July 14, 2021

One of the leading theories meant to explain the formation of celestial bodies, such as stars, planets and moons, postulates that particles of mass and dust created by a primordial explosion, i.e., “Big Bang,” were forced to eventually coalesce at random points in the universe due to gravitational effects. There was a consolidation of smaller-mass objects that ultimately formed larger-mass objects. The end result of this conceptualized model seems to have worked out pretty well—at least for those of us who get to inhabit this beautiful blue ball.

That trend toward consolidation may be part of the natural order of all things. Except for the occasional hermit, individuals tend to gravitate toward community. Individual tribes and city-states eventually formed nations. Nations went on to create even larger collectives—the British Commonwealth of Nations, the European Union, the United Nations—just to name a few. So, it is not unusual when we see the merging of other kinds of entities, as well. For example, this model of consolidation has been observed in the healthcare industry in recent years, with more and more facilities coming under the ownership of one large health system or another. But what many see as a natural move toward uniformity and efficiency, others view as a threat to consumers.

It is with this latter view in mind that the White House released this month an executive order entitled “Promoting Competition in the American Economy.” The order addressed a number of economic sectors; but, more importantly for our purposes, it made specific mention of what it perceives to be a growing lack of competition in the drug and hospital industries.

The Broad Strokes

A fact sheet released by the administration concerning the executive order outlines the directives that may cause a few concerns for those looking to join forces with other facilities. Among other things, the order seeks the following objectives:

Lower prescription drug prices by supporting state and tribal programs that will import safe and cheaper drugs from Canada.

Encourage the FTC to ban “pay for delay” and similar agreements by rule. By way of background, big-brand drug manufacturers have, in the past, paid competitors—generally generic manufacturers—to stay out of the market. The order seeks to end this practice.

Save Americans with hearing loss thousands of dollars by allowing hearing aids to be sold over the counter at drug stores.
Significantly, the order also “encourages” federal antitrust agencies to “focus enforcement efforts on problems in key markets and coordinates other agencies’ ongoing response to corporate consolidation.” Specifically, the order calls on the Department of Justice (DOJ) and Federal Trade Commission (FTC), to “enforce the antitrust laws vigorously and recognizes that the law allows them to challenge prior bad mergers that past Administrations did not previously challenge.” The new enforcement effort will focus on healthcare markets, which includes prescription drugs, health insurance, and hospital consolidation.

A White House Competition Council will be created and led by the Director of the National Economic Council. It will act to monitor progress on these initiatives and will “coordinate the federal government’s response to the rising power of large corporations in the economy.”

The Details for Hospitals

After discussing competition creation in other sectors of the American economy, the order then turns to the topic of hospitals, in particular. According to the administration’s fact sheet:

Hospital consolidation has left many areas, especially rural communities, without good options for convenient and affordable healthcare service. Thanks to unchecked mergers, the ten largest healthcare systems now control a quarter of the market. Since 2010, 139 rural hospitals have shuttered, including a high of 19 last year, in the middle of a healthcare crisis. Research shows that hospitals in consolidated markets charge far higher prices than hospitals in markets with several competitors.
In response to this perceived inequity, the executive order “encourages” the Justice Department and FTC to review and revise their merger guidelines to ensure patients are not harmed by such mergers. It also directs HHS to support existing hospital price transparency rules and to finish implementing bipartisan federal legislation to address surprise hospital billing.

So, while the order does not outright ban hospital mergers or even force these federal agencies to raise further roadblocks to consolidation, it does give these entities the green light for producing new or revised rules that may have the ultimate effect of making these mergers more difficult. In response to the order, the American Hospital Association (AHA) released a statement that included this conclusionary paragraph:

Finally, contrary to statements in the executive order, health systems can be a particularly important option for retaining access to hospital services in some rural communities. Mergers with larger hospital systems can also provide community hospitals the scale and resources needed to improve quality and decrease costs.
As we’ve seen in the past, the debate continues over which is better for people and for profits: the natural inclination toward consolidation or the maintenance of a more independent position. Hospitals in the midst of that current debate will now have to factor in the new line coming out of Washington. Here’s hoping it doesn’t upset your universe.

If you’d like to know more about MiraMed Global Services and our suite of solutions designed specifically for hospitals, please visit our website at www.miramedgs.com or contact us at info@miramedgs.com.