Nike which can get insurance companies to work with them. It’s a lot of wear and pain,” says Isaacson. “Not just because of the cost but also staff time and resources dedicated to explaining the new benefits to employees.” 

To combat rising health care costs, Issacson joined the Purchaser Business Group on Health, an employer advocacy group, in support of House Bill 2362, the Equal Access to Care Act. The bill would require the Oregon Health Authority to approve mergers or acquisitions among health care systems. In a rare alliance between employers and labor unions, SEIU Local 49, a union, supports the legislation. 

Proponents of the act say limiting mergers and acquisitions is a necessary step to curb rising health care costs. But detractors argue mergers and rising health care costs are a response to broader challenges facing large and small health care providers. 

Typically, larger organizations absorbing smaller companies result in lower prices for consumers. But a 2018 study by the New York Times, a 2019 study by Georgetown University and a 2020 study by the Rand Institute showed health care company mergers led to increased coverage costs for employers, reduced wages for employees and diminished overall benefits.

“By gaining market share, hospitals and physician groups have monopoly power. This increases unit prices because there is no effective competition,” says Bill Kramer, executive director for health policy at the Purchaser Business Group on Health. “We’re not talking about the government setting prices or Medicare for All, but we need to restore balance in health care markets for healthy competition.”

According to a white paper released by SEIU Local 49, the number of independent hospitals in Oregon has declined by 43% since 2000. The coronavirus pandemic will likely accelerate the consolidation trend. A June survey by Advis, a national health care consultancy, found that three-quarters of health care executives expect physician groups and hospitals will turn to mergers and acquisitions over the next year as a result COVID-19 losses. 

Consolidation of health care systems does have some benefits for businesses and consumers. According to a report by the Commonwealth Fund, large providers were able to adapt to COVID-19 conditions more quickly than smaller, locally run providers. Telemedicine, electronic medical records and virtual ICUs, which allow medical experts from across the country to be in multiple intensive care units at once, were more readily available at large health care systems. 

The same Rand Institute study that concluded consolidation reduces access to health care in rural areas also found that without being purchased by a larger institution, many rural hospitals would not have survived. 

“In Oregon, most mergers and acquisitions are about preserving services in underserved and rural communities. We believe the bill will not achieve the goal of reducing costs since it places unnecessary and duplicative regulations on hospitals and the broader health care system,” said a spokesperson from the Oregon Association of Hospitals and Health Systems

“For years, proposed mergers have been actively reviewed by the Oregon Attorney General’s office, which has the ability to change the terms to ensure the transaction is in the public interest,” says the association. 

Consolidation of ownership was also shown to improve patient outcomes and reduce hospital operating costs by 2.3%, according to the American Hospital Association. But the same study concluded these savings were passed on in the form of higher costs to patients and their health care plans. 

Allison Bretz, director at Standard & Poor’s Global Ratings, says more options are necessary for a competitive health care market, but consolidation in the sector might be a matter of making ends meet. 

“There are revenue pressures as hospitals care for more Medicare patients and Medicaid rates generally remain flat. There are also ongoing expense pressures related to labor, supplies and drugs. All of these areas need to be balanced and have an impact on a provider’s revenues and expenses,” says Bretz. 

If the House Bill 2362 passes, partnerships between larger and smaller health care entities, or partial ownership agreements, could become a more profitable alternative to mergers and acquisitions. 

The American Hospital Association released a case study in 2016 on partnerships between health care entities, which found they are largely effective in reducing costs and improving efficiencies. One partnership, a collaboration between Anthem and seven regional California hospitals, launched a health maintenance organization called Vivity. By using the resources of the larger company and narrowly tailoring the HMO to suit a purchaser’s needs, Vivity was able to offer premiums between 10% and 20% below market average. 

“We’ve seen providers try different types of partnerships that are less integrated than full ownership and they continue to be meaningful and high-quality providers for their communities,” says Bretz. “There are other ways outside of full integration to get some of the benefits.”

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