The Biden administration is taking aim at mergers among hospitals, pharmaceutical companies and other health care institutions, a move that federal officials contend would reign in high medical bills and drug prices in an executive order issued July 9. The president asked the Federal Trade Commission to examine the current slate of proposed mergers and “challenge prior bad” deals.
The order is aimed at some of the nation’s largest industries, many of which are major economic forces in New Jersey, including air travel, pharmaceuticals, hospitals, health insurance and internet services. “Take prescription drugs: Just a handful of companies control the market for many vital medicines, giving them leverage over everyone else to charge whatever they want,” the president said July 9. “As a result, Americans pay two and a half times more for prescription drugs than in any other leading country,” he continued. “And nearly 1 in 4 Americans struggles to afford their medication.”
Proponents of hospital mergers argue that in the long run, they save money for doctors and patients. They argue that larger hospital systems can more easily absorb costs such as overhead. “[H]ospitals are economically challenged, so one of the reasons they do create these mergers is to allow them greater access to capital and infrastructure,” said John Fanburg, managing partner and chair of the health care group at Roseland’s Brach Eichler. “You reduce duplication of technology” and other back-end functions.
And mergers provide those health care institutions with a “better negotiating position to get a better rate” with health insurance companies, added Michael Schaff, who co-chairs the corporate and health law practice groups at Wilentz, Goldman & Spitzer. Schaff continued that “at the same time, you have more capital, so that you can invest it” in better technology and medical treatments.
Early in July, Hackensack Meridian Health, the largest health care network in the state, celebrated the five-year anniversary of the combination of Hackensack University Health Network and Meridian Health. HMH said that between 2017 and 2020, the sprawling health system has handled more than 700,000 admissions and 2.5 million emergency visits across its 17 hospitals and 500 patient-care locations.
Hackensack Meridian CEO Robert Garrett said that without the merger, the individual entities would have had far fewer resources at their disposal to react to the COVID-19 pandemic and to manage the current vaccination efforts. For example, he said the transfers of staff from North Jersey hospitals to Central and South Jersey hospitals, as the pandemic slowly moved down the state last spring, would not have been possible.
“We wouldn’t have been able to expand as quickly as we could,” Garrett said in an interview. “We doubled and tripled our [intensive care unit] capacity. We wouldn’t have been able to pool resources, to convert cafeterias into a major COVID care unit.”
And the early versions of the COVID-19 rapid turnaround tests, which came out of HMH’s Center for Discovery and Innovation lab, and reduced wait-time from over a week to just a few days, would also not have been possible.
We doubled and tripled our [intensive care unit] capacity. We wouldn’t have been able to pool resources, to convert cafeterias into a major COVID care unit.
– Robert Garrett, Hackensack Meridian CEO
HMH is in the process of taking over Englewood Hospital and Medical Center in its namesake city, one of the last remaining independent hospitals in the region. The FTC under the Trump administration said in December that it would try to block the proposed merger, on the grounds that the big health care system could monopolize the Bergen County market and drive up consumer prices.
Other mergers are in various stages of progress across the state, and health care executives contend that they will yield enormous benefits for local residents. Last September, RWJBarnabas announced that it finalized a deal to purchase Saint Peter’s University Healthcare System in New Brunswick. Fanburg represents RWJBarnabas in that deal. Then in November RWJBarnabas said it would acquire Trinitas Regional Medical Center in Elizabeth.
Leslie Hirsch, the president and CEO of Saint Peter’s, said the merger – which could be finished as soon as next year — would allow for a “substantial investment of capital” in brick-and-mortar facilities, clinical programs and services, and technology. “A premier academic medical center would provide broad benefits for New Jersey residents and reduce the need for travel outside the state for complex medical care,” Hirsch said in a statement. “Greater access to care close to home would be especially beneficial for those residents who are underserved or uninsured.”
Elsewhere, last September Morristown-based Atlantic Health System said it would acquire a majority stake in CentraState Healthcare System, which operates along the shore. The only remaining reviews are being conducted by the state Attorney General’s Office and the Health Department, according to officials at both hospitals.
Last month, nearly 50 CentraState physicians joined Atlantic Health’s physician network, Atlantic Medical Group. Their practices encompassed family medicine; women’s health; neonatology; breast surgery and oncology; pulmonology; nephrology; and movement disorders, all of which began using Atlantic Health’s electronic medical records system. “Our transition to the Atlantic Medical Group will give our providers new tools to manage patient care, and ultimately offer patients easier access to a larger network of physicians,” said James Richvalsk, CentraState’s vice president of physician practice management, in a statement.
Fanburg said that many of these mergers will likely continue to go forward. “But they’re going to have to do a lot more work to demonstrate to regulators that this is a good thing, from a health care access perspective, and the implications if they don’t succeed in the merger,” he said. “They’ll have to demonstrate to the government that by acquiring or bringing standalones into the system, [the deals] will make those standalones stronger for their communities.”
Ian Conner, head of the FTC’s Bureau of Competition, contended in the December announcement of the challenge to the HMH-Englewood merger that the acquisition would give the combined hospital system increased bargaining leverage, likely leading to increased prices. Officials from Englewood and Hackensack Meridian disputed the FTC’s claims, saying in a joint statement following the announcement that the merger would result in cost savings and greater affordability. “We continue to firmly believe that this merger is in the best interest of our patients and the communities at large,” the hospitals said. “As a result, we plan to vigorously defend the merger in court, which will give us the opportunity to further demonstrate the benefits Hackensack Meridian Health and Englewood Health will achieve together.”
Nevertheless, Darrell West, an analyst with the Brookings Institution, a Washington, D.C. think tank, said he expects the stance coming out of the Biden White House will be to continue scrutinizing proposed mergers and acquisitions “to make sure consumers will not be harmed in the process.”
“[Biden] does not want hospitals jacking up the prices or giving patients surprise bills,” West said in an email, though he doubted that mergers already underway would reverse course. “He sees anticompetitive behavior raising big costs for consumers and making it difficult for smaller entities to compete. That could lead to stricter policies for hospitals and health care providers.
Schaff agreed that actions such as Biden’s executive order at least “heightened scrutiny” and would prompt hospitals and other parties across the health care sector to take more consumer-friendly approaches. “He wants to discourage M&A,” Schaff said. “In some of these deals, the hurdles may be you have to promise x, y and z to make sure there’s competition … They may require you to divest some of the locations so it wouldn’t all be [controlled] by one entity.”