Behind Congress' scrutiny of hospital M&A

The new focus on anti-competitive actions has already trickled into some pending legislation. Is this just the tip of the iceberg?

There is a significant amount of discussion about health care consolidation in Congress at the moment, and it is coming from both Democrats and Republicans.

• But it remains to be seen what, if any, legislation can actually get across the finish line, given the limited time left in the session and the political power of hospitals.
• Two House committees, Budget and Ways and Means, held hearings on consolidation last month.
• "I find myself in an awkward situation here where I agree more with the Democratic witness than in any other hearing," Budget Chair Jodey Arrington (R-Texas) said, pointing to Medicare payment reforms and site-neutral policies as a possible solution.

Can site-neutral payment reforms reduce incentives for consolidation?

Backers say the answer is yes.

• Currently, hospital-owned physician practices can charge more for outpatient care than independent physicians. A site-neutral system would even out the payments, regardless of the setting, and remove that incentive.
• "By reimbursing the same outpatient services at a higher rate when they're provided in hospital settings, they create an incentive for hospitals to acquire physician practices," said Zachary Levinson, project director of the KFF Project on Hospital Costs.
• "That may explain some of the increase in consolidation between physicians and hospitals over time," he added.

How do the concerns about consolidation intersect with efforts to overhaul the 340B drug discount program?

• The ability of providers to purchase drugs at a lower cost if they are affiliated with a 340B hospital also can provide an incentive for consolidation.
• "Under the 340B program, certain providers are essentially allowed to purchase drugs at a substantial discount, so that essentially creates an incentive for physicians to join a 340B entity like a hospital," Levinson said.

• There are multiple 340B efforts in the House, including one backed by the pharmaceutical industry that would codify the definition of a 340B patient and reset eligibility requirements for hospitals.
• A Senate working group aims to release a draft plan later this summer.

Forget future mergers — what, if anything, can be done to address the consolidation resulting from past M&A?

• It's certainly harder to go in and break up existing health care entities, which has not been the focus of Congress so far, as opposed to reducing incentives for future consolidation.
• "A challenge with policies that are intended to increase the competitiveness of health care markets is that many provider markets are already highly concentrated, and it's difficult to break up mergers after they've already occurred," Levinson said.

Further reading:

Hospital acquisitions draw House's attention

Unchecked hospital mergers increased health costs, study finds

2023's new trend: Consolidation angst

Ten things to know about consolidation in health care provider markets (KFF)