The House Transportation and Infrastructure Committee advanced, 38-26, a five-year, $547 billion surface transportation bill largely along party lines early Thursday morning.
Two Republicans, Brian Fitzpatrick of Pennsylvania and Jenniffer González-Colón of Puerto Rico, supported the bill.
Members had submitted a whopping 229 amendments to the sweeping legislation, which was threaded with provisions aimed at fighting climate change and supporting racial equity in the transportation system. Democrats hope the legislation will become a cornerstone of President Joe Biden’s $2 trillion-plus infrastructure package.
Committee Chairman Peter A. DeFazio, D-Ore., called the bill’s completion “a really incredible effort,” saying the committee went through nearly 200 amendments before approving the bill.
“We don’t agree on a lot of stuff,” he said right around 5 a.m. when the committee gaveled out. “But heck, we got through it. It’s tomorrow… We won’t have to come back later today.”
Ranking Republican Sam Graves of Missouri, who voted against the bill, nonetheless applauded the committee for completing its work.
“I’m just happy that once again we have produced a bill, a surface transportation reauthorization,” Graves said. “It’s not anything I would’ve done or anythingthat I can support but having said that we’re still doing the people’s work.”
Graves’ comments were a stark contrast from earlier in the debate, when members fought bitterly over issues that seemed unrelated to highway policy.
The markup was briefly nearly derailed, for example, by a harsh debate over an amendment introduced by Rep. Troy Nehls, R-Texas, that would strip federal highway safety dollars from communities that defunded police. That debate devolved into a fight over the Jan. 6 mob attack on the Capitol, with Democrats accusing Republicans who did not back the Jan. 6 investigatory commission of not supporting the police.
“You can talk a big game about supporting law enforcement, but if you voted no on [the Jan. 6 commission] then you don’t support law enforcement,” said Rep. Marilyn Strickland, D-Wash.
Rep. Garret Graves, R-La., said Strickland’s comments “were completely absurd and completely out of line,” calling Jan. 6 “one myopic incident” that reflected a larger, looming division in the country.
And Rep. Brian Mast, R-Fla., said Republicans opposed the commission because it was “totally political,” and pointed to the fact that Democrats had impeached President Donald Trump before working to craft the commission as evidence.
“It’s like putting someone’s head in a guillotine and then trying to prove whether they’re guilty or innocent after their head’s laying in a basket,” Mast said.
DeFazio and other Democrats argued that stripping NHTSA funding from communities that defunded the police would essentially keep communities from enforcing traffic safety laws at a time when traffic fatalities are at an all-time high.
“I’m going to vote against your amendment,” Rep. Tom Malinowski, D-N.J., told Nehls, “because your amendment defunds the police.”
But Sam Graves, the ranking member of the committee, said the amendment aimed to discourage cities from defunding police, referencing the movement in some municipalities to shift some law enforcement funding to programs that aim to prevent violent incidents.
“If you choose to defund the police, this amendment says you’re not going to get federal dollars to backfill your police budget,” he said. “You can’t get your cake and eat it too.”
The amendment failed, 31-37.
Tempers also flared over an amendment by Rep. Pete Stauber, R-Minn., that would require the Secretary of Commerce to certify that no electric vehicle charging device paid for with federal dollars use minerals sourced or processed with child labor from overseas.
The House Democrats’ bill would invest $4 billion in electric vehicle charging infrastructure aimed at advancing electric vehicle use in the country. DeFazio called Stauber’s amendment a “cynical attempt to protect carbon-polluting industries like oil and gas,” and argued it was designed to hinder the development of the electric vehicle industry.
Stauber responded by saying he was “really offended” by DeFazio’s comments. “You cannot turn a blind eye to child labor,” he said.
But DeFazio was unmoved, accusing Stauber of using child labor as an excuse to source such minerals in Minnesota at the expense of the state’s environment.
“Don’t give us a bunch of BS that we’re soft on China, don’t give us a bunch of of BS that we’re soft on child labor when what you’re trying to do here is cripple the EV industry or perhaps promote cobalt production in your own state,” DeFazio said. “One or the other is not in the national interest.”
The lengthy back-and-forth culminated in DeFazio introducing an amendment to Stauber’s amendment that would strip most provisions of the amendment with the exception of a commission to study electric vehicle battery sourcing and production issues in the United States. DeFazio’s amendment to the Stauber amendment was adopted, 38-30.
Both debates took up long stretches of time during a hearing aimed at marking up what Democrats hope will be a key part of Biden’s $2 trillion-plus infrastructure plan. Republicans from the start made it clear that they felt left out of the process and were disinclined to offer support.
“The reality is you all have your mind made up, and you’re probably going to push this partisan bill through and push it out of the committee and vote it off the floor and send it off to the Senate, where hopefully something better will happen,” said Rep. Bruce Westerman, R-Ark.
While a $312.4 billion bill approved by the Senate Environment and Public Works Committee unanimously May 26, there was little hope that the House would repeat that moment of bipartisan cooperation with its bill.
The overall highway bill includes $343 billion for roads, bridges and safety; $109 billion for transit and $95 billion for freight and passenger rail.
It dedicates $8.3 billion for reducing carbon pollution, with an additional $6.2 billion for mitigation and resiliency improvements aimed at building infrastructure resistant to extreme weather events.
The bill also calls for investing $3 billion into a program aimed at tearing down or modifying bridges or overpasses that separated Black and Brown communities from their cities. That proposal would receive $20 billion over eight years in Biden’s plan and $500 million over five years in the Senate bill.
Regardless of Biden’s larger infrastructure plan, the highway bill is considered a must-pass; the current law, a one-year extension of the 2015 law expires at the end of September.
More than 20 organizations are urging the administration to adhere to a core set of principles when drafting regulations to prevent patients from receiving costly “surprise” medical bills, POLITICO’s Rachel Roubein reports.
In a letter to three Biden cabinet secretaries, the groups said the administration should set rules that provide consumers with clear protections from unexpected charges and create a framework for mediating bills that also doesn’t lead to higher costs for patients.
The letter, signed by such groups as the American Heart Association, Epilepsy Foundation and American Lung Association, also includes a request for an education campaign to inform consumers of their legal protections.
— Late last year, Congress included a ban on “surprise” medical bills in its year-end package, but left the Biden administration to hammer out many of the details on how to ensure patients aren’t stuck with an unpayable tab. Health groups are racing to sway the agencies tasked with making the law work. The first set of regulations is due out by July 1.
Rural hospitals have struggled to stay afloat for years against declining and aging populations. Now a potential lifeline exists in a proposal buried in the almost 6,000-page stimulus act signed late last year.
The measure sponsored by Sen. Chuck Grassley calls for small rural hospitals to shutter their in-patient operations, which often lose money, and revamp as standalone emerbency rooms with some outpatient services. Hospitals that seek and receive the new Rural Emergency Hospital designation receive increased funding.
“It gives a chance for these hospitals to exist,” said Spencer Perlman, director of healthcare research at Veda Partners. “It’s a choice between what you have now and nothing.”
But it means that patients who need to be admitted will have to travel even longer distances for care. Rural hospitals with fewer than 50 beds can apply for the new designation, which takes effect in 2023.
On Thursday, Grassley and Sen. Amy Klobuchar sent a letter to the Centers for Medicare & Medicaid Services asking the agency to prioritize implementation of the new Rural Emergency Hospital designation. “If nothing is done, more hospitals and rural Americans will continue losing access to essential medical services resulting in poorer outcomes and higher costs for patients and taxpayers,” the senators said in the letter.
“The science tells us that health care workers, particularly those who come into regular contact with the virus, are the most at risk at this point in the pandemic. So following an extensive review of the science data, OSHA determined that a health care-specific safety requirement will make the biggest impact,” Labor Secretary Marty Walsh said during a press call Thursday.
Specifically, the new standards for health care would, among other requirements, mandate that health care employers provide respirators to employees working with Covid patients, establish a Covid response plan, screen employees and patients for the virus, record employee cases, and provide training on Covid risks at work.
Employers will not have to provide masks, social distancing or barriers to fully vaccinated workers “where there is no reasonable expectation that any person with suspected or confirmed COVID-19 will be present,” the rules say.“OSHA has tailored the rule that reflects the reality on the ground — the success of the vaccine efforts plus the latest guidance from CDC and the changing nature of the pandemic,” Walsh added. “Requirements will be familiar to folks: mass social distancing and time away if you’re sick from coronavirus. The rule also requires paid time off to get vaccinated, and to recover from any side effects.”
The rules will apply to “hospitals, nursing homes, and assisted living facilities” DOL said, and include emergency responders and home health care workers, according to a summary of the rules. They will not apply to retail pharmacies and non-hospital ambulatory settings that bar people with suspected or confirmed Covid-19 from entering.
DOL also updated its optional Covid safety guidelines for all other workplaces, adding additional information for how employers should protect vaccinated and unvaccinated employees as well as recommendations for high- contact industries like meatpacking and grocery stores.
The guidance urges employers to provide masks to unvaccinated or at-risk workers and to allow for social distancing, but also noted that “most employers no longer need to take steps to protect their workers from COVID-19 exposure” if all of their employees are fully vaccinated.
The narrow scope of the long-awaited mandatory rules is a loss for unions, a strong source of grassroots support for Joe Biden’s presidential bid in 2020, galvanized by his promises to advance a “working class” agenda.
Other left-leaning groups also critized the rules.
“This decision represents a shameful failure of leadership by an administration that was elected on a platform of standing for the needs of all working people,” said Gina Cummings, of the anti-poverty group Oxfam America.
Democrats and worker safety advocates who wanted broad Covid safety measures to apply to all workplaces say that the administration’s decision to limit their scope to just health care abandons an essential piece of the Covid-19 response plan Biden campaigned on and will put vulnerable workers at risk.
“The Biden administration has missed a crucial opportunity to protect all workers,” said Jessica Martinez, co-executive director of the National Council for Occupational Safety and Health.
“This is a new insult on top of the injuries, illnesses and deaths suffered by frontline workers and their families,“ said Martinez. “Vaccines have not reached all workers and Covid-19 is not over.”
But Republicans and business groups expressed some relief, having opposed mandatory safety requirements throughout the pandemic that they argued would contradict state health rules in some places and impose unnecessary costs that would hold back the overall economic recovery.
“We appreciate the Department of Labor refuted the ridiculous claims from Democrats and their union allies that all American workers are presently in grave danger from the virus. Yet still, despite widespread vaccinations and COVID-19 cases at lows not seen since the beginning of the pandemic, OSHA caved to political pressure from special interests to adopt an emergency temporary standard (ETS) in the health care sector,” said Rep. Virginia Foxx (R-N.C.), the top Republican on the House Education and Labor Committee, in a statement.
“Placing new and burdensome regulation on this heroic industry at this stage of the pandemic is completely unnecessary. Further, we cannot endorse an inflexible, restrictive regulation that is unable to keep up with the ever-evolving science regarding COVID-19.”
The DOL’s decision to impose the rules for health care workers came after months of delay from the Biden administration, which was expected by both businesses and unions to issue stringent workplace masking and social distancing requirements.
Shortly after taking office, Biden asked DOL to decide by March 15 whether such emergency rules were necessary. OSHA only has the authority to issue an “emergency temporary safety standard” if it determines that workers are “in grave danger” due to exposure to something “determined to be toxic or physically harmful or to new hazards.”
However, DOL missed the deadline by several weeks after Walsh said he wanted the agency to continue reviewing the rules. After facing questions from Democrats and unions, the rules were sent to the White House budget office for review — the final step before it is released — at the end of April.
But while they were going through the final stages of review, the CDC issued new guidance in May clearing fully vaccinated people to remove masks in most settings, raising concerns that the rule would not be as stringent as originally thought.
“It’s been very tricky with guidance and the virus changing over the over the last couple of months,” Walsh said Thursday. “We know the administration’s vaccination efforts combined with OSHA’s workplace safety efforts, they’re definitely making a difference for workers and businesses across the country.”
DOL officials said that the agency was working quickly to send the rules to the Federal Register for publishing, after which it will go into effect immediately.
Health care workplaces will also have two weeks to put the protections in place after the rule is published.
Health care employers will be required to provide masks, physical barriers, social distancing and proper ventilation to ensure their employees are protected from Covid-19 under emergency workplace rules released by the Labor Department on Thursday.
Senators painted a confusing picture on the status of infrastructure talks as they left D.C. for the weekend, with some claiming major progress and others skeptical a deal is in hand.
Late Thursday afternoon, the group released a statement trying to clear up the confusion. But it omitted the total cost of the deal and came only after significant internal discord among the members over how much information to reveal, sources close to the issue said.
“Our group – comprised of 10 Senators, 5 from each party – has worked in good faith and reached a bipartisan agreement on a realistic, compromise framework to modernize our nation’s infrastructure and energy technologies,” the group led by Sens. Kyrsten Sinema (D-Ariz.) and Rob Portman (R-Ohio) said in a statement. “This investment would be fully paid for and not include tax increases.”
Sen. Mitt Romney (R-Utah), a member of a bipartisan negotiating group, said talks are “in the middle stages” but that he did not expect a deal before the Senate left Thursday. Sen. Jon Tester (D-Mont.) said the centrists don’t have an agreement but “we might,” listing remaining and long-held disagreements over spending numbers and how to pay for it.
“For some people it’s going to be plenty, for others it’s not going to be near enough. There’s going to be challenges for Republicans and Democrats,” Tester said. “The words [Republicans] use are: we have a general, total agreement.”
The negotiating crew of 10 believe they are nearing a framework they can present to Majority Leader Chuck Schumer and Minority Leader Mitch McConnell. Both leaders have kept track of recent talks.
The latest round of talks are perhaps the last chance for a bipartisan agreement before Democrats sideline Republicans and take a unilateral approach through budget reconciliation. Talks between Biden and Sen. Shelley Moore Capito (R-W.Va.) officially fell apart on Tuesday, though they’d been crumbling for weeks as Republicans and Biden remained hundreds of billions apart in spending and never agreed on a way to pay for it.
The senators in the group were mum on the details. Sources close to the negotiations said the number is $579 billion in new spending, though there’s not an agreement over how many years that money would encompass. Proposals to pay for the package include indexing the gas tax to inflation and using unused Covid money. Some Democrats, such as Banking Committee Chair Sherrod Brown (D-Ohio), have dismissed raising the gas tax when the GOP is resisting more progressive tax increases on the wealthy.
A source familiar with President Biden’s thinking told POLITICO that indexing the gas tax to inflation would violate Biden’s campaign pledge not to raise taxes on people earning less than $400,000 a year and that the White House is not willing to include it in an infrastructure package.
One source close to the negotiations described the group’s strategy as a “bottom-up approach” and that “the top line will come from that.” But the source did not set a specific deadline to reach a deal.
Sen. John Cornyn (R-Texas), a close McConnell adviser, said the talks “have promise but it’s a work in progress.” And Sen. Roy Blunt (R-Mo.), who participated in the most recent GOP negotiations with the Biden administration, expressed skepticism.
“The advantage of the other group Shelley [Moore Capito] was working with was that it had structure. You had committee staff, those ranking members could probably bring most of their members,” Blunt said, adding he’d “be pleased to be surprised” but that he expected negotiations would end with Democrats plowing forward without bipartisan support.
President Joe Biden has sought a minimum of $1 trillion in new spending in previous talks with Republicans and progressives have grown more vocal about keeping climate and spending priorities in the plans. Biden is overseas, complicating the consummation of a global agreement between Senate leaders, the rank-and-file and the White House.
Sen. Joe Manchin (D-W.Va.) said he believed “things are moving in the right direction” but declined to otherwise characterize the state of play. Nonetheless, he was beaming as he left the Senate chamber for midday votes.
The negotiations come as progressives are growing increasingly impatient with the infrastructure talks and are urging Democrats to go it alone, citing the dwindling days on the legislative calendar and the crush of other items on their agenda.
“It makes no sense,” Rep. Pramila Jayapal (D-Wash.), who leads the Congressional Progressive Caucus, said of the current state of bipartisan talks. “It’s not going to change what Republicans have been very clear about … stopping any progress by the Biden administration.”
HHS Secretary Xavier Becerra told senators Wednesday (June 9) the $24 billion in remaining provider relief will not be subject to the June 30 spending deadline when it’s distributed, but previous relief does have a deadline. While he’s committed to accountability for those funds, Becerra again promised flexibility for relief recipients.
A day earlier, Becerra told the House Ways & Means Committee that HHS would provide flexibility on the provider relief spending deadline, but he didn’t distinguish between already distributed funding and funding yet to be disbursed.
“[T]here’s a tranche of money that has not yet been allocated, and so, the deadline for spending of that has not yet been determined, but there is money that did go out; it does have a deadline,” Becerra told the Senate Appropriations subcommittee on HHS. “And what we’re trying to do is, over the next few weeks, make sure we provide some guidance so people understand how we can make sure that everyone fulfills their commitment to getting these dollars.”
He later added, “And so what we’ll try to do is understand that we can’t change the process that began before but what we can try to do is make sure we get the accountability while trying to provide some flexibility.”
The American Hospital Association, along with other medical organizations and a bipartisan group of 77 lawmakers, have been asking HHS for weeks to extend the provider relief spending deadline to the length of the public health emergency as providers say they have on-going COVID-19 costs.
Senate Appropriations subcommittee on HHS ranking Republican Roy Blunt (MO) told Becerra to be careful that new guidance doesn’t unintentionally restrict how providers can spend relief.
Stakeholders have complained over confusing and constantly changing guidelines. Congress even had to step in at one point to clarify how providers can calculate their lost revenue due to COVID-19.
“So I hope as you allocate this last group, this last amount of money or put out whatever guidance you need that it doesn’t suddenly restrict what they were earlier told they could do, but more importantly, it does let them know that you’re going to have guidelines out there that they can rely on if they spend the money that way that it meets the guidelines,” Blunt said.
Becerra also explained, at Blunt’s prompting, what past mistakes he wants to avoid with the next provider relief distribution.
There is an estimated $24 billion left in unallocated provider relief, though HHS has not said how much provider relief remains in each tranche. There hasn’t been a new provider relief distribution announced since October.
“I think most people will tell you, at least the comments that we’re receiving, are that there wasn’t enough transparency in the process, how the money was allocated,” Becerra said.
At the same time, Becerra added, HHS’ provider relief distribution formula was unfair to those catering to mostly Medicaid and low-income patients as relief payments were calculated from providers’ revenue. This meant providers accepting Medicare and private insurance typically received higher provider relief distributions.
“So we’re trying to provide that transparency, make sure we direct them to where it’s needed, and with the money that still left, we want to make sure that you all [Congress] look at this and say we get it,” Becerra said. — Dorothy Mills-Gregg (dmillsgregg@iwpnews.com)
The White House has asked HHS to lead a consortium comprising nearly a dozen federal agencies, the private sector and nonprofit entities charged with crafting a strategy to secure the pharmaceutical supply chain by boosting U.S. production, developing new manufacturing technologies, and increasing the resilience of U.S. and allied pharmaceutical production. The White House will kick off the effort with a high-level summit, according to a supply chain report released by the White House this week.
The new consortium will start by reviewing FDA’s Essential Medicines list and picking 50 to 100 drugs that it deems critical to always have available for U.S. patients. The group will then determine the potential volume needed of the drugs, using the COVID-19 pandemic as a gauge. Next, HHS will use the Defense Production Act to come up with financial incentives that could ensure the onshore or nearshore production needed for the global supply chain.
In the mid-term, HHS will set up a group of pharmaceutical supply chain experts to develop a resilience framework using the consortium’s recommendations. The department will then map out the specific supply chains for drugs on the critical list and identify those drugs for which onshoring or nearshoring might be advisable, the report says.
The next step will be determining whether there is a need to increase production or stockpile active pharmaceutical ingredients for those drugs on the critical list, and, if so, the amounts needed for the stockpile, the benefits and risks of a virtual stockpile and the ability to use platform technologies to provide surge production during a crisis.
HHS also will explore stockpiling strategies to reduce API supply risk, and it will investigate whether new reimbursement models could boost supplies without unduly increasing U.S. costs.
The main focus of the new initiative will be sterile injectables that are put on the critical drugs list as well as chemotherapeutics that have been in short supply over the past five years. But HHS will also evaluate whether to include other sterile injectables that are identified as being at significant risk of shortage, yet are not part of the critical list, such as sterile pediatric oncology drugs.
The new consortia will be responsible for advising private sector companies that are either interested in building domestic capacity or have the expertise to help facilitate production. Other agencies expected to participate in the cross-agency group include the Environmental Protection Agency, Department of Commerce (including the National Institute of Standards and Technology), Department of Labor, Department of Defense, Federal Trade Commission, Department of Justice and Small Business Administration.
The group will coordinate input from the federal agencies involved, provide sector-based training for American workers, and address how to mitigate the risk from climate change and limit the environmental impacts of manufacturing on any neighboring communities to plants.
The Biden administration’s strategy for securing the U.S. pharmaceutical chain also includes steps to bolster FDA’s authorities and foster stronger cooperation among the United States and its allied partners.
Boosting U.S. production will require investing in innovative generic drug manufacturing processes and production technologies. HHS plans to build off the novel platform technology development that took place as part of the pandemic response, including on-demand manufacturing capabilities for certain drugs that were created with DOD. Medicines produced like this can be purchased at one-tenth of the costs listed on the current federal supply schedule, the report suggests.
The National Institute for Innovation in Manufacturing Biopharmaceuticals is expected to launch an industry-scale effort in June to develop fully integrated, small footprint platforms to improve upon the technological capabilities for biomanufacturing APIs. HHS will also create a task force dedicated to increasing capacity for the development, evaluation, and implementation of novel manufacturing tech by forming partnerships with domestic drug companies and universities.
Another pillar of the administration’s strategy for toughening up the drug supply chain is increasing emergency capacity so that, in the event of unforeseen public health crises, there’s still no shortage of essential medicines. The administration recommends creating a virtual stockpile of APIs and other materials necessary for the manufacturing of essential medicines or expanding upon the existing National Strategic Stockpile. — Gabrielle Wanneh (gwanneh@iwpnews.com)
The first part of the highly anticipated rulemaking on the surprise billing legislation enacted late last year is now under review by the White House Office of Management and Budget (OMB), surprising some stakeholders who expected CMS might miss early deadlines. The interim final rule is expected to encompass provisions of the No Surprise Act — including the formula for the critical “qualified payment amount” and guidance on informed consent — that are statutorily required to be out by July 1 and the subject of heated stakeholder debate.
OMB received the rule, “Requirements Related to Surprise Billing; Part 1,” on June 8.
Loren Adler, associate director of USC-Brookings Schaeffer Initiative for Health Policy, says he’s impressed the rule is already moving, and says that even though it’s an interim final rule, the law doesn’t go into effect until Jan. 1 so he expects CMS will heavily weigh any comments and could make changes.
Under the No Surprises Act providers can no longer charge patients more than the in-network rates for services done in an out-of-network setting, or for treatment done by an out-of-network doctor in an in-network setting. For claims that payers and providers cannot agree on within 30 days, the law sets up an independent dispute resolution process that will go into effect on Jan. 1. Arbitrations will be baseball style, meaning that the arbitrator must choose either the amount sought by the provider or offered by the payer.
The law says arbitrators shall consider the qualified payment amount (QPA), which is generally the median in-network rate used by the payer for that service. But in a last-minute change, Congress added several other factors for consideration, including providers’ level of training, quality and patient outcomes, market share for providers and payers, patient acuity, teaching status and prior contracted rates.
While the dispute resolution process isn’t set to go into effect until Jan. 1, 2022, several key regulatory decisions must be made first.
According to a Commonwealth Fund summary of the act, HHS, working with Labor and Treasury, needs to establish the methodology the health plan must use for a QPA in the individual, small group, and large group markets; the information that plans must share with providers when making a QPA determination; the geographic regions – taking into account services done in rural or underserved areas; and a process for receiving complaints about health plans relating to the QPA.
HHS is required to consult with the National Association of Insurance Commissioners to establish the regions, which must also be updated periodically.
On March 11, NAIC recommended HHS use individual and small market geographic rating areas for the rule but let states with surprise billing laws use their own regions if they choose. States should also be able to seek HHS approval to use alternative regions, NAIC says.
The rule landed at OMB one day after a group of 50 employers, patient advocates and other stakeholders urged the administration to ensure that arbitrators use the QPA as a primary factor in its decision-making, and the other five factors only in certain circumstances.
Other stakeholders, including a bipartisan group of senators, have asked the administration to ensure that all factors are given equal weight.
HHS is also required to craft guidance on the provision that allows out-of-network providers to balance bill a patient who has given consent to non-emergency care no later than 72 hours prior to the delivery of the services. The notice and consent must be written, and must clearly state that consent is optional, the providers is out of network, the patient can choose services from an in-network providers, and that an in-network provider could limit cost-sharing, and more.
The group of 50 stakeholders who wrote to the administration about the QPA also urged the administration to ensure the rule holds patients harmless from surprise bills as intended and leaves no loopholes for the practice to continue. The group says all services deemed medical necessary within 72 hours of delivery should be considered an emergency. “If treatment has started and a patient is incapacitated or in recovery, no level of notice or consent for out-of-network care is appropriate, and patients should have blanket protection from balance bills,” they add.
House Ways & Means Chair Richard Neal (D-MA) made similar comments to HHS Secretary Xavier Becerra in a Tuesday hearing. “Lawmakers did not design any intentional loopholes for, say, a patient to be handed a form when they’re unconscious and then subsequently get a bill that they supposedly agreed to pay,” he said.
On Wednesday, another 22 patient groups — including the American Heart Association, the American Kidney Fund, and the American Cancer Society Cancer Action Network — also urged the administration to focus on protecting patients and ensuring the arbitration process does not lead to higher costs.
“We worked alongside Congress to develop the bi-partisan, bi-cameral legislation to provide protections for patients from receiving unexpected medical bills,” the organizations’ letter states. “To truly ensure that patients are held harmless from surprise billing, however, it is critical that the regulations underpinning the law have robust safeguards for patients,” they wrote.
The groups also call for a comprehensive, well-funded campaign that will make sure consumers are aware of their rights under the law. — Amy Lotven (alotven@iwpnews.com)
The 58-member bipartisan House Problem Solvers Caucus has put together a $1.25 trillion infrastructure spending framework, including $761.8 billion in new spending over eight years, to help salvage faltering bipartisan negotiations.
The caucus’s proposal comes as President Joe Biden ended his negotiations with a group of Senate Republicans led by West Virginia’s Shelley Moore Capito. That Senate GOP group had offered a nearly $1 trillion infrastructure plan, roughly a third of which was new spending above the “baseline” amount the government would normally spend to sustain current infrastructure.
Biden initially proposed a more than $2 trillion plan, which Republicans said went far beyond their definition of core, physical infrastructure. In negotiations with Capito’s group, the president was willing to go as low as $1 trillion, but he wanted that to be all new spending — although Republicans said Biden told them the $1 trillion could include baseline spending before his staff walked that back.
The transit, passenger rail and electric vehicle funding is significantly higher than in the Capito group’s plan.
The Problem Solvers framework, however, includes less money for broadband internet access — $45 billion, compared to $65 billion in the last public offer Capito’s group made. It also includes less money for drinking and wastewater — $60 billion, compared to Capito’s $72 billion.
The caucus also proposes funding for several areas that weren’t part of the Senate Republican plan, including $25 billion for connecting green energy sources to the electric grid, $10 billion for nuclear energy, $5 billion for hydrogen hubs, $5 billion for carbon capture and storage, $5 billion for direct air capture and $10 billion for veterans’ housing.
Bipartisan urgency
The Problem Solvers Caucus, which has 29 Democrats and 29 Republicans, has been working for the past two months to reach agreement on the scope of a bipartisan infrastructure package. Its infrastructure working group, led by Reps. Conor Lamb, D-Pa., and John Katko, R-N.Y., put together the framework with input from the broader caucus.
“Developed with both Democratic and Republican lawmakers, this framework contains truly bipartisan policies that can form the basis for a comprehensive package to modernize our nation’s infrastructure systems,” Katko said in a statement.
Lamb emphasized the urgency of getting a bipartisan deal to ensure that infrastructure projects involving “bridges, locks, dams, power lines, and vehicle chargers will get started and finished no matter who is in power.”
The co-chairs of the full caucus, Reps. Josh Gottheimer, D-N.J., and Brian Fitzpatrick, R-Pa., have been separately engaged in talks with a bipartisan group of senators, including Sens. Bill Cassidy, R-La., Kyrsten Sinema, D-Ariz., Rob Portman, R-Ohio, and Joe Manchin III, D-W.Va.
That group of senators have not yet signed on to the Problem Solvers Caucus framework, but the bicameral group’s proposed spending numbers could end up being similar to the Problem Solvers framework, given Gottheimer and Fitzpatrick’s involvement. Pay-fors are being negotiated in the bicameral group. It’s unclear if the Problem Solvers would release any offsets separate from that.
“It’s critically important that we get a robust infrastructure package signed into law, and that we do it with strong bipartisan support,” Gottheimer said in a statement. “The Problem Solvers Caucus framework — Building Bridges — does exactly that and tackles everything from electric vehicles to clean water to fixing our crumbling bridges, tunnels, roads, and rail.”
Fitzpatrick added: “The time is now for Congress and the Administration to reach across the aisle, unite, and boost investments in our surface transportation network that will move our transportation systems into the 21st century.”
The first rule implementing a 2020 law limiting medical bills in emergencies and in other situations beyond patients’ control is under review by the the White House’s Office of Management and Budget.
How the Biden administration interprets the No Surprises Act, passed as part of appropriations legislation (H.R. 133) late in 2020, will likely be crucial to controlling costs of medical bills that can reach into the tens of thousands of dollars for both health insurers and employers who pay health-care bills for employees. The law takes effect in 2022.
The OMB must review the interim final rule before it can be issued by the Department of Health and Human Services, which sent it to OMB Tuesday. The regulations are due to be issued by July 1.
The No Surprises Act limits bills to patients for emergency treatment and for treatment by out-of-network doctors at facilities covered by health insurance networks, such as by anesthesiologists used during surgery. Bills in those situations can’t exceed what patients would be billed for in-network care.
The law allows for billing disputes to be handled through arbitration, which under state surprise billing laws has led to high charges being passed on to insurers and employers.
Arbiters are prohibited from considering rates for government programs such as Medicare or Medicaid, which providers say are often below their costs. Nor can arbiters consider so-called “billed charges” by providers, which are typically well above what insurers pay for in-network treatment.
Allowing billed charges to be used by arbitrators under state laws, such as a surprise billing law enacted by New York state, has resulted in “very high out-of-network reimbursement,” according to a 2019 report by the USC-Brookings Schaeffer Initiative for Health Policy. That in turn leads to higher premiums and costs borne by employers.
Arbiters can consider factors such as the median contracted rate, the provider’s market share, provider training and qualifications, and the severity of the patient’s condition in deciding between the competing offers submitted by the provider and insurance plan.
The interim final rule is likely to define how to calculate the qualified payment rate that will be used to help determine what providers should be paid, James Gelfand, senior vice president of the ERISA Industry Committee, said in an interview. The ERISA Industry Committee represents large employers that provide health and retirement benefits to employees.
The qualified payment amount generally is the median in-network rate, Gelfand said. The median in-network rate is one of the factors used to determine how much insurers and employers pay, and it also affects coinsurance payments that patients will have to pay. Coinsurance payments are a percentage of fees.
“How exactly is this going to be calculated? What is the methodology that is to be used?” are questions that need to addressed to determine the qualified payment amount, Gelfand said.
It will likely take longer to issue rules on how the independent dispute resolution, or arbitration process, will work and what entities can run that process, Gelfand said.
Various groups representing hospitals, doctors, insurers, employers, and consumers are lobbying the HHS to influence how billing disputes will be resolved.
The ERISA Industry Committee is part of a coalition of 49 organizations that sent the HHS a letter Tuesday calling for the agency to draft regulations “that make the qualifying payment amount (QPA), on which patient cost-sharing is based, the primary factor in resolving payment disputes.”
The American Medical Association, in a May 21 letter to the department, said contracted rates used to calculate median rates should be limited by factors such as what is paid to providers in the same specialty. It also said the contracted rates “should be as specific as possible as to the type of item or service.”
Twenty-two patient and consumer organizations representing millions of people with chronic conditions sent the HHS a letter Wednesday saying “the law must be implemented in a way that ensures the independent dispute resolution (IDR) process does not lead to higher costs for patients.”
At a House Ways and Means Committee hearing Tuesday, the panel’s ranking Republican, Rep. Kevin Brady (R-Texas), told HHS Secretary Xavier Becerra that the department should carefully balance the arbitration process to avoid favoring health-care providers or insurers.
“The integrity of that arbitration process should be protected in as many ways as possible, including through robust transparency,” Brady said.
Ways and Means Committee Chairman Richard Neal (D-Mass.) said lawmakers will be examining the coming regulations to ensure providers can’t sidestep the rules. “Lawmakers did not design any intentional loopholes,” he said.
A bipartisan group of House moderates on Wednesday unveiled an eight-year, $1.25 trillion infrastructure plan designed to help break the months-long impasse over President Biden’s top domestic legislative priority.
The framework offered by the 58-member Problem Solvers Caucus calls for more than $959 billion for traditional infrastructure, including highways, bridges, rail, airports and waterways; $25 billion of that money would be set aside for electric vehicle infrastructure, including electric buses.
The plan also calls for $74 billion for drinking water and wastewater systems; $71 billion for the electric grid and clean-energy programs; $45 billion for broadband; and $10 billion for veterans’ housing.https://bdc721f79bd56543f5447d228d5a7b86.safeframe.googlesyndication.com/safeframe/1-0-38/html/container.html
In the coming days, the group — 29 Democrats and 29 Republicans — will offer proposals for how to pay for the package but it is not backing tax increases that Biden and progressives want, sources said. About $762 billion of the package represents new spending.
“It’s critically important that we get a robust infrastructure package signed into law, and that we do it with strong bipartisan support,” Rep. Josh Gottheimer (D-N.J.), co-chair of the Problem Solvers Caucus, said in a statement. “This is the model for how we should govern in Washington: Democrats and Republicans working together to find common ground.”
“The time is now for Congress and the Administration to reach across the aisle, unite, and boost investments in our surface transportation network that will move our transportation systems into the 21st century,” added Rep. Brian Fitzpatrick (R-Pa.), the other co-chair. “Infrastructure investment can and will deliver real benefits to every American and additionally, has the unique power to unite us as a nation.”
The impact of the Problem Solvers plan remains to be seen. The group had played a major role in breaking the partisan impasse that had stalled a huge coronavirus relief package in December, leading to the adoption of $900 billion in new COVID-19 spending.
The focus of the current infrastructure debate, however, has been in the Senate, where President Biden has sought Republican buy-in for at least a significant part of the $2.25 trillion public works plan he proposed earlier in the year.
Those talks have been stymied by partisan disagreements over the size, scope and offset provisions Biden is seeking, including a proposal to cover much of the new spending by raising taxes on corporations and wealthy individuals — a non-starter for Senate Republicans.
Biden this week ended talks with Sen. Shelley Moore Capito (W.Va.), senior Republican on the Environment and Public Works Committee, and shifted his focus to working with a bipartisan group of 20 senators working on their own plan. That group includes Democratic Sens. Joe Manchin (W.Va.) and Kyrsten Sinema (Ariz.); and Republican Sens. Mitt Romney (Utah) and Bill Cassidy (La.).
Problem Solvers leaders have been working with the new Senate group, which also appears ready to reject Biden’s call to roll back the Republicans’ 2017 tax cuts to help pay for the package.
“Bottom line, this is probably the hardest part from my perspective, is how you get it paid for,” moderate Sen. Jon Tester (D-Mont.), another member of the group, told reporters in the Capitol on Wednesday.
The new framework arrived the same day the House Transportation and Infrastructure Committee, headed by Rep. Peter DeFazio (D-Ore.), began a marathon markup of a $547 million package to fund infrastructure projects over the next five years.
That proposal, focused largely on surface transportation projects, is one Democrats are hoping will ultimately be incorporated into whatever package emerges from the talks between Biden and the Senate.
Complicating the debate for the White House, liberal Democrats have already run out of patience with the GOP negotiators, contending that Republicans are merely trying to drag out the talks to keep other Democratic priorities from being considered. The progressives are pressing Biden to abandon the bipartisan talks in favor of a massive infrastructure bill, which could avoid a Senate filibuster if Democrats tap a procedure known as reconciliation.
“In case it wasn’t clear already, it certainly is now: Republicans are not going to do what needs to be done for working families,” Rep. Pramila Jayapal (D-Wash.), head of the Progressive Caucus, said Tuesday.
The Labor Department will limit long-awaited emergency Covid-19 workplace safety rules to the health care sector, Labor Secretary Marty Walsh said Wednesday, a decision that disappointed unions pushing for more expansive rules but that will likely be a relief to businesses worried about new costs.
The rules, which have been under White House review since late April and are set to be released Thursday, were expected by both unions and businesses to apply broadly to all workplaces and require workers to wear masks on the job.
But the administration has decided it will instead update its optional guidance for general industry and has “tailored” the mandatory safety requirements to apply only to health care settings, Walsh said.
“OSHA has tailored a rule that focuses on health care, that science tells us that health care workers, particularly those who have come into regular contact with people either suspected of having or being treated for Covid-19 are most at risk,” he said during a House Education and Labor Committee hearing Wednesday. “We also expect to release some updated guidance for general industry which also reflects the CDC’s latest guidance and tells employers how to protect workers who have not yet been vaccinated.”
The change in direction from the administration on the workplace safety requirements is a letdown for unions and Democrats who argue precautions like masking and social distancing are necessary to protect unvaccinated workers in all workplaces, who may not be getting the shot for a variety of reasons.
“We’re still hearing from many food workers that their jobs are not safe. . . We’re still seeing big percentages of essential worker populations for various reasons not able to access the vaccination that we know is so critical,” said Sonia Singh co-director of the Food Chain Workers Alliance, a coalition of organizations that advocate for higher wages and better working conditions in that industry.
“So vaccination is important, but we still need strong emergency standards for all workers,” she added.
Advocates are also worried that workers will be left exposed to Covid-19 in high-risk industries like meat processing and farming, jobs typically filled by minority and immigrant workers who are seeing low rates of vaccination.
“We know that workers in many industries outside of health care faced elevated risks of COVID, especially in low wage industries like meat processing that is [made up of] disproportionately Black and brown workers,” said Debbie Berkowitz, director of safety and health at The National Employment Law Project, a worker advocacy group, “and we need to make sure these workers are still protected with mitigation measures such as ventilation and filtration to control airborne exposures, masks and social distancing — and OSHA must enforce these.”
The National Nurses United union said that while it applauds the administration’s move to issue mandatory Covid-19 safety rules for healthcare workers, it will be closely reviewing the standard to see if it requires respiratory protections “to prevent workers from becoming infected through aerosol transmission of the virus.”
NNU President Zenei Triunfo-Cortez also said the union supports “stronger workplace pandemic safety measures for all workers, all patients, and all communities.”
President Joe Biden directed the Labor Department to decide by March whether mandatory workplace safety rules that required businesses to take steps to protect their workers from Covid-19 were necessary. After weeks of delay, the administration sent the emergency rules to the White House for review at the end of April.
Unions and other advocates grew concerned about how strong the safety rules would be following the Centers for Disease Control’s surprise update to its guidance in May that cleared fully vaccinated people to remove masks in most settings.
But business groups and conservatives argue that issuing stringent safety requirements this late into the pandemic would create confusion and undermine the economic recovery just as businesses are trying to get back to normalcy.
Ed Egee, vice president of government relations and workforce development at National Retail Federation, said that while he needs to review the final text once the rule is published, “the decision to address this issue in an industry-specific way is consistent with sound science and CDC guidelines.”
CMS on Wednesday (June 9) increased pay for at-home COVID-19 vaccination of Medicare beneficiaries from $40 to $75 per dose, meaning providers will receive about $70 more between the two vaccine doses.
The agency said there are 1.6 million Medicare beneficiaries aged 65 or older who might have trouble accessing the vaccine because they have difficulty leaving their homes.
“CMS is committed to meeting the unique needs of Medicare consumers and their communities – particularly those who are home bound or who have trouble getting to a vaccination site. That’s why we’re acting today to expand the availability of the COVID-19 vaccine to people with Medicare at home,” said CMS Administrator Chiquita Brooks-LaSure. “We’re committed to taking action wherever barriers exist and bringing the fight against the COVID-19 pandemic to the door of older adults and other individuals covered by Medicare who still need protection.”
The agency says there are challenges with delivering vaccinations to the at-home population, including ensuring appropriate vaccine storage temperatures, handling and administration. But the pay bump helps “address the financial burden associated with accommodating these complications.” CMS says the extra pay will help account for the clinical time needed to monitor a beneficiary after the vaccine is administered, as well as the upfront cost tied to administering the vaccine safely and appropriately in beneficiaries’ homes.
The pay rate for each vaccine dose will be geographically adjusted based on where the service is provided.
Hospital mergers and acquisitions are often imbued with the promise that they will transform healthcare. But executives spend less time on the process and consequences of unwinding if the deal sours.
Several notable hospital transactions have fallen apart over the past year, as the acquired hospital or system claims that expectations weren’t met, cultures clashed, executive turnover disrupted operations, performance declined or the hospital’s autonomy was stripped. The separations can drag operations for years as they divert resources from patient care.
“These unwinds have implications across nearly every facet of an organization’s operations, from governance, to finance, to IT, to branding, to credit ratings,” said Ian Spier, director of healthcare at Wells Fargo Securities. “In some cases, they have to reestablish end-to-end administrative and back-office functions to facilitate and support care delivery—that can be quite complicated.”
Newport Beach, Calif.-based Hoag Memorial Hospital Presbyterian and Renton, Wash.-based Providence are amid a legal battle to dismantle their 2013 merger as Hoag argues that Providence didn’t hold up its end of their population health initiative. After being part of Ascension for 18 years, St. Mary’s Healthcare in Amsterdam, N.Y., split from the St. Louis-based chain last year because St. Mary’s said it has been paying more into Ascension than it was receiving.
Yakima (Wash.) Valley Memorial Hospital separated from Seattle-based Virginia Mason Medical Center last year after CHI Franciscan and Virginia Mason pursued a merger. Egg Harbor Township, N.J.-based AtlantiCare and Danville, Pa.-based Geisinger Health agreed to a divorce last year after both parties sued each other for breaching the terms of their 2015 agreement. The separation was complicated by $62.5 million that Geisinger invested in AtlantiCare.
“I’m surprised by how many people in similar situations have reached out to me. This is a conversation wanting to be had in the industry for a long time,” said Robert Braithwaite, CEO of Hoag Memorial. “Some institutions, advisers and healthcare think tanks are talking about this counter trend to mergers and acquisitions and realize it needs further exploration and support.”
St. Joseph Health and Hoag Memorial Hospital Presbyterian announce plans to mergeAUG. 15, 2012“Our affiliation will introduce innovative care processes that will improve clinical outcomes, reduce the overall cost of care, and enhance the healthcare experiences of all members of our community.”Dr. Richard Afable, then-president and CEO of Hoag Memorial
MAY 17, 2021“Rather than getting closer to the community and achieving our population health objectives, that vision got farther away. Providence’s perspective is national and ours is in Orange County, and that really affected the Providence and St. Joseph merger.”Robert Braithwaite, CEO of Hoag Memorial Presbyterian Hospital
AtlantiCare and Geisinger sign a definitive agreement to mergeMay 27, 2014“Geisinger is a national model for innovation and value that is on the leading edge of transforming healthcare, and we are pleased and excited to enter into this definitive agreement,”‘David Tilton, then-president and CEO of AtlantiCareJan. 23, 2020“Michael Charlton, AtlantiCare’s chairman and a member of Geisinger’s board, breached his fiduciary duty to Geisinger and was aided and abetted by AtlantiCare’s CEO, Lori Herndon.”Geisinger alleged in a complaint filed in a Pennsylvania federal courtSHOW ME THE MONEY
Most hospitals that joined a larger system generated more revenue but didn’t become more efficient, Modern Healthcare’s analysis of Medicare cost reports from 2013 to 2019 shows.
Hoag Memorial Hospital, for instance, saw its estimated operating revenue per day increase 29.2% from 2015—two years after it merged with Providence—to 2019. But its average operating expenses per day rose 34.1% over that span, dropping its average operating income per day 19.3%. Meanwhile, its full-time equivalent employees per average occupied bed rose from 5.99 to 6.75 from 2015 to 2019.
Although Medicare cost reports do not capture all of a hospital’s data, they can provide general estimates of financial health. Cost reports are audited by the hospitals, and not a third party like annual earnings reports. They exclude physician practice metrics and system-wide measures, among other data. Modern Healthcare used 2013 as a baseline because the Medicare cost reports’ format changed that year.
Modern Healthcare’s analysis supports other research that found mergers yield minimal cost savings. Supply chain spending, for instance, only dropped about 1.5% after hospitals merged, which represents only about 10% of what is typically claimed for a merger justification, according to a University of Pennsylvania Wharton School working paper that analyzed hospital supply purchase orders from 1,200 hospitals from 2009 to 2015.
“People are beginning to understand that mergers don’t bring about cost reduction,” said Lawton Robert Burns, professor of healthcare management at the Wharton School, who wasn’t affiliated with the study, noting the recent decline in M&A transactions as executives are being more careful.
Acquired hospitals typically pay what’s essentially a tax to support the system’s central office, said Dan Higgins, a partner at Dentons who is legal counsel for Hoag. Ideally, those centralized support offices produce more efficiencies than their cost to maintain them, he said.
“We have been paying an enormous amount, and what are we relying on them for?” Higgins asked. “The answer is fundamentally nothing.”
Providence frames it differently. Providence helped Hoag build up its medical group, diagnostics, ambulatory surgery centers, orthopedic services and mental health offerings, said Erik Wexler, president of operations and strategy for the 51-hosptial system’s southern footprint. The system also deployed the Epic electronic health record platform across Hoag’s network, he said.
“If someone says nothing in population health improved, that wasn’t the case,” Wexler said. “Their improvements in quality and patient satisfaction have exceeded their own care standards, which illustrates the benefits of being together.”
The court proceedings won’t change day-to-day operations with Hoag, Wexler said, lauding the hospital and its medical staff. But it may slow long-term initiatives, he said.
“It may slow down other innovative opportunities because the parties are waiting to learn about what the court feels,” Wexler said. A trial date is set for April 2022.
Higgins said the cultures didn’t align either.
Hoag requested to change bedside monitors so that it would alert the nurses station when vital signs were off, rather than wake the patient. Higgins said Hoag allegedly couldn’t get Providence’s approval because it “wasn’t part of Providence’s program,” he said.
“It was one of a thousand pin pricks where the corporatized parent wouldn’t allow a financially well-endowed, fast-moving hospital to do what it needed at the physician level,” Higgins said.
“Decision-making was so far removed from the community, it was a hindrance to community care,” Braithwaite said. “There’s an undermining of the commitment to the level of service and quality for the purpose of strengthening the financials at Providence. It felt counter-directional and certainly counter-cultural.”
Wexler rebutted the claims that Providence stripped Hoag of its authority, saying that “nothing could be further in the truth.” There are corporate offices in Irvine, he noted, adding that it is “really unfortunate Hoag is trying to pull apart a system of care that’s all within a 20-mile radius.”
Providence acquired St. Joseph Health in 2016. At that point, all of Providence’s focus was on improving St. Joseph’s financials and it tabled its population health initiative with Hoag, Braithwaite said.
Providence’s operating income declined $536 million from 2015 to 2016, posting 1.4% and -1.2% operating margins, respectively. The group of Orange County, Calif., hospitals, including Hoag, helped mitigate losses incurred at Seattle’s Swedish Health—which Providence acquired in 2012—and Providence’s Los Angeles operations. Hoag’s operating margin exceeded 5% from 2015 to 2019, according to the Office of Statewide Health Planning and Development data.
Southern California represents more than 30% of Providence’s operating revenue. That share increased from 29% in 2018 to 32% in 2020.
Hoag accounts for less than 6% of Providence’s operating revenue, Providence said in its 2020 earnings report. But that’s an oversimplification, said Nathan Kaufman, founder and managing director of the healthcare consultancy Kaufman Strategic Advisors.
“Hoag is such a significant part of Providence’s financial performance, but they don’t have a say commensurate with that,” he said.
M&A advisers offered several recommendations on how to best handle proposed transactions:
Transparency: Hospital executives should tell their teams how organizational structures would change if the deal goes through, including direct reports and goals of department committees. They should also tell the community why they would merge and what would change.
Unwinding provisions: Include how assets would be divided in the event of a breakup to try keep matters out of the courts.Culture: Identify cultural differences between the two organizations related to how they work with physicians, daily workflows and strategic goals, among other issues.
Integration plan: Set a timeline and process for integrating service lines, executive/staff positions, back-office operations, vendor/payer contracts and IT systems.
Alternatives: Explore strategic options like joint operating agreements that could yield many of the same efficiencies without a change of control.
Expense growth outpaced or mirrored revenue growth at three of the four hospitals Modern Healthcare analyzed to try to gauge why they sought to leave their parent systems.
“These systems are not put together to really cut costs or improve quality or for other reasons that CEOs explicitly say,” said Wharton’s Burns. “They are put together to grow.”
St. Mary’s Healthcare increased its average estimated operating revenue per day 25.4% from 2013 to 2019 while still a part of Ascension. But its operating expenses rose 32.2% over that span.
AtlantiCare Regional Medical Center, the health system’s flagship hospital, was the exception. The estimated operating revenue per patient day was nearly double its expense growth from 2013 to 2019, increasing 26.4% and 14.9%, respectively.
Yakima Valley Memorial, which separated from Virginia Mason Medical Center last year after CommonSpirit Health’s CHI Franciscan and Virginia Mason pursued a merger, saw its estimated operating revenue per day grow 47.9% from 2013 to 2019, falling short of its 71.9% increase in expenses.
“One reason for dissolution of some mergers is about access to reproductive services when the parent (company) is affiliated with a Catholic health system. Clearly, that was a factor in Yakima Valley and potentially one with Hoag,” said Bill Kramer, executive director for health policy at the Purchaser Business Group on Health.
Looking further back, the $1.3 billion bankruptcy of Allegheny Health, Education and Research Foundation in July 1998 was, at the time, the nation’s largest not-for-profit dismantling. The system, which grew from $195 million in revenue in 1986 to $2.1 billion in 1997, became overleveraged as it picked off a series of horizontal and vertical deals while reimbursement from major payers contracted. University of Pennsylvania Medical Center pulled some residencies out of Allegheny as a defensive strategy, which compounded matters. The rift between now-Highmark Health and UPMC persisted for decades.
We are a trendy industry and people bought the value-based care myth, the population health myth and the scale myth,” Kaufman said. “When you add the conflict of many of the advisers making money on these deals, you end up with this stuff.”
UC San Francisco and Stanford merged in 1997, expecting to yield $256 million in savings over three years by pooling resources and increasing bargaining power. Instead, the combined entity lost $86 million in 1999, when the merger officially dissolved. Executives blamed lower reimbursement levels and culture mismatches.
“You could say that failed deal catalyzed Sutter (Health),” said Jeff Goldsmith, founder and president of healthcare consultancy Health Futures. “Markets were permanently altered.”
A report that Goldsmith co-authored when he was at Guidehouse found that scale didn’t guarantee better financial results. Some of the largest hospitals’ expenses grew by 3 percentage points faster than their revenue from 2015 to 2017, according to the consulting firm’s analysis of 104 highly rated health systems. That led to a combined $6.8 billion erosion of earnings, a 44% reduction.
“These big deals are really fragile because they rest on such a narrow political base,” Goldsmith said. “If there are not tangible benefits to the clinical workforce, middle management and patients, stress arises and the organization cracks.”
Politics, egos and operational efficiency can all get in the way. There is often significant internal and external pushback when jobs or services are cut. Some doctors or executives refuse to budge. Systems may lack the expertise to properly identify what needs to be consolidated.
“One of the biggest things that does not happen is consolidating services,” said Lyndean Brick, CEO of healthcare consultancy Advis. “When you are unwilling to do that, you are not going to improve quality and cost. That can absolutely be a tipping point.”
Blaming culture is a convenient, and ambiguous, curtain to hide behind, Brick said.
“It means we didn’t do things that we could’ve done like eliminate redundant executives to lower costs,” she said. “Certainly a lot of ego is involved, which can be the undoing, although it’s never the stated reason.”
Unwinding provisions in final M&A agreements are becoming more common as executives see other mergers fail. There will be “out clauses” related to certain unmet performance or financial thresholds. But they are relatively rare, and certainly not in every merger agreement, observers said.
“There is the thrill of the kill of getting to the finish line and not a lot of attention is spent on integration,” said John Washlick, a shareholder at the law firm Buchanan Ingersoll & Rooney. “There have been situations where I asked for an integration plan, and it was never produced.
Mergers are inherently disruptive. Executives often wait to disclose they are discussing a merger because it triggers job security concerns. But the lack of transparency can also cause anxiety.
“It’s almost like, ‘we’ll deal with that when we get there.’ Then they get there, and all these problems are brewing and fester in each separate hospital,” Washlick said.
More deals are coordinated largely between CEOs, even when management teams and governing boards are less enthusiastic about the transaction, experts said.
“Post-transaction decision-making is a critical aspect of all these mergers,” said John Fanburg, chair of healthcare law at Brach Eichler, adding that the smaller hospital or system’s control is often muted.
“There’s an economic incentive to hear what they have to say, but ‘it’s our money and we call the shots,’ ” Eichler said.
By design, merger agreements can make it very painful and create significant disincentives to unwind the relationship, Wells Fargo’s Spier said.
“If you make the off-ramp too easy, you may never achieve initial integration,” he said. “It may be a combination in appearance only.”
Hospital executives continue to point to “synergies” to justify mergers.
A study commissioned in 2019 by the American Hospital Association found that acquired hospitals saw a 2.3% reduction in operating expense per admission from 2009 to 2017. Although academics questioned the integrity of the study, pointing to evidence to the contrary.
In a presentation for the J.P. Morgan Healthcare Conference in January 2019, Baylor Scott & White said its 2013 merger between Baylor Health Care System and Scott & White Healthcare has resulted in more than $700 million in savings—exceeding its $657 million target. The bulk stemmed from supply chain followed by managed care. Still, research shows, savings don’t often translate to lower prices.
“Economists always say that consolidation results in higher prices. The answer is, you bet,” Kaufman said. “But without the higher prices, certain hospitals probably wouldn’t have survived or retained their doctors—that’s the other side of the equation.”M&A REBOUND
Even though some deals are unwinding, they aren’t expected to meaningfully slow M&A activity. Pent-up demand from a relatively quiet 2020 is expected to boost hospital transactions this year and into 2022, industry observers said.
There were only 79 announced hospital deals in 2020, partly due to the COVID-19 pandemic, Ponder & Co. found. That was down 25% from the trailing 10-year average and the lowest annual tally since 2009, although volume rebounded in the fourth quarter. Still, the number of deals that are unwound pale in comparison to the announced transactions every year.
Scale is still seen as a defensive strategy, potentially insulating systems from growing competitors and unexpected emergencies.
“Merger mania continues on,” Fanburg said. “People should learn from the failed relationships, but people are still talking.”
Fitch Ratings expects more mergers over the next two years, said Kevin Holloran, senior director at the ratings agency. Scale helped organizations weather the pandemic as they shifted resources based on demand and had more cash on hand, he said.
But key members of the Biden administration have historically been tough on hospital mergers, particularly Vice President Kamala Harris and HHS Secretary Xavier Becerra when they served as California attorneys general. Bills are moving through Congress as well as the states that would bolster regulatory oversight of hospital deals and hospital acquisitions of physician practices.
That could be part of the drive behind a renewed interest in joint operating agreements, Spier said. More are taking the place of fully integrated membership substitutions, he said.
“Folks are seeking a model that allows them to achieve many or most of their strategic goals without necessarily fully integrating or ceding control,” Spier said, adding that a joint operating agreement can result in 80% to 90% of the benefits of full integration while adding some flexibility. “If you align incentives and ensure both parties have skin in the game, a joint operating agreement can be an effective form of partnership.”
As health systems pitch mergers, executives should take note of the ones that have failed, M&A experts said.
They recommended increased transparency, sharing how potential transactions would impact operations as well as the surrounding community. Prepare for unwinding in the due-diligence process. Identify cultural differences and establish concrete steps to integrate.
But for some deals already consummated, the writing is on the wall, Kaufman said. More CEOs are waking up to the fact that they would’ve been better off independent, and that the pricing and access to capital benefits that accompany consolidation aren’t as important, he said.
“There are a lot of disgruntled system CEOs, especially in the not-for-profit sector, that feel disenfranchised,” Kaufman said.
The Biden administration has tapped Erin Richardson, a top lobbyist at the Federation of American Hospitals, as chief of staff to CMS Administrator Chiquita Brooks-LaSure, according to multiple sources familiar with the move.
Richardson and representatives for CMS and HHS did not immediately respond to a request for comment.
Richardson, who most recently served as senior vice president of government affairs at the lobby representing for-profit health systems, previously worked at the White House Domestic Policy Council during the Obama administration. Before that, she worked on the House Ways and Means Committee, which also counts Brooks-LaSure and HHS Secretary Xavier Becerra among its alumni.
Background: The administration has been slow to fill top health jobs at the agency central to implementing much of President Joe Biden’s health care agenda, with some key regulatory deadlines approaching. The agency will help lead work on implementing a new law banning surprise medical bills and deciding whether to keep or tweak controversial Trump-era drug pricing policies.
Agency hiring may pick up after Brooks-LaSure’s confirmation last month. Jon Blum, another Obama-era CMS alumnus, was recently named the agency’s principal deputy administrator. However, the heads of the Medicare, Medicaid and private insurance offices have not yet been named.
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