Payer/Provider relationships

The nation’s largest for-profit hospital systems by revenue — HCA Healthcare, Community Health Systems, Tenet Healthcare and Universal Health Services — reported mixed results during the third quarter of 2023, despite announcing strong demand for patient services.

With the exception of HCA, each operator reported lower profits in the third quarter compared with the same period last year. Health systems CHS and HCA reported earnings that fell short of Wall Street expectations for revenue.

Admissions rose across the board compared to the same period last year: Same facility equivalent admissions rose 4.1% at HCA , 3.7% at CHS and 0.6% at Tenet, and adjusted admissions at acute hospitals rose 6.8% at UHS. 

Although the for-profit operators began cost containment strategies earlier this year — recognizing that rising expenses, including costs of salary and wages, were pressuring hospital profitability post-pandemic — expenses also rose, with growth in salaries and benefit costs once again pressuring most operators’ revenue.

Hospital operators faced new challenges this quarter, executives said, including increased physician staffing fees and what hospital executives characterized as aggressive behavior from payers.

Hospitals highlight rising physician fees

Rising physician fees were a topic of concern on earnings calls this quarter, with executives reporting fees that were 15% to 40% higher compared with the same period last year.

Third-party staffing firms charge hospitals physician fees, a percentage of physicians’ salaries, on top of the salaries themselves. Physician fees are separate but related to contract labor costs, which plagued hospitals during the COVID-19 pandemic as they attempted to stem staffing shortages.

Hospitals typically contract specialty hospitalist roles — like anesthesiologists, radiologists and emergency department physicians — and incur associated staffing costs.

Physician fees at HCA, the country’s largest hospital chain, grew 20% year over year in the third quarter, according to CFO Bill Rutherford.

Physician fees were up by as much as 40% at UHS — making up 7.6% of total operating expenses this quarter and surpassing the company’s initial projections for the year, CEO Marc Miller said during an earnings call. Historically, physician fees accounted for about 6% of UHS’ total expenses.

Likewise, Franklin, Tennessee-based CHS attributed some of its third-quarter losses to "increased rates for outsourced medical specialists," according to a release on the operator’s earnings.

Tenet CEO Saum Sutaria noted that physician fee expenses were up 15% year over year, but said on an earnings call that the operator had spied rising physician fees during the pandemic, and had begun efforts to contain costs — including restructuring staffing contracts and in-sourcing critical physician services.

As a result, physician fee costs at Tenet had remained “relatively flat” from the second quarter to the third quarter this year, according to the Sutaria.

Physician fee increases may be a delayed consequence of the No Surprises Act, which went into effect in January of last year, experts say.

On an earnings call, UHS CFO Steve Filton said “the industry has largely had to reset itself” in wake of the law. Tenet and CHS executives echoed the sentiment, noting that the law had disrupted staffing firms’ business models and complicated payment processes.

The No Surprises Act prevents patients who unknowingly receive out-of-network care at an in-network facility from being stuck with unexpected bills. However, the act has had unintended ripple effects, experts say.

Staffing firms and hospitals allege that the arbitration process created to resolve disputes between providers and insurers is unbalanced and incentivizes insurers to withhold reimbursement for care. In an August survey, over half of doctors reported insurers have either ignored decisions made by arbitrators or declined to pay claims in full.

In other cases, a backlog prevents claims from being adjudicated at all. Last year, the CMS found the federal arbitration process had only reached a payment determination in 15% of cases. Federal regulators have been forced to pause and restart the arbitration process multiple times in the wake of federal court decisions challenging arbitration methodology.

Although the act went into effect more than a year ago, many hospitals are just now feeling the strain, said Loren Adler, associate director at the Brookings Institute's Schaeffer Initiative on Health Policy.

That’s because most insurers, hospitals and medical groups operate on three-year contracts, according to Adler. Staffing firms, which have struggled since the No Surprises Act was enacted, have passed on costs to hospitals as contracts come up for negotiation and insurers charge firms higher rates.

In the face of rising costs, some hospitals may opt to follow Tenet and CHS and in-source physicians — either to retain contracts with physicians who worked with firms that have folded or because the passing of the No Surprises Act makes outsourcing less attractive.

CHS hired 500 physicians from staffing firm American Physician Partners after the company collapsed in July. CFO Kevin Hammons said on an earnings call that hiring the physicians had saved CHS “approximately $4 million sequentially compared to the subsidy payments previously paid” to the staffing firm. 

However, in-sourcing may not be an effective cost containment strategy for all operators. HCA reported it was hemorrhaging money following its first-quarter majority stake purchase of staffing firm Valesco, which brought about 5,000 physicians onto its payroll. HCA CEO Sam Hazen said the system expects to lose $50 million per quarter on the venture through 2024, citing low payments as the primary issue.

Payer problems

Hospital executives also tied quarterly losses to aggressive behavior from insurers during third-quarter earnings calls.

UHS executives said payers were improperly denying high volumes of claims and disrupting payments to its hospitals, with UHS’ Miller characterizing insurers as “increasingly aggressive” during the third quarter. Though insurers had reduced their number of claims audits, denials and patient status changes during the early stages of the pandemic, payers were increasing denials and reviews, according to UHS’ Filton.

Tenet’s Sutaria said that claims denials were “excessive and inappropriate” during a third-quarter earnings call, adding that the hospital system was working to push back on the volume of claims denials.

Their number one strategy is to provide “excellent documentation” to refute denials quickly, Sutaria said.

Still, excessive claims denials can drive up administrative costs for hospitals, according to Matthew Bates, managing director at Kaufman Hall.

“That denial creates a lot more work, because now I have to deal with that bill two, three, four times to get through the denial process,” Bates said. “It starts to rapidly eat into the operating margins… [becoming] both a cashflow problem and an administrative costs burden.”

Executives across the four for-profit operators said they planned to negotiate with insurers to receive more favorable rates and limit the number of denials in subsequent quarters.

HCA’s Hazen said that it was important for HCA to maintain its in-network status with insurers “to avoid the surprise billing and that [independent dispute resolution] process,” but that it would work with its payers to get “reasonable rates” going forward.

Dive Brief:

• Doctors are accusing health insurers of ignoring surprise billing decisions passed down by third-party arbiters, or declining to pay them in full, according to Americans for Fair Health Care.
• AFHC, a recently formed clinician advocacy group, surveyed medical providers and found payers didn’t reimburse doctors in more than half of all awards from surprise billing decisions.
• Doctors also said payers rejected independent dispute resolution determinations as “unenforceable” and “not binding.”

Dive Insight:

The survey of more than 48,000 physicians in 45 states found payers are delaying award payments and sometimes completely denying them, which AFHC said risks destabilizing the No Surprises Act passed by Congress that went into effect early 2022.

No Surprises aims to protect consumers from pricey medical bills resulting from disputes between providers and payers, particularly when patients unknowingly receive care from an out-of-network provider at in-network facility.

The law creates a process for providers and insurers to resolve payment disputes by entering into baseball-style arbitration. A third-party arbiter picks one payment offer, submitted by either side, as part of the independent dispute resolution process.

That process started last year but quickly ran into a number of roadblocks, including a backlog in disputes that can push decisions (and subsequent reimbursement for providers) back months as regulators received a tsunami of requests for intervention in billing disputes. In addition, provider groups have filed a string of litigation challenging the system that forced regulators to revamp how providers and insurers hash out disputes earlier this year.

According to AFHC’s survey, after the dispute resolution process, 33% of all claims paid were made in an incorrect amount; 52% of arbitration-determined payment amounts weren’t paid at all; and 49% of claims that were paid were ultimately paid late.

It’s the latest poll of physicians alleging insurers aren’t complying with arbitration decisions. Another survey of emergency room doctors conducted last year also found payers were ignoring or delaying dispute resolution claims.

The CMS did not respond to a request for comment on how many complaints they’ve received regarding the arbitration process.

Payers argue that No Surprises has also proved a significant burden on them, due to doctors appealing a large volume of billing decisions and requirements that they to update provider directories.

The law has not been entirely effective in preventing surprise bills, as one in five Americans still report receiving them. That’s in part due to exceptions to the law, including its exclusion of ground ambulances, despite them being a common source of out-of-network bills.

A committee formed by No Surprises to advise the HHS on how to prevent ground ambulance balance billing on consumers will meet later this month.

Dive Brief:

• The Biden administration is looking to force health insurers to come into compliance with a 2008 law that attempted to create coverage parity between mental and physical healthcare, as health plan roadblocks continue to curtail access to mental health services.
• The HHS and Treasury and Labor departments announced a new proposed rule on Tuesday that would require health insurers to analyze patient outcomes to ensure their benefits are administered equally, including evaluating provider networks and payments to out-of-network providers. The rule would also forbid plans from using more restrictive medical management techniques like prior authorization or narrower networks for mental health and substance use providers than those for other medical providers.
• Noncompliant plans would have to take remedial action, such as adding more therapists to their networks if patients seek out-of-network care too often. Payers could also face fines.

Dive Insight:

Insurers often make it more difficult to access mental healthcare than physical services. Plans might not have enough therapists in-network, forcing patients to turn to out-of-network providers and leaving them on the hook for high bills.

In other cases, insurers enact prior authorization, requiring patients to get permission before seeking mental health treatment, or denying claims for mental healthcare after the fact.

People with depression or anxiety have almost twice as much annual out-of-pocket spending than those without a mental health diagnosis, according to a Peterson-KFF tracker.

Meanwhile, about three in four insured adults who receive mental healthcare experience insurance problems.

The Mental Health Parity and Addiction Equity Act passed in 2008 was meant to ameliorate unequal access to mental and addiction care in the U.S.

The law mandates that financial requirements and treatment limitations, such as copayments or prior authorization requirements, for mental health or substance use disorder benefits can’t be more restrictive than those for all other medical or surgical benefits.

However, compliance with the law has been poor. A government report published last year found health insurers are still purposefully imposing treatment limitations on mental health and SUD benefits.

MHPAEA has proven difficult to enforce due to jurisdictional and resource challenges. The Department of Labor has primary enforcement jurisdiction over private group health plans, while the CMS has oversight over individual and fully insured group markets in some states, and over non-federal governmental plans in all states. Meanwhile, state insurance departments regulate the insurance plans that are purchased, whether by an insured group health plan or in the individual market.

States have had trouble enforcing MHPAEA compliance without additional federal support, according to the Georgetown University Health Policy Institute. A GUHPI report from 2022 found certain treatment limits, such as the use of prior authorization, provider reimbursement and formulary design, are especially difficult for state regulators to assess.

The new rule is meant to ensure that payers are providing adequate psychological treatment and investing in their provider networks, while closing loopholes that can compromise access.

Along with requiring plans to analyze their coverage quality and equity, the rule would require a larger number of plans, including non-federal governmental health plans, to comply with MHPAEA, according to the White House’s fact sheet on the rule.

Payers have argued that the country’s problems with mental healthcare access are not due to their coverage limitations, but because of rising mental illnesses tied with a shortage of mental healthcare providers.

More than 20% of U.S. adults have a mental health disorder, according to government data.

The American Medical Association, one of the largest healthcare lobbying groups in the U.S., voted to adopt new policies to advocate for issues facing the healthcare community during its annual interim meeting held in National Harbor, Maryland this week.

Delegates in AMA’s policy arm voted on policies aiming to increase access to obesity care drugs, reduce the corporatization of healthcare and urge flexibility in treatment options for opioid use disorder

Here are the key policies that have been approved thus far:

Coverage of GLP-1s

The AMA House of Delegates urged health insurance coverage parity for evidence-based treatment of obesity, including U.S. Food and Drug and Administration-approved glucagon-like peptide 1 agonists, or GLP-1 medications.

The medications, originally approved to treat diabetes, have been increasingly utilized as weight loss medications and may offer cardiovascular protections for those taking them. Some patients have been shown to lose up to 15% of their body weight, according to a study published in Nature.

However, many insurers have been reluctant to cover the drugs for weight loss, noting they have to be taken indefinitely to be successful. Currently, the cost of GLP-1s without insurance is over $12,000 annually.

Employers have been thus far reluctant to cover costs in plans. Only 25% of employers cover GLP-1s today, according to a recent survey by care delivery and navigation company Accolade, in part due to their price. 

Without assistance from insurers or employers, the cost of GLP-1s for weight loss can be a “significant access barrier” to people with obesity, the AMA said. Left as is, both the individual and system-wide costs of obesity, including the treatment of weight-related conditions and potential complications, would be “substantial,” the AMA warned.

The new policy is an “important step towards protecting the patient-physician relationship in determining the best course of treatment without barriers from payers,” the AMA said in a release.

Delegates urge ‘resistance’ to medical administrators

The AMA will advocate to resist corporate “encroachment of administrators” into medical practices, arguing that conflicting obligations between financial owners and clinicians have created tension between the two groups.

The association’s new policy seeks to rein in corporate oversight on medical decision making. The AMA noted that the growth of healthcare administrators — including chief medical officers and chief health officers — has surpassed the growth of clinical physicians in many practices, to the detriment of the field. 

The percentage of physicians working in private practices has continued to fall since 2012, as practices have been acquired by hospitals, private equity firms and payers. Corporate ownership is associated with higher patient costs and worse health outcomes, according to one study published in the BMJ.

Delegates expressed concern that, without pushback from physicians, providers may soon feel pressured to make medical decisions based on costs that will ultimately harm patients.

“Traditional physician autonomy in patient care is now being influenced by pressures motivated by cost versus high quality patient care,” said AMA Trustee David Aizuss in a release.

For example, physicians may feel pressured to recoup costs by admitting patients from the emergency department who could be treated as outpatients, according to the AMA.

“We must continue to oppose encroachment of administrators upon medical decision making of attending physicians that is not in the best interest of patients,” Aizuss said.

Flexibility for buprenorphine prescribing for opioid use disorder

The association called for an elimination of buprenorphine treatment dose limits for patients with opioid use disorder, arguing that the nation’s worsening opioid overdose epidemic necessitates prescribing flexibility. 

Current dose limits are out of date and don’t keep pace with fentanyl addictions, which require higher dosages of buprenorphine to treat, according to the AMA. Presently, physicians abide by strict dose limits set by payers based on drug labels approved by the FDA.

Fentanyl and other synthetic opioids claimed the lives of 109,000 people last year, according to the AMA. The advocacy group said physicians must be empowered to use their clinical expertise to treat the disorder — not be shackled by dosage constraints.

“Our colleagues in addiction medicine are seeing efficacy of using buprenorphine products at higher doses than the current FDA-approved labeling, but health insurers and others prevent patients from receiving this medication in a timely manner,” AMA Trustee Bobby Mukkamala said in a press release.

Dive Brief:

• Employers and private insurers paid 224% of what Medicare would pay for the same services at the same facilities across all hospital inpatient and outpatient services on average in 2020, according to a Rand study funded by the Robert Wood Johnson Foundation.
• Researchers found significant variations in those prices across states. For instance, Hawaii, Arkansas and Washington had relative prices below 175% of Medicare prices, while other states like Florida, West Virginia and South Carolina had relative prices at or above 310% of Medicare.
• Price variations by state are more attributable to hospital market power than each hospital's share of patients covered by Medicare or Medicaid, according to the report released Tuesday.

Dive Insight:

The findings illustrate just how broadly prices for healthcare services can vary based on a patients’ insurance coverage and which state they receive care in.

Despite recent price transparency regulations designed to help consumers shop around for services, employers that provide most private insurance often don't have usable information on prices negotiated with hospitals on their behalf, researchers wrote.

About 157 million Americans got health coverage through an employer or union in 2020, according to data from the Kaiser Family Foundation.

The latest figures are a slight improvement from Rand’s previous 2018 study, when employers and private insurers paid 247% more on average than Medicare for the same services and the same facilities, according to the report. That’s mostly attributable to a boost in the volume of claims from states with prices below the previous mean price, the researchers said.

For COVID-19 hospitalizations, employers and private insurers paid on average 241% more than what Medicare would pay in 2020, the report, based on claims data from over 4,000 hospitals and over 4,000 ambulatory surgery centers in every state except Maryland, found.

Researchers also found variations between different sites of care.

Looking at five common procedures done in both ambulatory surgical centers and hospital outpatient departments, the average price in the outpatient department was $6,169 while the average ASC price was $2,404.

While commercial prices for ASC services rose slightly faster than Medicare prices over the study period, they remained well below relative prices for the same services in hospital outpatient departments.

Employers and private insurers paid about 162% more than Medicare for common outpatient services done in ambulatory surgery centers.

But if ASCs were paid the same as hospital outpatient departments in Medicare, the prices for those services would have averaged 117% of Medicare payments, the study found.

The American Hospital Association pushed back on the findings, saying “researchers should expect variation in the cost of delivering services across the wide range of U.S. hospitals — from rural critical access hospitals to large academic medical centers,” according to a statement from CEO Rick Pollack.

The AHA also said the report looks at 2.2% of overall hospital spending, and the average price for hospital services declined as Rand added more claims in the latest report compared to past reports. Pollack said in the statement “you simply cannot draw credible conclusions from such a limited and biased set of claims.”

Dive Brief:

• Healthcare costs are expected to rise 7% next year as inflation drives providers to seek rate increases from insurers and pharmaceutical costs rise, according to PwC’s annual report.
• The consultancy, which surveyed actuaries at insurers that offer group and individual plans, said the increase outstrips its predictions for 2022 and 2023, which were 5.5% and 6% respectively.
• Some trends are pushing costs down, like the availability of more biosimilar drugs and a shift toward cheaper outpatient care. A number of other factors are expected to be cost neutral but key to watch, including health plans’ investment in value-based care, COVID-19 impacts, behavioral healthcare utilization, health equity initiatives, price transparency rules and Medicaid redeterminations, PwC said.

Dive Insight: 

Though inflation pressured the U.S. economy in 2022, its impact wasn’t felt as significantly in healthcare, an industry where many prices are locked in existing annual or multi-year provider contracts.

But providers continue to face workforce shortages and high labor costs, pushing them to seek higher reimbursement from payers to address financial shortfalls, PwC said.

Even if employment in the healthcare sector stabilizes next year, health plans are still expected to feel the blow as demand for care increases utilization. Both UnitedHealth and Humana recently flagged higher outpatient utilization than expected after patients delayed nonessential care during the pandemic.

High-cost drugs are also predicted to push increased healthcare costs next year, compounded by shortages and supply chain disruptions. The report pointed to new cell and gene therapies — many of which have been approved by the Food and Drug Administration in the past few years — and the rise of pricey GLP-1 agonist drugs for diabetes and obesity that have seen skyrocketing demand.

“New drugs typically exist in the market for 15 years on average without competition from generic drugs, along with general increases in drug prices over time,” the report’s authors wrote. “Multiple insurers report that the trend used for pricing 2023 plans was lower than actual experience, driven by higher-than-expected pharmacy trends for both brand and specialty drugs.”

But biosimilars — biologic medicine that’s very close to a previously FDA-approved product — could buck that trend. The report noted the lower costs for biosimilar products would have a modest impact in 2024, but most health plans surveyed had hopes of increased savings in the future.

Care provision shifting to cheaper outpatient sites, a trend accelerated by the pandemic, could also deflate costs, the consultancy found.

“With the increased demand for outpatient surgeries, home-based services and virtual care, the healthcare delivery system has reached a new phase,” PwC said. “Plans are factoring in higher utilization of less expensive in-person settings and virtual care going forward when pricing their 2023 plans and beyond.”

Dive Brief:

• UnitedHealth has rescinded a plan to require prior authorization for colonoscopies and other endoscopic procedures, following backlash from physician groups.
• UnitedHealth, which operates the biggest private health insurer in the U.S., was set to require prior authorizations for the procedures this week, but announced late Wednesday it was instead enacting an alternative advance notification process.
• Provider groups still slammed the new process, which requires doctors to collect and submit patient data to the insurer before most endoscopic procedures, claiming that it raised documentation requirements on physicians and is a glide path to stricter prior authorization policies.

Dive Insight:

The new advance notification process is the latest development in an ongoing back and forth between UnitedHealth, the parent company of payer UnitedHealthcare, and provider groups over prior authorization.

UnitedHealth was set to enact prior authorization for 61 endoscopy codes starting in June for its more than 27 million commercial beneficiaries. The payer argued the policies would hold physicians to evidence-based practices for clinically appropriate care.

However, after several meetings with provider groups, UnitedHealth agreed to temporarily postpone the prior authorization program in exchange for advance notification. UnitedHealth will run the pilot program collecting data for at least seven months, according to the American Hospital Association, which discussed the policy with UnitedHealth.

In the new program, UnitedHealth requires data in advance of care including member information, requested procedure and diagnosis, referring provider information and rendering provider information and site of service. The payer might also request other details of a patient’s condition or medical history.

The advance notification requirements apply to surveillance, diagnostic and non-emergent colonoscopy, esophagogastroduodenoscopies and capsule endoscopy procedures. They do not apply to screening colonoscopies.

UnitedHealth will not use the data to deny any procedures, and won’t deny any procedures for failure to notify, according to a spokesperson.

However, physicians have to participate in the advance notification process if they want to be considered for UnitedHealthcare’s gold card program, set to begin sometime in 2024. That program will allow certain providers whose prior authorization requests are consistently approved to perform most procedures without needing to get the health plan’s green light.

The AHA said it thinks the advance notification process is a better approach than prior authorization, but other medical groups took a harsher stance against the refocused policy.

The American Society for Gastrointestinal Endoscopy, the American College of Gastroenterology and the American Gastroenterological Association criticized the advance notification process in a meeting with UnitedHealth last week, arguing it requires the same amount of documentation as prior authorization and will have similar repercussions on patient access down the line.

UnitedHealth also hasn’t presented data showing overutilization of colonoscopies or endoscopies to justify the added paperwork, according to the AGA.

“UnitedHealthcare’s slap-dash approach to rolling out a policy that will ultimately control patient access to critical, often life-saving, medical procedures flies in the face of common sense and responsible medical practice,” AGA President Barbara Jung said in a Thursday statement.

The provider groups argue preserving quick access to gastroenterological care is integral, as colorectal cancer is the third most common diagnosed cancer and the second leading cause of cancer-related deaths in the U.S. Rates of colorectal cancer are also rising in younger adults.

UnitedHealth announced it planned to greatly reduce its use of prior authorization earlier this year amid a government push to streamline the policies, before unveiling plans to establish prior authorization for some gastroenterology procedures.

Federal antitrust agencies have proposed updates to U.S. merger guidelines that, if finalized, could free up regulators to more successfully crack down on consolidation in the healthcare industry, according to antitrust experts.

The new Federal Trade Commission and Department of Justice guidelines include a number of facets that regulators could use to target vertical and cross-market deals. The guidelines are likely to have a chilling effect on merger activity overall — at least temporarily, until corporate America sees how M&A challenges play out in the courts, lawyers said.

“These guidelines, if adopted, will result in greater scrutiny and raise the likelihood of more challenges overall,” said Jim Burns, an antitrust lawyer at Williams Mullen.

Although the guidelines are non-binding, they’re an authoritative roadmap that regulators use to decide which mergers to challenge. Courts also utilize them to determine the legality of proposed deals.

The guidelines haven’t been changed in upwards of a decade, sparking criticism that regulators have fallen behind on current market realities — including in the healthcare industry, where consolidation has been shown to drive up already sky-high medical prices.

Regulators have historically struggled to make a case against complex and non-traditional tie-ups, as many hospitals and health insurers pursue deals to differentiate income streams and retain more of patients’ medical dollars.

That could change with the new guidelines, experts said.

“I think there is an eye towards those type of mergers that the FTC was not successful in challenging [and] they’re providing more guidelines to potentially bring to bear in those types of situations,” said Pahl Zinn, an attorney at Dickinson Wright.

Vertical, cross-market deals

If the guidelines are finalized, antitrust regulators are more likely to challenge mergers they’ve had less statutory authority to pursue in the past, including vertical and cross-market deals, experts say.

Vertical mergers will not be allowed to create anticompetitive market structures, and regulators will examine vertical deals even when the merging companies are below a 50% market share, according to the new guidance.

The guidance on vertical mergers “is pertinent to healthcare in particular,” Zinn said. “The day-to-day reality for the healthcare industry is it’s going to enable the agencies to look at situations where large hospital systems are trying to integrate vertically.”

Vertical consolidation is a prevalent strategy among large insurers and hospitals, who have acquired physician practices to keep a greater share of revenue in-house and spur a shift to value-based payment arrangements.

The sector has seen a number of recent big-ticket vertical deals, including CVS’ $10.6 billion acquisition of senior-focused medical chain Oak Street Health and UnitedHealth’s $3.3 billion acquisition of home health and hospice provider Amedisys.

Hospitals and other corporate entities have also been buying physician groups in droves — currently, about three-quarters of U.S. doctors work for hospitals, health insurers or private equity firms.

Regulators could also have greater carte blanche to challenge deals spanning multiple states or markets under the new guidelines, experts say. Currently, existing statute gives regulators little leverage when analyzing cross-market deals, which have allowed health systems to evolve into multi-regional players while largely sidestepping antitrust enforcement.

The guidelines suggest that, if a proposed transaction appears to put an emerging party on the path towards becoming a monopoly — even if they’re not there yet — the deal could invite more antitrust scrutiny, according to Burns.

“Under traditional antitrust analysis, when two entities are not competitors at all, it’s typically pretty difficult to put forward a compelling argument to the courts on how this could actually substantially lessen competition,” Burns said. “This is the beginning of some sort of basis for making arguments on non-traditional transactions.”

Roll-ups, data consolidation

The FTC and DOJ are also targeting private equity roll-ups, where firms acquire and merge multiple small businesses into one larger company.

PE roll-ups have grown increasingly common in healthcare, despite controversy over negative profit-motivated effects on medical quality and cost, including at nursing homes and rural hospitals.

The new guidelines provide a hook for regulators to challenge roll-ups that may be anticompetitive by analyzing prior transactions and the possibility of future transactions, not just every transaction in isolation, according to antitrust experts.

By examining an entire series of deals, regulators could also invite greater scrutiny into hospital or retail health buy-ups involving multiple physician practices.

For example, Walgreens stepped into the medical delivery business by acquiring a majority stake in VillageMD in 2021, before going on to purchase New York-based medical chain Summit Health late 2022. Four months later, it acquired a Connecticut physician group.

Heightened scrutiny of multiple acquisitions could be a particular stumbling block for companies looking to pursue M&A, experts said.

“What will be funny is to see some of these behemoths — their growth and their strategy, all these shareholders of Optum and UnitedHealth, I don’t think they’re sitting on those assets expecting that they’re going to grow organically,” said Nathan Ray, healthcare M&A lead at consulting firm West Monroe.

Other transactions that could now face more scrutiny involve health technology and competitive data. Regulators recently failed to halt UnitedHealth’s $13 billion acquisition of Change Healthcare, which closed in late 2022 after the companies defeated a DOJ challenge in federal court.

Regulators had sued to block the deal over concerns UnitedHealth could mine data from billions of Change’s healthcare claims, including from its health insurance rivals.

“In [regulators’] view, they shouldn’t have lost any of those challenges,” Burns said. Presumably, “they feel that they will be much more likely to persuade courts going forward to take their side on merger challenges, and they won’t lose cases like UnitedHealth-Change.”

Regulators will scrutinize mergers that create a firm that controls products or services its rivals may use to compete and deals involving access to rivals’ sensitive competitive information, according to the proposed guidelines, which cite existing case law.

Those strictures could also be applied to cross-market mergers, according to Ray. For example, the merger of Michigan systems Spectrum and Beaumont wasn’t challenged by regulators because the two operators didn’t compete in the same geographic area, but the deal resulted in the consolidation of data, Ray said.

Eye toward labor, presumptive harm

Regulators also plan to place more weight on how a merger could harm workers, according to the guidelines.

In healthcare, for example, regulators could consider the impact on doctors and nurses as a result of a hospital merger, including whether concentration in the market might depress wages or give an employer too much power.

Research suggests that wage growth slows following hospital mergers due to shifting labor market power, and that physician income dips when their practices are acquired by hospitals.

“I think that is a significant factor, particularly as you’re dealing with areas of the healthcare industry where there’s a shortage in qualified labor, such as nursing,” Zinn said.

The guidelines also include lower market share thresholds for presumptive harm for mergers.

A horizontal merger could be considered illegal if the merged company has a market share greater than 30%, which is lower than what courts currently view as a high market share, Buchanan Ingersoll & Rooney lawyers Carrie Amezcua and Abigail Cessna said.

Comments on the guidelines are open until September. The changes are already facing opposition from the American Hospital Association, which said it plans to review the proposal and submit formal comments but doubled down on its previous stance that revisions to the guidelines were not necessary.

“Hospital mergers benefit patients and their communities in multiple ways, and the guidelines do not require major revisions,” AHA general counsel Melinda Hatton told Healthcare Dive.

The Biden administration has been turning up the heat on M&A in the healthcare industry. Earlier this month, the FTC withdrew antitrust policy statements that included safe harbors for hospital mergers. The agency has also proposed a change to pre-merger notification requirements to give regulators more time to review deals.

The proposals signal a willingness to modernize antitrust enforcement, but it remains to be seen whether the courts will buy into the agencies’ more aggressive approach — and whether they’ll stem the rising tide of M&A activity as companies pursue deals to weather a volatile economic and regulatory environment, antitrust experts said.

“Regulators are clarifying that the views they’ve expressed to the courts in the last several years are appropriate under prior precedent,” Burns said. “Corporate America might disagree.”

Dive Brief:

• Major hospital and payer associations put aside their numerous policy differences last week to co-write a letter to the CMS asking the agency to clarify conflicting rules they say would enact different data exchange standards for prior authorization reviews.
• The American Hospital Association, American Medical Association, AHIP and Blue Cross Blue Shield Association sent a letter to the CMS on Thursday arguing that two December proposed rules, if finalized, would “set the stage for multiple [prior authorization] electronic standards and workflows and create the very same costly burdens that administrative simplification seeks to alleviate.”
• The Administrative Simplification rule would enact standards around when payers and providers send healthcare attachments to support claims and prior authorization transactions. Meanwhile, the Interoperability and Prior Authorization rule includes different requirements for when government-sponsored insurers such as Medicare Advantage plans share information when processing prior authorization requests.

Dive Insight:

The CMS has been trying to streamline prior authorization, a process in which physicians request approval from an insurer for medication or treatment before administering it. Payers and providers have long been at odds over prior authorization. Providers cite it as a roadblock to timely patient care and a source of documentation burden, while health insurers say the requirements are necessary to curb unnecessary medical spending.

However, groups representing both sectors now agree on one thing — the government implementing mismatched provisions in rules that intend to standardize data exchange processes is bad for all parties involved.

“We are concerned by the conflicting provisions of [the rules] that would establish two different sets of standards and corresponding workflows to complete [prior authorizations], depending on the type of health plan,” the coalition wrote in its letter to CMS Administrator Chiquita Brooks-LaSure.

The Interoperability and Prior Authorization rule requires federally regulated health plans to offer application programming interfaces to support electronic prior authorizations relying on one data exchange standard, called HL7 FHIR. However, the Administrative Simplifications rule requires a combination of HL7 and another standard called X12, and would apply to all health plans, according to the letter.

“For federally regulated plans, this would require cross walking the two standards for no discernable benefit,” the groups argue.

The conflicting CMS provisions would cause “widespread confusion,” “slow implementation” and be “enormously expensive for both health plans and providers,” the letter says.

Some payers have been walking back prior authorization requirements, including UnitedHealthcare, which said in March it planned to eliminate almost 20% of its prior authorizations starting this summer. The payer also in June rolled back a plan to require prior authorization for colonoscopies and other endoscopic procedures, though it did enact an advance notification process opposed by providers.

Last year, CVS-owned Aetna rolled back prior authorization requirements on cataract surgeries, video EEGs and home infusion for some drugs.

More than a third of physicians say prior authorization requirements are to blame for a serious adverse event for one of their patients, including hospitalization, permanent impairment or death, according to a March AMA survey.

Almost half of the physicians surveyed said prior authorization leads patients to seek urgent or emergency care.

Providers will be forced to navigate a challenging year as they try to rein in expense growth fueled by pandemic-driven labor shortages.

This year’s outlook for a large chunk of the healthcare sector remains negative as inflation and pricier labor create difficult operating conditions for nonprofit providers, Moody’s Investor Service said. 

As a result, health systems and hospitals are likely to clash with insurers over desired rate increases to offset higher expenses and providers will look to increase their revenue as much as possible by bargaining for higher rates.

Even though insurers have fared better than their provider counterparts, companies are still expected to face some headwinds this year. Still, Fitch Ratings says the 2023 outlook for the insurance sector is neutral. 

A recession could also take a bite out of enrollment at the same time the government is poised to roll back consumer protections that kept millions enrolled in government-sponsored plans during the COVID-19 pandemic.

Losing members could put downward pressure on both the top and bottom line for insurers, analysts said.        

Providers likely to push for rate increases

How much will healthcare prices increase in 2023?  

“That's by far and away the number one thing that we all want to know about,” said Kevin Holloran, senior director of U.S. Public Finance at Fitch Ratings.

Providers feeling the pinch are going to fight for rate increases in contracts that come due this year, Holloran said, adding that the two sides are “wildly apart” so far, according to his discussions with providers. 

This year will be contentious as providers may opt to play hardball in bargaining for better prices and may walk away during negotiations, leading to out-of-network periods for patients, he said.

“It's going to be very bumpy, very contentious this year,” Holloran said, characterizing 2022 as a terrible year for most providers.

Unlike other industries, many healthcare providers were unable to raise rates as inflation soared to record highs. Providers are locked into multi-year payment deals with insurers, bolstering their desire for higher rates in coming years.

Labor pains continue

Labor shortages and pricey contract rates are continuing to strain providers, contributing in large part to mounting financial pressures.

High labor costs have made it harder for hospitals to post positive margins, Erik Swanson of hospital consultancy Kaufman Hall recently said in the firm’s latest flash report. 

“The big push is to get the agency contract labor costs out,” said Suzie Desai, senior director at S&P Global Ratings. 

Some of the nation’s most recognized health systems were dragged into the red last year, weighed down by increased labor costs, including Mass General Brigham, Cleveland Clinic and Intermountain Healthcare.  

The shortage is driven in part by burned out nurses who have left the bedside for other positions — or the industry entirely. Providers have had to turn to staffing firms to help fill the gap, with agencies commanding high rates amid demand to fill openings. 

Hospitals are not the only facilities short on workers. Effects of nursing home shortages are rippling throughout the sector. Patient hospital stays are unnecessarily longer as nursing homes struggle to take on more patients without more staff, serving as an added financial burden for hospitals. 

Eyes on utilization and commercial enrollment as possible recession looms

Some eonomists are expecting a recession to squeeze the U.S. economy this year and potentially spur job losses.

As a result, insurers may see a dip in enrollment, leading patients to think twice about seeking out healthcare services.

Health insurance coverage in the U.S. is tightly linked to employment, so job losses could pose a financial headwind for insurers if they result in coverage losses. 

Patients may be reluctant to spend money on copays and deductibles for healthcare services as the threat of a recession looms, especially as record-high inflation grabs a larger chunk of American paychecks.  

“Healthcare dollars are getting squeezed out of peoples’ budgets,” Jefferies Analyst Brian Tanquilut said.

Consumer confidence will also influence healthcare utilization, he added.

At one of the largest hospital chains, HCA Healthcare, volumes for this year are expected to be lower than historical averages, Tanquilut said.

However, the so-called tridemic — RSV, the flu and COVID-19 — could inflate volumes, especially if outbreaks are more severe. 

Medicaid enrollment expected to drop after pandemic protections end

Pandemic protections shielded millions from losing health insurance at the onset of the COVID-19 pandemic.

As a result, enrollment in Medicaid soared, increasing 27% to cover more than 90 million people, with states barred from removing people from the program due to the public health emergency.

Those pandemic protections are set to end in 2023, threatening to cut off access to care for millions. An estimated 5 million to 14 million are expected to lose coverage as states resume eligibility checks, according to the Kaiser Family Foundation.

For insurers like Centene and Molina, prior revenue gains, as a result of the pause on eligibility checks, are expected to deflate.

Analysts are keeping a close eye on how many members insurers will be able to convert from the Medicaid program to Affordable Care Act exchange plans.   

Home health push continues

Health insurers continued to place bets on the home health sector, an area that will remain a key focus in 2023.

“The crux of health insurance is keeping costs down,” said Dean Ungar, an analyst at Moody’s Investors Service. 

Home health aides have a unique advantage to temper costs by working in a member’s home, enabling them to ensure people are taking needed medications and checking on other factors that influence a person’s health.

“They can identify things that can prevent emergency room visits by just being proactive,” Ungar said. 

Some of the largest payers placed big bets on home health in 2022.

UnitedHealth Group signed a $5.4 billion deal to acquire home health provider LHC Group. The transaction is expected to close early this year.  

CVS signed an $8 billion deal to acquire home health provider Signify, beating out other potential acquirers, including Amazon.

These moves follow Humana’s bid for home health giant Kindred. Humana acquired the remaining stake of Kindred in 2021 for $5.7 billion. 

Medicare Advantage expected to surpass enrollment milestone

Medicare Advantage enrollment is expected to reach a milestone this year, exceeding 50% of the total Medicare population in 2023.

This change impacts providers too, as reimbursements rates can vary.   

Enrollment in MA plans has more than doubled since 2007, according to the Kaiser Family Foundation. Still, the program has faced continued criticism over financial incentives to make members appear sicker in order to increase monthly capitation rates.  

“I think the reason this is important is because it’s really a restructuring of the Medicare program,” said Jeannie Fuglesten Biniek of Kaiser Family Foundation. “As Medicare Advantage Plans play a bigger role, we see that there’s just a lot more variation introduced into what it means to have Medicare coverage.”