CHI Settlement Returns Some Balance to Market

The State Attorney General's office this week settled the antitrust lawsuit with CHI Franciscan, claiming the acquisition of WestSound Orthopedics and affiliation with The Doctors Clinic violated antitrust laws by reducing competition and resulting in higher prices.  As part of the settlement, CHI must divest their majority stake from the ambulatory surgery center in Silverdale and pay $2.5 million to the state.  That amount will be distributed to four entities in an effort “to increase access to health care on the Kitsap Peninsula” according to a recent press release.



It is a well-known fact that one of the largest obstacles to affordable health care is the high cost of American hospitals. In 2018, Americans spent nearly $1.2 trillion on hospital care and the average daily cost of a hospital stay in the U.S. was 2.6 times that of the average of other industrialized nations.



The single greatest driver of higher hospital prices is the rise of monopolies.  The ACA triggered an epic buying spree as hospitals acquired independent medical practices.  Since 2010, hospitals have merged into larger and larger conglomerates, which used their increased market power to extract higher reimbursements from the commercially-insured.



For instance, in August 2013, Harrison Hospital affiliated with the Franciscan Health System and shortly thereafter, Franciscan Health re-branded as CHI Franciscan.  In February 2019, CHI merged with Dignity Health to become Common Spirit, which is a colossal $29 billion health system comprising 142 hospitals and more than 700 care sites across 21 states. 

According to data from the Center for Medicare & Medicaid Services (CMS), hospital care in Kitsap County is 40% more expensive than in the surrounding communities.   In documents filed as part of the lawsuit, a former physician president at TDC summed up the affiliation with CHI best: “You can now get your outpatient care in a complex, relatively unsafe, and vastly more expensive location.”



What exactly does this settlement mean for Kitsap County residents?



While not perfect, the settlement goes a long way toward restoring balance to our one-hospital community.  The ambulatory surgery center (ASC) is simply a hidden gem, where same-day surgical, diagnostic, and preventive procedures can be performed for a fraction of the price of a hospital outpatient department (HOPD.) 



ASCs perform more than 7 million procedures for Medicare beneficiaries annually and cost Medicare just 53% of the amount paid to HOPDs for the same procedure.  For example, Medicare pays hospitals $1,745 for performing cataract surgery while paying ASCs $976 for the same procedure. In general, Medicare beneficiaries pay half as much out-of-pocket at an ASC compared to at a HOPD.



A second important settlement term requires CHI and TDC to inform patients of alternative imaging options to Harrison Medical Center. Kitsap has a freestanding imaging center, which offers high-quality care at a competitive price.  InHealth Imaging is another hidden gem, which in my personal and professional experience costs one-fifth the price of imaging at the hospital. 



Most importantly, this settlement signifies a symbolic change in the healthcare landscape as the consolidation trend appears to have played itself out. For the first time, the percentage of medical practices owned by hospitals has actually fallen, from a high of 32.6% in 2016 to 28% of the market in 2018.  Hopeful hospital administrators have now learned hospital-owned medical practices are not as profitable as once believed to be, despite the fact that facility fees boost reimbursement considerably.  One example is CHI’s CFO Mike Fitzgerald, who once wrote “I am all for taking advantage of hospital-based pricing… it would be great to drop a couple of million more to our bottom line.”  Unfortunately, the financial windfall has never materialized. 



I commend Attorney General Bob Ferguson for doing his part to improve access for patients to affordable healthcare and have come to believe the way to change the system is through the courts or legislation. 



To that end, Rep. David Cicilline (D-R.I.), who chairs the antitrust subcommittee of the House Judiciary Committee, has stated that hospital consolidation is one of his top priorities. Rep. Jim Banks (R-IN) has introduced the Hospital Competition Act of 2019. In the future, legislation like this would reduce cost of healthcare and protect small communities from hospital monopolization. 



This bill would:

1.      Approve a 400% increase in FTC staff to ensure hospital mergers do not increase costs,

2.      Reduce the incentive to merge by lowering Medicare reimbursement rates in monopolized markets,

3.      Provide grant funding for states trying to improve hospital competition,

4.      Eliminate the facility fee and reimbursing HOPDs at the same rate as independent physicians,

5.      Repeal incentives for accountable care organizations (which have not saved money),

6.      Repeal the ban on physician-owned hospitals, and

7.      Require hospitals to publish the cost of their 100 most common services

When healthcare prices increase, everyone pays, whether consumers realize it or not.  Higher insurance premiums are passed on by employers, the uninsured pay through bankruptcy proceedings, and the increased cost for Medicaid/Medicare patients is borne by the taxpayers.  Competition lowers prices.  And this settlement is a step in the right direction for patients in Kitsap County who value choice. 

There are Ways to Save -- and Expand -- Medicare

Medicare is a national health insurance program which provides health insurance for Americans aged 65 and older, and those who are disabled or have specific chronic conditions. Medicare covers 17 percent of the U.S. population, including the nation’s oldest, sickest, and most disabled citizens. Medicare has achieved two important goals: ensuring access to health care for elderly and disabled citizens, and protection from the financial risks associated with health care.  By ensuring access, Medicare has contributed to a five-year increase in life expectancy after age 65.

Before implementation of Medicare in 1966, 48 percent of Americans 65 and older had no insurance; today, that figure hovers at 2 percent. Older Americans used to cover 56% of their health care expenses directly out-of-pocket, today, they pay only 13 percent.  Medicare is funded through a combination of a payroll tax, beneficiary premiums, co-pays and deductibles, and U.S. Treasury revenue; it is administered by the Centers for Medicare and Medicaid Services (CMS.)

Medicare is divided into four Parts. Part A covers hospital costs, skilled nursing, and hospice services. Part B covers physician and other clinical outpatient services.  For both A and B, there are copays and deductibles, as well as gaps in insurance coverage.  There are no annual out-of-pocket spending limits for Parts A and B, therefore supplemental coverage, known as Part C, protects from financial hardship. 

Medicare has significantly improved the well-being of citizens over 65 years of age.  

The single greatest threat to long-term survival of the Medicare Program is runaway costs, an issue which must be addressed before expanding the program to all of us. Between 1970 and 2013, spending per Medicare beneficiary increased 500 percent from $385 to $12,210, or 0.7 to 3.5 percent of GDP.  Current projections predict that Medicare spending will make up 5.1 percent of GDP by 2030. 

At the same time, researchers at the Dartmouth Institute for Health Policy and Clinical Practice estimated 30 percent of all Medicare spending and could be avoided without worsening clinical outcomes. According to the Congressional Budget Office, eliminating this waste could save as much as $700 billion annually.

Some bipartisan measures that might contain costs include: funding additional primary care physician residency positions, eliminating accountable care organizations, and allowing Medicare to negotiate drug prices with pharmaceutical companies.

First, the Balanced Budget Act of 1997 capped the number of residency slots in teaching hospitals which were eligible for Medicare payments. This mistake has facilitated a shortage of primary care physicians across the country.  A larger supply of primary care physicians is associated with a lower mortality rate. In fact, adding 10 primary care physicians per 100 000 population increases life expectancy by nearly two months, whereas the same increase in specialty physicians only improves life expectancy by 19 days. U.S. Senators Bob Menendez (D-N.J.), John Boozman (R-Ark.) and Chuck Schumer (D-N.Y.) introduced the Physician Shortage Reduction Act of 2019 to increase Medicare-supported doctor training slots by 15,000.  Investing in primary care reduces overall expenditures by lessening morbidity and mortality; at the same time, this legislation would address the physician shortage and improve access to care for patients. 

Second, in 2008, the Congressional Budget Office (CBO) warned Congress that Accountable Care Organizations (ACO) would not save Medicare dollars, yet the Affordable Care Act required CMS to establish them within Medicare.  ACO’s—similar to HMO’s –use narrow networks in an attempt to control cost yet bear considerable financial risk, because pay is on a per-enrollee basis with the obligation to provide all medically necessary services for enrollees.

After nearly a decade, studies consistently demonstrate that ACOs fail to achieve cost reduction, just as predicted.  Universal care plans must strike a balance between a free market and government regulation necessary to protect patients.  By eliminating the ACO construct, patients and private businesses will flourish.

And finally, federal law prohibits Medicare from negotiating prices for prescription drugs with pharmaceutical companies in order to reduce costs for nearly 43 million seniors enrolled in Medicare Part D.  U.S. Senator Tammy Baldwin (D-WI) and Senator Amy Klobuchar (D-MN) have reintroduced the Empowering Medicare Seniors to Negotiate Drug Prices Act. Enabling the federal government to negotiate for reduced drug prices is a policy supported by a majority of Democrats (96%), Republicans (92%), and Independents (92%).

Over the last 50 years, Medicare has improved the delivery of healthcare services for nearly one-fifth of the U.S. population.  Cost containment must be coupled with implementation of Medicare For All.  Without it, universal access will be unsustainable.