How Health Cos. can minimize the risk of consolidation – Anti-trust law/competition law

Consolidation among healthcare providers has long been a controversial regulatory issue. Suppliers say they are caught between two forces that make economies of scale and partnerships essential.

On the one hand, there are the ever-increasing costs of delivering high-quality care, including technology, equipment, drugs, compliance costs, and salaries for doctors, nurses, and professional staff. .

On the other hand, there is continued downward pressure on Medicare, Medicaid and private insurance payments. Lawmakers and regulators, however, counter that consolidation increases patient costs without significantly improving patient care.

The combination of the pandemic and the political priorities of the Biden administration have only intensified this conflict. The pandemic has overwhelmed hospitals with medical emergencies while depriving them of revenue from standard patient care and elective procedures.

Medical practice groups were hit even harder, as patients stayed home for all but the most essential visits. Shortages of nurses and other staff force providers to resort to temporary workers, driving up labor costs.

As things slowly return to normal, the damage has been done, with powerful vendors weakened and weaker vendors pushed onto even more precarious ground.

Every CEO has their team strategizing to both survive an extended recovery period and prepare for the next storm. In many institutions, these strategies will include the possibility of consolidation with other entities. This is particularly the case for rural hospitals, which are much more isolated, have fewer resources and face a particularly long road to recovery.

Consolidation in sight

But as providers approach consolidation with new urgency, Congress and the Biden administration have made it a priority to challenge consolidation, in an effort to increase competition among health care providers.

In May 2021, the U.S. Senate Subcommittee on Competition Policy, Antitrust, and Consumer Rights convened a hearing devoted entirely to hospital consolidation, with the clear conclusion that consolidation will be at the center of ongoing legislative review.

President Joe Biden’s July executive order on promoting competition takes a skeptical view of hospital mergers and encourages the US Department of Justice and the Federal Trade Commission to revise their merger guidelines and challenge combinations more anti-competitive.

Recent developments at the Federal Trade Commission vividly illustrate how tougher policy pronouncements are being translated into action. The FTC’s Competition Bureau has indicated that its merger reviews may now include a range of factors that go far beyond traditional measures of higher prices or reduced output or quality to include considerations such as the effects of the proposed merger and its potential impact on the workforce. markets.

In addition, if the bureau is unable to conduct a preliminary investigation of a proposed merger within the 30-day period, the bureau has begun notifying companies that the agency reserves the right to subsequently determine that the agreement is illegal at some indefinite future time.

New strategies for tougher terrain

Potential vendor mergers now face significantly higher regulatory risk, just when the momentum for consolidation is stronger than ever. As the organization’s chief legal counsel, the General Counsel is responsible for managing these risks. Two strategies can be particularly useful for doing this.

First, Advocates General need to rethink their presentation to regulators in light of new insights from regulators. FTC Chairman Lina Khan’s recent priorities memo calls on the agency to take a “more holistic approach to identifying harm” to include effects on workers and competitors and to “democratize the agency” by ensuring that “the Commission is in tune with the real issues that Americans face in their daily lives.”

Healthcare providers may be in a better position than other industries to respond to this expanded view, since it is usually structural issues, rather than the ability to dominate a market, that prompt a merger in the first place. health care.

If the reality is that rural patients are already commuting to seek specialist care in better-equipped urban facilities, a merger of the urban-rural hospital system that provides the necessary financial stability to the rural partner and keeps its doors open to serve patients is fundamentally pro-competitive and in the interests of the people of those communities. That makes it a pretty compelling argument from a systems perspective.

But given growing regulatory skepticism toward consolidation, general counsel should also consider how they might achieve many of the same goals as a merger through different means, such as joint ventures, clinical integration agreements and other types of collaborations.

These arrangements are generally not subject to the level of scrutiny that full suits receive, yet can offer many of the same benefits in terms of shared resources, economies of scale, and expanded reach.

Collaboration risk management

While collaboration carries less regulatory risk than consolidation, it may carry a risk of another type: that both parties fail to achieve the strategic objectives underlying the partnership.

The biggest threat to informal partnerships is entropy and loss of focus from the demands of day-to-day operations; the energy needed to maintain an unproductive partnership increases over time even as the expenditure of that energy becomes more difficult to justify.

Similarly, if both parties provide better patient care through increased or improved services, or attract more patients to their core services, the necessary commitment is much easier to sustain.

There are several strategies healthcare entities can use to help minimize this risk.

First, responsibility for the success of the business should rest with a joint management team made up of employees who are primarily dedicated to running the joint business; simply making collaboration one more thing for a group of managers overworked and exhausted by the pandemic is a recipe for failure. The management team must report directly to the two boards of directors, which must make collaboration a recurring place on their agendas.

The agreement should reflect the business logic behind the collaboration and align with the plans and frameworks used by both management teams. This means going beyond economic terms to anticipate operational issues that may arise as the partnership develops.

The agreement should also include benchmarks and incentives so that everyone is held accountable and has their skin in the game. For example, a given increase in growth on either side could trigger bonus payments for the joint venture management team.

The duration of the agreement may seem like a relatively minor logistical detail, but it can play an outsized role in the success of the business. Too often, parties rely on a short trial period, such as a one-year term. But this undermines the partnership’s chances of success; in practice, a year is often enough to establish the necessary working relationships and iron out the mechanisms of collaboration.

A one-year term also sends an unavoidable, subconscious message from the start that the company only warrants a temporary appointment. And precisely because a longer agreement represents a greater commitment, it forces legal and management teams to think more deeply about the mechanics and purposes of the agreement, as well as what issues might arise and how which they will be treated.

Neither the Biden administration’s heightened scrutiny of consolidations nor the forces pushing health care providers to consolidate are likely to subside anytime soon. In this environment, when it is no longer viable to go it alone and the underlying terrain is changing seemingly daily, healthcare providers will have to turn to new strategies to find a stable footing.

This article was originally published in Law360.

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