Rural Healthcare Access
Rural Hospital Closures Led to Increased Prices at Nearby ‘Surviving’ Hospitals, 2012-22 (Health Affairs)
Caitlin Carrol, Jessica Chang
Research on how consolidation affects healthcare pricing largely centers on mergers rather than closures. Hospital closures, especially those in rural areas, reallocate patient populations to nearby ‘surviving’ hospitals posing distinct effects on the remaining healthcare market. In theory, reallocation of a patient population can increase production efficiencies and lower costs at the remaining hospital, resulting in savings that could be passed to consumers in the form of lower prices. In this study, researchers examined commercial claims data to determine the price of in-patient hospital stays before and after rural hospital closures, comparing surviving hospitals with similarly situated control hospitals in non-closure areas. On average, prices in surviving hospitals increased in the post-closure period by 3.6 percent, with greater price increases occurring in surviving hospitals with more market power. Price increases likely resulted from leveraging market power in contract negotiations. As rural hospitals face mounting financial pressure, policymakers must consider the effects closures have on market power and pricing when crafting regulatory solutions.
Has the Pennsylvania Rural Health Model Alleviated the Financial Vulnerability of Rural Hospitals? (Health Care Management Review)
Dinesh R. Pai, Sujeong Park
Novel payment models hold promise in addressing the increasing cost of healthcare in the United States. The global budget model provides for fixed payments based on population rather than per-service reimbursement. This model incentivizes cost-effective care delivery, highlighting preventive care services and collaboration among providers to maximize efficiency. The Pennsylvania Rural Health Model (PARHM) launched in 2019 and sought to marry value-based payments with increased access to high-quality care while stabilizing the financials of rural acute care hospitals. Participating hospitals designed a transformation plan that detailed how they would ensure access to care and improve outcomes. Fixed payments were to cover in-patient, emergency, and out-patient services, shifting away from fee-for-service reimbursement. Regular fixed payments allowed hospitals to initiate quality improvements and invest in preventive care. Researchers in this Health Care Management Review piece found participating hospitals, prior to the start of the initiative, had lower total and operating margins than non-participating hospitals. While participating hospitals showed improved total and operating margins over the first four years of the initiative, researchers urge caution in drawing sweeping conclusions. The COVID-19 pandemic introduced additional temporary federal funding into rural hospitals, and the subsequent high inflation and higher labor and non-labor costs have yet to be captured in PARHM data. More research will be necessary to ascertain if the PARHM is a cost-effective, scalable policy solution.
Healthcare Market Reforms
Rhode Island’s Affordability Standards Led to Hospital Price Reductions and Lower Insurance Premiums (Health Affairs)
Andrew M. Ryan, Christopher M. Whaley, Erin C. Fuse Brown, Nandita Radhakrishnan, Roslyn C. Murray
To address healthcare affordability, Rhode Island instituted hospital price growth caps for fully insured commercial plans starting in 2010. This Health Affairs article looks at the impact of the caps on hospital prices, insurance premiums, any spillover effects in the self-funded commercial market, and operating margins for area hospitals. Utilizing data from 2010-2022, the authors found hospital prices dropped by roughly 9 percent for both fully-funded and self-insured plans, and that hospital commercial revenue decreased by nearly $160 million. While price caps were associated with a notable decrease in premiums for the fully-funded enrollees, self-funded plans saw modest increases. The authors argue that enforceable caps on hospital price growth are an effective regulatory mechanism for lowering costs and that robust oversight in state insurance markets can lead to meaningful savings for employers and enrollees in market plans. ERISA pre-emption limits a state’s authority to regulate self-funded plans; therefore, the authors argue additional Congressional oversight will be needed to impart similar cost savings to employers and members in the self-funded market.
How Massachusetts’s New Health Care Reform Takes Aim at Private Equity (Health Affairs)
Nathan Hostert, Neil Mehta, Hayden Rooke-Ley, Yashaswini Singh, Erin C. Fuse Brown
In the wake of the Steward Health Care bankruptcy of 2024 (where a hospital chain’s quality of care problems and ultimate bankruptcy were attributed by many to ownership by a private equity firm), Massachusetts lawmakers passed legislation to expand the list of healthcare entity material change transactions that require state oversight, to require the disclosure of significant equity investors in healthcare entities, and to effectively ban sale-leaseback transactions between hospitals and real estate investment trusts. While stopping short of requiring approval for transactions, the law expands the types of transactions that require pre-transaction notification to include those involving a significant transfer of assets, private equity or significant equity investors, and non-profit to for-profit hospital conversions. Annual reporting to the Center for Health Information and Analysis will now include greater transparency of ownership structures, financial statements, and affiliations. The Health Policy Commission has greater authority to require cost and market impact reviews and a lower threshold for referring transactions to the attorney general for further investigation and/or possible litigation to address anticompetitive impacts of proposed transactions. The legislation enhances the oversight of the Department of Public Health regarding Determination of Need applications to include consideration of the impacts of proposed changes on patients, the healthcare workforce, and residents in the surrounding area. The authors suggest future legislation in Massachusetts could leverage the model legislation put forth by the National Academy of State Health Policy and include prior approval for transactions and greater regulation to address the corporate practice of medicine, especially as experienced through the growth of management service organizations. Massachusetts’ law serves as a model for other states as private equity investment in healthcare systems continues to flourish.
Healthcare Mergers and Acquisitions
A Policy and Regulatory Framework to Promote Care Delivery Redesign and Production Efficiency in Health Care Markets (The Milbank Quarterly)
Dennis P. Scanlon, Jillian B. Harvey, Cheryl L. Damberg, Pratiksha Mahendra Bhagat, Yunfeng Shi
Research on consolidation in healthcare has largely focused on impacts to market share and pricing. Healthcare typically occurs in an imperfectly competitive market, and as such, requires robust oversight, accurate data to guide policymakers, and a more comprehensive assessment of the impacts of consolidation beyond merely market share and pricing. The authors of The Milbank Quarterly article argue that large healthcare delivery systems, organizations that are borne from consolidation, are uniquely positioned to innovate in Care Delivery Redesign (CDR) and deliver more efficient, higher-quality care to consumers by reimagining the production function of healthcare. To date, CDR interventions aimed at changing the production function have been process focused (utilizing standardization to improve efficiency); solution focused (developing new ways to deliver care); or problem focused (innovating ways to address unmet needs). While consolidation proposals have promised improved efficiency and higher quality care, evidence has shown that these transactions largely result in higher prices and questionable impacts on quality of care. Consolidation proposals should include a detailed outline of how proposed changes will improve system processes, necessary changes to inputs to improve outcomes, and how production efficiencies will be measured and monitored. Data collection can be improved by enforcing existing mandates, including the 2019 Executive Order on Improving Healthcare Price and Quality Transparency, and expanding All-Payer Claims Databases to all 50 states. Finally, regulators need to reach consensus on meaningful quality measures for assessing the impact of proposed mergers and acquisitions and ensure that proposed mergers result in more efficient production, improved quality, and better patient experiences.
Hospital Mergers and Acquisitions from 2010 to 2019: Creating a Valid Public Use Database (Health Services Research)
Hyesung Oh, Vincent Mor, Daeho Kim, Andrew Foster, Momotazur Rahman
To adequately understand and address issues related to healthcare mergers and acquisitions (M&A), stakeholders need access to accurate and robust data. The Agency for Healthcare Research and Quality and the Centers for Medicare and Medicaid Services have provided information on change of ownership since 2016, but older data is often difficult to access. The American Hospital Association (AHA) Annual Survey has been used to identify ownership changes and transaction completion dates prior to 2016; however, researchers in this Health Services Research study found the AHA survey data was incomplete and often inaccurate. In looking at M&As of critical access and general hospitals from 2010-2019, the authors found ownership changes were often tied to announcement dates rather than completion dates, obscuring the timely effects consolidation had on the market. Additionally, types of transactions were often misattributed or missing, failing to capture the scale of market consolidation. Researchers showed that roughly 8 percent of hospitals identified in the data were involved in more than 10 M&A transactions (as the acquirer), demonstrating a robust consolidation of market power. By cross-referencing AHA data with public sources, researchers compiled the Strategic Hospital M&A Database, a publicly available resource that identifies the timing of ownership changes and types of M&A transactions. Policymakers, researchers, and stakeholders rely on data to craft responses to antitrust and anticompetitive concerns. This database is intended to provide more accurate information on the effects of M&As on market power to inform future policy and regulation.