By Jeff Keeling
Zero hour is back on the horizon for a state decision on Wellmont Health System and Mountain States Health Alliance’s proposal to merge. More than four months after an unexpected delay in the process, the Tennessee Department of Health (TDH) announced May 22 it had deemed the systems’ application for a “Certificate of Public Advantage” (COPA) complete.
TDH announced on its initial deadline for a decision, Jan. 13, that it would “allow the applicants to make additional submissions to their application.” Since then, the COPA application proper has not been altered, but accompanying the May 22 announcement were links on TDH’s website to three studies solicited by the hospital systems. The additional submissions concluded that the merger would create significant benefits for area consumers, despite the market power the single system would wield.
That market power, essentially amounting to an inpatient hospital monopoly over a broad region, is the reason the systems must seek a COPA in Tennessee and cooperative agreement in Virginia. Such state-regulated agreements, of which there are few nationwide, are designed to create an enforceable regulatory structure that insures benefits created by an anticompetitive merger outweigh any harms the lessened competition might create for consumers. Those potential harms have been exhaustively delineated in lengthy opinions submitted by the Federal Trade Commission, buttressed by several outside opinions from economists and the insurance industry.
The new submissions are encapsulated most broadly in an April 11 assessment from Compass Lexecon, an economic consulting firm whose specialties include antitrust, competition and regulatory change. The primary author, Margaret Guerin-Calvert, is a former Department of Justice employee who served in the antitrust division there. She’s served as an expert in hospital merger cases from the 1990s to the present, and has been called in on a Pennsylvania health system affiliation that has included, “review of an integrated delivery system and its benefits, as well as conduct and performance commitments, and evaluation of competition.”
Guerin-Calvert’s report incorporates findings from the other two submissions, which delve into the systems’ plans to establish their own integrated delivery system, to improve population health, and to move forward into more “risk-based contracting” payment models. The heavily footnoted, 36-page report reviews the region’s healthcare and economic challenges. It touts the systems’ readiness to tackle those challenges, which include poor population health factors and outcomes. And it spends several pages building cases that “adverse impacts” on payors, on physicians/competitors/suppliers/employees and on patients are “not likely” – a bar that’s required to be cleared for approval of the COPA.
With respect to payors, the study claims the merged system, “would face substantial constraints and ultimately be unsuccessful if the organization tried to exercise market power when negotiating rates or service arrangements…” In another section the report takes on the FTC’s contention that the merger would be difficult to enforce, pricing-wise, because of health care’s changing payment models. The Compass report claims that the systems are well-placed for the market’s move from fee-for-service to risk-based contracting, and in such a way that payors will be protected. “Under the COPA, with the commitments regarding population health and efficiencies, Ballad Health will have significant incentives to negotiate mutually beneficial risk contracts with payors to gain the potential cost savings and benefits from their investments in new care models.”
Likewise, the report is sanguine about the concerns of independent practitioners. It says the systems’ plans for IT and other data systems will “provide more data and information and connectivity for all physicians, rather than (limit) those resources.” Additionally, it notes, plans for expanded population health initiatives, and new forms of coordinated and value-based care, will rely on alignment with independent doctors and should, “provide incentives that benefit, rather than reduce, physician competition.”
The new material isn’t all TDH commissioner Dr. John Dreyzehner and Tennessee Attorney General Herb Slatery are weighing, TDH spokesman Bill Christian said. “As part of our ongoing process, the department has been consulting with the Attorney General’s office as well as with outside experts,” he said. Additionally, the systems have submitted to Slatery additional documents not made public “that contain competitively sensitive information.” Christian also said TDH officials plan to engage additional outside experts and potentially to solicit outside reviews of the application and additional materials before the new deadline for an up or down decision Sept. 19.
Finally, Christian said, TDH officials have been and will continue meeting with the applicants. Those ongoing conversations have included phone calls and in-person meetings.
“Generally, these conversations have been to outline what operations would look like beyond legal requirements and beginning discussions about what a potential regulatory structure would look like,” Christian said.
Individuals can submit comments regarding the proposed merger and COPA by mail or on the TDH website until July 18, which is also the date of the last scheduled public hearing on the matter, at 5:30 p.m. at the Northeast State Community College Auditorium in Blountville. Virginia State Health Commissioner Dr. Marisa Levine plans to announce a decision on the cooperative agreement in mid-September as well.
Jeff Keeling is vice president of communications for Appalachian Community Federal Credit Union and the former associate editor of The Business Journal.