Antitrust concerns with UPMC debated

SEIU Healthcare Pennsylvania has sounded the alarm on antitrust issues in its continuing effort to arrest the momentum of UPMC’s planned acquisition of Altoona Regional Health System.

However, experts are divided about whether it’s really an issue.

The UPMC acquisition would bring “inpatient utilization” by Blair Countians from the current 70 percent for Altoona Regional to 85 percent for UPMC, given the percentages of patients who now travel to UPMC facilities and the planned eventual inclusion of Nason Hospital in the deal, according to a letter from SEIU Healthcare Pennsylvania President Neal Bisno, citing state statistics, to Altoona Regional CEO Jerry Murray.

Nason handles 8.8 percent of Blair Countians’ inpatient hospitalizations.

“Affiliation with UPMC would add to ARHS’s already dominant position within its market and potentially attract the attention of antitrust regulators,” Bisno stated.

“A lot of really bad things follow” from hospitals having concentrated market power, said Duke University School of Law Professor Barak Richman, a health care antitrust expert, in a phone interview.

Other see it differently.

“The antitrust agencies shouldn’t worry much about market dominance on a county level, according to Justin Matus, assistant professor and health care management expert at Wilkes University.

“Health care is no longer delivered by family doctors in small-town U.S.A.,” he said.

Altoona Regional has little to say about the matter at this point.

“We will leave any antitrust opinions to the state Attorney General’s Office, which investigates these situations extensively on the public’s behalf,” said hospital spokesman Dave Cuzzolina. “We are cooperating fully and see no issues.”

UPMC believes likewise.

“We are in the process of due diligence right now, which includes review and vetting of all legal and regulatory issues [including antitrust],” said UPMC spokeswoman Susan Manko. “This is all part of the routine.”

The state Attorney General’s Office evaluates all hospital mergers in Pennsylvania to determine whether they would diminish competition enough to cause price increases detrimental to consumers, before considering whether to approve them, spokesman Dennis Fisher said.

One of two national agencies – the Federal Trade Commission or Department of Justice – evaluates most mergers worth more than $66 million, to determine whether they substantially lessen competition in “relevant markets,” as defined by geography and type of medical service, according to FTC spokesman Peter Kaplan.

It’s not straightforward, as in retail businesses, but hospitals with monopolies in a particular market can increase the prices they charge private health plans, which means that employers that buy those plans for their workers pay more, ultimately resulting in a dollar-for-dollar reduction in those workers’ paychecks, Richman said.

In this “classic situation,” the health plan first responds by saying, “that’s a crazy price” and threatens to send its subscribers to other hospitals. But those subscribers don’t want to hear that the main hospital in their region isn’t in their health plan network, he said.

They protest, blame the health plan, and the health plan caves, he said.

If UPMC gets control of 85 percent of the business in Blair County, it will be in a good position to apply the “squeeze,” Richman said.

Two Pennsylvania professors and a lawyer who are experts in health care mergers take a different view.

“[Blair County] sounds like it’s already nearly monopolized by Altoona Regional,” wrote Martin Gaynor, professor of economics and health policy at Carnegie Mellon University in an email. “It’s not clear how an acquisition would make things any worse.”

Going from 70 to 85 percent market share in Blair sounds like a lot, but the county line is arbitrary, and not really reflective of modern health care markets, which for many services is much larger, according to Matus.

“UPMC has been down this road before,” said Steven Cernak, an attorney with Schiff Hardin in Ann Arbor, Mich. “It probably has a good idea what to say to get through an antitrust review.”

In an article published in the University of Pennsylvania Law Review, “Antitrust and nonprofit hospital mergers: a return to basics,” Richman argues that the courts have struck down too many attempts by the FTC to block hospital mergers, because they don’t understand they can be just as problematic as those in other industries.

The courts have tended to give nonprofit hospitals a pass, believing nonprofits won’t abuse pricing power, given their histories as charitable institutions, their boards with community leaders who are also patients and their obligation to provide free care to the poor, according to Richman.

The courts also have swallowed the argument that duplication of medical facilities is a waste of money – failing to appreciate that it is also a means for allowing competition to thrive, Richman wrote.

Nonprofit hospitals generally take as much advantage of monopoly power as for-profits – maybe more, due to their inherent tendency to cooperate rather than compete, those charitable obligations and the insulation of patients from the reality of the cost of care because of insurance, Richman wrote.

Even big insurance companies are “toothless against a true monopolist,” because of legal requirements to cover “medically necessary care” and because failure to provide adequate coverage would generate subscriber protests, even lawsuits, and “the scorn of judges who accuse them of saving dollars rather than human life,” he wrote.

Gaynor, who doesn’t see an obvious problem with the merger, said the key question is whether UPMC and Altoona Regional are competitors merging to eliminate the competition between them, to the detriment of consumers. He doesn’t know the Altoona market, but that seems unlikely, he said.

“If Altoona and UPMC aren’t competitors, then there wouldn’t be an antitrust issue,” he said.

The agencies will evaluate the merger on a market-by-market basis, taking account of how far patients are willing to go for particular services and of barriers that may discourage them, Cernak said.

“I’m not going to travel an hour to see my primary care physician,” he said. “[But] I might travel an hour or more to get open heart surgery.”

The primary care market might end at the mountain, but the market for secondary and tertiary care may go the entire width of the state, he said.

Local anxiety is understandable, and health care systems can get too big, Matus said.

“If we suddenly find one health system that dominates three contiguous states, I would begin to get nervous,” he said. “But I don’t think we’re there yet.”

If the agencies don’t allow the acquisition, then what? he asked rhetorically.

Independent stand-alone hospitals are more and more at a disadvantage, lacking economies of scale and access to capital and expertise, as they face heath care’s “steep learning curve,” he said.

“We’re not talking about mass producing snow tires here,” he said. “It’s a very complex business.”

The agencies will give the merger a “hard look” and might even impose restrictions, Matus predicted.

“But I don’t see them stopping it,” he said.

Even Richman doesn’t think a UPMC takeover would eliminate all possibility of competition.

Highmark, a big insurance firm that is developing its own medical network in western Pennsylvania, could compete by setting up outreaches for smaller medical matters here and sending subscribers to its Pittsburgh-area facilities for bigger ones, he said.

“That would be the counterargument,” he said.

Getting subscribers to buy in to the idea that it makes sense to drive two hours to save $2,000 may be the “next frontier” in health care, he said.

Patients are going to need to shop more creatively, more aggressively and accept “narrow networks,” he said.

“[But] I’m still deeply, deeply concerned about giving hospitals – providers – greater market power,” he said.