The California Health Care Affordability Board (HCAB), a decision-making body tasked with setting statewide and sector-specific spending goals and approving key benchmarks, discussed the state’s action plan to address facility consolidation health professionals during a meeting earlier this month.

Katherine Gudiksen, executive director of Source on Healthcare Price and Competition in the law department of the University of California at San Francisco, led the presentation. She spoke of a large and growing body of research on the impact of healthcare consolidation, which she said shows consistent results on mergers within the same geographic markets.

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Overall, research shows us that hospital prices typically go up 20 to 44 percent, and there are documented cases that are even higher than that, he said.

When mergers occur, non-merger hospitals also raise prices in their area. Furthermore, when market competition is low and there are highly concentrated markets, the quality of healthcare for patients is also lower. Gudiksen said he found it worrying that many hospitals are already concentrated. On the other hand, he acknowledges how complicated the issue is as doctors generally benefit from working in hospitals rather than independent practices.

When physicians work directly for hospitals rather than an independent practice, there may be greater efficiencies through economies of scale, improved patient care through coordinated care and data sharing, and integration with healthcare systems could also reduce the administrative burden for physicians and reduce duplication of services.

Gudiksen

Potential harms in private equity healthcare ownership include rising costs, increased use 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 the legislative findings, including that high health care costs are driven primarily by high prices and underlying factors or market conditions driving up prices, particularly in geographic areas where competition is missing for consolidation.

The Cost and Market Impact Review (CMIR) program, however, will increase public transparency and close gaps. This is the first time the HCAB has discussed the CMIR since meetings began in March.

Gaps in oversight of the California healthcare market, according to Tatayon, include deals or transactions involving:

  • For-profit health care facilities and hospitals
  • Physician organizations
  • Health plans, health insurance purchases, or affiliations with another health care entity
  • Management service organizations
  • Private assets
  • Exclusive contracts

OHCA is required to collect and publish notices of Material Change Transactions expected to take place on or after April 1, 2024. Healthcare entities wishing to consolidate must submit their notices to OHCA 90 days prior to the settlement or when the transaction is set to verify. The OHCA will have 60 days to review the transaction and implement a CMR.

We are developing regulations that will establish the requirements for filing notices and the process for filing notices, and will equip our electronic system to collect notices. We intend to be ready [by] January 1st [2024].

Tataion

Once the transaction notice is received, OHCA will conduct a preliminary review within 60 days to determine if the transaction requires a CMIR. OHCA will conduct CMIRs if it detects a likely risk of significant impact on market competition, the State’s ability to meet cost targets, or costs to buyers and consumers.

CMIRs may also be conducted if the director determines that spending target data shows negative impacts on cost, access, quality, equity, or stability of the workforce due to consolidation, market power, or further market failures.

The Attorney General has the black transaction authority for any non-profit healthcare facility. The Department of Managed Health Care is the approving authority for major health care plan transactions and will assess the impact on enrollees and the stability of the health care delivery system.

The California Department of Insurance is the approving authority for mergers of national health insurers and will evaluate the market and consumer impact.

If any of these three groups refer transactions or agreements to OHCA, a CMIR review may also be conducted. CMIRs will evaluate changes in size and market share in service areas, pricing of services relative to other providers offering the same services, quality, fairness, cost and access.

The benefits of the settlement will also be examined in the context of the CMIRs, including the benefits for consumers, increased access to services, improved quality of care and more efficient health services directly benefiting consumers.

OHCA will issue a preliminary report before issuing its final report. During the preliminary report phase, institutions and the public will have the opportunity to make public comments. Once a final report has been issued, any agreement or transaction subject to a CMIR cannot be implemented until at least 60 days have passed since the publication of the final report.

I’d just like to note that most of the studies have data ranging from five to seven years and all we know says the trends have continued. Whatever conclusions you may have drawn from the research that has just been presented are worse than shown. We would encourage you to coordinate closely with the Attorney General, the Department of Managed Health Care, and the Department of Insurance as you progress.

Beth Capell of Health Access California

By July 31, OHCA will publish a draft regulation on the matter website. A public seminar will be held in mid-August, and the public comment period on the health care consolidations and state action plan will close by the 31st of that month. In October, OHCA will submit an emergency regulatory package to the Office of Administrative Law, with changes taking effect January 1, 2024.


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