Over the last two months, CHIR hosted the webinar series The Corporate Transformation of Health Care. This three-part series provided legislators, regulators, advocates, and other health care stakeholders with insights into the problems caused by increased corporatization, discussed the reasons for this corporate trend, and offered policy opportunities to mitigate cost and quality harms to patients. In particular, the series examined how health care mergers and acquisitions have ramped up, how more corporate entities have entered the market, and how maximizing profit has risen as a priority in health care.
Alongside the webinars, CHIR published several resources to help policymakers and stakeholders support consumers confronted with problematic billing practices, examine the extent of corporatization and consolidation in a state or district, and consider a range of policy options to improve affordability and promote competition.
The series was moderated by CHIR’s Sabrina Corlette, and each webinar included a unique panel of researchers, advocates, state regulators, and other experts. The webinar recordings and the panelist affiliations can be found on CHIR’s Events page.
Throughout the series, we received a number of questions related to price caps, transparency, and rural hospitals. Time constraints prevented live answers to these questions, so we provide further insights here.
Do provider price caps work? What can we learn from other states?
Reference pricing, or price caps, set an established maximum rate that a plan will pay participating providers for certain medical services, often in reference to a percentage of rates paid by Medicare. Rather than negotiate rates based on provider’s list prices – the common pricing process – price caps mitigate the effect of a provider’s market power. For this reason, price caps can offer an opportunity to curtail the price increases caused by greater corporatization and consolidation. On the continuum of policy options to improve affordability, enhance competition, and curtail excessive charges, price caps and reference pricing are estimated to have a moderate to large impact on price reductions.
As of June 2023, a CHIR survey found that nine states have implemented variations of reference pricing for their state employee health plans (SEHPs) in efforts to contain health care costs. Research on Oregon and Montana’s SEHP reference pricing programs have found millions in savings: Oregon’s SEHP saved $107.5 million in the first 27 months of the program and Montana SEHP saw approximately $48 million in savings in the two years following its implementation. Similarly, as CHIR faculty find, price caps for SEHPs in South Carolina and Oklahoma have high rates of hospital participation (99.3 percent and 100 percent respectively), and have not negatively impacted enrollee access to care. While implementing reference pricing in SEHPs is not without its challenges, price caps can contain costs, maintain access to and value of care, and generate savings for consumers.
How does transparency affect corporatization and consolidation?
Transparency in healthcare can relate to prices, ownership, and/or billing – all of which can shed light on various parts of an often opaque and complicated health care system. Within the realm of transparency, policymakers have a menu of options: publishing reports, establishing all-payer claims databases, requiring ownership reporting and billing transparency, and enforcing or building on federal transparency rules. As a standalone policy, price transparency has very small price reductions, but transparency tends to have bipartisan support, require relatively low government intervention, and can serve as an incremental step to greater reform.
States with the most robust transparency policies can be better positioned to understand the extent of corporatization and consolidation in their communities. For example, states can require facilities to provide periodic ownership data and/or require ownership filings prior to a material change transaction. Massachusetts has led the way in annual ownership reporting with the Massachusetts Registration of Provider Organization (MA-RPO) program. Through collected data, the state can identify a provider’s corporate parent entity, ownership or control entity, and other corporate affiliations. Massachusetts recently bolstered its oversight of ownership with a new law tailored to private investment transactions. While Massachusetts is the first state with such reporting requirements, at least 35 states require notification of certain proposed transactions to increase ownership transparency and monitor consolidation that could harm competition. To dive into consolidation and corporatization in your state, review our guide on available tools and state laws.
Can private equity investment be a viable option for rural hospitals and other financially distressed health care providers?
With increased rural hospital closures and nearly one third (30 percent) of rural hospitals at risk of closure in the near or immediate future, many webinar participants wondered if corporate buyouts and private equity investment could be viable options for these financially distressed providers. For hospitals and health systems on the brink of bankruptcy or closure, the financial infusion from corporate buyers may offer an opportunity to keep the facility and service lines open, which can make these transactions feel, at times, necessary.
Despite the one-time financial influx from a transaction, research indicates that over time, private equity acquisition of rural hospitals can contribute to a hospital’s financial distress, rather than mitigate it, even while generating large returns for investors. Private investors in rural and financially distressed hospitals often employ a tactic known as a “sale-leaseback.” In this arrangement, the new owner sells the hospital’s real estate assets to a real estate investment trust (REIT) and then leases the land back to the hospital. This tactic was used in the recent Steward Health Care debacle, and contributed to Steward’s eventual bankruptcy. While Steward operated primarily in urban areas, a recent bipartisan report from the Senate Budget Committee investigated Lifepoint Health, a predominantly rural hospital system owned by Apollo Global Management. Given the dangerous practices uncovered in the investigation, the report urged stakeholders to view Lifepoint Health as “a cautionary tale about the ability of rural hospitals to sustain themselves and serve their patients in the face of underinvestment by their private equity owners.” While private equity investment can be appealing to rural hospitals in financial distress, evidence indicates that private investments do not benefit rural hospitals in the long term.
Takeaways
The corporate transformation of health care is a complex and nuanced trend, one which has led to changes in competition, costs, and access to care. To learn more, watch the recorded webinars and review the accompanying publications.
