The California Health Care Affordability Board (HCAB), a decision-making body charged with setting statewide and sector-specific spending targets and approving key benchmarks, discussed the state’s action plan for addressing the consolidation of healthcare facilities during a meeting earlier this month.
Katherine Gudiksen, executive director of Source on Healthcare Price and Competition under the University of California’s law department in San Francisco, led the presentation. She talked about a large and growing body of research on the impact of healthcare consolidation, which she said shows consistent results about mergers within the same geographic markets.
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“In general, the research shows us that hospital prices increase generally by 20 to 44 percent, and there are documented cases that are even higher than that,” she said.
When mergers occur, bystander hospitals—facilities uninvolved in mergers—also raise prices in their area. Additionally, when market competition is low and there are highly concentrated markets, healthcare quality for patients is also lower. Gudiksen said she finds it concerning that many hospitals are already concentrated. On the other hand, she acknowledges how the issue is complicated since physicians generally benefit from working in hospitals rather than in independent practices.
“When physicians work directly for hospitals rather than an independent practice, there could be greater efficiencies through economies of scale, better care for patients through coordinated care and data sharing, and integration with health systems could also reduce the administrative burden on physicians and reduce duplicative services.”
Potential harms in private equity healthcare ownership include increased costs, increased utilization of high-cost services, mixed quality measures, and lower patient experience scores.
Sheila Tatayon, assistant deputy director of the Office of Health Care Affordability (OHCA), highlighted legislative findings, including that high healthcare costs are driven primarily by high prices and underlying factors or market conditions that drive prices up, particularly in geographic areas where competition is lacking due to consolidation.
The Cost and Market Impact Review (CMIR) Program, however, will increase public transparency and fill the gaps. This is the first time the HCAB has discussed CMIR since meetings began in March.
Gaps in California’s healthcare market oversight, according to Tatayon, include agreements or transactions involving:
- For-profit health facilities and hospitals
- Physician organizations
- Health plans, health insurer purchases, or affiliations with another healthcare entity
- Management service organizations
- Private equity
- Exclusive contracting
OHCA is required to collect and publish notices of material change transactions that are set to take place on or after April 1st, 2024. Healthcare entities looking to consolidate must submit their notices to OHCA 90 days prior to the agreement, or when the transaction is set to occur. OHCA will have 60 days to review the transaction and implement a CMR.
“We are developing regulations that will set the requirements for filing notice and the process for filing notice, and gearing up our electronic system to collect the notices. We intend to be ready [by] Jan. 1st .”
Once the notice of transaction is received, OHCA will conduct a preliminary review over 60 days to determine whether the transaction requires a CMIR. OHCA will conduct CMIRs if they find a likely risk of significant impact on market competitions, the state’s ability to meet cost targets, or costs for purchasers and consumers.
CMIRs may also be conducted if the director determines spending target data displays negative impacts on costs, access, quality, equity, or workforce stability due to the consolidation, market power, or additional market failures.
The attorney general has the authority to black transactions for any nonprofit health facilities. The Department of Managed Health Care is the approval authority for major transactions of healthcare service plans, and will evaluate the impact on enrollees and the stability of the healthcare delivery system.
The California Department of Insurance is the approval authority for mergers of domestic health insurers, and will assess the impact on the marketplace and consumers.
If any of these three groups refer transactions or agreements to OHCA, then a CMIR review may also be conducted. CMIRs will evaluate the changes in size and market share in service areas, prices for services compared to other providers who offer the same services, quality, equity, cost, and access.
The benefits of the transaction will also be examined under the CMIRs, including benefits to consumers, increased access to services, higher quality of care, and more efficient healthcare services that consumers directly benefit from.
OHCA will issue a preliminary report prior to issuing its final report. During the preliminary report phase, entities and the public will have the opportunity to issue public comments. Once a final report is issued, any agreements or transactions subject to a CMIR may not be implemented until at least 60 days after the final report is released.
“I would only note that most of the studies have data that is five to seven years old, and everything we know says the trends have continued. Whatever conclusions you may have drawn from the research that was just presented—it’s worse than it showed. We would encourage, as you move forward, that you coordinate closely with the attorney general, the Department of Managed Health Care, and the Department of Insurance.”
— Beth Capell of Health Access California
By July 31st, OHCA will publish a draft of regulations on its website. A public workshop will be held in mid-August, and the public comment period on healthcare consolidations and the state’s action plan will close by the 31st of that month. In October, the OHCA will submit an emergency rulemaking package to the Office of Administrative Law, with changes set to go into effect on Jan. 1st, 2024.