Connecticut’s Attorney General Wants To Know In Advance If You Are Going To Join Forces With A Healthcare Provider

Back in early 2013, Connecticut's Attorney General ("AG") formed a "Health Care Competition Working Group" within his office to examine the potential impact of horizontal mergers (e.g., hospital to hospital) and vertical provider acquisitions (i.e., hospitals buying up physician practices) "may have on the pricing, quality, and access to health care for Connecticut's consumers and to propose recommendations for potential investigative or legislative initiatives to address them." The results are now in.

Connecticut's AG found that (1) most hospitals in Connecticut charge facility fees in their outpatient departments, (2) many Connecticut hospitals fail to provide any notice of the charging of facility fees, (3) the timing of notice to patients concerning facility fees varies among hospitals, (4) there are significant differences in the content of facility fee notices, and (5) hospitals often use ineffective mechanisms for giving notice of facility fees.

Why are these results significant? According to Connecticut's AG, because a "significant manifestation of [] consolidation in the marketplace is the hospitals' ability to engage in provider-based billing." Also known as "hospital-based billing," provider-based billing "enables hospitals that own physician practices and outpatient clinics to bill separately for use of the office or facility as well as for the physician's 'profession fee.'" The "facility fee" or "outpatient hospital charge" is "a separate overhead charge assessed by a hospital that is increasingly being billed for services rendered in an office setting." As explained by Connecticut's AG, "[w]hen billed by previously independent physicians' practices, these charges – which can be hundreds of dollars or higher – are often surprising, confusing and financially burdensome to patients."

Based on these findings, the Connecticut AG proposed legislation that would require advance notice be given to the AG of certain "acquisitions, mergers and joint ventures and thereby enable his office to better monitor these transactions in order to fulfill his legislative mandate to ensure that competitive health care markets are maintained in Connecticut." The proposed legislation provides that any merger or acquisition involving a hospital, hospital system, or other healthcare provider in Connecticut that is required to comply with the Hart-Scott-Rodino Act must "provide written notification to the Attorney General of such filing and, upon the request of the Attorney General, provide a copy of such merger, acquisition or other information." The proposed legislation also requires that notice must be given the AG 90 days prior to the effective date of any transaction resulting "in a material change to the business or corporate structure of a group practice." A material change to the business or corporate structure of a group practice includes:

1. The merger, consolidation or other affiliation of a group practice with (A) another group practice that results in a group practice comprised of eight or more physicians, or (B) a hospital, hospital system, captive professional entity, medical foundation or other entity organized or controlled by such hospital or hospital system;
2. the acquisition of all or substantially all of (A) the properties and assets of a group practice, or (B) the capital stock, membership interests or other equity interests of a group practice by (i) another group practice that results in a group practice comprised of eight or more physicians, or (ii) a hospital, hospital system, captive professional entity, medical foundation or other entity organized or controlled by such hospital or hospital system;
3. the employment of all or substantially all of the physicians of a group practice by (A) another group practice that results in a group practice comprised of eight or more physicians, or (B) a hospital, hospital system, captive professional entity, medical foundation or other entity organized by, controlled by or otherwise affiliated with such hospital or hospital system;
4. the acquisition of one or more insolvent group practices by (A) another group practice that results in a group practice comprised of eight or more physicians, or (B) a hospital, hospital system, captive professional entity, medical foundation or other entity organized by, controlled by or otherwise affiliated with such hospital or hospital system; and
5. the formation of a partnership, joint venture, common entity, accountable care organization or parent corporation for the purpose of contracting or providing services on behalf of one or more group practices.

The implications of all of this are significant.

While hospital mergers tend to be well known to the public and, depending on the size of the deal, are reported to the Federal Trade Commission and the Antitrust Division of the Justice Department for competitive review, transactions involving providers often are not reported because they are too small. States generally do not have pre-transaction antitrust review systems except in highly-regulated industries such as utilities or insurance. Such systems may arguably protect competition by ferreting out anticompetitive transactions at an early stage, or those systems may add a layer of expense and delay that inhibits providers from adapting to the new realities of the healthcare marketplace.

Take, for example, the antitrust challenge to St. Luke's Health System ("St. Luke's") acquisition of Saltzer Medical Group ("Saltzer"), a for-profit, physician-owned, multi-specialty group comprising approximately 44 physicians located in Nampa, Idaho. In recently ordering St. Luke's to unwind its acquisition of Saltzer, the District Court there found that "it appears highly likely that health care costs will rise as the combined entity obtains a dominant market position that will enable it to (1) negotiate higher reimbursement rates from health insurance plans that will be passed on to the consumer, and (2) raise rates for ancillary services (like x-rays) to the higher hospital-billing rates."

If the Connecticut AG's proposed notice requirement is enacted and other states follow Connecticut's lead, an examination of the various alignment options instead of physician employment through acquisition of medical groups, for example, may be required before pulling the trigger. Indeed, the District Court in the St. Luke's case suggested as much by rejecting St. Luke's claim that it "need[ed] a core group of employed primary care physicians beyond the number it had before the [transaction] to successfully make the transition to integrated care."

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