Sponsored by VMG Health | info@vmghealth.com | 214.369.4888

M&A under Trump: 3 questions with Newpoint Healthcare Advisors Chairman Joseph Lupica

Despite lacking three individuals to fill the vacant seats on the Federal Trade Commission, the agency has already halted several major mergers in the healthcare industry from taking place. The acting chairman of the FTC has previously stated she has "generally been supportive of antitrust enforcement" in challenging hospital mergers. However, one mergers and acquisitions expert believes blocking "mega mergers" in the healthcare industry may lead to better outcomes for patients in the long run.

Joseph Lupica, chairman of Newpoint Healthcare Advisors, a healthcare advisory firm, said though he does not aim to predict how the FTC will act under President Donald Trump's administration, hospitals and health systems should continue to ask themselves why they prefer to merge with another institution instead of operating under a different management model, such as a clinical affiliation. He also suggests that hospital systems look to rural hospitals as a source of strength and further incorporate technology like telemedicine to eliminate the physical distance between rural and urban hospitals and provide patients in both areas with the best quality of care possible.

Editor's note: Responses have been lightly edited for length and clarity.

Question: We've already seen the FTC under the Trump administration enforce an injunction against one major deal in the healthcare industry thus far this year — the proposed merger between Downers Grove, Ill.-based Advocate Health Care and Evanston, Ill.-based NorthShore University HealthSystem. How do you think M&A transactions will fair under the administration? For example, how do you think the federal government will respond to the proposed merger between Harrisburg, Pa.-based PinnacleHealth and Pittsburgh-based UPMC?

Mr. Joseph Lupica: I never want to predict how the government would respond to a merger. Yes, the president's campaign promises and early appointees signaled a pro-business stance. But I would ask, "Pro which business?" In healthcare, monopoly practices by hospital businesses could injure other businesses like health plans and employers buying coverage.

Take PinnacleHealth and UPMC. There is federal legislation already in place that looks for monopolies and combinations that restrain competition. Whether the Pinnacle combination restrains competition depends on multiple factors, like the definition of market boundaries to determine market share, and whether customers (payers and the premium-paying businesses) have alternatives for buying services from providers in that market.

If we look beyond the pricing of hospital services alone and examine the combined cost of insurance premiums and provider rates, deals like UPMC-Pinnacle actually offer the potential to lower overall healthcare spending in a region.

So, which marketplace of buyers should the antitrust laws protect now? The merged UPMC-Pinnacle entity will be a provider, but UPMC also brings its own health plan into the central Pennsylvania, which will actually introduce more competition into the payer marketplace. To deal with the increase in competition, UPMC Health Plan will probably have to make money the old-fashioned way — by offering lower premiums in the employer-patient market, which they can only do with affordable rates from a network of cost-effective providers, which includes UPMC-Pinnacle — their own provider. The FTC might even smile at the downward pressure on costs in the employer-patient marketplace of premium payers.

Q: What advice would you give to a hospital or health system contemplating a merger or acquisition deal? Are there specific factors they should look for or stay away from?

JL: Before moving forward with a proposed M&A deal, hospitals should look carefully at why they even need a merger or any ownership transfer to reach their strategic goals — they should begin by asking themselves, "Why?"

Hospital leaders don't always have to give up the keys. Our hospital and health system friends are finding creative relationships that enhance clinical capabilities, bolster financial performance and allow other improvements that do not hinge on a change in ownership. Larger systems are slowly starting to realize the same thing — that a lot of the goals they seek in affiliation do not require a takeover of ownership. We are now seeing support-side collaborations like clinical applications, like telemedicine networks and multihospital clinically integrated networks.

Second, determine your objectives before embarking on a path toward a deal, and let them guide you the rest of the way. No matter what intensity of relationship is right for a hospital's goals, I would recommend applying the same disciplined process of examining objectives and options to protect the elements of independence that matter most. Hospitals and health systems should think about who they are as organizations and what services and culture they want to sustain for the people they serve, which includes embracing voices from your community to gain a better understanding of what services and issues matter most to them. These people are your customers and you want to keep them as customers of the new partnered organization. I also urge organizations to go beyond the usual suspects they might consider for a potential affiliate. You never know what an open-minded list might turn up.

Third, document a formal list of evaluation criteria and make sure those criteria don't slip around in the heat of the moment. Make sure that list addresses the culture of the potential partner organization. Once you delve into partner discussions, ask questions — peel back the usual data to reveal the cultural core. For example, when the leaders across the table mention a decision they made, ask them how they got there, what overarching goals they considered, whose views they solicited and other factors away from the normal grind of financial decision support.

Fourth, as our clients prepare their partner options, we remind them to consider not just what they can get out of a deal, but also what's in it from the perspective each potential partner. Asking, "What's in it for them?" is a way for you to uncover your true value to a partner, beyond all the quantitative "valuation" multiples consultants toss around. A community hospital, for example, might be losing money but have a robust core of primary care patients — low valuation but outstanding value. Given the growing importance of value-based care, systems have to grow their denominator of covered lives and community hospital lives are essential to that goal.

Q: What's your take on the industry right now? Are there any particular trends that stand out to you?

JL: No matter what the Trump team may do to the ACA, the paradigm shift from fee-for-service to value-payment and risk-based care models has become part of our industry's DNA. CMS now has a substantial share of their payments tied up in value-based programs and commercial insurers have followed suit. This is our reality now, and I don't think a replacement bill will touch it. As a result, providers are increasingly forging relationships with the goal of better managing the health of their patient populations and keeping them out of hospital beds, as opposed to trying to fill beds.

Having devoted so much of my practice to rural people and places, I'm really distressed to see so many rural hospital closures, and the projected roll-back of Medicaid expansion may create new hardships in these areas. As the value-based dynamic continues to expand, rural hospitals and their affiliated physicians can really help urban systems build up their base of covered lives. Those shiny tertiary hospitals are starting to appreciate rural hospitals and their physicians as valuable partners rather than as failing entities needing to be rescued. The expanding availability of technology is also erasing some of the distance that has put rural areas at a disadvantage. Rural providers are already deploying innovations like telemedicine consults to bring patients closer to subspecialty services without leaving their home hospital.

Those factors are starting to level the playing field, especially in affiliation transactions. More urban systems now understand they need a larger base of covered lives to absorb actuarial risk. Risk-based payment systems are giving urban systems the incentive to move procedures to lower-cost settings. If their rural network partners can demonstrate high quality, which I'm confident they can, we will see care networks working to keep rural patients close to home for tertiary services (like total hips) that rural hospitals can safely provide.

Copyright © 2024 Becker's Healthcare. All Rights Reserved. Privacy Policy. Cookie Policy. Linking and Reprinting Policy.