March 7, 2016

State late to modernizing health industry oversight

One of the chief complaints about government is that it's often behind the eight ball when it comes to discerning macro trends, putting consumers, businesses and the broader economy at risk.

The subprime mortgage crisis was a prime example, as myriad government regulators and legislators fell asleep at the wheel allowing shoddy home loans to derail the world economy.

In Connecticut, the state's slipshod oversight of the healthcare industry is a concern. Last week, Gov. Dannel P. Malloy essentially ordered a one-year moratorium on hospital mergers, so that a newly formed task force could examine the state's mergers and acquisitions oversight process and other major changes gripping Connecticut's healthcare industry.

Our question is what took so long? Consolidation has been overtaking Connecticut's healthcare industry for at least a decade. It started with the 2006 merger of New Britain General and Bradley Memorial hospitals, and picked up speed following passage of the Affordable Care Act in 2010.

Now there are just a handful of independent hospitals left in the state; 22 of Connecticut's 28 acute-care providers are either owned by or seeking to join larger institutions.

Concerns about larger health systems' abilities to raise prices and reduce patient services are legitimate, but the consolidation train, in many ways, has already left the station.

Connecticut should have modernized and standardized its M&A oversight process years ago, when major deals were already percolating and media organizations across the state, including Hartford Business Journal, wrote in-depth pieces (see "Hospitals Seek Survival in Arms of Health-Care Giant" Aug. 10, 2009) predicting a major consolidation wave even before "Obamacare" became part of the American vernacular.

Indeed, the major changes sweeping through the state's healthcare system shouldn't be a surprise. Lawmakers in recent years have held numerous meetings and public hearings about hospital and physician-practice consolidation and how to properly oversee it.

Yet, according to Malloy, Connecticut has taken a "piecemeal" approach to the merger approval process, which seems to be an admission of regulatory malpractice, posing significant risks for the healthcare industry and Connecticut's broader economy.

Signs of that "piecemeal" approach were evident in 2014, when the state Office of Health Care Access (OHCA) proposed unprecedented controls over staffing, services and pricing as a condition for Texas-based Tenet Healthcare to purchase Waterbury Hospital. Tenet was a for-profit operator also looking to buy several other hospitals, but ended its two-year bid to enter the state after OHCA essentially handcuffed its ability to do business here.

At the time, we questioned why state regulators were asking Tenet to play by different rules than other Connecticut hospitals, as some of the 47 conditions placed on Tenet's deal were included in previous 2014 legislative proposals that lawmakers deemed too onerous.

The irony is Tenet could have provided added competition to an industry many experts agree will be dominated by a few large systems, including Hartford Healthcare and the Yale New Haven Health System. (Tenet did partner with Yale New Haven as part of its attempt to purchase Connecticut hospitals, giving the state's largest hospital system a 20-percent stake in its Connecticut ventures). Luckily, several new players have since entered the market — Michigan-based Trinity Health and California-based Prospect Medical Holdings — to buy some of our state's healthy and ailing hospitals.

We understand making sense of the rapidly changing industry is no easy task, and we aren't asking state regulators to rubber-stamp hospital mergers. Clearly, we need a comprehensive study on the state's competitive landscape and health systems' market power. We also need a more equitable, transparent and streamlined regulatory process that establishes well-defined benchmarks for governing hospital and physician-practice takeovers. We're just disappointed Malloy and the rest of the legislature are showing up so late in the game.

Clarification: Tenet Healthcare did partner with Yale New Haven Health System as part of its attempt to purchase Connecticut hospitals, giving the state's largest hospital system a 20-percent stake in its Connecticut ventures.

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