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The End of Merger Mania? Congress Eyes Response to Mergers and Acquisitions

May 29, 2024

Members of the Budget Committee of the U.S. House of Representatives met last week to discuss the topic of mergers and acquisitions within the healthcare space. The meeting was prompted by a growing concern on the part of many that such business practices are having a deleterious effect on cost, quality of care and patient access. According to one news outlet, a bipartisan consensus is emerging to the effect that something must be done to address this issue before medical costs are inflated even further.

Cause for Concern

Following a merger, hospitals can increase prices anywhere from 3 to 65 percent, according to a Rand review from 2022. The Budget Committee is particularly concerned about hospitals and health systems acquiring physician offices and other providers. According to some experts in the industry, if this trend continues, the independent physician practice in the U.S. may become a dying breed. Witnesses before the Budget Committee indicated that several factors come into play for physicians when deciding to sell their practices to hospitals and health systems. These include a need for greater leverage to negotiate higher reimbursement rates, a growing reticence to deal with administrative woes and the fact that Medicare reimbursement is falling.

According to health news aggregator KFF, the share of community hospitals affiliated with a health system increased from 53 percent in 2005 to 68 percent in 2022. Meanwhile, the American Medical Association (AMA) is reporting that the share of physicians working for a hospital increased from 29 percent in 2012 to 41 percent in 2022. That would appear to be a substantial uptick. Chapin White, director of health policy analysis at the Congressional Budget Office, stated that consolidation will likely continue at the same pace without intervention from the federal government.

Solutions Being Sought

One possible solution that’s been gaining support on Capitol Hill involves the implementation of co-called “site-neutral payments,” which means the equalization of payments for the same service regardless of the site in which the service occurred. At the present time, hospitals are incentivized to acquire physician offices, change their designation and bring in more revenue for providing the same care as those offices had been providing.

While such reforms enjoy widespread support among many in the healthcare community, hospital executives have expressed concerns that site-neutral policies don’t take into account differences between hospital outpatient departments and other sites of care. For example, they point out that their outpatient sites generally see sicker patients and have higher overhead costs. Nevertheless, last year, the health subcommittee of the U.S. House Energy and Commerce Committee interviewed Centers for Medicare and Medicaid Services (CMS) Administrator Chiquita Brooks-Lesure. During that hearing, members questioned Brooks-Lasure on why the government pays hospital-owned outpatient sites more than physician offices for the same services. It was reported that lawmakers on both sides of the aisle expressed support for enacting site-neutral payments, which are generally opposed by hospitals since they would reduce the facilities’ revenues.

This past December, the U.S. House of Representatives passed the Lower Costs, More Transparency Act, which seeks to equalize payments for Medicare drugs, regardless of whether they are administered in a hospital outpatient department or a doctor’s office. As of this writing, the bill has yet to be taken up by the U.S. Senate. According to one source, the bill would amount to a first step in curbing the consolidation trend. Based on the findings of a 2021 study by the Committee for a Responsible Federal Budget, implementing a site-neutral payment methodology across all inpatient and outpatient settings would save $153 billion in Medicare payments over a 10-year period.

Others have suggested additional remedies, such as reducing the current administrative burdens on physician practices. According to one source, the average clinician must spend more than a third of his/her time on non-clinical work due to various payer requirements (such as the various Medicare quality initiatives). This is thought to be one reason why so many in private practice are selling out to hospitals. It is to avoid the increasing demands of such administrative headaches.

According to HealthcareDive, some are looking into other possible solutions to the merger and acquisition trend, such as the following:

  • Congress could move to stabilize physician payments by tying annual Medicare payment updates to inflation. Recently, the Senate Finance Committee said it was interested in such a policy, which is supported by physician groups and nonpartisan Medicare advisors.
  • Lawmakers could also consider reforms to the 340B drug discount program. Currently, physician practices may feel pressured to join hospitals, in part, so they can buy drugs at the discounted prices that hospitals receive.
  • Congress could repeal the moratorium on physician-owned hospitals. Studies suggest physician-owned hospitals, which have been banned for over a decade over concerns doctors would refer care exclusively to their own facilities, could end up actually saving Medicare money in the long run.

Regardless of the remedies enacted by Congress or imposed by market or other forces, it looks as if the merger and acquisition frenzy of recent years could be coming to a close in the days ahead. Hospital executives, including CFOs, will need to take this into consideration when drafting their budgetary projections and financial forecasts.

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