President Joe Biden's latest executive order promoting competition in the U.S. economy could be a boon to private equity and disrupt the medical profession's long-standing guilds, depending on how far federal officials want to take matters.
The order empowers federal agencies to use existing federal law to lower healthcare costs, particularly prescription drugs. While few healthcare-specific measures seem groundbreaking on the surface, they contain warning signs of potential profound change.
The Biden administration will view provider consolidation skeptically, as hospital companies have been criticized for their merger and acquisition practices, with consolidation accelerating rapidly in recent years, often creating dominant regional and national systems.
"There seems to be a general dislike of consolidation in the healthcare industry, particularly in the hospital industry," said Brent Hill, partner and healthcare co-chair at Waller Lansden Dortch & Davis.
Biden's executive order called special attention to the lack of healthcare services in rural areas, a long-standing issue driven by declining revenues and increasing costs. Rural hospitals have seen their revenues suffer from aging and declining patient populations and a greater reliance on public insurance programs with lower reimbursement rates. In addition, rural hospitals have experienced runaway cost growth drive by employee benefits, new technology, liability insurance, and other expenses.
Preventing hospital consolidation might only make matters worse.
"If the Federal Trade Commission starts preventing hospital consolidation, I think you will see fewer healthcare services provided in rural areas," Hill said.
Larger health systems could operate rural hospitals more efficiently and withstand short-term financial losses better than publicly owned hospitals, he said. But studies show that provider consolidation tends to increase healthcare prices by reducing competition and giving hospitals systems more negotiating power over insurers. There's also evidence mergers and acquisitions don't improve quality and lead to lower patient satisfaction.
It's hard to know how the order will affect hospital consolidation because it doesn't contain many specifics, experts said.
The Justice Department and FTC might change the merger guidelines for hospitals, though hospitals contend that isn't necessary.
"It is important to stress that hospital mergers and acquisitions undergo an enormous amount of rigorous scrutiny from the federal antitrust agencies and state attorneys general," American Hospital Association CEO Rick Pollack said in a statement.
Plus, the order could have an even greater reach, depending on how far federal regulators want to go.
Officials could rein in community benefits, hospitals' not-for-profit status and the use of operating income to make investments in for-profit ventures, said Paul Keckley, an industry consultant and managing editor of The Keckley Report.
"This just made private equity salivate," he said. "Their ability to roll up all the ancillaries and physician practices is, in the near-term, a gold mine."
That's because hospitals will probably pause or slow their merger and acquisition activity while they wait for the Biden administration's next move.
"The rest of the system is fair game for private equity, and they're going to roll hard," Keckley said.
The executive order's focus on non-compete agreements and occupational licensing could also spark sweeping changes to the healthcare workforce.
State medical licensure limits the ability of clinicians to practice across state lines, slowing the adoption of telehealth as the pandemic draws to a close and states reimpose limits on out-of-state providers. Those limits also reduce competition among providers, leading to higher healthcare prices.
The Biden administration signaled that it's interested in increasing federal control over medical licensure, scope of practice issues and other areas that states currently regulate to boost telehealth and provider competition, Keckley said.
That could open the door for physician assistants, nurse practitioners, pharmacists and other health professionals to deliver more care via telehealth.
"It's going to be fought tooth and nail by the state licensing boards," he said. "They're like good ol' boys clubs."
But it's unclear how power much the federal government has to override state laws on non-compete agreements or occupational licensing, Hill said. That could lead to legal challenges down the line, but it will depend on how far the Biden administration pushes the envelope.
