Issue link: https://beckershealthcare.uberflip.com/i/665044
100 THOUGHT LEADERSHIP Kenneth Kaufman: FTC Policies Are Big Trouble For Hospitals By Kenneth Kaufman, Chair, Kaufman, Hall & Associates, LLC H ealthcare's future is being shaped by some of the biggest companies in the world. However, the Federal Trade Com- mission seems intent on keeping hospitals from shaping that future. In April 2015, IBM launched Watson Health. Less than a year later, IBM has invested more than $4 billion in the division. It acquired Explorys, a cloud-based healthcare intelligence company; Phytel, a population health company; and Merge Healthcare, a provider of enterprise imaging, interoperability and clinical systems. Most recently, it announced plans to acquire Truven Health Analytics for $2.6 billion. Watson Health also has relationships with Apple, Medtronic, Johnson & Johnson and CVS Health. e division has more than 5,000 employees. "Our goal was to enter the healthcare industry in a big way," said John Kelly, IBM's senior vice president of cognitive solutions and research. Within a three-week period in 2015, three major health insurance mergers were announced: Anthem acquiring Cigna for $54.2 billion, Aetna acquiring Humana for $37 billion and Centene acquiring Health Net for $6.3 billion. e Anthem/Cigna combination would create the largest U.S. health insurer, with $115 billion in annual reve- nue and 53 million members — about 20 percent of Americans. CVS Health recently purchased the pharmacy and clinic business of Target for about $1.9 billion, adding 1,672 retail pharmacies and 79 retail clinics, bringing the number of CVS MinuteClinic locations to more than 1,100, and building on CVS' 50 percent retail clinic market share and 27 million patient visits. e New York Times called CVS "arguably the country's biggest healthcare company, bigger than the drugmakers and wholesalers, and bigger than the insurers." Within just over a year, Roche, the world's largest biotech compa- ny, made six acquisitions and investments in genomics companies: GeneWEAVE, Kapa Biosystems, Genia Technologies, Bina Technol- ogies, Signature Diagnostics and Foundation Medicine. Roche's 2015 revenues were more than $48 billion, and it has more than 90,000 employees. ese are the kinds of companies that will be influencing and controlling healthcare in the future: Big data companies looking to narrow the use of high-intensity services through predictive analytics and personal health monitoring. Big pharmacies trying to gain more influence on the provision of low-intensity healthcare. Big insurers looking to position themselves as the organizers of care. And big drug companies looking to change the very nature of care with new genomic technologies. To stay in the healthcare game, a company needs big operations, big intellectual capital, big cash flow and the ability to raise big capital. At the broadest level, hospitals have two choices: stick to tradition and see their share of the healthcare pie and relevance shrink, or figure out a way to get big enough to compete in a much larger and more taxing arena. Enter the FTC e FTC appears determined to keep hospitals in the smallest box possible. Ignoring the changing nature of healthcare described above, the FTC applies an antiquated, price-focused view of competition, while other federal agencies take a relatively hands-off approach as hospitals' new competitors grow. In recent months, the FTC has picked up the pace of challenges to hospital mergers and acquisitions. Within six weeks, the FTC chal- lenged a proposed merger between Advocate Health Care Network and NorthShore University Health System in the Chicago area; a proposed merger between Penn State Hershey Medical Center and PinnacleHealth System in the Harrisburg, Pa., area; and a proposed acquisition by Cabell Huntington Hospital of St. Mary's Medical Cen- ter in Huntington, W.Va. In these cases and others, the FTC's challenges rest on the assumptions that these health system combinations will reduce competition, giving hospitals power to charge higher prices. Further, the FTC says these combinations will not improve quality and efficiency. ese contentions are flawed. e FTC tends to define service areas narrowly, heightening the appearance of potential anticompetitive effects. e FTC assumes a pricing power that even large healthcare organizations don't have in the face of larger and growing insurers. And the enhanced capabilities for capacity management and care co- ordination that these hospital mergers facilitate are key to the federal government's own policies aimed at achieving improved quality and efficiency of both inpatient and outpatient services. "At the broadest level, hospitals have two choices: stick to tradition and see their share of the healthcare pie and relevance shrink, or figure out a way to get big enough to compete in a much larger and more taxing arena." — Kenneth Kaufman