Case is part of a larger picture of unhealthy healthcare consolidation.
The Oregon Heart Center (OHC) has sued Salem Health Hospitals and Clinics, alleging that the larger healthcare provider is using intimidation tactics to force OHC to join Salem Health or to drive it out of business. According to the suit, OHC has already had to lay off staff and reduce services because of Salem Health’s conduct. The size disparity between the organizations is considerable. Oregon Heart Center’s annual revenues are $10.4 million; Salem Health generates more than $1 billion a year.
Filed in Marion County Circuit Court, OHC alleges Salem Health has refused to renew contracts with OHC for essential services, such as laboratory testing and imaging; limited referrals to OHC from its physicians and staff, making it difficult for OHC to attract new patients; and circulated false accusations about OHC’s quality of care and financial stability.
The Impact of Healthcare Consolidation
This case is one example of a larger anticompetitive trend in this important sector of the economy. The American Medical Association (AMA) says health spending in the U.S. has increased by more than 4% a year in recent years, except for Covid spikes in 2020 and 2021, when spending increased at more than twice that pace. In 2022 health spending was $4.5 trillion or $13,493 per capita. Another report by the AMA, revealed that – in the vast majority of “metropolitan statistical areas” – hospitals or hospital systems have sizable market shares. In 2021, according to the report:
- At least one hospital in 97% of markets had a market share of 30% or more.
- In 77% of markets, there was a single hospital with at least a 50% share in 2021. In 2013 that was the case in 70% of markets.
- In 43% of markets, a single hospital had a market share of 70 % or more. In 2013 that was the case in 37% of markets.
State-Level Response
The National Conference of State Legislatures says high health care spending is more about price increases – not increased use of services nor an improvement in the quality of care – and lays blame at health system consolidation. Citing various studies, the NCSL says, “This includes horizontal consolidation, i.e., between the same types of organizations like hospitals, and vertical consolidation, i.e., across different types of providers, like hospitals acquiring physician practices.”
While consolidation can create efficiencies and better coordination and quality of care, which some studies support, others say there is no such cause-and-effect. Still others reveal that high prices are “driven by the increased market power and decrease competition,” the NCSL says. “With consolidation on the rise, states are considering policies to enhance oversight on health care mergers and acquisitions and further examining their impact on health care costs and quality.”
Federal Response
In December, the Biden administration pledged an increase focus on the healthcare sector, including attention to drug prices, which understandably grabbed headlines. But the president also pledged greater scrutiny on market consolidation.
The administration cited a Robert Wood Johnson Foundation report which said hospital consolidation generally results in higher prices. “When hospitals merge in already concentrated markets, the price increase can be dramatic, often exceeding 20 percent,” according to the study. “Hospital competition improves quality of care,” while “physician-hospital consolidation has not led to either improved quality or reduced costs. Studies find that consolidation was primarily for the purpose of enhanced bargaining power with payers, and hence did not lead to true integration. Consolidation without integration does not lead to enhanced performance.”
The Biden administration also called out a “ballooning” of private-equity ownership in the health care industry, noting there were $750 billion in deals between 2010 and 2020 in various sectors of healthcare, from physician practices to nursing homes to autism treatment. “Too often, aggressive profiteering by private equity-owned practices can lead to higher patient costs and lower quality care.” For more on this, read our previous post: DOJ, FTC, HHS Examining Private Equity Control Over Health Care Industry.
Conclusion
If true, the allegations Oregon Heart Center has brought against Salem Health are beyond aggressive and represent the kind of conduct antitrust and other laws are in place to prevent or halt. Smaller hospitals which are trying to provide quality care while dominant competitors are gobbling up the market would be wise to consider, as Oregon Heart Center did, taking legal action to enforce the laws enacted to protect them.