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FTC, Dana Nessel devoted months to Beaumont and Spectrum megamerger


Weeks after Beaumont and Spectrum health systems announced their plan last summer to merge and form the largest hospital system in Michigan, President Joe Biden vowed to have federal agencies get tougher on anti-competitive behaviors in the economy — including hospital consolidations. Health care experts wondered whether the extra Federal Trade Commission scrutiny would impact the proposed Beaumont-Spectrum megamerger, which would unite 22 hospitals in metro Detroit and in western Michigan (eight from Beaumont, 14 from Spectrum) and command a nearly 25% share of the Michigan hospital market, according to information newly obtained by the Free Press. Yet after an investigation by the FTC that stretched into the fall and early winter, dragging out the timeline for finalizing Michigan’s largest-ever hospital system merger to 2022, the Beaumont-Spectrum merger was approved without any legal challenge by the FTC.

The newly combined health system, still temporarily called BHSH System, finally went live Feb. 1 . The new system has about 64,000 employees and dual headquarters in Southfield and Grand Rapids.

Now nearly four months later, exactly how and why the Beaumont-Spectrum deal withstood Biden’s tougher stance on big mergers — a high-profile initiative of his administration — remains shrouded in standard regulatory secrecy. The FTC has yet to publicly explain its position on the merger, or address concerns by at least one employer group that it could result in higher health care costs. An FTC spokesperson declined questions and said the agency doesn’t comment on specific transactions.

More: Report: Michigan hospitals 5th safest nationally More: St. Joseph Mercy Health, Mercy Health hospitals to change names in major rebranding However, new details about the deal, as well as how state and federal regulators approached it, have emerged. The Free Press recently obtained a 227-page response to a Freedom of Information Act request from the Office of Michigan Attorney General Dana Nessel on the FTC’s investigation of the Beaumont-Spectrum merger.

The documents and emails are heavily redacted and offer little insight on federal regulators’ assessment of the deal and its potential impact — clinically and financially — on Michigan patients, insurance customers, employers and other hospitals. Still, the documentation shows the FTC undertook a monthslong investigation, interviewed some large employers about the merger, and was in close contact with staff from the state AG’s office. Key discussions between the federal agency and the AG’s office often occurred via remote meetings and conference calls, and with no resulting written record — or publicly available record.

At times, FTC staffers suggested communication by phone, rather than writing, presumably to keep details of the merger deliberations from becoming public record. The contents of many emails were redacted, including those from AG staff to Nessel on the subject of “possible antitrust implications” of the deal. When FTC staff interviewed various Michigan state government departments about the merger, AG staffers were sometimes on the line as well, “because our office may also have a role in reviewing the proposed merger from an antitrust perspective,” said James Long, an assistant attorney general in the corporate oversight division, in a Dec.

1 email. In the end, Nessel’s office simply said that under state law, the deal didn’t require attorney general approval because of the technical nature of its structure, known as a “member substitution,” in which Beaumont and Spectrum remain separate legal entities overseen by BHSH System. Beaumont and Spectrum attorneys told the AG’s office that their tie-up is legally considered “neither a merger nor an asset purchase,” according to emails.

Nessel never issued a substantive opinion or public assessment of the deal. AG representatives would not give an interview or answer questions for this article. Cross-market merger The Beaumont-Spectrum deal was a so-called “cross-market merger,” meaning there was no geographic overlap between the two nonprofit systems.

In addition, there were no plans to close hospitals or patient sites as part of the merger. Those factors may have made the merger less problematic for the FTC, in comparison to a tie-up of health systems that are direct competitors. “The key question is really whether a merger harms competition in the relevant market or markets,” said Martin Gaynor, a former director of the FTC’s Bureau of Economics and now a professor of economics and public policy at Carnegie Mellon University.

“And here, you have one in (metro) Detroit and one in Grand Rapids, they are not in the same geographic area. ” There is significant research showing how mergers of directly competing hospitals typically result in higher prices being paid by commercial insurance companies, as the newly combined hospitals gain leverage in price negotiations. For patients, those higher hospital prices mean higher health insurance premiums, bigger out-of-pocket costs, even lower wages as area employers give smaller raises due to rising insurance costs.

There is less research on the price impacts of mergers of geographically distant health systems in the same state, like pre-merger Beaumont and Spectrum. Still, one 2019 study , led by a Harvard Business School professor, found that cross-market, in-state hospital mergers resulted in price increases of 7% to 9% over time. In an interview last week, that same Harvard professor, Leemore Dafny, who also is a past deputy director of the FTC’s Bureau of Economics, suggested two possible reasons why the federal agency didn’t move against the Beaumont-Spectrum deal.

It may have determined the merger wasn’t harming competition, she said. Or perhaps FTC officials had concerns, but didn’t think they would prevail in federal court if they tried to stop the merger. “They need to try and stop it before it (the merger) closes,” Dafny said.

“They don’t want it to close and then have to do what’s called unscrambling the eggs. ” FTC interviews If the FTC decides to challenge a hospital merger, it helps the agency’s court case if there are in-state opponents of it such as the business community or health insurance companies. When investigating the Beaumont-Spectrum deal, the FTC did interview large employers and employer groups.

It is unclear how much pushback there was. Blue Cross Blue Shield of Michigan is the largest commercial health insurer in the state. Its dominance is cited as a key reason why the average prices Michigan hospitals are paid by commercial insurers are among the lowest in the country.

A Blues spokesperson declined to say whether they were interviewed by the FTC and took a position on the merger. Professor Dafny said the FTC’s reluctance to publicly remark on the merger isn’t unusual. From a regulatory standpoint, being too open about why the agency did or didn’t oppose a merger could essentially give up the game.

“In my view, the agencies often don’t want to be fully transparent because it might encourage, potentially, anti-competitive transactions,” she said. “It might create some sort of standard that they don’t mean to be creating. So unless it’s litigated, it’s not common for agencies to issue what are called closing statements or something like that where they explain their reasoning for why they didn’t choose to challenge something.

” She added, “You can see how it could potentially stack the deck against them another time, so do we really want them doing that?” The FTC challenged 2% to 3% of hospital mergers a year during the 2010s, according to the Medicare Payment Advisory Commission, a nonpartisan congressional agency. Allan Baumgarten, an independent health care business analyst, said there have been no instances yet of the FTC challenging a cross-market merger like Beaumont-Spectrum. Consultants arrive The new BHSH System recently hired consultants from PWC, also known as PricewaterhouseCoopers, to help find cost-savings and “synergies” that could save the health system $200 million per year in coming years, according to documents filed with the Michigan Finance Authority.

Some savings could come from a new centralized and streamlined vendor contracting process. Others could come from eliminating “duplicative infrastructure” in areas such as finance, supply chain, revenue cycle and information technology, the documents say. BHSH System had $13.

6 billion in operating revenue last year, for $856. 9 million in net revenue over expenses, the documents say. Still concerned Bret Jackson, president of the large employer-labor coalition Economic Alliance of Michigan, which includes the Detroit Three automakers, said the FTC interviewed his group about the merger as well as various employers in the state.

The alliance was concerned the merger could result in higher prices at Beaumont hospitals. The Employer Hospital Price Transparency Project , which uses data from the nonpartisan Rand Corp. , shows that six Spectrum hospitals receive higher prices from commercial insurance companies than even the highest-charging Beaumont hospital.

For instance, the “total facility” average prices that health insurers paid Spectrum Health Butterworth Hospital in Grand Rapids in 2020 was 306% of what Medicare pays for similar services. Those prices at Beaumont Hospital Royal Oak were 172% of Medicare. The average for all Michigan hospitals was 203% of Medicare, which was the seventh lowest of the 50 states, according to the 2020 data.

Three years earlier, the Michigan average was 156% of Medicare. The Economic Alliance worried that BHSH System might raise prices at the Beaumont hospitals in metro Detroit to match those at the more expensive Spectrum hospitals. “We are very concerned that the consolidation of these two systems will lead to the higher prices you see in the Spectrum system, as opposed to the lower prices we have seen in the Beaumont system,” Jackson told the Free Press.

The alliance also had a conference call with Spectrum Health leaders before the merger was final, he said. “The only thing they would say is, ‘Yes, we know we have to work on pricing,’ ” Jackson said. “They did say that.

The problem is, that’s all they said. ” Asked whether BHSH System intends to raise Beaumont hospitals’ prices to those of Spectrum hospitals, BHSH issued a statement: “We can all agree health care needs to be more affordable. One of our goals and priorities is to reduce the total cost of care for the communities we serve.

BHSH System is focused on the transition to value-based care, which incentivizes patient outcomes over volumes. As a result, this value-based care approach can help reduce costs. ” Angry letters The Free Press’ Freedom of Information request turned up several unsolicited letters about the merger to the FTC and state Attorney General’s Office from individuals opposed to it.

The identities of the senders were redacted. One letter, intended for Nessel and FTC Chair Lina Kahn, voiced concern about higher health care costs and speculated that self-interest on the part of Beaumont executives, especially now-former CEO John Fox, to get generous exit packages was driving motivation for the deal. Another letter was sent to Nessel’s office days after the merger closed.

“In the past 25 years, I’ve witnessed care going from bad to worse,” the letter read. “Hospitals such as Beaumont appear to be putting profit before patients. What’s more, the profit is only for those who don’t ever even touch patients: management is at the top of this list.

This should not happen, legally or ethically. ” BHSH System said that compensation for Fox, who left Beaumont in early February, and other executives will be disclosed in the organization’s annual IRS reports. A new, permanent name for BHSH System could be announced by year’s end.

“Every day, we . . .

strive to deliver on our integration principles: to improve health and health equity, enhance the consumer experience, improve health care quality, value and outcomes, make health care more affordable for the communities we serve and ensure the voices of team members and physicians are heard. Delivering on these principles will help us achieve our vision — a future where health is simple, affordable, equitable and exceptional,” the system said in a statement. Contact JC Reindl: at 313-378-5460 or jcreindl@freepress.

com . Follow him on Twitter @ jcreindl . Read more on business and sign up for our business newsletter .


From: freep
URL: http://rssfeeds.freep.com/~/697699418/0/freep/business~FTC-Dana-Nessel-devoted-months-to-Beaumont-and-Spectrum-megamerger/

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