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Senator Urges FTC to Investigate Hospital Contracting Practices

The FTC should determine if healthcare M&A activity is prompting health systems to engage in anticompetitive hospital contracting practices, Sen. Grassley said.

Hospital contracting

Source: Thinkstock

By Jacqueline LaPointe

- Senate Judiciary Committee Chairman Chuck Grassley (R-IA) recently called on the Federal Trade Commission (FTC) to investigate whether hospitals and payers in the US are deliberately engaging in anticompetitive hospital contracting practices.

Grassley is requesting the look into hospital contracting processes after recent reports that hospital systems and payers are entering into restrictive contracts that prevent patient access to high-quality, low-cost care.

The Senator specifically pointed to a recent Wall Street Journal report that found major hospital systems in the US employ “secret contract terms to protect their turf and block efforts to curb healthcare costs.”

Researchers found that the secret hospital contract terms included provisions that payers include the hospital system in every health plan offered and policies that discouraged the use of lower-cost competitors. Major hospital systems also pushed for contract terms that allowed their organization to mask prices from consumers, restrict claim audits, add extra fees, and block efforts to exclude providers based on quality and cost.

“If true, these practices undermine Congress’s efforts to lower the cost of, and increase access to, health care for millions across the country…The last thing American patients and consumers need at this time is a healthcare system that permits or encourages anticompetitive agreements that hinder access to lower cost care,” Grassley wrote.

“It is critical for Congress to understand the FTC’s perspective on these issues, including whether contractual provisions—like those highlighted in recent reports—impact the cost of healthcare in the United States and whether consolidation in the marketplace magnifies the impact of such provisions,” the letter continued.

Healthcare merger and acquisition (M&A) activity is already at an all-time high. Healthcare consultant Kaufman Hall reported 115 merger and acquisitions transactions were announced in 2017, the highest number in recent history.

Large health systems are driving the increase in healthcare M&A activity, the firm added. Ten hospital merger and acquisition transactions in 2017 involved health systems with net revenues of $1 billion or more.

For example, Catholic Health Initiatives signed a merger agreement with Dignity Health in California in December 2017. Together, the organizations would create the largest non-profit health system in the country with 139 hospitals and over 700 other care sites across 28 states. The merger would also bring in more than $27 billion in revenue.

Grassley expressed concerns that recent healthcare M&A activity like the potential Catholic Health Initiatives-Dignity Health merger could be creating massive hospital systems that engage in anticompetitive hospital contracting practices.

Large hospital systems have greater market power to negotiate more favorable contract terms with payers. The systems can not only negotiate for high claims reimbursement rates, but also contract terms that direct consumers to their providers.

Because the hospital systems are one of the only options serving beneficiaries in a particular region, private payers still try to keep the market leader as part of their network despite the system’s contract demands and higher costs.

The Department of Justice (DoJ) is already in litigation against a major hospital system in North Carolina for its potential use of anticompetitive hospital contracting practices. Atrium Health is a 33-hospital system bringing in over $6 billion in net patient revenue in the Charlotte, NC area, according to Definitive HC data.

Atrium’s large market share sparked concerns that the hospital system was using anticompetitive hospital contracting terms. Specifically, the DoJ:

“has challenged Atrium's practice of including so-called anti-steering restrictions in its contracts with major health insurers. Without these provisions, insurers could promote competition by 'steering' patients to medical providers that offer lower priced, but comparable or higher-quality services. Importantly, that practice benefits consumers, but the anti-steering restrictions prevented it. We alleged that Atrium used these restrictions on steering to protect itself from price competition, and consumers lost the benefit of that competition.”

In light of anticompetitive hospital contracting reports, Congress needs more information on how large hospital systems contract with payers and if healthcare merger and acquisition activity is promoting the use of such anticompetitive behaviors, Grassley stated.

“The FTC is charged with ensuring competition and protecting American consumers from anticompetitive behavior,” he concluded. “Accordingly, I urge you to conduct an assessment of how prevalent the use of such contractual provisions is in the healthcare industry, whether there is anticompetitive use of these provisions, and whether consolidation in the marketplace increases the potentially harmful impact of these provisions on competition.”

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