Category Archives: Health Economics

FTC Bans Worker Noncompetes

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NY Times 4/23/24: F.T.C. Issues Ban on Worker Noncompete Clauses

An excerpt:

“The Federal Trade Commission on Tuesday said employers could no longer, in most cases, stop their employees from going to work for rival companies.

The sweeping action could help create jobs, raise wages and increase competition among businesses, the agency said. But the action is all but certain to be challenged in court by businesses that say they need to protect trade secrets and confidential information…Noncompetes cover about 30 million U.S. workers..”

[It is estimated that] “the decision would lead to the creation of 8,500 start-ups in a year and up to $488 billion in increased wages for workers over the next decade.”

“The rule would become law 120 days after it is published in the Federal Register, which will probably happen in a few days. But legal challenges could delay or block the change…It orders employers to notify nonexecutive employees bound by an existing noncompete that it will no longer be enforceable.”

There is a carve out:   STAT (4/23, Bannow, Subscription Publication) reports: “Crucially for the health care industry, the noncompete ban does not apply to nonprofit companies, as the FTC determined it only has jurisdiction over for-profit companies.” This “means the ban likely won’t apply to most of the country’s hospitals, the majority of which are nonprofit, and some of the country’s biggest health insurers.”

My take: Noncompete agreements at the time of a job offer occur when prospective employees are vulnerable and have limited negotiating power. Established business with market dominance will need to use other ways besides coercion to keep talented employees when noncompete clauses go away.

Related blog post: What’s Wrong with Noncompete Clauses

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What Is Driving Hospitals’ Acqui$ition of Physician Practices?

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D Khullar et al. NEJM 2024; 390: 965-967. Vertical Integration and the Transformation of American Medicine

This article examines the growing trend of hospital acquisition of physician practices.

Some excerpts:

  • “From July 2012 through January 2018, the share of practices owned by a hospital increased from 14% to 31%, according to data from the Physicians Advocacy Institute; from January 2019 to January 2022, hospitals acquired 4800 additional practices, and about 58,000 more physicians became hospital employees.”
  • “In theory, vertical integration (the combining of organizations operating at different levels of production into a single entity) in health care can lead to improved patient outcomes — for example, by promoting care coordination, information exchange, and economies of scale. To date, however, the most consistent documented effect of such transactions has been an increase in prices.”
  • Increased prices are due to multiple factors including strengthened negotiating position, “facility fees” that are added to services delivered by hospital-owned practices.1, increased tests and procedures in hospital settings, higher payor rates, and in many cases discounted outpatient drug prices (for those qualified in 340B program)
  • “The limited research in this area suggests that vertical integration doesn’t tend to result in meaningful improvements in quality of care, with some studies finding that it may lead to poorer quality, if health systems take resources away from unprofitable services and redistribute them to more lucrative ones.2“
  • “Hospital acquisitions of physician practices have gone largely unreviewed by agencies such as the Federal Trade Commission (FTC) and the Department of Justice (DOJ)…In December 2023, the FTC and the DOJ issued new antitrust guidelines that could strengthen the agencies’ approach to vertical integration in health care “
  • “Many clinicians may be satisfied after their practice is acquired; they may, for example, have an improved work–life balance, receive greater administrative support, and be relieved of managing the business-related aspects of medicine. Alternatively, they may work longer hours, have less autonomy and constrained job mobility, and experience more burnout or moral injury.”
  • “The rapid acquisition of physician practices by hospitals highlights an important tension in health care — between the possibility that integration can promote efficiency and improved quality and the concern that it distorts markets and can worsen health and financial outcomes.”

My take: There are clear financial incentives for hospitals to acquire physician practices. This trend leaves patients facing higher costs and clinicians dealing with less autonomy. Regulatory efforts face a difficult task to limit this widespread anti-competitive practice which at this point is akin to extracting a large trichobezoar from the stomach.

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How Much of a Drug Markup is Reasonable (for hospitals)?

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JC Robinson et al. NEJM 2024; 390: 338-345. Hospital Prices for Physician-Administered Drugs for Patients with Private Insurance

In this study, the authors used 2020–2021 national Blue Cross Blue Shield claims data regarding patients in the United States who had drug-infusion visits. This included 404,443 patients in the United States who had 4,727,189 drug-infusion visits.  The authors examined 57 medications which represent the most expensive physician-administered drugs.

Background:

“Approximately one third of hospitals, including all specialized cancer hospitals, are also eligible for large discounts off drug acquisition prices under the federal 340B Drug Pricing Program.Hospitals thus have two means to generate profits from physician-administered drugs. Hospitals can reduce what they pay to manufacturers for the drugs, especially if they are eligible for 340B discounts, and can increase what they are paid for the drugs by imposing markups on the reimbursement prices they charge to insurers.”

Key findings:

  • The median price markup (defined as the ratio of the reimbursement price to the acquisition price) for hospitals eligible for 340B discounts was 3.08
  • After adjustment for drug, patient, and geographic factors, price markups at hospitals eligible for 340B discounts were 6.59 times as high as those in independent physician practices; price markups at noneligible hospitals were 4.34 times as high as those in independent physician practices
  • Hospitals eligible for 340B discounts retained 64.3% of insurer drug expenditures, whereas hospitals not eligible for 340B discounts retained 44.8% and independent physician practices retained 19.1%.
  • When we look at high drug costs, much is due to price markups NOT due to the manufacturers (which is already a lot). In this study, hospitals eligible for 340B discounts “retained almost two thirds of insurer drug expenditures, passing on only one third to the drug companies.”

My take: In my view, the health care market is messed up.

  • Hospitals charge exorbitant amounts for infusions (and other care) and this is worsening with consolidation
  • Insurance companies are difficult to work with and often deny needed care. Patients and physicians have little leverage to get them to fulfill their obligations.
  • Pharmaceutical companies use a myriad of tricks to increase the costs of their medications (see blog posts below) and charge U.S. consumers much more than what patients pay in other countries
  • Physicians are not incentivized to limit costs for patients/insurers. Many worry their reputations will suffer and they will be exposed to legal liability if thorough evaluations are not performed.
               From NEJM Twitter feed

Related issue:

This tweet from Bernie Sanders illustrates the additional costs that U.S. consumers pay for medications and indicates that legislation may be needed as the ‘market’ is not working well to control costs.

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Complications After Private Equity Takeover

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12/26/23 NY Times: Serious Medical Errors Rose After Private Equity Firms Bought Hospitals

An excerpt:

The study, published in JAMA on Tuesday, found that, in the three years after a private equity fund bought a hospital [51 hospitals in study], adverse events including surgical infections and bed sores rose by 25 percent among Medicare patients when compared with similar hospitals that were not bought by such investors. The researchers reported a nearly 38 percent increase in central line infections, a dangerous kind of infection that medical authorities say should never happen, and a 27 percent increase in falls by patients while staying in the hospital…

Although the researchers found a significant rise in medical errors, they also saw a slight decrease (of nearly 5 percent) in the rate of patients who died during their hospital stay. The researchers believe other changes, like a shift toward healthier patients admitted to the hospitals, could explain that decline. And by 30 days after patients were discharged, there was no significant difference in the death rates between hospitals…

The researchers said the most likely explanation for the increased errors was fewer hospital employees, an effect that has been measured in other studies of private equity.

My take: Private equity (PE) investment is likely to result in a lower quality of care in most circumstances. The primary driver of PE is profits not people. In order for PE to achieve their goals, it necessitates either driving up costs (higher profit margin) or reducing costs/staffing.

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Unionization of Physicians, Pharmacists and Health Care Workers

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NY Times 12/3/23: Why Doctors and Pharmacists Are in Revolt

The reasons for the recent labor actions appear straightforward. Doctors, nurses and pharmacists said they were being asked to do more as staffing dwindles, leading to exhaustion and anxiety about putting patients at risk…the explanation runs deeper: A longer-term consolidation of health care companies has left workers feeling powerless in big bureaucracies. They say the trend has left them with little room to exercise their professional judgment…

Professionals in a variety of fields have protested similar developments in recent years. Schoolteachers, college instructors and journalists have gone on strike or unionized amid declining budgets and the rise of performance metrics that they feel are more suited to sales representatives than to guardians of certain norms and best practices.

But the trend is particularly pronounced in health care…Over time, however, consolidation and the rise of ever-larger health care corporations left workers with less influence…

Many health systems had increased tensions with doctors and nurses by failing to involve them more in developing and putting in place the system of metrics on which they are judged…

The breaking point came when the height of the pandemic passed, but conditions barely improved, according to many workers…

During an interview in October, while Dr. Smith [a pharmacist] and his colleagues were still awaiting the company’s response, he made clear that his patience had run out. “I’ve been asking and asking and asking for improvements for years,” he said. “Now we’re not asking any more — we’re demanding it.”

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U.S. Health System: ‘World Leader in Amputations’

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NY Times 8/17/23, Nicholas Kristof: How Do We Fix the Scandal That Is American Health Care?

“It’s not just that life expectancy in Mississippi (71.9) now appears to be a hair shorter than in Bangladesh (72.4). Nor that an infant is some 70 percent more likely to die in the United States than in other wealthy countries….

All that is tragic and infuriating, but to me the most heart-rending symbol of America’s failure in health care is the avoidable amputations that result from poorly managed diabetes…A toe, foot or leg is cut off by a doctor about 150,000 times a year in America, making the United States a world leader of these amputations.

America’s dismal health care outcomes are a disgrace. They shame us. Partly because of diabetes and other preventable conditions, Americans suffer unnecessarily and often die young. It is unconscionable that newborns in India, Rwanda and Venezuela have a longer life expectancy than Native American newborns (65) in the United States. And Native American males have a life expectancy of just 61.5 years — shorter than the overall life expectancy in Haiti.“

The article recommends

  1. Expanding Access to Health Care
  2. Work on improving health behaviors: “smoking, eating habits and exercise — affect life expectancy even more than access to health care”…
  3. Work on poverty and education: “America’s health dysfunction is rooted in a broader national dysfunction, including deep intergenerational poverty and despair. The medical system can efficiently amputate a foot, but an improvement in self-care of diabetes sometimes requires an injection of hope and improvements in education, job training, earnings and opportunity.”

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Another Health Insurance Predatory Practice and One Doctor’s Quest to Stop It

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C Podkul 8/14/23 Propublica (open access!): The Hidden Fee Costing Doctors Millions Every Year

An excerpt:

A powerful lobbyist convinced a federal agency that doctors can be forced to pay fees on money that health insurers owe them. Big companies rake in profits while doctors are saddled with yet another cost in a burdensome health care system…

In August 2017, a federal agency with sweeping powers over the health care industry posted a notice informing insurance companies that they weren’t allowed to charge physicians a fee when the companies paid the doctors for their work. Six months later, that statement disappeared without explanation.

The vanishing notice was the result of a behind-the-scenes campaign by the insurance industry and its middlemen that has largely escaped public notice — but that has had massive financial consequences that have rippled through the health care universe. The insurers’ invisible victory has tightened the financial vise on doctors and hospitals, nurtured a thriving industry of middlemen and allowed health insurers to do something no other industry does: Take one last cut even as it pays its bills.

Insurers now routinely require doctors to kick back as much as 5% if they want to be paid electronically. Even when physicians ask to be paid by check, doctors say, insurers often resume the electronic payments — and the fees — against their wishes...

Dr. Alex Shteynshlyuger, a urologist who runs his own clinic in New York City, made it his mission to take on both the insurers and the federal bureaucracy. He began filing voluminous public records requests with CMS.

My take: This article shows another layer of a broken health care system where the ‘frauds are legal.’

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“Do Nonprofit Hospitals Deserve Their Tax Exemption?”

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G Bai et al. NEJM 2023; 389: 196-197. Do Nonprofit Hospitals Deserve Their Tax Exemption?

Excerpts:

Roughly 60% of community hospitals are incorporated as nonprofit institutions, which means that they don’t have shareholders and cannot distribute dividends…Nonprofit status doesn’t automatically confer tax exemption. Section 501(c)(3) of the Internal Revenue Code authorizes tax exemption for nonprofit organizations pursuing charitable, religious, educational, or scientific missions…In 1969, the IRS adopted the community-benefit standard, which required nonprofit hospitals to promote “the health of a class of persons that is broad enough to benefit the community.”…

An analysis by the Kaiser Family Foundation estimated that the value of nonprofit hospitals’ tax exemption was $28.1 billion in 2020…In 2018, for every $100 of expenses incurred, nonprofit hospitals in aggregate spent $2.30 on charity care, as compared with $3.80 spent by for-profit hospitals. And in 2019, nonprofit and for-profit hospitals had similar Medicaid shortfalls as a share of total expenses…

Many nonprofit hospitals also generate substantial profits from the federal 340B Drug Pricing Program. The 340B program… was designed to help safety-net hospitals serve low-income patients…

Some hospitals have also adopted aggressive revenue enhancing activities, such as declining to offer charity care to eligible patients and suing patients and garnishing wages because of unpaid medical bills. These examples make it clear that nonprofit status provides no assurance that hospitals will behave in accordance with their charitable mission or provide sufficient community benefit to justify favored tax status…

Disclosure might not be sufficient to catalyze changes in hospital behavior, but we believe
greater visibility is a prerequisite for policy action…Many nonprofit hospitals face substantial fiscal challenges, so heavy-handed policies — such as eliminating tax-exempt status across the board — are likely to be counterproductive…Mandating increased financial transparency would give stakeholders and policymakers the flexibility to understand, design, and test approaches to encourage nonprofit hospitals to provide meaningful community benefit

My take: This commentary piece makes a strong argument that many nonprofit hospitals do not deserve to be exempt from taxes.

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High Rates of Denying Medical Care for Medicaid Patients Managed by Health Insurers

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7/19/23 NY Times: Insurers Deny Medical Care for the Poor at High Rates, Report Says

Some excerpts:

Private health insurance companies paid by Medicaid denied millions of requests for care for low-income Americans with little oversight from federal and state authorities, according to a new report by U.S. investigators published Wednesday.

Medicaid, the federal-state health insurance program for the poor that covers nearly 87 million people, contracts with companies to reimburse hospitals and doctors for treatment and to manage an individual’s medical care. About three-quarters of people enrolled in Medicaid receive health services through private companies, which are typically paid a fixed amount per patient rather than for each procedure or visit.

The report by the inspector general’s office of the U.S. Department of Health and Human Services details how often private insurance plans refused to approve treatment and how states handled the denials.

Doctors and hospitals have increasingly complained about what they consider to be endless paperwork and unjustified refusals of care by the insurers when they fail to authorize costly procedures or medicines…The investigators also raised concerns about the payment structure that provides lump sums per patient. They worried it would encourage some insurers to maximize their profits by denying medical care and access to services for the poor...

The investigators emphasized the insurers were much more aggressive in refusing to authorize care under Medicaid than under Medicare…Unlike with Medicare, if an insurer refuses to authorize a treatment, patients are not automatically provided with an outside medical opinion as part of their appeal...

The investigators also found that state oversight of coverage denials was lax. Many states do not routinely examine the insurers’ denials nor collect information about how many times a plan denies requests for prior authorization...

The denial rates recorded by the investigators varied widely by insurer and by state.

My take: This is more evidence of the distorted incentives in U.S. healthcare where health insurance companies profit when patients are denied beneficial care.

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Case Study of Private Equity in Physician Practices: Anesthesia in Colorado

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6/29/23 Washington Post: Financiers bought up anesthesia practices, then raised prices

Some excerpts:

The multibillion-dollar private equity firm Welsh, Carson, Anderson & Stowe took less than a year to create, from scratch, Colorado’s biggest and most prominent anesthesiology practice…The company employed 330 anesthesiologists in Colorado at one point…

Typically following the same approach it took in Denver: acquiring the largest anesthesiology firm in a city and growing its reach from there, company officials said. It has issued more than $1.3 billion in dividends to its shareholders…

12 former USAP anesthesiologists cited an array of reasons for leaving.

For starters, their pay declined more than they expected, they said. The company more often required them to work shifts of more than 24 hours, physicians said. Some said they were asked to take on more than 80 hours in a week. Several said that under USAP management, they felt like interchangeable “widgets” with less control over the practice than they previously had…“Their doctors were overworked and paid below market rate for what they do,” Manchon said. “That’s why their doctors were leaving.”

My take: Private equity involvement in medicine is focused on profits not patients. That being said, most other parts of the U.S. healthcare system (hospitals, physicians, insurance companies and pharmaceutical companies) do not provide great value either.

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