FTC Ramps Up Efforts Against Hospital Consolidation in Wake of Rising Costs

In June 2024, a class-action lawsuit against Hartford HealthCare (HHC) in Connecticut exposed the reality of hospital consolidation: dramatically inflated medical costs. The lawsuit claims that Hartford HealthCare, a dominant force in Connecticut's healthcare landscape, leverages its market power to overcharge for medical services, such as colonoscopies which cost $3,800 at HHC’s St. Vincent’s Medical Center compared to just $1,400 at nearby Bridgeport Hospital, owned by Yale New Haven Health. This drastic difference in pricing underscores a broader, concerning trend impacting the U.S. healthcare system, and the Federal Trade Commission (FTC) is taking notice.

Hospital consolidation has been reshaping the healthcare system, characterized by a surge in mergers and acquisitions—from horizontal and vertical mergers to cross-market consolidations. The American Hospital Association notes a significant uptick in such activities, with over 2,000 mergers since 1998. This trend has led to an increase in the number of community and nonprofit hospitals integrated into larger systems, rising from 53% in 2005 to 68% in 2022, according to Kaiser Family Foundation research. Such market dominance has serious implications, limiting competition and choice, escalating costs, and potentially degrading the quality of care provided to patients.

The Detrimental Impacts of Hospital Consolidation

Higher Prices

Hospital consolidation typically results in higher healthcare costs, affecting patients, employers, and taxpayers through reduced competition. Mergers provide hospitals greater leverage over insurance negotiations, often leading to increased prices. Research has shown that hospitals in concentrated markets secure higher reimbursement rates, which drives up premiums and overall costs. A New England Journal of Medicine study confirms that acquisitions lead to higher prices for commercially insured patients, while a Harvard Business School report indicates cross-market mergers also contribute to rising costs. In areas with high hospital concentration, Marketplace insurance premiums are 5% higher than in less concentrated markets. Hospitals without nearby competitors can charge prices 12% higher than those in competitive markets, imposing a significant financial burden on patients. Given that hospitals constitute 42% of Americans' premium dollars, a 12% price increase translates into more than $1,000 annually for families and about $370 for single people on employer-sponsored plans. These price increases significantly burden consumers, especially under the strain of high-deductible health plans (HDHPs), exacerbating the healthcare affordability crisis. Making matters worse, even with regulations requiring hospitals to be transparent about their pricing, comparison shopping for healthcare services remains difficult. Inconsistencies in how hospitals present pricing information and a lack of standardization make it challenging for patients to accurately compare costs across different providers, further limiting their ability to make informed choices.

Reduced Access and Quality of Care

Despite potential efficiencies, evidence suggests consolidation may compromise care quality, affecting patient experience, mortality rates, and service accessibility. A New England Journal of Medicine study noted a decline in patient satisfaction following mergers, without improvements in readmission or mortality rates. Experts from a Penn LDI seminar highlight that consolidation often leads to higher prices without quality gains, particularly impacting access in consolidated markets. Rural and underserved areas suffer most, experiencing reductions in essential services such as obstetrics, and even specialized services like pediatric care are curtailed, increasing wait times and pressure on remaining providers. This consolidation-driven reduction in services can translate into restricted access to care for patients. Longer wait times for appointments, the need to travel greater distances to find available specialists, and the closure of facilities in underserved communities all create significant barriers to receiving timely and appropriate care.

Negative Impacts on Healthcare Workers

Consolidation also detrimentally impacts healthcare workers by typically leading to lower wages, heavier workloads, and reduced job mobility. Hospitals gain market power that suppresses wages, especially for skilled professionals such as nurses. Increased workloads and staffing shortages result in burnout and higher turnover. Notably, a complaint by labor unions against UPMC highlighted anti-competitive practices that worsen working conditions for healthcare staff.

Ethical Concerns

The ethical implications of consolidation are profound, often prioritizing profit over patient care, exacerbating health disparities and limiting access for marginalized communities. The closure of services in economically disadvantaged areas or restrictions imposed by new owners can severely impact vulnerable populations. As noted by Penn LDI, such practices especially affect low-income women and rural residents, challenging the foundational ethics of healthcare.

These issues underscore the need for a high level of scrutiny around mergers and policies that prioritize patient care quality, affordability, and fair labor practices in the face of ongoing hospital consolidation.

The FTC’s Fight Against Anti-Competitive Mergers

Amid growing concerns about the negative effects of hospital consolidation, the Federal Trade Commission stands as a key defender of patient interests and market competition in healthcare. Under the Biden Administration, the FTC has intensified its stance against anti-competitive mergers, demonstrating a strong commitment to safeguarding consumers from the adverse outcomes of unchecked consolidation.

The FTC has notably succeeded in obstructing several hospital mergers recently. For example, in June 2024, Novant Health in North Carolina canceled its acquisition plans for two hospitals after the FTC argued that the deal would create near-monopoly conditions, leading to higher prices and diminished care quality. Other successful FTC actions include blocking RWJBarnabas Health's merger with St. Peter’s Healthcare System in New Jersey in June 2022, and a similar intervention in March 2022 against a merger between Hackensack Meridian Health and Englewood Healthcare Foundation.

These victories highlight a shift towards more assertive regulatory actions, reflecting the FTC’s renewed vigor under the Biden Administration’s directives. In July 2021, President Biden issued an executive order encouraging greater antitrust enforcement to foster a competitive healthcare marketplace. This order critiqued the rampant hospital mergers and directed the FTC to enhance its antitrust enforcement, even allowing for the retrospective challenge of mergers that might have anti-competitive effects.

As per Kaiser Health News reports, this directive has rejuvenated FTC efforts, increasing the agency’s readiness to tackle hospital mergers that might have previously been overlooked. ProPublica’s analysis indicates a significant uptick in enforcement, with the FTC blocking four mergers in the first two years of Biden’s presidency, compared to fewer than one per year during the previous administration.

Evolving Enforcement Strategies

The FTC is also broadening its enforcement strategies, exploring new legal theories and focusing more on diverse aspects of market competition, including labor markets. FTC Chair Lina Khan emphasized in December 2021 the importance of examining how mergers affect not just prices but also employment conditions, highlighting the potential of increased antitrust actions to improve pay and working conditions for healthcare workers.

Moreover, the FTC is scrutinizing vertical mergers more closely, such as those involving hospitals acquiring physician practices, which had traditionally been perceived as beneficial for efficiency. Recent studies, however, suggest these mergers might increase prices and reduce competition, as hospitals gain more control over referrals and insurer negotiations.

This proactive approach by the FTC, fueled by the Biden Administration’s push for more competition, marks a potential turning point in the battle against the detrimental impacts of hospital consolidation. This shift underscores a comprehensive strategy to protect competition and patient welfare in the healthcare sector.

Limitations of Current Enforcement Mechanisms

Despite the FTC's strong stance against anti-competitive hospital mergers, the agency confronts significant barriers that hinder its effectiveness in tackling consolidation. These challenges stem from outdated guidelines, limited resources, and the complexities of proving competition harm in complex healthcare markets.

The FTC's enforcement focus has been predominantly on single-market mergers, as per guidelines last updated in 2010. This approach overlooks the rising trend of cross-market mergers, where healthcare entities expand across different regions, enhancing their market power and leverage over insurers. The effects of these mergers can significantly diminish competition even without direct geographic overlap.

Moreover, stagnant funding levels have strained the FTC's capacity to adequately investigate and legally contest the growing volume of hospital mergers. According to ProPublica, the agency's budget constraints limit its ability to hire necessary expert staff and sustain prolonged legal battles against well-funded healthcare giants. Consequently, many potentially harmful mergers proceed without challenge, consolidating markets further and reducing competition.

Challenging cross-market mergers in court presents its own set of hurdles. These cases tend to lack solid legal precedents, complicating the FTC's task of demonstrating their anti-competitive nature. The nuanced market dynamics involved, such as insurer behavior and potential spillover effects, add to the complexity, making it difficult for the FTC to establish clear legal grounds for opposition.

To truly curb anti-competitive hospital mergers, the FTC needs updated guidelines that reflect the realities of cross-market mergers, increased funding for enforcement activities, and innovative legal strategies to tackle these complex consolidations effectively.

The Medical Credit Card Blind Spot

As policymakers and regulators grapple with the complex issue of hospital consolidation, a related problem is emerging that demands attention: the proliferation of medical credit cards and their disproportionate impact on vulnerable patients. These financial products, often promoted by healthcare providers themselves, are creating a new avenue for medical debt, trapping patients in a cycle of high-interest payments and jeopardizing their financial security.

The Consumer Financial Protection Bureau (CFPB) reports a staggering growth in medical credit card use, with the number of cardholders nearly tripling in the last decade. From 2018 through 2020, Americans charged almost $23 billion in healthcare expenses to these cards, accumulating over $1 billion in deferred interest payments alone. This trend is particularly concerning for older Americans, whose unpaid medical debt has surged in recent years, reaching $53.8 billion in 2020.

The promotion of these cards by healthcare providers, who often receive financial incentives from credit card companies, raises serious ethical concerns. Patients, facing the stress of a medical diagnosis or treatment, are particularly vulnerable to persuasive sales tactics and may not fully understand the complex terms of these credit products. This practice is especially egregious when providers push these cards onto patients who might be eligible for financial assistance programs (FAPs), designed to help low-income patients cover medical expenses.

To protect patients from predatory medical credit practices, policymakers must implement regulations. This includes prohibiting deferred interest promotions, capping interest rates on medical credit cards, requiring clear and conspicuous disclosures of terms and conditions, and strengthening enforcement of FAP requirements to ensure eligible patients are aware of and receive the financial assistance they deserve. We must address this blind spot to prevent unnecessary medical debt and safeguard the financial well-being of vulnerable Americans.

A Multi-Pronged Policy Strategy

Addressing the pervasive effects of hospital consolidation requires a comprehensive strategy aimed at fostering a competitive, patient-centered healthcare system. This strategy must include bolstering antitrust enforcement, revising payment models, regulating medical credit practices, and empowering patients as informed consumers.

Strengthening Antitrust Enforcement:

The FTC's current efforts, while commendable, fall short in tackling the full breadth of consolidation issues. As discussed, guidelines need updating to address cross-market mergers explicitly. This includes assessing the broader implications of mergers that impact common customers across different markets. Congress should also enhance FTC funding, enabling more investigations and legal actions against complex healthcare mergers.

Reforming Payment Models:

The prevailing fee-for-service model, which rewards quantity over quality, exacerbates consolidation as providers seek greater market dominance. Transitioning to shared-risk and population-based payment models, as suggested by the Health Care Payment Learning and Action Network, would incentivize providers to prioritize care quality and efficiency. Supporting smaller providers in this transition is necessary, including offering infrastructure investments and adapting risk arrangements to ensure their viable participation in value-based care.

Empowering Patients as Consumers:

We have to empower patients to become knowledgeable consumers. This involves improving price transparency and access to comprehensive quality and performance data, enabling patients to make informed healthcare choices. Policies should also promote patient involvement in decision-making processes, ensuring treatments align with patient preferences and values.

Addressing Integrated Finance and Delivery Systems Concerns:

While systems integrating insurance and healthcare provision can enhance coordination and efficiency, they also pose risks of further consolidating markets and reducing competition. Regulatory oversight is essential to curb anti-competitive practices and ensure these systems do not disadvantage certain patient groups or perpetuate health disparities.

Conclusion

The Hartford HealthCare lawsuit exemplifies the repercussions of unchecked hospital consolidation. This trend, left unaddressed, threatens to compromise the accessibility and affordability of healthcare, deepening disparities and imposing undue financial strain on Americans.

The urgency for comprehensive healthcare reform has never been more apparent. It is time that all stakeholders — policymakers, healthcare providers, patient advocates, and the public — collaborate to redefine the priorities of our healthcare system. We must advocate for a system that values patient well-being above profit, promotes fair competition, and ensures that care quality is rewarded.

By taking decisive action and implementing targeted reforms, we can address the pervasive issues brought on by hospital consolidation. This collective effort is essential to fostering a healthcare environment that upholds the highest standards of equity and excellence, ensuring that all Americans have access to the care they need at prices they can afford.

340B Drug Discount Program: Here’s What Patient Advocates Need to Know

The 340B Drug Discount Program for years has had little attention, aside from a few Congressional Hearings. As we cited last month in a blog, 340B program purchases has more than quadrupled in the last decade, now exceeding Medicaid’s outpatient drug sales. This growth has disturbed the bargain made between manufacturers, providers, and lawmakers in 1992, often leaving patients out of the benefit meant to be gained by the program.

Because 340B is an exceedingly nuanced payment system design, lawmakers have been reluctant to touch the issue – fearing a need to “crack” into the legislation, lacking agreement on how to proceed, and having to balance interests that are often in conflict – preferring to leave the management of issues arising around 340B to the Health Services Resources Administration (HRSA), which then has the unfortunate duty to remind lawmakers, the agency’s statutory authority is limited, and their budget is not large enough for more meaningful oversight. As administrations change, so do the perspectives on how to ensure the intent of 340B, making sure poorer patients can afford and access outpatient medications and the care required to acquire those medications, is captured in how the programs actually operates. Leaving us with the current situation of competing interpretations and interests heading to the court system to find answers and settle disputes.

Part of this program growth is driven by hospitals as a type of “covered entity”; a 2015 analysis showed the program having grown from about 600 participating in 2005 to more than 2,100 hospitals in 2014. In fact, a 2018 Government Accountability Office report found “charity care” and uncompensated care provided by hospitals receiving 340B revenue had steadily been decreasing over the years. The Affordable Care Act has something to do with that – in extending Medicaid eligibility, the Medicaid qualified population grew and as enrollment grew, so did the amount if “disproportionate share” of Medicaid patients certain hospitals served. Ultimately, this meant more hospitals qualified for the 340B Drug Pricing Program than had prior to the ACA.

Another reason for program growth is an expansion of definition of “covered entities” to include contract pharmacies – which have grown as an industry – used by federal grantees like federally qualified health centers (FQHCs) and hemophiliac clinics. Tim Horn, director of the Health Care Access team at the National Alliance of State and Territorial AIDS Directors, described why it was necessary for this expansion, in particular to Ryan White clinics, serving communities affected by and vulnerable to HIV as opposed to limiting program qualification to those pharmacies run and owned by clinics themselves, “340B contract pharmacies are vital to Ryan White and other safety net providers for a couple of important reasons: they help ensure equitable access to affordable medications by uninsured clients, including patients who might live too far from a program's in-house pharmacy, and they help programs maximize their ability to generate essential revenue on prescription fills for insured clients.”

Regardless of entity type, most patients access care through a “payer” (health care insurance provider, be they public – like Medicaid managed care organizations – or private), who play a central role in the 340B payment system design. In turn, this means “pharmacy benefit managers” (PBMs - who sometimes also own the contract pharmacies in question) also play a central role, by designating schemes for how providers are reimbursed for care they’ve provided or medications that have already been dispensed. Jeffrey Lewis, a board member of Community Access National Network and President & CEO of Legacy Health Endowment, described how some PBMs engage in discriminatory practices by paying for 340B drugs at lower rates than non-340B drugs, reducing the benefit Congress intended to give 340B hospitals and clinics:

“340B providers receive less revenue than if 340B drugs are reimbursed at normal non-340B rates. That loss of revenue results in 340B providers having less money to underwrite the cost of providing uncompensated care, including serving uninsured or underinsured patients or providing services that insurers do not reimburse. PBMs, on the other hand, retain the difference between the 340B and non-340B payment rates for themselves. This program "benefit", which was intended to go to non-profit safety net providers, ends up going to for-profit PBMs instead. In this manner, PBMs' payment policies prioritize PBMs’ for-profit interests over 340B providers' non-profit missions to support public health.”

The center of one of the most pressing actions to date is “who’s job is it to make sure the rules are being followed?” with manufacturers being the first to move – by way of seeking the ability to require entities wishing to participate in 340B to provide additional claims data. Lewis points out that in a unanimous Supreme Court decision in 2011, courts had previously interpreted covered entities as lacking authority to seek enforcement against manufacturers, so the same must be true in reverse, requiring all parties to use a dispute resolution process dictated by HRSA. Indeed, the ruling even goes so far to cite the ACA’s directive for HRSA to issue a formal “alternative dispute resolution” process. However, HRSA failed to formalize this process in a final rule until December 2020. That rule is now part of a patch work of suits from manufacturers looking to the courts for clarity, with manufacturers arguing that statutory enforcement can’t be one-sided – if manufacturers must provide these discounts, someone should be ensuring the entities receiving these discounts are actually using them for patients and HRSA, by their own admission, doesn’t have the capacity to do so. Of note, Justice Ginsburg, who pinned the 2011 ruling in Astra USA, Inc., noted HRSA’s failure to bilaterally enforce the rules did not necessarily provide for a right of action by 340B actors.

Nonetheless, 340B remains a critical source of revenue for Ryan White clinics and other federal grantees already meeting the legislative intent of the program, at least generally better than other payer and provider actors in this scheme. As a result of sustainable federal funding and legislators prioritizing public health funding, federal grantees are scrambling – and manufacturers should consider how best to not harm the “good guys” in what ever actions taken next. Indeed, NASTAD’s Tim Horn stated:

“340B program revenue will always be an important – and dynamic – supplemental funding source for our HIV care programs, particularly where Medicaid has not been expanded and where federal and state funding is both limited and inflexible. A number of factors that have real or potential impacts on 340B…are now requiring serious discussions regarding the sustainability of program revenue generation. Simply put, we're not going to end HIV as an epidemic without significant and nimble funding required to support the myriad medical and support services associated with the best possible health outcomes. 340B revenue is a substantial part of this and, absent alternative funding streams to ensure that these programs remain whole, will remain the lifeblood of HIV service delivery in the United States.” 

Legacy Health Endowment’s Jeffrey Lewis agreed:

“The value and importance of the 340B program are well known. However, where there is ambiguity, it impacts both covered entities and patients. With the positive growth of covered entities to serve more people in need, Congress must take a thorough look at why 340B was created, its absolute value and tackle the tough questions where ambiguity may exist. Clarity is needed now more than ever to stop pharmaceutical companies from indiscriminately deciding whether and how to participate and prevent jeopardizing patients' lives. Similarly, Congress has an obligation to evaluate the role of PBMs and Third-Party Administrators (TPAs) operating in the 340B space and set a specific rule regarding revenue sharing. The 340B program was created to aid covered entities in serving more people in need. Unfortunately, every dollar taken by PBMs or TPAs reduces the ability of covered entities to care for more and more patients.

Clear legislative intent and rules are critical to ensuring program stability and, ultimately, safety net provider stability. Ryan White Centers, Hemophilia Centers, FQHCs, and rural hospitals as particularly vulnerable to Congressional, HRSA, and OPA ambiguity. The current and future failure to clarify the uncertainty of the 340B program jeopardizes patients and the financial stability of covered entities.”

While the finger-pointing on “who’s at fault” for an unsustainable program growth rages on and works its way through both the courts and the minds of lawmakers or who is responsible for drawing the lines in which manufacturers, providers, and payers can color inside of, the only thing clear is the population this program is meant to serve is not receiving as much benefit from the program as it should. We could say “patients” here, but that word apparently needs to be defined with regard to 340B. In the end, all stakeholders, outside of lawyered language, know exactly who has been harmed by bad actors in the 340B landscape. Everyone with power in this minefield would do well to remember that.

We invite you to download the 340B Final Report, issued by the Community Access National Network’s 340B Commission.