Many of us remember the merger mania in healthcare that occurred in the 1990’s, and how the push toward consolidation that started with hospitals trickled down to the private practice therapy sector. If we fast forward to 2014, it is readily apparent that the “urge to merge” is back. We see local hospitals in a merger frenzy, and local MDs leaving private practice to become hospital employees. I have more and more therapists contacting me about practice sales. Yet, a strong but dominant voice, namely the Federal Trade Commission, is beginning to weigh in on the topic. Citing antitrust laws, particularly the Clayton Antitrust Act of 2014, they have successfully blocked some deals using antitrust enforcement as a powerful tool to dampen conglomeration fever.
Hospitals say they are acquiring other hospitals and physician groups to comply with provisions
of the Affordable Care Act and take advantage of incentives that encourage hospitals and doctors to integrate their operations and collaborate to control costs and improve care. The concern is that hospitals that face less competition can charge substantially higher prices, which according to Martin Gaynor, Director of the FTC’s Bureau of Economics could be as high as 40-50%. In the last two years the FTC intervened and blocked hospital mergers in Albany Georgia, Toledo Ohio and Rockford Illinois. Although the decisions are currently being appealed, the message is strong. “Vague promises and aspirations that an acquisition will reduce costs and improve care are not sufficient” said Julie Brill, a member of the FTC.
When hospitals and doctors join forces, their goal is not just to control costs or improve care, but to “get increased leverage” in negotiations with health insurance companies and employers, according to Ms. Feinstein, Director of the Bureau of Competition at the FTC. “They say they need better rates so they will have more money to invest in their facilities.When you strip that down, it’s basically just saying, ‘We want a price increase.’ Even if the price increase is motivated by a desire to invest more in the business, that’s problematic. That incentive to invest may not be there if you don’t have competition as a spur to innovation — if you’re not worried about losing business to the hospital down the street.”
Look back to the first merger mania in the 1990’s particularly the state of Massachusetts, which let its two most prominent hospitals — Massachusetts General Hospital and Brigham and Women’s Hospital, merge into as Partners HealthCare. Investigations by the state attorney general’s office of that state have documented that the merger gave the hospitals enormous market leverage to drive up health care costs in the Boston area by demanding high reimbursements from insurers that were unrelated to the quality or complexity of care delivered. Twenty years later, the current Massachusetts Attorney General, Martha Coakley is trying to rein in the hospitals with a negotiated agreement that would at least slow the increases in Partners’ prices and limit the number of physician practices it can acquire.
What’s the take away for therapy practices?? Carefully examine your “urge to merge” or be acquired, probably the second most important decision of your professional career. Make sure your motivation is not based on panic, and that you are not being re-active rather than pro-active. As hard as it is to bring a merger to fruition, it is harder still to undo!